UNITED STATES SECURITIES AND EXCHANGE
Washington, D.C. 20549
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RED HAT, INC.
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Dear Red Hat
It is my pleasure to invite you to Red Hats 2019 Annual Meeting of Stockholders. This years meeting will be held
on Thursday, August 15, 2019, at 8:30 a.m. Eastern time, at our corporate headquarters, located at 100 East Davie Street, Raleigh, North Carolina 27601. I hope you will be able to attend.
This year we are again pleased to furnish our proxy materials via the Internet. Providing our materials to stockholders electronically allows us to conserve natural
resources and reduce our printing and mailing costs for the distribution of the proxy materials. We will mail to stockholders a Notice of Internet Availability of Proxy Materials for the 2019 Annual Meeting which contains instructions on how to
access those documents over the Internet. Stockholders who wish to receive paper copies of the proxy materials may do so by following the instructions on the Notice of Internet Availability of Proxy Materials.
Your vote is important to us. Whether or not you plan to attend the 2019 Annual Meeting, we hope you will vote as soon as possible. You may vote in person, by telephone,
over the Internet or, if you received paper copies of the proxy materials, by mail.
Thank you for your ongoing support of Red Hat.
James M. Whitehurst
President and Chief Executive
TIME AND DATE:
ITEMS OF BUSINESS:
INSPECTION OF LIST
Whether or not you plan to attend the 2019 Annual Meeting, we urge you to vote your shares via the toll-free telephone number or over the Internet as
described in the proxy materials. If you received a copy of the proxy card by mail you may sign, date and mail the proxy card in the pre-paid envelope provided.
Raleigh, North Carolina
June 25, 2019
By Order of the Board of Directors,
Michael R. Cunningham
REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE 2019 ANNUAL MEETING TO BE HELD ON AUGUST 15, 2019:
THIS PROXY STATEMENT
AND RED HATS 2019 ANNUAL REPORT TO STOCKHOLDERS ARE AVAILABLE AT WWW.EDOCUMENTVIEW.COM/RHT
Nominees for Election to the Board of Directors
Committees of the Board
Key Board Practices
Key Governance Policies
Compensation Committee Interlocks and Insider Participation
Item No. 1Election of Directors
Executive Summary of Compensation Discussion and Analysis
Compensation Discussion and Analysis
Compensation Committee Report
Summary Compensation Table
Employment and Indemnification Arrangements with Named Officers
Grants of Plan-Based Awards in Fiscal 2019
Outstanding Equity Awards at the End of Fiscal 2019
Option Exercises and Stock Vested in Fiscal 2019
Potential Payments Upon Termination or Change in Control
Item No. 2Advisory Vote on Executive Compensation
Evaluation and Selection of Independent Registered Public Accounting Firm
Independent Registered Public Accounting Firms Fees
Pre-Approval Policies and Procedures
Audit Committee Report
Item No. 3Ratification of Selection of Independent Registered Public Accounting
Ownership by Our Directors and Executive Officers
Ownership of More than 5% of Our Common Stock
Equity Compensation Plan Information
CEO Pay Ratio
Compensation Program Risk Assessment
Stockholder Proposals and Nominations
Delinquent Section 16(a) Reports
Questions and Answers
June 25, 2019
Fiscal 2019 was a momentous year for Red Hat. We began the
fiscal year by celebrating 25 years of embracing open source principles and the open source development model that unlocks the business potential for enterprises across industries and around the world. As the worlds leading provider of
enterprise open source software solutions, we have helped customers integrate new and existing IT applications, develop cloud-native applications and automate and manage complex environments to better compete in the rapidly changing business
Throughout those years, your Board has focused on working with management to build on this open source leadership to provide long-term sustainable value
for stockholders. Red Hat has produced this value by listening to customers, collaborating with strategic partners and creating an open and inclusive culture to attract and retain people who are passionate about open source. This passion helped us
become the first public open source company to generate more than $3 billion in revenue and be recognized by Fortune as one of the Worlds Most Admired Companies and one of the 100 Best Companies to Work For in 2019.
Ensuring that the Board has an appropriate balance of skills, tenure and experience, and functions effectively has remained a focus. As we have done consistently over
the years, we assessed our performance as a board and individually through a written assessment and individual conversations with our Board Chair and the Chair of our Nominating and Corporate Governance Committee. We added two new directors with
deep experience in the technology industry to strengthen our ability to serve the Company and our stockholders.
In October 2018, stockholders saw the fruits of
these efforts when Red Hat entered into an agreement to join forces with IBM to bring Red Hat to a wider audience and enhance our ability to accelerate the impact of open source as the basis for digital transformation. Our stockholders approved this
transaction at a Special Meeting of Stockholders in January 2019. When this transaction closes, Red Hat stockholders will receive $190 per share in cash, representing a total enterprise value of $34 billion. We expect the merger to be completed in
the second half of 2019.
As a Board we have recognized that our role has been to work with management to deliver value to you, our stockholders. We encourage you to
share your viewpoints and suggestions with us. You can contact us at Investor Relations, Red Hat, Inc., 100 East Davie Street, Raleigh, NC 27601, United States.
Thank you for choosing to invest in Red Hat. We appreciate your support for these efforts and are honored to serve the Company, its employees and its stockholders as Red
Hats journey continues to drive innovation with open source technologies.
Red Hat, Inc. Board of Directors
Proxy Summary provides general information about Red Hat, Inc., referred to as Red Hat, the Company, we, us, and our in this Proxy Statement, and highlights certain information contained
elsewhere in this Proxy Statement. As it is only a summary, please refer to the entire Proxy Statement and the 2019 Annual Report to Stockholders before you vote. Our fiscal year ends on the last day of February, and we identify our fiscal years by
the calendar years in which they end. For example, we refer to the fiscal year ended February 28, 2019 as Fiscal 2019. GAAP means U.S. generally accepted accounting principles.
At a special meeting of stockholders held on January 16, 2019, our stockholders approved the adoption of the Agreement and Plan of
Merger (the Merger Agreement) we entered into with International Business Machines Corporation (IBM) and Socrates Acquisition Corp. on October 28, 2018. No further action by our stockholders is required with respect to the
Merger Agreement. Accordingly, no action will be taken at the 2019 Annual Meeting of Stockholders (Annual Meeting) with respect to, and no proxy is being solicited by this Proxy Statement in connection with, the Merger Agreement or any
matters related thereto. While we anticipate that the proposed merger with IBM will be completed in the second half of 2019, if the closing of the merger occurs prior to the commencement of the Annual Meeting on August 15, 2019, then the Annual
Meeting will not be held. As of the date of this Proxy Statement, the proposed merger with IBM has not been completed.
2019 ANNUAL MEETING OF STOCKHOLDERS
Red Hats Corporate HQ:
100 East Davie Street
Raleigh, North Carolina 27601
August 15, 2019
8:30 a.m. Eastern
WHO MAY ATTEND & VOTE?
Stockholders of record at
the close of business on
June 17, 2019
AGENDA ITEMS AND BOARD RECOMMENDATIONS
Elect Sohaib Abbasi, W. Steve Albrecht, Charlene T. Begley, Narendra K. Gupta,
Kimberly L. Hammonds, William S. Kaiser, Kevin M. Murai, James M. Whitehurst and Alfred W. Zollar to the Board of Directors, each to serve for a one-year term
Approve, on an advisory basis, a resolution relating to Red Hats executive
Ratify the selection of PricewaterhouseCoopers LLP as Red Hats independent
registered public accounting firm for the fiscal year ending February 29, 2020
This Proxy Statement and Red Hats 2019 Annual Report to Stockholders are available at: www.edocumentview.com/RHT
MAILING OF NOTICE
A Notice of Internet Availability of Proxy Materials (or this Proxy Statement and the accompanying materials) are being mailed on or about July 1,
2019 to stockholders of record as of the close of business on June 17, 2019.
RED HAT, INC. 2019 PROXY STATEMENT
PROXY SUMMARY OUR BOARD
CHAIR AND COMMITTEE MEMBERS
W. Steve Albrecht
Charlene T. Begley
Narendra K. Gupta
Kimberly L. Hammonds
Nominating and Corporate Governance
William S. Kaiser
Partner, Greylock Partners
Kevin M. Murai
Chief Executive Officer (Retired) and Chairman,
James M. Whitehurst
President and CEO,
Red Hat, Inc.
Alfred W. Zollar
Siris Capital Group, LLC
Separate Board Chair and CEO since 2008
Added four new directors in past five years
Regular focus on Board composition
Annual Board and committee self-evaluations
Board orientation and director education programs
Stock ownership guidelines for directors and named executive officers based on target multiples of annual cash retainer
for non-employee directors and annual base salary for CEO and other named executive officers
Prohibition on hedging or pledging Red Hat stock
Annual advisory say-on-pay vote
PROXY SUMMARY PERFORMANCE
YEAR-OVER-YEAR INCREASE IN
NUMBER OF DEALS OVER $1MM
OF TOTAL BACKLOG
AT END OF FISCAL 2019
YEAR-OVER-YEAR TOTAL REVENUE GROWTH IN FISCAL 2019
Red Hat Performance and Executive
FINANCIAL PERFORMANCE (U.S. DOLLARS IN MILLIONS, EXCEPT STOCK PRICE)
In Fiscal 2019, Red Hat achieved over $3.3 billion in total revenue and delivered growth in revenue, operating income, cash flow from operations and stock price at fiscal
Operating Income and Operating Margin for Fiscal 2018 and Fiscal 2017 are adjusted to reflect the impact of the
retrospective application of Accounting Standards Codification Topic 606 (ASC 606), Revenue from Contracts with Customers, which we adopted on March 1, 2018.
PAY AND PERFORMANCE AT A GLANCE
Red Hats Fiscal 2019 financial and stock
price performance drove over 80% of the compensation earned by our executives during Fiscal 2019, reflecting the linkage between pay and performance built into our executive compensation program design. Payouts for Fiscal 2019 performance reflect:
strong financial results that outperformed the majority of our compensation peer companies over the applicable performance
periods under our operating performance share units, and yielded above target payouts earned under our annual cash bonus plan; and
stock price growth over a three-year period that outperformed the majority of our compensation peer companies under our
total stockholder return (TSR) performance share units.
NOMINEES FOR ELECTION TO THE
BOARD OF DIRECTORS
Our Board of Directors (the Board) currently consists of nine directors. All of our incumbent directors are nominees for re-election to the Board at the Annual Meeting. We believe that our director nominees, individually and together as a whole, possess the requisite skills, experience and qualifications necessary to maintain an
effective Board to serve the best interests of the Company and its stockholders.
Set forth below is a brief biography for each nominee and a description of certain
key attributes that the Board considered in recommending each nominee for re-election.
Mr. Abbasi served as the Chief Executive Officer and President of Informatica Corporation, a provider of enterprise data integration software and
services, from July 2004 through August 2015 and as Chairman of its board of directors from March 2005 through August 2015. Mr. Abbasi also served as the Chairman of Informatica LLC from August 2015 through January 2016. From 2001 to 2003,
Mr. Abbasi was Senior Vice President, Oracle Tools Division and Oracle Education at Oracle Corporation, which he joined in 1982. From 1994 to 2000, he was Senior Vice President, Oracle Tools Product Division. Mr. Abbasi currently
serves on the board of directors of New Relic, Inc., a software analytics provider to enterprises.
Skills and Qualifications:
With his experience as President, Chief Executive
Officer and Chairman of a technology-related company, Mr. Abbasi brings to our Board IT industry expertise as well as public company board and senior leadership experience.
W. STEVE ALBRECHT
Nominating and Corporate Governance
Dr. Albrecht, who previously served on our Board from April 2003 through June 2009, served as the Gunnell Endowed Professor and a Wheatley Fellow
at Brigham Young Universitys (BYU) Marriott School of Management (Marriott School) from July 2012 until August 2017. Dr. Albrecht also served as a mission president in Japan for his church from July 2009 through
July 2012. Dr. Albrecht, a certified public accountant, certified internal auditor and certified fraud examiner, joined BYU in 1977 after teaching at Stanford University and the University of Illinois and served as Associate Dean of the
Marriott School at BYU from 1998 until July 2008. Prior to becoming a professor, he worked as an accountant for Deloitte & Touche. Dr. Albrecht currently serves on the board of directors of Cypress Semiconductor Corporation
(Cypress), a semiconductor design and manufacturing company, and SkyWest, Inc., the holding company of SkyWest Airlines and ExpressJet, a regional airline company. Dr. Albrecht was appointed Chairman of the board of directors
of Cypress in June 2017. He is the past president of the American Accounting Association and the Association of Certified Fraud Examiners and is a former trustee of the Financial Accounting Foundation that oversees the Financial Accounting Standards
Board (FASB) and the Governmental Accounting Standards Board (GASB) and a former trustee of the Committee of Sponsoring Organizations (COSO), the organization that designed the internal control framework used by nearly all public companies and
Dr. Albrechts career in public accounting and as a professor and associate dean, as well as his service as a director of a number of public companies,
brings to our Board financial expertise as well as public company board and senior leadership experience.
NOMINEES FOR ELECTION TO THE BOARD OF DIRECTORS
CHARLENE T. BEGLEY
Nominating and Corporate Governance
Ms. Begley served in various capacities at General Electric Company (GE) from 1988 through December 2013. Most recently, she served in
a dual role as Senior Vice President and Chief Information Officer, as well as the President and Chief Executive Officer of GEs Home and Business Solutions business, from January 2010 through December 2013. Ms. Begley served as President
and Chief Executive Officer of GE Enterprise Solutions from August 2007 through December 2009. During her career at GE, she served as President and Chief Executive Officer of GE Plastics and GE Transportation, led GEs Corporate Audit staff and
served as the Chief Financial Officer for GE Transportation and GE Plastics Europe and India. Ms. Begley currently serves on the board of directors of Nasdaq, Inc., a global exchange group that delivers trading, clearing, exchange technology,
regulatory, securities listing, and public company services, and Hilton Worldwide Holdings Inc., a provider of hospitality services through hotels, resorts and timeshare properties. Ms. Begley served on the board of directors of WPP, plc, a
provider of marketing communications services globally, from December 2013 until June 2017.
With her experience leading various divisions of a
complex global industrial and financial services company, Ms. Begley brings to our Board financial and global expertise as well as public company board and senior leadership experience.
NARENDRA K. GUPTA
Board Chair since
Dr. Gupta co-founded and has served as Managing Director of Nexus Venture Partners, a U.S./India venture
capital fund, since December 2006. In 1980, Dr. Gupta co-founded Integrated Systems Inc., a provider of products for embedded software development, which went public in 1990. Dr. Gupta served as
Integrated Systems President and CEO from founding until 1994 and as Chairman until 2000 when Integrated Systems merged with Wind River Systems, Inc., a provider of device software optimization solutions. Dr. Gupta served as Wind
Rivers Vice Chairman from 2000 until its acquisition by Intel Corporation in 2009. Dr. Gupta served on the board of directors of Tibco Software Inc., a provider of service-oriented architecture and business process management
enterprise software, from 2002 until April 2014. Dr. Gupta has served on the board of trustees of California Institute of Technology since 2010.
As a former executive and current and former board
member of a number of technology-related public and private companies and as an investor in global companies, Dr. Gupta provides our Board with global and IT industry expertise and public company board and technology and innovation
KIMBERLY L. HAMMONDS
Nominating and Corporate Governance
Ms. Hammonds founded the Mangrove Digital Group, LLC, a consulting company, in May 2018. Ms. Hammonds served as the Group Chief Operating
Officer at Deutsche Bank AG, a global financial services company, from January 2016 to May 2018 and as a member of the Deutsche Bank Management Board from August 2016 to May 2018. She joined Deutsche Bank as Chief Information Officer and Global Co-Head Technology and Operations in November 2013 from The Boeing Company, a global aerospace company. Ms. Hammonds joined Boeing in 2008 and served in a number of capacities, including most recently as Chief
Information Officer/Vice President, Global Infrastructure, Global Business Systems from January 2011 to November 2013. Ms. Hammonds joined Boeing from Dell Incorporated, where she led IT systems development for manufacturing operations in the
Americas, and directed global IT reliability and factory systems. Ms. Hammonds currently serves on the board of directors of Box, Inc., a cloud content management platform provider, Cloudera, Inc., a data management, machine learning and
advance analytics platform provider, Tenable Holdings, Inc., provider of cybersecurity solutions, and Zoom Video Communications, Inc., an enterprise video communications provider.
Ms. Hammonds experience as an executive spans both technology and operations for some of the worlds largest companies and brings to our Board global
expertise as well as public company board, senior leadership and technology and innovation experience.
WILLIAM S. KAISER
Nominating and Corporate Governance (Chair)
Mr. Kaiser has been employed by Greylock Management Corporation, a venture capital firm, since May 1986 and has been a general partner of several
limited partnerships affiliated with Greylock Partners since January 1988. Mr. Kaiser served on the board of directors of Constant Contact, Inc., a provider of products and services that help small organizations create and grow customer
relationships, from May 2006 to February 2016, in addition to serving or having served on the boards of directors of a number of public and private companies.
Having a background in venture capital investment
focused on technology-related entities, Mr. Kaiser brings to our Board financial and IT industry expertise and technology and innovation experience.
KEVIN M. MURAI
Mr. Murai has served as Chairman of the board of directors of SYNNEX Corporation, a company providing distribution, logistics and integration
services for the technology industry and outsourced services focused on customer engagement, since March 2018 and as a member of the board of directors since March 2008. Mr. Murai previously served as the President and Chief Executive Officer
of SYNNEX Corporation from December 2008 to March 2018 and as President and Co-Chief Executive Officer from March 2008 until December 2008. Prior to joining SYNNEX, Mr. Murai was employed for 19 years at
Ingram Micro Inc., a provider of global technology and supply chain services, where he served in several executive management positions, including as President, Chief Operating Officer and a member of the board of directors. Currently,
Mr. Murai serves on the board of directors of StanCorp Financial Group, Inc., which in March 2016 became a wholly-owned subsidiary of Meiji Yasuda Life Insurance Company and ceased to be publicly traded.
With his experience as President, Chief Executive Officer and Chairman of a global technology-related company, Mr. Murai brings to our Board global and IT industry
expertise as well as public company board and senior leadership experience.
JAMES M. WHITEHURST
Mr. Whitehurst has served as the President and CEO of Red Hat and as a member of the Board since January 2008. Prior to joining Red Hat,
Mr. Whitehurst served at Delta Air Lines, Inc. as Chief Operating Officer from July 2005 to August 2007, as Senior Vice President and Chief Network and Planning Officer from May 2004 to July 2005 and as Senior Vice PresidentFinance,
Treasury & Business Development from January 2002 to May 2004. Prior to joining Delta, he was a partner and managing director at The Boston Consulting Group. Mr. Whitehurst has served on the board of directors of United Continental
Holdings, Inc., the holding company of United Airlines, Inc., a global airline company, since March 2016. Mr. Whitehurst served on the board of directors of SecureWorks Corp., a provider of information security solutions, from April 2016 to
April 2019 and the board of directors of DigitalGlobe, Inc., a builder and operator of satellites for digital imaging, from 2009 through May 2016.
Mr. Whitehursts service as our CEO as well
as his experience as a senior executive at a global corporation brings financial and global expertise as well as senior leadership and technology and innovation experience to our
ALFRED W. ZOLLAR
Mr. Zollar has been employed as an Executive Partner at Siris Capital Group, LLC, a private equity firm, since February 2014. Mr. Zollar
served as General Manager-Tivoli Software division of IBM, a provider of information technology, products and services, from July 2004 to January 2011, General Manager-eServer iSeries from January 2003 to July 2004, President and Chief Executive
Officer-Lotus Software division from January 2000 to December 2003, and Division General Manager-Network Computer Software division from 1996 to 2000. Mr. Zollar has served on the board of directors of Public Service Enterprise Group
Incorporated, an energy company operating primarily in the Northeastern and Mid-Atlantic states, since 2012, the board of directors of Nasdaq, Inc., a global exchange group that delivers trading, clearing,
exchange technology, regulatory, securities listing, and public company services, since April 2019, and the board of directors of The Bank of New York Mellon Corporation, an investment services and investment management corporation, since April
2019. Mr. Zollar served as a director of the Chubb Corporation, a property and casualty insurance company, from 2001 until 2016, in addition to serving or having served on the boards of directors of a number of private companies.
With his experience as an executive at a global technology-related company, Mr. Zollar provides our Board with IT industry expertise as well as senior leadership and
technology and innovation experience.
In Fiscal 2019, Red Hat appointed two new directors. Mr. Zollar joined our Board in May 2018, and Mr. Murai joined our Board in September 2018. Donald H.
Livingstones term as a director ended at the 2018 Annual Meeting of Stockholders (the 2018 Annual Meeting), and he did not stand for re-election to our Board.
CRITERIA FOR EVALUATING CANDIDATES FOR SERVICE ON OUR BOARD
The Nominating and Corporate Governance Committee of our Board is responsible for identifying and evaluating candidates for service on our Board and recommending proposed
director nominees to the full Board for consideration. Our Corporate Governance Guidelines describe the criteria used to select candidates for service on our Board. These include:
DIRECTOR SELECTION CRITERIA
Reputation for integrity, honesty and adherence to high ethical standards
Demonstrated business acumen, experience and ability to exercise sound judgments
in matters that relate to the current and long-term objectives of the Company and should be willing and able to contribute positively to the decision-making process of the Company
to understand the Company and its industry
Commitment to regularly attend and participate in meetings of the Board and its committees
Interest and ability to understand the sometimes conflicting interests of the
various constituencies of the Company
No conflict of interest, or appearance of a conflict of interest, that would impair the nominees ability to represent the interests of all the Companys stockholders and to fulfill the
responsibilities of a director
Ability to serve for at least five years before reaching the age of 75 for new
In addition, the Nominating and Corporate Governance Committee believes it is important to select directors from various backgrounds and professions in an effort to
ensure that the Board as a group has a broad range of experiences to enrich discussion and inform its decisions. Consistent with this philosophy, the Nominating and Corporate Governance Committee believes that each director should possess at least
two of the following attributes:
Financial Expertise. Assists us in understanding, advising on and overseeing our capital structure, financing and investing activities and our financial reporting and
Global Expertise. Brings us business and cultural perspectives that relate to many significant aspects of our global business
IT Industry Expertise. Helps us to analyze our research and development efforts, competing technologies, the various products and
processes that we develop and the market segments in which we compete
Public Company Board Experience. Offers us advice and insights with regard to the dynamics and operation of a board of
directors, the relations of a board with senior management, and oversight of a changing mix of strategic, operational and compliance-related matters
Senior Leadership Experience. Provides us with insight and guidance and brings us an understanding of organizations, processes,
strategy, risk management and methods to drive change and growth
Technology and Innovation Experience. Supports us in our efforts to develop new ideas and products
As stated in our Corporate
Governance Guidelines, the Nominating and Corporate Governance Committees review of a nominees qualifications includes consideration of diversity, age, skills and professional experience in the context of the needs of the Board, and
nominees shall not be discriminated against on the basis of race, religion, national origin, gender, sexual orientation, disability or other basis proscribed by law. While the Company has no formal diversity policy that applies to the consideration
of director candidates, the Nominating and Corporate Governance Committee believes that diversity includes not just race and gender but differences of viewpoint, experience, education, skill and other qualities or attributes that contribute to Board
affirmatively determined that all of our directors, except for Mr. Whitehurst, our President and CEO, are independent according to the criteria of the New York Stock Exchange (NYSE) and our Corporate Governance Guidelines and in the
judgment of our Board. The Board makes its independence determination on an annual basis at the time it approves director nominees for inclusion in the annual proxy statement and, if a director joins the Board in the interim, at such time as the
director joins the Board. For a director to be considered independent under the NYSE rules, the Board must determine that a director does not have a direct or indirect material relationship with Red Hat (other than as a director) that would
interfere with the directors exercise of independent judgment in carrying out his or her responsibilities. On an annual basis, we require each member of our Board to complete a questionnaire designed to provide information to assist the Board
in determining whether the director is independent. The Board makes independence determinations on a case-by-case basis in light of all relevant facts and circumstances.
The Board had previously determined that Mr. Livingstone, who served on our Board for a portion of Fiscal 2019, was independent.
At all meetings of stockholders for the election of directors at which a quorum is present, each director nominee shall be elected to the Board by
the vote of the majority of the votes cast with respect to the director nominee; provided, however, that if, as of a date that is five business days in advance of the date that the Company files its definitive proxy statement (regardless of whether
or not thereafter revised or supplemented) with the U.S. Securities and Exchange Commission (SEC), the number of director nominees exceeds the number of directors to be elected, the directors (not exceeding the authorized number of
directors as fixed by the Board in accordance with the Companys Certificate of Incorporation) shall be elected by a plurality of the voting power of the shares of stock entitled to vote who are present, in person or by proxy at any such
meeting and entitled to vote on the election of directors. For purposes of the election of directors, a majority of the votes cast means that the number of shares voted For a director nominee must exceed the number of shares
voted Against that director nominee. Abstentions and broker non-votes are not considered votes cast for this purpose and will have no effect on the election of director nominees.
PROCESS FOR NOMINATING CANDIDATES FOR SERVICE ON OUR BOARD
The Nominating and Corporate Governance Committee will consider candidates proposed or suggested by other members of the Board, members of executive management and
stockholders and candidates identified by third-party search firms retained by the Nominating and Corporate Governance Committee. Mr. Murai was identified as a potential director nominee by a third-party search firm.
Stockholders who wish to recommend individuals to the Nominating and Corporate Governance Committee for consideration as potential director candidates may do so by
submitting candidate names, together with appropriate biographical information and background materials and a statement as to whether the stockholder or group of stockholders making the recommendation beneficially owned more than 5% of our common
stock for at least one year as of the date the recommendation is made, to the Nominating and Corporate Governance Committee, c/o Corporate Secretary, Red Hat, Inc., 100 East Davie Street, Raleigh, North Carolina 27601. Assuming the appropriate
biographical information and background materials have been provided on a timely basis, the Committee will evaluate any such stockholder-recommended candidates by following the same process, and applying the same criteria, as it follows for
candidates submitted by others.
By following the procedures set forth under Other MattersStockholder Proposals and Nominations, stockholders also
have the right under our By-Laws to nominate director candidates.
COMMITTEES OF THE BOARD
Our Board has established three standing committeesAudit, Compensation and Nominating and Corporate Governanceeach of which operates under a written
charter approved by the Board and available on our website at www.redhat.com under Red Hat & open sourceInvestor relationsCorporate Governance. Our Board delegates substantial responsibilities to the committees,
which then report their activities and actions back to the full Board. Each committee may form one or more subcommittees and delegate its authority to such subcommittees. The Board has determined that all of the members of the Audit, Compensation
and Nominating and Corporate Governance Committees, including committee chairpersons, are independent in accordance with the standards set forth in our Corporate Governance Guidelines and applicable SEC and NYSE rules.
COMMITTEES OF THE BOARD
Dr. Albrecht (Chair)
The Audit Committee was established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934, as amended (the
Exchange Act). The Audit Committees responsibilities include:
appointing, setting the compensation of, and assessing the independence of the
Companys independent registered public accounting firm;
overseeing the work of the Companys independent registered public accounting
firm, including through the receipt and consideration of certain reports from the independent registered public accounting firm;
discussing the scope of and plans for the audit with the Companys
independent registered public accounting firm, including through the receipt and consideration of certain reports from the independent registered public accounting firm;
reviewing and discussing with management and the Companys independent
registered public accounting firm our annual and quarterly financial statements and related disclosures and reviewing and discussing quarterly earnings press releases;
monitoring internal controls over financial reporting, disclosure controls and
procedures and the Code of Business Conduct and Ethics;
providing oversight over the Companys risk management policies;
establishing policies regarding hiring of present or former employees of the
independent registered public accounting firm and procedures for the receipt and retention of accounting related complaints and concerns;
meeting independently with the Companys internal auditing staff, independent
registered public accounting firm and management; and
preparing the audit committee report required by SEC rules (which is included in the section entitled Audit MattersAudit Committee Report).
While our Board has designated Dr. Albrecht as the audit committee financial
expert in accordance with applicable SEC rules, management believes that all of the members of the Audit Committee meet the qualifications for an audit committee financial expert.
The Audit Committees Charter limits a director to service on the audit committees of no more
than two other public companies (in addition to Red Hats) without the approval of our Board. None of the current members of our Audit Committee serve on the audit committees of more than two other public companies.
In August 2018, Mr. Livingstone left the Audit Committee due to his retirement from our Board, and
Mr. Zollar joined the Audit Committee.
Mr. Abbasi (Chair)
The Compensation Committees responsibilities include:
annually reviewing and approving corporate goals and objectives relevant to CEO
determining the CEOs compensation;
and approving, or making recommendations to the Board with respect to, the compensation of the Companys other executive officers;
evaluating the Companys management;
an annual assessment of the material risks, if any, posed by the Companys compensation policies and practices;
reviewing and making recommendations to the Board with respect to director
overseeing and administering the Companys equity incentive plans.
In August 2018, Mr. Livingstone left the Compensation Committee due to his retirement from our
Board. Mr. Murai joined the Compensation Committee in February 2019.
Mr. Kaiser (Chair)
The Nominating and Corporate Governance Committees responsibilities include:
individuals qualified to become Board members;
recommending to the Board the persons to be nominated for election as directors and appointment to each of the Boards committees;
and making recommendations to the Board with respect to management succession planning;
developing and recommending corporate governance principles to the Board; and
an annual evaluation of the Board.
Currently, the roles of Board Chair and CEO are held by two different individuals. We believe this structure represents
an appropriate allocation of roles and responsibilities for the Company at this time. This arrangement allows our Board Chair, who is an independent director, to lead the Board in its fundamental role of providing independent advice to and oversight
of management, and allows our CEO to focus on our day-to-day business and strategy and convey the management perspective to other directors.
Management is responsible for the day-to-day management of the risks the Company faces and our Board has responsibility for the oversight of risk management, including strategic risk, risk to our brand and
reputation and cybersecurity risk. The Board and its committees regularly receive information and reports from members of senior management on areas of material risk. In addition, the Board regularly discusses our strategic direction and the risks
and opportunities facing the Company in light of trends and developments in the software industry and general business environment.
PRIMARY RISK OVERSIGHT
RED HAT AND ITS STOCKHOLDERS
Our Board and management focus on creating long-term, sustainable stockholder value. Key to this goal has been
regular stockholder engagement through meetings with stockholders at conferences and in one-on-one meetings to discuss our financial performance, corporate governance
practices, executive compensation programs and other matters. Additionally, we have invited investors to attend roadshows and visit Red Hat facilities and provide periodic e-mail communications about
developments of interest, such as acquisitions. A variety of financial, investor and corporate governance information is available on our website. Since the announcement of the Merger Agreement, our focus has primarily shifted to the completion of
the merger and planning for integration.
Our conversations with stockholders have allowed us to better understand our stockholders perspectives and provided
us with useful feedback to calibrate our priorities. Stockholders and other interested parties who wish to communicate with the Board, the Board Chair, independent members of the Board as a group, or any committee chair may do so by following the
process set forth on our website at www.redhat.com under Red Hat & open sourceInvestor relationsCorporate GovernanceContact the Board.
KEY BOARD PRACTICES
MEETINGS AND ATTENDANCE
Directors are responsible for attending all meetings of the Board, the Board committees on which they serve and the annual meeting of
stockholders. The Board met 19 times during Fiscal 2019, either in person or by teleconference. During Fiscal 2019, each member of our Board attended at least 75% of the aggregate of the meetings of the Board and the committees on which he or she
served. All of the then-serving members of our Board attended our 2018 Annual Meeting.
Our independent directors and each committee of the Board meet in separate regularly-scheduled executive sessions, without management. Our practice is for our Board Chair
to preside over any executive session of the Board, and for each committee chair to preside over any executive session of their respective committee of the Board.
On an annual basis, the Nominating and Corporate Governance Committee, the Board and our CEO review the Companys long-term plan for developing, retaining and
replacing senior management and assess Board composition.
Our directors regularly assess the performance of the Board and each of the committees of the Board through a written survey and individual feedback sessions with the
Board Chair or the chair of the Nominating and Corporate Governance Committee.
KEY GOVERNANCE POLICIES
Copies of our current corporate governance documents and policies, including our Code of Business Conduct and Ethics, Corporate Governance Guidelines, and committee
charters, are available at www.redhat.com under Red Hat & open sourceInvestor relationsCorporate GovernanceGovernance documents.
CODE OF BUSINESS CONDUCT AND ETHICS
The Board has
adopted a written Code of Business Conduct and Ethics that applies to our directors, officers and employees. Our Code of Business Conduct and Ethics is posted on our website www.redhat.com under Red Hat & open sourceInvestor
relationsCorporate GovernanceGovernance documents. In addition, we intend to post on our website all disclosures that are required by law or by NYSE listing standards with respect to amendments to, or waivers from, any provision of
the Code of Business Conduct and Ethics.
CORPORATE GOVERNANCE GUIDELINES
The Board has adopted written Corporate Governance Guidelines, which provide a framework for the conduct of the Boards business.
CORPORATE GOVERNANCE GUIDELINES HIGHLIGHTS
Principal responsibility of the directors is to oversee and advise the
management of the Company
Majority of the members of the Board must be independent directors
directors are to meet regularly in executive session
Directors have full and free access to management and, as necessary, independent advisors
Any director who reaches the age of 75 will retire from the Board effective at
the end of then current term
Orientation program for new directors and directors expected to participate in
continuing director education on an ongoing basis
Board and its committees will annually conduct a self-evaluation to determine whether they are functioning effectively
CORPORATE SOCIAL RESPONSIBILITY
Red Hats company culture is rooted in open source principles, which permeate all aspects of our business. From our philanthropy and volunteering, to our
sustainability initiatives and corporate governance, we strive to work together in ways that are open, inclusive and allow our employees to share and collaborate to create a positive impact on the communities where we live, work, and play.
We invest in programs not only to help our communities thrive, but also to attract and retain the engaged employees we need to compete successfully in the technology
industry, ultimately driving the success of our business. This commitment is reflected in programs involving:
participation in the open source community and open source projects, including our contributions of code, documentation, and
corporate citizenship, including our corporate philanthropy, matching gifts and global volunteer programs;
people and culture, including our employee training and development initiatives, diversity + inclusion groups and Women in
Open Source award;
environment and sustainability, including our site selection practices, energy and water-efficient designs and equipment and
responsible material selection, which have led to LEED (Leadership in Energy and Environmental Design) Gold certifications for our global headquarters in Raleigh, NC and our facilities in Bangalore and Pune, India; and
governance, including our participation in industry associations and standards bodies, such as The Linux Foundation and the
Open Invention Network (OIN), and our Supplier Code of Conduct.
For more information on Red Hats approach to corporate social responsibility
and our programs, see our report, Community and Social Responsibility 2019; Open unlocks the worlds potential available on our website. The information contained on, or available through, our website is not incorporated by
reference in this Proxy Statement.
POLICIES AND PROCEDURES FOR RELATED PERSON TRANSACTIONS
We have a written Related Person Transaction Policy that provides for the review of certain transactions, arrangements or relationships between Red Hat and parties
including our directors, director nominees, executive officers and 5% stockholders (or their immediate family members), who we refer to as related persons, in which the amount involved exceeds $120,000 and such related person has or will
have a direct or indirect material interest. Any related person transaction proposed to be entered into by the Company must be reported to the Companys General Counsel and shall be reviewed and approved by our Audit Committee. If review and
approval is not practicable prior to entry into the transaction, the Audit Committee will review, and in its discretion, may ratify the related person transaction.
In reviewing the proposed transactions, the Audit Committee shall review and consider, as appropriate:
the related persons interest in the related person transaction;
the approximate dollar value of the amount involved in the related person transaction;
the approximate dollar value of the amount of the related persons interest in the transaction without regard to the
amount of any profit or loss;
whether the transaction was undertaken in the ordinary course of business of the Company;
whether the terms of the transaction are, in the aggregate, no less favorable to the Company than terms that could have been
reached with an unrelated third party;
the purpose of, and the potential benefits to the Company of, the transaction; and
any other information regarding the related person transaction or the related person in the context of the proposed
transaction that would be material to investors in light of the circumstances of the particular transaction.
The Audit Committee may approve or
ratify the transaction if it determines that, under all of the circumstances, the transaction is in, or is not inconsistent with, the Companys best interests. The Audit Committee may impose any conditions on the related person transaction
that it deems appropriate. The Related Person Transaction Policy provides that transactions involving compensation of executive officers will be reviewed and approved by the Compensation Committee of the Board in accordance with its charter.
RELATED PERSON TRANSACTIONS FOR FISCAL 2019
Since March 1,
2018, there has not been, nor is there currently proposed, any transaction, arrangement or relationship in which Red Hat is a party, the amount involved exceeds $120,000 and any related person had or will have a direct or indirect material interest,
except for Red Hats employment of M. W. Vincent, the brother-in-law of DeLisa K. Alexander, our Executive Vice President and Chief People Officer, during Fiscal
2019. In Fiscal 2019, Mr. Vincents total compensation, which included salary and commissions, was $240,714.
Our Non-Employee Director
Compensation Plan (the Director Compensation Plan) provides for a combination of cash and equity compensation for our non-employee directors. The Compensation Committee believes that a combination of cash and equity is the best way to
attract and retain directors with the attributes, experience and skills necessary for a company such as Red Hat. Due to the unique nature of our open source development model and the constantly evolving environment in which we operate, the Company
needs directors who are knowledgeable about the Companys business environment and are willing to make a significant commitment to the Company and its stockholders for the long term. The Director Compensation Plan was updated in Fiscal 2018 to
increase the annual cash retainers for Board service and service as Board Chair based on peer company benchmarking data provided by FW Cook, the Compensation Committees independent compensation consultant (the Consultant), that
indicated that our cash retainer amounts were no longer competitive.
Our current compensation program for non-employee directors includes:
a cash retainer for service on our Board;
additional cash retainers for service as Board Chair, Lead Director, committee chairs and committee members;
an initial Restricted Stock Award (RSA) granted in connection with joining our Board; and
an annual RSA grant.
The cash retainer and annual RSA for any director who serves only a portion of a year will be pro-rated. Annual RSA grants are made only to directors standing for
election at our next annual meeting of stockholders.
Each non-employee director receives cash payments, paid in equal quarterly amounts, as compensation for the time and effort spent in connection with service on the Board
and its committees. We do not pay meeting fees. A director may elect to receive all or a portion of the quarterly cash payments in the form of deferred stock units (DSUs).
DSUs represent the right to receive shares of our common stock that are paid to the director only at the time the
directors Board service ends.
DSUs granted in lieu of cash compensation are fully vested.
The number of DSUs granted is determined by dividing the portion of the cash compensation with respect to which the election
is made by the closing stock price on the date the cash compensation is due to be paid, rounded up to the nearest share.
The following table sets
out annual cash compensation amounts payable to non-employee directors for Board and committee service during Fiscal 2019:
TYPE OF CASH COMPENSATION
Board Chair (1)
Lead Director (1)
Audit Committee Chair (2)
Audit Committee Member
Compensation Committee Chair (2)
Compensation Committee Member
Nominating and Corporate Governance Committee Chair (2)
Nominating and Corporate Governance Committee Member
(1) A Board Chair or Lead Director who also serves as a committee chair receives both the Board Chair or Lead Director retainer, as
applicable, and the retainer payable for service on the committee rather than the applicable committee chair retainer.
(2) Committee chairs receive the applicable
committee chair retainer in lieu of the retainer payable for service on the committee.
In Fiscal 2019, our non-employee
directors were entitled to receive equity compensation in order to align their interests with stockholder interests.
Value of $300,000 converted into shares by using closing stock price on grant
date, rounded up to nearest share
New non-employee directors eligible upon
election or appointment
Vests on anniversary of grant date in equal annual installments over a
Value of $250,000 converted into shares by using closing stock price on grant
date, rounded up to nearest share
Vests on first anniversary of grant date
Vests on same basis as RSA
Paid out in shares at time Board service ends
Directors are reimbursed for reasonable out-of-pocket expenses incurred in attending
meetings of the Board and meetings of any committee on which they serve, Company business meetings and approved educational seminars. The Company funds no retirement or pension plan for non-employee
DIRECTOR COMPENSATION LIMIT
Limit of $600,000 in aggregate value of cash payments and annual RSA that can be awarded to a non-employee director for service on
the Board in a single year
Board agreed not to change this limit unilaterally until the next time the
Company submits its long-term incentive plan to a stockholder vote
SUMMARY COMPENSATION TABLE FOR NON-EMPLOYEE DIRECTORS
The following table summarizes the compensation awarded to our directors other than Mr. Whitehurst during Fiscal 2019:
Sohaib Abbasi (5)
W. Steve Albrecht (6)
Charlene T. Begley (7)
Narendra K. Gupta (8)
Kimberly L. Hammonds (9)
William S. Kaiser (10)
Donald H. Livingstone (11)
Kevin M. Murai (12)
Alfred W. Zollar (13)
(1) Compensation paid to Mr. Whitehurst, our President and CEO, is described in the section entitled Executive
(2) This column reflects the amount of cash compensation paid to each director for Board and committee service after accounting for DSU
elections. As described in the section entitled Cash Compensation above, non-employee directors may elect to receive fully vested DSUs in lieu of all or a portion of their cash compensation.
(3) Amounts in this column represent the aggregate grant date fair value of equity compensation issued to directors determined in accordance with Financial Accounting
Standards Board (FASB) Accounting Standards Codification (ASC) Topic 718. For the assumptions made in determining these values, see Notes 2 and 19 to the Consolidated Financial Statements in the Companys Annual Report
on Form 10-K for Fiscal 2019. Equity compensation that our non-employee directors are eligible to receive is described in the section entitled Equity
(4) As of February 28, 2019, our non-employee
directors had DSUs and unvested RSAs representing the right to receive the following number of shares of common stock: Mr. Abbasi31,823, Dr. Albrecht15,392, Ms. Begley1,710, Dr. Gupta46,284, Ms. Hammonds1,710, Mr.
Kaiser8,900, Mr. Murai2,389 and Mr. Zollar2,448.
(5) During Fiscal 2019, Mr. Abbasi was eligible to receive $110,000 in cash compensation
and an annual RSA valued at $250,000. Mr. Abbasi elected to receive DSUs in lieu of his cash compensation and annual RSA. The stock awards total in the table includes $372 of value realized as a result of issuing grants rounded up to the
nearest whole share.
(6) During Fiscal 2019, Dr. Albrecht received $107,500 in cash compensation and an annual RSA valued at $250,000. Dr. Albrecht
elected to receive DSUs in lieu of his annual RSA. The stock awards total in the table includes $36 of value realized as a result of issuing a grant rounded up to the nearest whole share.
(7) During Fiscal 2019, Ms. Begley received $87,500 in cash compensation and an annual RSA valued at $250,000. The stock awards total in the table includes $36 of
value realized as a result of issuing a grant rounded up to the nearest whole share.
(8) During Fiscal 2019, Dr. Gupta received $135,000 in cash compensation
and an annual RSA valued at $250,000. Dr. Gupta elected to receive DSUs in lieu of his annual RSA. The stock awards total in the table includes $36 of value realized as a result of issuing a grant rounded up to the nearest whole share.
(9) During Fiscal 2019, Ms. Hammonds received $82,500 in cash compensation and an annual RSA valued at $250,000. The stock awards total in the table includes $36
of value realized as a result of issuing a grant rounded up to the nearest whole share.
(10) During Fiscal 2019, Mr. Kaiser received $75,000 in cash
compensation and an annual RSA valued at $250,000. The stock awards total in the table includes $36 of value realized as a result of issuing a grant rounded up to the nearest whole share.
(11) During Fiscal 2019, Mr. Livingstone received $45,951 in cash compensation. Mr. Livingstone retired as a director in Fiscal 2019. He received cash compensation
for his service up to his retirement date, but did not receive an annual RSA award.
(12) During Fiscal 2019, Mr. Murai received $24,783 in cash compensation
and an initial RSA valued at $300,000. The stock awards total in the table includes $58 of value realized as a result of issuing a grant rounded up to the nearest whole share.
(13) During Fiscal 2019, Mr. Zollar was eligible to receive $56,517 in cash compensation and an initial RSA valued at $300,000. For part of Fiscal 2019,
Mr. Zollar elected to receive DSUs in lieu of his cash compensation (DSUs received for $20,000 in cash compensation). Mr. Zollar also received a prorated annual RSA valued at $41,667. The stock awards total in the table includes $138 of
value realized as a result of issuing grants rounded up to the nearest whole share.
PROCESS FOR SETTING DIRECTOR COMPENSATION
The Compensation Committee reviews our non-employee director compensation program annually and works with the Consultant to design
and update the Director Compensation Plan to keep our compensation levels competitive so that the Company may attract and retain directors with the combination of attributes, experience and skills needed for the Board to operate effectively. In
making decisions regarding non-employee director compensation, the Compensation Committee considers data provided by the Consultant about non-employee director
compensation at the companies in our compensation peer group (the composition of our compensation peer group is described in Executive Compensation-Compensation Discussion and Analysis-Process for Determining Named Officers
Compensation-Compensation Peer Group).
Each director has entered into an indemnification agreement with the Company. The indemnification agreements are on substantially the same terms as the indemnification
agreements that the Company has entered into with the Named Officers, as described in the section entitled Executive CompensationEmployment and Indemnification Arrangements with Named OfficersIndemnification.
DIRECTOR STOCK OWNERSHIP REQUIREMENTS
We have a Stock
Ownership Policy that applies to our non-employee directors. During Fiscal 2019 this Stock Ownership Policy was amended to set the stock ownership level for each non-employee director at 2,500 shares, an ownership level based on a multiple of the
cash retainer for service as a Board member in place at the beginning of Fiscal 2019. The ownership levels were adjusted to account for the almost 90% increase in Red Hats stock price since the levels were previously set. As of the end of
Fiscal 2019, each of our non-employee directors was in compliance with the Stock Ownership Policy. Our Stock Ownership Policy is described in the section entitled Executive CompensationCompensation Discussion and
AnalysisCompensation Policies and PracticesStock Ownership Requirements.
COMPENSATION COMMITTEE INTERLOCKS AND
The Compensation Committee is composed entirely of independent directors, as was the case at all times during Fiscal 2019. At the
beginning of Fiscal 2019, Mr. Abbasi, Dr. Gupta, Ms. Hammonds and Mr. Livingstone were members of the Compensation Committee. Mr. Livingstone did not stand for re-election at the 2018 Annual Meeting and left the committee when his term ended in
August 2018. In February 2019, Mr. Murai joined the Compensation Committee. No member of the Compensation Committee (i) was during Fiscal 2019 or is currently an employee of the Company, (ii) has ever been an officer of the Company, (iii) is or was
a participant in a related person transaction as described in the section entitled Key Governance PoliciesPolicies and Procedures for Related Person TransactionsRelated Person Transactions for Fiscal 2019 or (iv)
is an executive officer of another entity, at which one of our executive officers serves on the compensation committee or the board of directors. None of our executive officers serves as a member of the board of directors or on the compensation
committee, or other committee serving an equivalent function, of any entity that has one or more executive officers who serve as members of our Board or our Compensation Committee.
ITEM NO. 1ELECTION OF DIRECTORS
ITEM NO. 1ELECTION OF DIRECTORS
The Board has nominated nine directors for one-year terms expiring at the 2020 Annual Meeting of Stockholders
(2020 Annual Meeting). Each nominee has indicated an intention to serve if elected and will hold office for his or her term and until a successor has been elected and qualified or until his or her earlier resignation or removal. In the
event that any of the nominees should be unable or unwilling to serve, proxies may be voted for the election of some other person or for fixing the number of directors at a lesser number. Proxies cannot be voted for a greater number of persons than
the number of nominees named.
THE BOARD OF DIRECTORS
RECOMMENDS A VOTE FOR THE ELECTION OF:
W. STEVE ALBRECHT
CHARLENE T. BEGLEY
KIMBERLY L. HAMMONDS
WILLIAM S. KAISER
JAMES M. WHITEHURST
TO THE COMPANYS BOARD OF DIRECTORS
EXECUTIVE SUMMARY OF
COMPENSATION DISCUSSION AND ANALYSIS
This executive summary is only a summary. You should refer to the more detailed information about our compensation
program in the section of this Proxy Statement entitled Compensation Discussion and Analysis and in the Summary Compensation Table and other related compensation tables before you vote.
The Compensation Discussion and Analysis focuses on the Named Officers listed below.
President and Chief
Executive Vice President
and Chief Financial
and President, Products
Executive Vice President,
Global Sales and
In Fiscal 2019, the Compensation Committee approved an executive compensation program designed to focus our executive team on growing our
business and building long-term stockholder value. Our program provided compensation opportunities based on achievement against revenue, cash flow from operations, non-GAAP operating margin and TSR metrics,
which the Compensation Committee believes are key contributors to our long-term profitability and growth, and the executive teams ability to develop and implement strategies to accelerate the impact of open source as the basis for digital
Consistent with our long-standing practice, our executive compensation program was weighted heavily toward equity compensation (which represented
over 75% of target compensation opportunities) because the committee believes performance-based, long-term equity compensation aligns the interests of our executives with stockholder interests, rewards executives for delivering long-term value and
performance, serves as an important retention tool and provides a meaningful way to align executives contributions with the Companys future success. Additionally, approximately 90% of target compensation opportunities included one or
more performance elements in order to maintain a clear link between executive and Company performance and compensation received.
Payouts earned in Fiscal 2019 under
the incentive compensation elements of our program reflected this pay and performance link. While Red Hat once again delivered double-digit gains year-over-year for total revenue and stock price (as of the end of the fiscal year), we experienced
lower operating income growth year-over-year and a decline in our operating margin from the Fiscal 2018 level. These mixed results led to payouts for performance-based compensation in Fiscal 2019 that were above target, but lower than payouts earned
by our Named Officers under our annual cash bonus plan, operating performance share units (Operating PSUs) and TSR performance share units (TSR PSUs) in Fiscal 2018. After evaluating the performance of the Company and the
individual executives under our standard executive compensation program, the Compensation Committee approved:
payouts earned under our annual cash bonus plan averaging 118% of target, based on corporate financial goal achievement of
121% and average individual goal achievement of 112%;
payouts earned based on growth in revenue and operating income relative to compensation peer group companies for each of the
Operating PSUs granted in Fiscal 2017 and Fiscal 2018 at an average of 190% of target; and
payouts earned based on TSR growth over a three-year period relative to compensation peer group companies under the TSR PSUs
granted in Fiscal 2017 at 167% of target.
EXECUTIVE SUMMARY OF COMPENSATION DISCUSSION AND ANALYSIS
Performance-based compensation payouts earned by our Named Officers in respect of performance in
Fiscal 2019, as approved by the Compensation Committee, and the percentage change from payouts earned in Fiscal 2018, are presented below. Shares delivered are based on target award amounts granted in Fiscal 2017 and Fiscal 2018 (Operating PSUs) and
Fiscal 2017 (TSR PSUs).
# OF SHARES
Eric R. Shander (1)
Paul J. Cormier
Michael R. Cunningham
(1) Mr. Shander began participating in our standard executive compensation program in Fiscal 2018, and as a result he received his
first PSU payout in Fiscal 2019 under the Operating PSUs granted in Fiscal 2018.
On October 28, 2018, the Board approved the Merger Agreement. The Merger
Agreement included certain interim operating covenants that we must follow, including a covenant that requires us to grant only RSAs or restricted stock units (RSUs) following the date of the Merger Agreement. Our stockholders approved
the transactions contemplated by the Merger Agreement (the Merger Transaction) at a special meeting of stockholders held on January 16, 2019, with 99 percent of the votes cast voting for the Merger Agreement.
The Compensation Committee made no changes to our annual cash bonus plan structure for Fiscal 2020, but approved equity grants consisting solely of RSAs as required
under the Merger Agreement. The committee also approved the RSA awards as solely service-based awards in light of the change in the deductibility of performance-based compensation enacted as part of the Tax Cuts and Jobs Act in December 2017 (the
2017 Tax Act) and reduced the life of the award to three years. The committee believes that these changes were appropriate to enable Red Hat to motivate and retain our executives and focus them on closing the Merger Transaction for the
benefit of our stockholders, at the same time that they must continue to manage our business for success in the competitive technology industry. The Fiscal 2020 executive compensation program continues to emphasize equity compensation which aligns
management interests with our stockholders interests and includes a performance component through the annual cash bonus plan. More detail about the Fiscal 2020 executive compensation program is provided in the section entitled Executive
CompensationCompensation Discussion and AnalysisFiscal 2020 Key Compensation Decisions.
We have adopted a number of practices that we believe
benefit our stockholders by helping to align the interests of our management team with the interests of our stockholders, mitigate potential risks and promote effective oversight of our compensation program. These practices include:
Stock ownership policy for Named Officers and directors; all
Named Officers and directors in compliance at end of Fiscal 2019
Prohibition on new excise tax
gross-up payments to our executives; no new or modified provisions since December 2007
Clawback policy covering Named Officers incentive
Termination of employment required following
change in control event (double trigger) before benefits payable
Prohibition on the following transactions with
respect to Company securities: short sales, buying or selling options (puts and calls), hedging or monetization transactions (such as collars and forward sales contracts), purchases on margin and pledging
Named Officers receive the same benefits provided to all
Regular stockholder engagement on various aspects of Company
performance, including executive compensation program
The following table
summarizes the principal components of our standard executive compensation program in Fiscal 2019.
AND LINK TO
No automatic or guaranteed increases
To attract and retain key executive talent
Align executives interests with those of stockholders
ALL AT RISK
To encourage and reward performance that contributes to creating stockholder value
To focus executives on growing key metrics that contribute to overall profitability and ability to
grow our business
Revenue, cash flow from operations, non-GAAP operating margin and individual performance goals over one-year
To encourage and reward financial performance that contributes to creating long-term stockholder value
To encourage and reward performance that contributes to creating long-term stockholder value
Change in Control
Paid upon termination without good cause or with good reason
Requires execution of non-compete/non-solicit
Same benefits as are provided to all of Companys full-time employees
401(k) Plan with company match
dental and vision plan
Life insurance benefit
COMPENSATION DISCUSSION AND ANALYSIS
OUR COMPENSATION PHILOSOPHY
Our executive compensation
program is designed to:
pay for performance by linking the majority of compensation to measures of Company performance and to Company and individual
goals that contribute to the growth of our business and build long-term stockholder value;
align executive interests with those of our stockholders; and
attract and retain the talent needed to lead our Company in the evolving and highly competitive technology industry in which
Our program emphasizes long-term equity awards and annual performance-based cash bonuses so that a substantial portion of the value of
each executives total compensation opportunity is derived from Company business and stock price performance and the achievement of Company and individual performance goals established by the Compensation Committee. The selected performance
metrics emphasize overall Company performance, reflecting the Compensation Committees belief that the Named Officers, led by our CEO, are a team, sharing responsibility for Company performance and for execution of Company strategies. The
relatively uniform compensation mix for each Named Officer reinforces this view, and in the committees view also promotes team cohesion and internal equity. However, the Compensation Committee considers it appropriate for the CEO, who is
responsible for developing the overall strategy and direction for the Company, to receive a greater portion of his compensation (in comparison to the other Named Officers) in performance-based compensation. Goals are derived from the Companys
operating plan and business strategy. Performance levels are intended to be challenging and require effective execution in order to obtain a target level payout. The program is designed to have the flexibility to reward superior performance by
providing for total earned compensation substantially above the target level and to provide compensation below the target level if performance goals are not met. In making its compensation decisions for individual executives, the Compensation
Committee seeks to provide a competitive level of compensation for a position.
PROCESS FOR DETERMINING NAMED OFFICERS COMPENSATION
The process for determining the Named Officers compensation is outlined below along with a description of the role in the process of each of the
Compensation Committee, our annual stockholder say-on-pay vote, the Consultant, our management and our compensation peer group.
ROLE OF THE COMPENSATION COMMITTEE
The Compensation Committee oversees and approves all compensation arrangements for the Named Officers. Each year, the Compensation Committee:
makes compensation decisions for Named Officers, both to certify achievement of performance goals and determine the payouts
for the previous fiscal year, and to set compensation levels and goals for the performance-based elements of our program for the current fiscal year;
reviews our executive compensation program design and effectiveness and adjusts as needed to support our business, taking
into consideration compensation peer group company data, recommendations by the CEO and the Consultant, market trends, retention and succession considerations, legal and regulatory developments and the needs of our business;
addresses executive compensation matters that arise during the fiscal year due to a change in status, retention and
succession considerations or personnel changes;
assesses the performance of our CEO (together with the independent members of the Board) and senior management team; and
evaluates the effectiveness of our executive compensation program, including whether the program encourages excessive
In determining the appropriate level and compensation mix for each Named Officer, the Compensation Committee takes into account:
Named Officers experience and scope of responsibility, individual performance and retention prospects;
the Consultants annual review of publicly available compensation data from our compensation peer group companies and
market information for certain positions from industry compensation surveys such as the Radford Global Technology Survey;
data prepared by the Consultant reflecting (i) cash payments, (ii) equity compensation grant values,
(iii) internal equity and (iv) potential severance payments; and
other information as it deems necessary and appropriate.
No pre-determined weighting is assigned to any factor, and the emphasis placed on a specific factor may vary among Named Officers,
reflecting market conditions, business needs and retention and succession considerations at the time compensation decisions are made.
ROLE OF STOCKHOLDER SAY-ON-PAY VOTE
The Compensation Committee considers the results of our annual say-on-pay advisory vote and other feedback received from stockholders on executive compensation matters in determining executive compensation decisions and policies. These
forms of stockholder feedback provide useful input to the committee in its work to design and oversee an executive compensation program that serves the long-term interests of our stockholders. At our 2018 Annual Meeting, approximately 96% of the
votes cast were voted FOR approval of our executive compensation program as described and disclosed in the Compensation Discussion and Analysis section, compensation tables and narrative discussion in our 2018 Proxy Statement, and over
the past five years, at least 96% of the votes cast each year were voted FOR our annual say-on-pay vote. The Compensation Committee believes such results
affirm stockholders support of the Companys approach to, and structure of, executive compensation.
ROLE OF THE COMPENSATION CONSULTANT
The Consultant provides services at the direction and under the supervision of the Compensation Committee, which has the sole authority to hire or fire the
Consultant. From time to time at the request of the Compensation Committee, the Consultant:
provides recommendations on the design of, and amounts awarded under, our executive compensation program;
provides studies and other analyses regarding competitive pay practices for key employees, including the Named Officers;
proactively advises on trends and developments related to executive and board compensation practices;
attends various Compensation Committee meetings; and
communicates with members of the Compensation Committee outside of scheduled meetings.
The Consultant provided executive compensation-related data used in preparing the Companys Annual Report on Form 10-K for
Fiscal 2019 and this Proxy Statement. The Consultant provided no other services in Fiscal 2019 and is not otherwise retained by, and does not otherwise advise, the Company on compensation matters.
After considering information provided by the Consultant and any other factors the Compensation Committee considered relevant to the Consultants independence or
felt were relevant to a potential conflict of interest between the Consultant and the Compensation Committee or the Company, the Compensation Committee assessed the independence of the Consultant pursuant to SEC and NYSE rules in the first quarter
of Fiscal 2019 and concluded that the Consultants work for the Compensation Committee did not present a conflict of interest.
ROLE OF MANAGEMENT
Management helps the Compensation Committee fulfill its responsibilities by:
providing information and day-to-day
providing background information to complete studies and projects requested by the Compensation Committee; and
working with the Consultant at the request and in support of the Compensation Committee.
From time to time, members of management are invited to attend Compensation Committee meetings. No executive officer participates in deliberations by the Compensation
Committee or the Board regarding his or her compensation. In addition, at the request of the Compensation Committee, the CEO provides input regarding the performance and compensation recommendations for his direct reports, including the other Named
Officers. The Compensation Committee believes this process is both orderly and fair and preserves the CEOs ability to have an appropriate impact on compensation for his direct reports. Management did not retain a separate compensation
consultant for the compensation of our Named Officers.
COMPENSATION PEER GROUP
The Compensation Committee annually reviews and approves a peer group composed of companies in our industry considered to be our peers. In Fiscal 2019 this peer group
data was used:
as an input in developing base salary ranges, annual cash bonus targets and annual equity award targets;
to assess the extent to which our individual compensation elements, compensation mix and our total direct compensation
awarded to executives are competitive with our peers;
as an input in evaluating executive compensation policies, such as share ownership guidelines; and
to measure performance for our PSU awards.
The Consultant recommends peer companies for the Compensation Committees consideration. In developing its recommendation, the Consultant identifies companies with
similar Global Industrial Classification System (GICS) industry codes and with comparable levels of market capitalization, revenues, operating income, number of employees and revenue and operating income growth rates, in an effort to
populate the group with companies that have attributes appropriate to compare to Red Hat. The Fiscal 2019 compensation peer group consisted of 19 peer companies from the Software, Internet Software and Services, Computers & Peripherals and
IT Services GICS industry codes and includes several companies with which we compete for talent.
For Fiscal 2019, after review and discussion with the Consultant,
the Compensation Committee decided to remove Nuance Communications, Inc. and Verint Systems, Inc. from our peer group because it believed that these companies no longer met the Companys identification criteria, including market capitalization.
The committee added CA, Inc., a provider of enterprise and mainframe software solutions services, ServiceNow, Inc., a provider of cloud-based solutions to automate workflow, and Workday, Inc., a provider of enterprise cloud applications for finance
and human resources, in order to provide a peer group composed of size-relevant companies within our industry. CA, Inc. was acquired by Broadcom, Inc. in November 2018 and so ceased to be a public reporting company.
For Fiscal 2020, after review and discussion with the Consultant, the Compensation Committee decided to make no changes to the peer group other than to remove CA, Inc.
The table below lists selected financial data (in millions) and other relevant information derived
from public sources for each Fiscal 2019 peer group company other than CA, Inc., which is excluded from this table because it ceased to be a public reporting company during Fiscal 2019. This table is intended to illustrate the types of information
used by the Compensation Committee to evaluate whether selected peers are reasonably comparable with Red Hat and should not be relied upon for any other purpose.
MOST RECENT FOUR QUARTERS AS OF
FEBRUARY 28, 2019
PEER GROUP MEMBER
Akamai Technologies, Inc.
Cadence Design Systems, Inc.
Citrix Systems, Inc.
Jack Henry & Associates, Inc.
Open Text Corporation
Summary Data vs. Red Hat
Data presented in above table was compiled by the Consultant. Operating income may include adjustments made by the Consultant to
publicly disclosed results in an effort to increase consistency in the method of calculating peer companies operating income.
(1) As of the end of the most
recently completed fiscal year.
(2) As of February 28, 2019.
Represents point-to-point growth, not annualized.
EXECUTIVE COMPENSATION PROGRAM STRUCTURE
The principal components of our Fiscal 2019 executive compensation programBase Salary, Annual Cash Bonus and Equity Compensationare described in more detail
Base salary serves as the basis for annual
bonus opportunities, certain employee benefits and potential severance benefits. Decisions regarding base salary help us attract and retain key executive talent.
Cash earned based on fiscal year Company financial performance (75% of payout)
and performance against individual goals (25% of payout). Threshold levels of performance required to earn a payout.
The Compensation Committee determines the eligibility of the Named Officers to
participate in the annual cash bonus plan when it approves the performance goals and target payout levels, which are set in the first quarter of the fiscal year as a percentage of annual base salary at the end of the fiscal year. The Company does
not guarantee payment of cash bonuses to any executive.
The Compensation Committee certifies
the level of performance achieved and the payouts earned in the following fiscal year.
The annual cash bonus is designed to drive the
achievement of key business results that ultimately are expected to create long-term stockholder value and to recognize individuals based on their individual contributions to those results.
The Compensation Committee believes that a cash bonus based on an assessment of individual
performance against pre-determined goals within the context of the Companys overall performance enhances long-term stockholder value and serves to link annual performance and annual incentive payments.
CEO TARGET BONUS PERCENTAGE
Our CEOs target bonus opportunity is 150% of his base salary and is higher than the target percentages set for the other Named Officers. The Compensation Committee
sets a higher target bonus opportunity for the CEO to reflect his greater responsibility for developing and directing Company strategy to remain competitive in the rapidly changing technology industry. The higher target bonus opportunity also serves
to place a greater portion of the CEOs total annual cash compensation at risk, which the committee intends to further support his greater accountability to stockholders.
PERFORMANCE GOALS AND PAYOUTS
All goals set and communicated in the first quarter of the fiscal year
Set at a level intended to be challenging, but achievable at a target level, with superior performance required for above
Over our previous five fiscal years (Fiscal 2014 2018), payout levels were:
Above target (but below maximum) four times
Below target one time
No payout unless employed on payment date, which generally occurs in the first quarter following the fiscal year, except for
participants hired during the fiscal year and participants whose employment ends prior to payout date due to retirement or a reduction in force, who receive a pro-rated payment based on number of days employed during fiscal year
Payouts are earned based on Company performance against financial goals and each Named
Officers performance against individual goals, in each case approved by the Compensation Committee (other than for our CEO whose performance is approved by the full Board). The maximum possible cash bonus payment for a Named Officer is 200% of
that officers annual target amount. The final payout is calculated according to the formula below.
CALCULATION OF PAYOUT AMOUNT
COMPANY FINANCIAL GOALS
Fiscal 2019, the Compensation Committee selected Company performance metrics of total revenue, cash flow from operations, and non-GAAP operating margin because management uses these metrics as a component
of its internal reporting to evaluate performance of the business, to make operating decisions, including internal budgeting and the calculation of incentive compensation for all employees, and to forecast future performance. Additionally, the
Compensation Committee, taking into account the Consultants recommendations, believes these performance metrics drive long-term stockholder value. The total revenue metric reflects managements effectiveness at selling our products and
services and is a critical measurement of the growth of our business used by management and market analysts. Cash flow from operations reflects managements effectiveness in generating cash and providing the capital resources necessary for the
business to grow. Non-GAAP operating margin demonstrates how efficiently management runs the business and controls costs. We use non-GAAP operating margin because we
seek to compensate our executive team based on how effectively they build stockholder value through operating the Company business. The Compensation Committee believes this non-GAAP metric eliminates the
impact of items that are unrelated to business operations and outside of managements control, such as tax rates.
The range of performance levels for each
metric is determined following a review of internal projections, analyst expectations and our annual business plan. The annual cash bonus plan provides for financial results to be adjusted for specified items that may occur during the performance
period, but that were not contemplated at the time the Company performance goals were set, including, but not limited to, volatility in foreign exchange and interest rates, unanticipated acquisitions, litigation settlements, the cumulative effect of
changes in tax laws or accounting procedures, and substantial changes in general macroeconomic conditions. The calculation of the financial performance metrics is described in the following table.
FINANCIAL PERFORMANCE METRIC
Cash Flow from Operations
Non-GAAP Operating Margin
GAAP operating margin minus impact of expense related to share-based payment arrangements and
amortization of intangible assets
INDIVIDUAL PERFORMANCE GOALS
The Compensation Committee establishes individual performance goals for our CEO and, in consultation with the CEO, establishes individual performance goals for each of
the other Named Officers. These individual performance goals focus on qualitative strategic and operational considerations and the businesses or functions that the Named Officer leads. At the end of the fiscal year, each Named Officer provides the
CEO with an individual self-assessment with respect to performance on individual performance goals. The CEO reviews each self-assessment and evaluates for each Named Officers individual goals, the relative impact of each performance goal to
the Companys success and the effort required to achieve each goal. Then the CEO provides the Compensation Committee with an assessment of the performance of, and recommendation for individual
bonus amounts for, the other Named Officers. The Compensation Committee discusses the CEOs performance on the individual performance goals and then assesses his
performance, which the committee provides to the Board. The independent directors then evaluate the CEOs overall performance during the fiscal year, certify his performance against his individual goals and approve his payout.
The Compensation Committee determines the eligibility of each Named Officer for
equity awards annually in the first quarter of the fiscal year when it approves the performance goals, the performance periods, the compensation peer group and target share amounts that can be earned. The Company does not guarantee equity award
grants to any executive.
The Compensation Committee certifies the level of performance achieved
and the number of shares earned for the applicable performance period in the following fiscal year.
Performance-based and long-term equity
compensation helps align the interests of our Named Officers with the interests of our stockholders, reward executives for delivering long-term performance, serve as an important retention tool and provide a meaningful way to align the Named
Officers contributions and efforts with the Companys future success.
In determining target
equity grant values for each Named Officer, including the CEO, the committee considers performance, current amount of unvested equity, relative ability to impact the Companys future success, and retention and succession considerations, taking
into account the Consultants peer company data for that individuals position and the CEOs recommendations. The Compensation Committee sets a target equity value to deliver to each Named Officer, and that value is converted into a
target number of shares (based on the closing stock price on or about the approval date) which the committee approves when making the equity awards.
Under the stockholder-approved 2004 Long-Term Incentive Plan, awards to employees are authorized by the Compensation Committee before or on the
grant date. It is the Companys general practice to make recurring equity award grants (other than grants of PSUs and RSAs) during the Companys open trading window after a quarterly earnings announcement, although the Company has the
authority to make grants at other times of the year under certain circumstances. The committees general practice has been to approve grants of PSUs and RSAs within the first quarter of the fiscal year in order to establish performance metrics
for executives at the beginning of the performance period. Other than as described above, the Company has no program, plan or practice to coordinate its award grants with the release of material non-public
In addition to achievement of performance goals, our equity awards require that a Named Officer maintain a continuous relationship with the Company as
an employee, officer, director and/or consultant (a Business Relationship) until the end of the performance period (Operating and TSR PSUs) or vesting date (RSAs and RSUs) in order to earn a payout.
PERFORMANCE SHARE UNITS
The Compensation Committee has included PSUs in our executive compensation program because the committee believes they provide significant incentives for senior
management to focus on specific growth metrics that contribute to long-term stockholder value and help align management and stockholder interests. Since the awards are denominated and distributed in shares of common stock, a strong linkage to
stockholder return is maintained. The committee grants a target number of PSUs. Executives may earn up to 200% of the target number of PSUs (the Maximum) for superior performance over the performance period, or may earn nothing if the
Company does not out-perform at least 30% of the peer companies (as shown in the table below). Payouts for PSUs are based upon how well the Company performs for specified metrics (discussed below) relative to
the other companies in the relevant compensation peer group.
PERCENT OF PEER
COMPANIES RED HAT
Minimum Performance Level Required for Payout
Our Named Officers can earn two payouts under
the Operating PSUs. The first payout may be earned after the completion of the second fiscal year and is capped at 50% of the Maximum. The second and final payout may be earned after the completion of the third fiscal year and will be reduced by
shares earned and distributed as part of the first payout.
The TSR PSUs have a single payout at the end
of the performance period.
RESTRICTED STOCK AWARDS
Committee believes that RSAs help to align the interests of management with those of stockholders by rewarding stock price performance without encouraging excessive risk-taking and are an important component of compensation
used to attract and retain the Companys executives. RSAs also serve to balance the riskier
nature of the PSUs. RSA amounts were set after considering amounts that would promote retention, reward long-term stock value creation and performance and be competitive with compensation peer group practices and industry trends.
Achievement of a revenue threshold approved by the Compensation Committee. The
performance condition focuses executives on growing revenue and was designed to enable the Company to maximize the tax deductibility of the expense associated with the RSAs under Section 162(m) of the Internal Revenue Code of 1986, as amended
In Fiscal 2020, the Compensation Committee approved the RSAs as solely
service-based awards in light of the change in the deductibility of performance-based compensation enacted as part of the 2017 Tax Act.
The RSAs vest over a period of four years. In
Fiscal 2020, the Compensation Committee approved the RSAs with a vesting period of three years, vesting ratably on each anniversary of the grant date. The committee determined changes were needed to the RSAs in order to retain and motivate the
executive team to focus on closing the Merger Transaction (the Closing Date), while continuing to manage our business.
TSR HURDLE PSUs
In August 2014,
Mr. Whitehurst and Mr. Cormier were granted PSUs requiring achievement by August 6, 2017 of an average TSR of $80.18 (the TSR Hurdle PSUs) for a 90-calendar day period. The
performance goal was achieved in January 2016, and Mr. Whitehurst and Mr. Cormier earned 50% of the PSUs. They earned the remaining 50% of the TSR Hurdle PSUs on August 6, 2018. The Compensation Committee granted the TSR Hurdle PSUs
to provide an incentive to deliver a sustained level of exceptional corporate performance and considers the use of a special award, such as the TSR Hurdle PSUs, to be a tool for use only in exceptional circumstances.
FISCAL 2019 COMPENSATION DECISIONS
In the first quarter of Fiscal 2019, the Compensation Committee took the following actions for the Fiscal 2019 executive compensation
Annual Cash Bonus
Target annual cash bonus opportunities as a percentage of base salary generally competitive with those provided by peer companies and sufficient to
incent executive team to deliver strong financial and operational performance. Mr. Shanders target was set at 100% of his base salary to better align his target cash bonus opportunity with CFOs at compensation peer companies.
Performance metrics of total revenue, cash flow from operations and non-GAAP operating margin determined to be most relevant for company operating performance and consistent with how executive team manages the business. Company finance goal ranges and individual performance goals
are discussed in the section entitled Compensation Earned below.
The target opportunity mix of equal amounts of Operating PSUs, TSR PSUs and RSAs generally competitive
with those provided by compensation peer companies. Target equity values used to derive the target share levels were slightly higher than those set in Fiscal 2018 except as noted below, to maintain alignment with compensation peer companies based on
peer group and Radford survey data prepared by the Consultant, in order to provide meaningful retentive value and incent the executive team to deliver strong financial and operational performance.
Fiscal 2019 target equity award levels set for Mr. Shander increased by over 50 percent
because the benchmarking data provided by the Consultant showed that his target equity value was below the median for CFOs in our compensation peer group.
The charts below show target compensation opportunities approved in Fiscal 2019 for our CEO and the
other Named Officers as a group based on our standard executive compensation program. The majority of target compensation for our CEO and our other Named Officers was in the form of performance-based equity and cash awards. Our executive
compensation program is designed to provide target total cash and equity compensation opportunities relative to our compensation peer companies that allow us to compete for and retain top talent without providing excessive compensation or
encouraging excessive risk taking. Target amounts for equity awards will be paid in future fiscal years if performance goals are achieved. Actual values earned and paid for incentive compensation may be below or above target levels.
Eric R. Shander
Estimated target value is determined in accordance with FASB ASC Topic 718, in all material respects, and is consistent
with the equity values shown in the Summary Compensation Table.
In the first quarter of Fiscal 2020, the Compensation Committee certified Fiscal 2019 performance and approved payouts for the compensation elements below.
Annual Cash Bonus for Fiscal 2019 performance
Certified financial goal achievement of 121%
Approved achievement against individual performance goals at a level of 112% (average)
Approved individual payouts at an average level of 118% of target
Operating PSUs granted in Fiscal 2017
Certified Fiscal 2017 Operating PSU performance and payouts for three-year performance period ending on February 28, 2019
Operating PSUs granted in Fiscal 2018
Certified Fiscal 2018 Operating PSU performance and payouts for two-year performance period ending
on February 28, 2019
TSR PSUs granted in Fiscal 2017
Certified TSR PSU performance and payouts for three-year performance period ending on February 28, 2019
Red Hat ranked 6th on TSR growth among the 18 compensation peer companies, resulting in a payout
of 167% of target
RSAs granted in Fiscal 2019
The charts below show compensation earned in Fiscal 2019 by our CEO and the other Named Officers as
a group based on performance measured at the end of Fiscal 2019 and are intended to illustrate how performance by the Company and our Named Officers impacted the compensation received. These charts reflect annual base salary earned during Fiscal
2019, payouts approved by the Compensation Committee for performance periods that ended on February 28, 2019 for our annual cash bonus plan, Operating PSUs granted in Fiscal 2017 and Fiscal 2018 and TSR PSUs granted in Fiscal 2017, and all RSAs
awarded in Fiscal 2019 for which the performance threshold was met, even though Named Officers will receive the shares underlying the RSAs over the next three years, subject to maintaining a continuing Business Relationship. The value of the shares
of the TSR Hurdle PSUs that Mr. Whitehurst and Mr. Cormier earned through their continued service in August 2018 are not included in these amounts because the TSR Hurdle PSUs are not part of our standard executive compensation program.
Operating PSU value is based on closing stock price of $182.51 on April 24, 2019 vesting date, TSR PSU value is based on closing
stock price of $182.56 on April 17, 2019 vesting date and RSA value is based on grant date fair market value reported in the Summary Compensation Table.
TSR PSUs, RSAs)
Eric R. Shander1
Mr. Shander first participated in our standard executive compensation program in Fiscal 2018 when he was named as our
chief financial officer, and as a result, his earned equity award total reflects only the value of shares earned for the Operating PSUs granted to him in Fiscal 2018 and the RSAs granted to him in Fiscal 2019. In Fiscal 2018, his earned equity award
total reflected only the value of the RSAs granted to him in Fiscal 2018. Because his equity award values reflected in this table are relatively low, the year-over-year change in his equity award values and his total compensation earned are not
representative of our standard executive compensation program.
ANNUAL CASH BONUS PLAN GOALS FOR FISCAL 2019
COMPANY FINANCIAL PERFORMANCE
For Fiscal 2019, 75% of the
final payout for each Named Officer was based on aggregate achievement of Company financial performance goals at an achievement level of 121%, as set forth in the table below (U.S. Dollars, in millions). Each metric is weighted equally in
determining the level of achievement.
Adjusted Total Revenue
Adjusted Cash Flow from Operations
Non-GAAP Adjusted Operating Margin
For Fiscal 2019, the financial results were adjusted in accordance with the provisions of the annual cash bonus plan to adjust for costs
related to the Merger Transaction, the effect of lower Euro and Yen rates than the rates used to set the financial goals and the impact on cash flow from operations related to our adoption of Accounting Standards Update 2016-15, Statement of Cash
Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (ASU 2016-15). The net effect of these non-GAAP adjustments was (U.S. Dollars, in millions):
NET CHANGE TO
NET CHANGE TO
CASH FLOWFROM OPERATIONS
Non-cash share-based compensation expense
Amortization of intangible assets
Adjustment for Merger Transaction
Adjustment for adoption of ASU 2016-15
Euro and Yen exchange rates
Fiscal 2019, the Compensation Committee established individual performance goals for each Named Officer that included a set of common goals to reinforce the need for each executive to contribute as a member of the management team to the
Companys overall success and qualitative enterprise leadership and division priority goals for each Named Officer based on areas of responsibility. The Named Officers performed at an achievement level of 112% (average) on individual
performance goals. Individual performance goals are based on our strategic corporate framework which aims for Red Hat to become the default choice for the next generation of IT by optimizing traditional workloads, creating and managing hybrid cloud
infrastructure and building next-generation architectures, and the need to develop the tools, processes and talent to scale our company as it grows.
Execute Companys ethics program
Advocate for the success of Red Hat customers
Support the development and scaling of Red Hat culture, including for enhanced
diversity and inclusion
Represent Red Hat with key external communities and stakeholders
Focus on succession planning
Enhance capabilities for scaling our business
President and CEO
Oversee execution and monitor progress for all common strategic goals
Executive Vice President and Chief Financial Officer
Enhance alignment of finance team priorities with Red Hat strategy
Improve understanding of our metrics, mission and model by employees and external stakeholders
Execute on process excellence in support of growth and scalability goals
Drive corporate performance cadence process
Empower employee and leadership development within Finance
Executive Vice President and President, Products and Technologies
Drive customer engagement services to deliver a world class customer experience
Focus on differentiations of products with common management and automation across platforms
Leverage core platforms for full portfolio, including through integration of new technologies and services
Promote developer tools and platforms to developers
Executive Vice President, Global Sales and Services
Develop and execute strategies for target industries, accounts and aligned partners
Scale partner-led business across product portfolio
Collaborate with marketing and business units to enhance demand generation capabilities
Support sales, services and partner organization development with enablement and training initiatives
Evolve services strategy and offerings to promote new products
Develop systems and buying program to support scaling of business and productivity
Executive Vice President and General Counsel
Lead defenses against IP assertions
Champion and drive with CEO execution of our corporate ethics and citizenship programs
Enhance data privacy and security law compliance program, including implementation of EU General Data Protection
Grow capacity and scalability of department resources
Bolster strategic IP position and defenses in light of changing competition
Establish reference-able repository of Red Hat positions to legal open source questions
In assessing the Named Officers performance against individual performance goals, the committee considered a number of subjective
factors, including the following achievements:
promotion of sales and technical accreditation programs and enablement capabilities;
executive participation in external communities, including open source, civic, analyst and diversity and inclusion forums;
broader participation in Red Hat Developer Program; and
launch of new leadership programs and enhancements to talent identification and planning processes to improve succession
planning and develop personnel needed to help Red Hat scale our business.
FISCAL 2020 KEY COMPENSATION DECISIONS
In May 2019, the Compensation Committee met to determine the executive compensation package for our executives for Fiscal 2020, including our Named Officers, for the
services to be performed during Fiscal 2020. The committee reviewed the Companys Fiscal 2019 financial performance and benchmarking data prepared by the Consultant based on compensation peer company data and Radford survey data before
approving the following compensation levels:
Base salary: increase for Mr. Shander to maintain his salary at levels competitive with CFOs among our compensation
peer group companies;
Annual cash bonus target: target percentages were maintained; and
Equity awards: maintained weighting of equity within overall compensation mix, but granted only RSAs as required under the
Merger Agreement and approved slight increases in target equity award values for all Named Officers, except for Mr. Whitehurst, in order to retain, motivate and focus executives energies on closing the Merger Transaction.
The benchmarking data indicated that the Named Officers target incentive compensation opportunities are generally competitive, except as
noted above, with those provided at our compensation peer companies. The committee believes that these compensation levels generally are sufficient in the current environment to retain our executive team and motivate them to continue to deliver
strong financial and operational performance and work towards the closing of the Merger Transaction approved by our stockholders.
Set forth below are the Fiscal 2020 compensation opportunities for the Named Officers.
% of Total Compensation (Based on Average of Target Compensation)
COMPENSATION POLICIES AND PRACTICES
STOCK OWNERSHIP REQUIREMENTS
The Compensation Committee supports stock
ownership as an effective means of aligning motivations of Named Officers and non-employee directors with the long-term interests of stockholders. Under Red Hats Stock Ownership Policy for Named Officers
who report directly to the CEO, ownership levels are derived from multiples of annual base salary. The committee reviews ownership guidelines approximately every two years in order to maintain the ownership levels at or near the target multiples the
Compensation Committee established. The current levels were set in September 2018 to adjust for the almost 90% increase in Red Hats stock price since the levels were previously set. The current ownership levels are as follows:
Chief Executive Officer
Executive Vice President
If at any time a Named Officer or non-employee director does not hold a number of shares that
equals or exceeds the applicable level, that officer is required to hold 50% of the shares (net of any shares withheld to satisfy tax obligations at vesting) realized from any equity award granted after March 1, 2010, the effective date of the
Stock Ownership Policy, until ownership equals or exceeds the applicable level. For purposes of calculating ownership under the Stock Ownership Policy, shares owned outright, fully vested DSUs and 50% of unvested RSAs and DSUs are counted. Unvested
PSU awards are disregarded. As of the end of Fiscal 2019, all of the Named Officers were in compliance with the Stock Ownership Policy.
HEDGING AND PLEDGING
Company policies prohibit employees and non-employee directors from engaging in any of the following transactions with respect to
securities of the Company: (i) selling short, (ii) buying or selling options (puts and calls), or other derivative securities or engaging in hedging or monetization transactions (such as collars and forward sales contracts),
(iii) purchasing Company stock on margin or (iv) pledging Company stock to a margin account or otherwise.
In May 2009, the Board adopted a clawback policy for our Named Officers. The clawback policy generally requires any participant in our annual cash bonus plan who engages
in an act of embezzlement, fraud, willful misconduct or breach of fiduciary duty that results in a material restatement of financial statements included in any of our filings with the SEC to repay us (i) any portion of incentive compensation
distributed during the twelve-month period following the filing with the SEC of any financial statements that are subsequently restated that is greater than the amount that would have been paid if calculated based on the restated financial results
and (ii) the net proceeds from gains on any sale or disposition of our common stock distributed pursuant to incentive compensation arrangements during such twelve-month period. The Board adopted the policy as an additional deterrent to
inappropriate behavior that could adversely affect the Company.
TAX DEDUCTIBILITY OF THE NAMED OFFICERS COMPENSATION
Prior to December 2017, when the 2017 Tax Act was enacted, Section 162(m) of the Code generally disallowed a tax deduction for compensation that did not qualify as
performance-based compensation paid to certain executive officers in excess of $1 million. Incentive awards, such as PSUs, RSAs and the annual cash bonus, were granted and administered pursuant to our stockholder-approved Performance
Compensation Plan, which established the performance metrics and other award terms intended to enable us to maximize the tax deductibility of compensation expense under Section 162(m).
Following the amendments to Section 162(m) by the 2017 Tax Act, compensation earned by our
Named Officers in excess of $1 million in any year generally will no longer be deductible.
COMPENSATION COMMITTEE REPORT
The Compensation Committee has reviewed the Compensation Discussion and Analysis and discussed that analysis with management. Based on its review and discussion
with management, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in the Companys Annual Report on Form 10-K for Fiscal 2019 and this Proxy
THE COMPENSATION COMMITTEE
Sohaib Abbasi (Chair)
Narendra K. Gupta
Kimberly L. Hammonds
Kevin M. Murai
The information contained in the
foregoing report shall not be deemed to be soliciting material, or to be filed with the SEC or subject to Regulation 14A or 14C (other than as provided in Item 407 of Regulation S-K) or
to the liabilities of Section 18 of the Exchange Act, except to the extent Red Hat specifically requests that the information be treated as soliciting material or specifically incorporates it by reference into a document filed under the
Securities Act of 1933, as amended, or the Exchange Act. This information shall not be deemed to be incorporated by reference into any filing of Red Hat under the Securities Act of 1933, as amended, or the Exchange Act, except as expressly set forth
by specific reference in such a filing.
SUMMARY COMPENSATION TABLE
The following table sets
forth the compensation awarded to our Named Officers in Fiscal 2019, Fiscal 2018 and Fiscal 2017.
NAME AND PRINCIPAL POSITION
Executive Vice President and
President, Products and Technologies
Executive Vice President,
Global Sales and Services
(1) Reflects salary increases for Fiscal 2019 effective June 1, 2018: Mr. Whitehurst $1,100,000; Mr. Shander $550,000;
Mr. Oberoi $575,000; Mr. Cunningham $500,000.
(2) Amounts in this column represent the aggregate grant date fair value of awards granted to Named
Officers in each fiscal year listed as determined in accordance with FASB ASC Topic 718 and are consistent with the estimate of the aggregate grant date compensation cost to be recognized over the service period. For the assumptions made in
determining these values, see Notes 2 and 19 to the Consolidated Financial Statements in the Companys Annual Report on Form 10-K for Fiscal 2019. For any awards that are subject to performance
conditions, the reported fair value is the value at the grant date based upon the probable outcome of such conditions. For Fiscal 2019, the following amounts represent the grant date fair value of such PSU awards assuming achievement of maximum
payout: Mr. Whitehurst$14,442,348, Mr. Shander$4,595,382, Mr. Cormier$6,564,644, Mr. Oberoi$4,595,382, and Mr. Cunningham$3,413,824. For Fiscal 2018, the following amounts represent the grant date fair value of such PSU
awards assuming achievement of maximum payout: Mr. Whitehurst$13,020,408, Mr. Shander$3,015,241, Mr. Cormier$6,167,395, Mr. Oberoi$4,111,597, and Mr. Cunningham$3,015,241. For Fiscal 2017, the following amounts
represent the grant date fair value of such PSU awards assuming achievement of maximum payout: Mr. Whitehurst$11,907,828, Mr. Cormier$6,304,126, Mr. Oberoi$9,105,824, and Mr. Cunningham$3,222,014.
(3) Amounts in this column represent payouts earned under the annual cash bonus plan for Named Officers based on fiscal year performance. In Fiscal 2017,
Mr. Shander participated in our employee cash bonus program, the Red Hat Variable Incentive Compensation Plan.
(4) Amounts in this column include Company-paid
401(k) matching contributions and Company-paid premiums for life insurance and accidental death and disability benefits in each fiscal year that are generally available to all employees and tax reimbursement for imputed income with respect to
reimbursement of spouses travel expenses for a Company event.
(5) Payment received by Mr. Shander during Fiscal 2017 pursuant to a cash retention
agreement entered into with the Company in November 2015. This agreement provided for him to receive three cash payments totaling $350,000 through December 30, 2016, $200,000 of which was received in Fiscal 2017.
EMPLOYMENT AND INDEMNIFICATION ARRANGEMENTS WITH NAMED OFFICERS
Each of our Named Officers has entered into employment or related agreements with us that are described in more detail below.
CHIEF EXECUTIVE OFFICER
Executive Employment Agreement, dated as of December 19, 2007, as amended from time to time (2007 Executive
All compensation determined at the sole discretion of the Compensation Committee
Eligible for annual incentive bonus in amount up to 200% of base salary in effect at beginning of fiscal year
Compensation committee will consider the grant of an equity award at least annually
OTHER NAMED OFFICERS
All entered into an offer letter when employment began
Company has no continuing obligations under any offer letter
Each Named Officer, as well as each
director, is party to an indemnification agreement with the Company:
Indemnified against expenses, judgments, fines, penalties and amounts paid in settlement incurred in connection with the
defense or settlement of threatened, pending or completed proceedings
Proceeding must be in connection with Named Officers service as an officer of the Company or other services performed
at the request of the Company (such as service as a director or officer of a subsidiary of the Company)
Covers both third-party claims and proceedings brought by or in the right of the Company
Provides for advancement of expenses incurred by the Named Officer under certain circumstances
Indemnified to the fullest extent permitted by law, but is subject to certain limitations and exceptions (such as a
requirement that Named Officer acted in good faith and with a reasonable belief that conduct was not unlawful and was in the best interests of the Company)
Not exclusive of rights to indemnification or advancement of expenses that may arise under the Companys Certificate of
Incorporation or By-Laws, a separate agreement with the Company or applicable law
GRANTS OF PLAN-BASED AWARDS IN FISCAL 2019
The following table sets forth information regarding all incentive plan awards granted to our Named Officers
during Fiscal 2019.
PAYOUTS UNDER NON-EQUITYINCENTIVE PLAN AWARDS (1)
PAYOUTS UNDER EQUITYINCENTIVE PLAN AWARDS (2)
ALL OTHERSTOCK AWARDS:NUMBER OFSHARES OF STOCKOR UNITS
(1) These columns show the potential value of the payout for each Named Officer under the annual cash bonus plan as if the threshold,
target or maximum goals had been satisfied for the performance goals established for Fiscal 2019 by the Compensation Committee. If the threshold goal is not satisfied, the Named Officer receives no payout. Actual bonus payments to Named Officers
under the annual cash bonus plan for Fiscal 2019 performance are shown in the Summary Compensation Table in the column titled Non-Equity Incentive Plan Compensation.
(2) These columns show the number of shares underlying PSUs granted in Fiscal 2019 that may be earned by each Named Officer if the threshold, target or maximum
performance levels are satisfied. If the threshold performance level is not satisfied, the Named Officer receives no payout. The grant date fair value of PSUs granted to Named Officers in Fiscal 2019 is included in the column titled Grant Date
Fair Value of Stock Awards and is calculated as described in footnote 4 below.
(3) Amounts in this column reflect RSAs granted to Named Officers in Fiscal
2019. The grant date fair value of awards granted to Named Officers in Fiscal 2019 is included in the column titled Grant Date Fair Value of Stock Awards and is calculated as described in footnote 4 below. The RSAs for Named Officers
vest over a four-year period, 25% vesting after approximately one year subject to the achievement of the performance condition and the remainder vesting quarterly thereafter over an additional three years. If the threshold performance level is not
satisfied, the Named Officer receives no RSA payout.
(4) This column reflects the aggregate grant date fair value of the equity awards granted to Named Officers in
Fiscal 2019 as determined in accordance with FASB ASC Topic 718 and is consistent with the estimate of the aggregate grant date compensation cost to be recognized over the service period. For the assumptions made in determining these values, see
Notes 2 and 19 to the Consolidated Financial Statements in the Companys Annual Report on Form 10-K for Fiscal 2019. For any awards that are subject to performance conditions, the reported value is the
value at the grant date based upon the probable outcome of such conditions.
OUTSTANDING EQUITY AWARDS AT THE END OF FISCAL 2019
The following table sets forth information on the holdings of stock awards by our Named Officers as of February 28, 2019.
EQUITY INCENTIVE PLANAWARDS: MARKET OR
PAYOUT VALUE OFUNEARNED SHARES,UNITS OR OTHER RIGHTSTHAT HAVE
NOTVESTED ($) (3)
(1) Number of shares represent aggregate historical grants of RSAs and service-based RSUs (for Mr. Shander) that remained outstanding as
of the end of Fiscal 2019. Each of the Named Officers was granted RSAs on or about May 25 in 2015, 2016 and 2017, and on May 15, 2018 (other than Mr. Shander, who was first granted such awards in May 2017). The RSAs vest over a four-year period,
subject to achievement of the performance condition, with 25% vesting after approximately one year and the remainder vesting quarterly thereafter over an additional three years. See the section entitled Compensation Discussion and
AnalysisExecutive Compensation Program StructureEquity Compensation for additional information about the outstanding performance-based equity awards. On January 19, 2016 and July 18, 2016, Mr. Shander was granted service-based RSUs
that vest 25% on each anniversary of the respective grant date over a four-year period beginning on the respective grant date.
(2) Maintaining a continuing
Business Relationship is a condition to receiving share payouts under each equity award.
(3) The market value of the shares or units was calculated by multiplying
the number of shares of common stock by $182.60, the closing stock price on the last trading day of Fiscal 2019.
(4) Number of shares represent aggregate
historical grants of (i) Operating PSUs and TSR PSUs and assumes maximum payouts for such awards that remained outstanding at the end of Fiscal 2019. Each of the Named Officers was granted Operating PSUs and TSR PSUs on or about May 25 in 2016 and
2017, and on May 15, 2018 (other than Mr. Shander, who was first granted such awards in May 2017). Operating PSUs are earned based on relative performance at the end of the second fiscal year after the grant date (capped at 50% of the maximum
payout) and again at the end of the third fiscal year after the grant date (100% of the maximum payout, less amounts earned in the first payout). TSR PSUs are earned based on relative TSR performance at the end of the third fiscal year following the
OPTION EXERCISES AND STOCK VESTED IN FISCAL 2019
The following table sets forth information on the number and value of shares of stock vested during Fiscal 2019 for our Named Officers. The Named Officers had no
outstanding stock options during Fiscal 2019.
(1) The value realized on vesting is based on the closing price of our common stock on the date of vesting.
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL
Each Named Officer is eligible to receive compensation in certain circumstances following the termination of employment. Although a substantial portion of compensation
for Red Hats executives is performance-based and contingent on the achievement of Company and individual performance goals, the Compensation Committee has determined that severance and change in control benefits are appropriate in order to
(i) attract and retain executive talent, (ii) avoid the distraction and costs associated with potentially protracted separation negotiations or disputes and (iii) help ensure in the event of an actual or threatened change in control
of the Company that personal concerns are less likely to impede a transaction that may be in the best interests of our stockholders.
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL
The Compensation Committee believes it equitable to offer severance benefits to our Named Officers because severance often serves as a bridge when employment is
involuntarily or constructively terminated without cause and severance benefits should therefore not be affected by other accumulated compensation.
CHANGE IN CONTROL ARRANGEMENTS
The Companys change in control arrangements incorporate a double trigger approach for the
benefits to become payable. In other words, benefits are payable only upon a termination by the Company without good cause or a termination by the Named Officer with good reason that occurs during a period following a change in control. These change
in control arrangements are designed to:
retain these executives;
motivate our executives to advise our Board about a potential transaction that may be in the best interests of stockholders;
mitigate concerns that, in the event that the Company is considering a change in control transaction, our executives may be
unduly influenced by personal concerns about the economic consequences of the possible loss of their jobs; and
prevent these executives from receiving a windfall solely because a change in control has occurred.
Accordingly, the Compensation Committee believes that the change in control arrangements serve the best interests of stockholders because they help to minimize the
distraction of management during a potential change in control at a cost that the Compensation Committee believes is both appropriate and reasonable.
POLICY PROHIBITING NEW GROSS-UP PAYMENT ARRANGEMENTS
We have a policy prohibiting the Company from entering into any new agreements to provide gross-up payments for excise taxes paid
under Section 4999 of the Code by any of our executives.
We have entered into no new, nor
modified any existing, provisions that provide for the Company to reimburse any individual for the amount of any excise tax paid under Section 4999 of the Code, or made any other material modifications to the Senior Management Change in Control
Severance Policy since December 2007.
ARRANGEMENTS WITH NAMED OFFICERS
Each Named Officer must execute a valid release of claims and comply with non-compete,
non-solicit, non-disparagement and other covenants for one year following termination of employment in order to be eligible for severance payments.
Terms set in Mr. Whitehursts 2007 Executive Employment Agreement and the applicable equity award agreements
Change in Control Benefit Trigger: Mr. Whitehurst is entitled to benefits if: (i) the Company terminates
his employment without cause either within three months prior to a change in control, or upon or within 24 months after a change in control, or (ii) Mr. Whitehurst terminates his employment with good reason upon or within 24 months after a
change in control.
Cause: Conviction of, or guilty or no contest plea to, felony; gross or willful misconduct that is materially
injurious to Red Hat; or a failure to materially perform duties or comply with terms of a non-competition or confidentiality agreement.
Good Reason: Material reduction or diminution in title, position, authority, duties or responsibilities; the
Companys breach of a material provision of Mr. Whitehursts employment agreement (other than an across-the-board reduction applicable to all Named
Officers of not more than 10%); the Companys failure to obtain a satisfactory agreement from any successor company to assume and agree to Mr. Whitehursts employment agreement; the Companys failure to re-nominate, or the Companys removal of, Mr. Whitehurst from the Board without cause or as a result of a stockholder election in connection with an actual or threatened proxy contest involving election of
officers; or removal of Mr. Whitehursts primary office location outside of the Raleigh-Durham area.
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL
Termination Without Cause
150% annual basesalaryPro-rated targetbonus
Paid in equal installments over 18 months
Earned but unpaidbase
Pro-rated portion ofPSUs earned
forperformance segment that hasbegun, but notcompleted
Termination With Good Reason
150% annual basesalaryPro-rated target bonus
Change in Control With Termination Without Cause or With Good Reason
200% of annualbase salary
200% target bonus
Earned but unpaidbase salary
Lump sum payment
Termination Due to Retirement
Termination Due to Death or Disability
Terms set in Senior Management Severance Plan, Senior Management Change in Control Severance Policy and the applicable
equity award agreements
Change in Control Benefit Trigger: The other Named Officers are entitled to benefits if within one year of a change
in control, the Company or its successor terminates the Named Officer for good cause or the Named Officer terminates employment with good reason.
Good Cause: Conviction of, or guilty or no contest plea to, felony; willful misconduct, fraud, embezzlement, theft,
dishonesty or material violation of Code of Business Conduct and Ethics that result in material harm to Red Hat; repeated and continuing failure to follow directions; illegal drug use or alcohol or prescription drug abuse affecting work performance
(Senior Management Severance Plan); or material breach of a non-competition or confidentiality agreement.
Good Reason: Reduction of annual base salary or annual target cash bonus opportunity (other than an across-the-board reduction applicable to all Named Officers of not more than 10%); significant and substantial reduction in responsibilities and authority; material adverse
change in reporting relationship; or requirement to be based in a location greater than 50 miles from primary office location and in a new office location that is a greater distance from principal residence.
Multiple of annual base salary:
Cormier, Oberoi,Shander: 2 XCunningham: 1.8 X
Earlier of 180 daysadditional vestingcredit, 10 days afterperformancecertification,
orexpiration of awardPro-rated portion of PSUs earned forperformance segment that has
begun, but not
Termination With GoodReason
Multiple of annual basesalary:Cormier, Oberoi,Shander: 2 XCunningham: 1.8 X
Change in Control WithTermination WithoutCause or With GoodReason
200% of sum of annual base salary plus the average annual cash bonuses earned during two previous fiscal yearsPro-rated bonus
amount of any excisetax payable under
Section 4999 of theCode and to coverany additional taxesimposed inconnection withreimbursement
Termination Due toRetirement
Termination Due to Death or Disability
(1) Upon a change-in-control, Operating and TSR PSUs may
also be continued, assumed, converted or substituted for shares of restricted stock (the number of shares of restricted stock to be delivered as described in the table above) and will vest 25% at the end of the first year, 50% at the end of the
second year and 100% at the end of the third year, subject to maintaining a qualified Business Relationship with the successor company.
RETENTION ARRANGEMENTS IN CONNECTION WITH THE MERGER TRANSACTION
In connection with the Merger Transaction, certain of our executive officers, including the Named Officers, will receive merger consideration for shares received in
respect of equity awards that may vest in accordance with their terms prior to the Closing Date. They will also be eligible to receive the retention awards described below and may receive additional severance payments and benefits in the event of a
termination of employment in connection with the Merger Transaction. For informational purposes, additional details about these arrangements may be found in the definitive proxy statement on Schedule 14A filed with the SEC on December 12, 2018 and
supplemented on January 4, 2019 (the Merger Proxy Statement).
CASH RETENTION PAYMENTS
The Compensation Committee approved cash retention awards (each, a Retention Payment) to Messrs. Cormier, Cunningham, Oberoi and Shander under a special bonus
program created by Red Hat to assist in retaining key employees, including Named Officers, in the period through and after the Closing Date. The Retention Payments vest in two installments: (i) for Messrs. Cormier, Cunningham and Oberoi, 75% of the
Retention Payment vests on the Closing Date and 25% of the Retention Payment vests on the six-month anniversary of the Closing Date; and (ii) for Mr. Shander, 50% of the Retention Payment vests on the six-month anniversary of the Closing Date and
50% of the Retention Payment vests on the one-year anniversary of the Closing Date. In order to receive a Retention Payment installment, the Named Officer must remain continuously employed by Red Hat or an affiliate of Red Hat through the applicable
vesting date. In the event that the Named Officer is involuntarily terminated by
Red Hat or an affiliate of Red Hat without Cause (as defined in the Retention Payment
award agreement) after the Closing Date and prior to payment in full of the Retention Payment, the Named Officer will receive any unpaid portion of the Retention Payment. For informational purposes, additional details about these arrangements may be
found in our Current Reports on Form 8-K filed on May 21, 2019 and June 4, 2019.
Certain of our executive officers, including the Named Officers, may also be
eligible to receive future retention payments pursuant to an agreement between such officer and IBM. For informational purposes, a discussion of these retention payments may be found in the Merger Proxy Statement.
POTENTIAL PAYMENTS UPON A TERMINATION OR CHANGE IN CONTROL ON FEBRUARY 28, 2019
The following table sets forth information on the potential payments to Named Officers upon a termination or change in control of the Company, assuming the termination
or change in control took place on February 28, 2019, the last day of Fiscal 2019. It does not reflect any payments that a Named Officer may receive in connection with the Merger Transaction. All equity awards are valued based on $182.60,
our closing stock price on February 28, 2019. Due to the number of factors that affect the nature and amount of any benefits provided upon the events discussed below, any actual amounts paid or distributed may differ from those set forth below.
James M. Whitehurst
Termination Without Cause
Termination With Good Reason
Change in Control With Termination Without Cause or With Good Reason
Termination Due to Retirement
(1) Amounts in this column are based on base salary as of February 28, 2019 and
amounts received under our annual cash bonus plan for Fiscal 2018 and Fiscal 2017. For purposes of determining the amount of (x) the pro-rated annual cash bonus for Fiscal 2019 to be paid to the Named
Officers other than Mr. Whitehurst upon a Change in Control With Termination Without Good Cause or With Good Reason, (y) the annual cash bonus for Fiscal 2019 to be paid upon retirement and (z) the annual cash bonus for Fiscal 2019 to
be paid to Mr. Whitehurst upon a termination due to death or disability, amounts are equal to the annual cash bonus amounts actually paid in respect of Fiscal 2019 performance.
(2) Amounts in this column are equal to the value of RSAs outstanding that would vest upon the triggering event described in the first column under the name of each
(3) Amounts in this column are equal to the value of all forms of PSUs outstanding that would be distributed upon the triggering event described in
the first column under the name of each Named Officer. We have assumed that (i) Operating PSU awards granted in Fiscal 2018 would vest based on the performance achieved in Fiscal 2019 less any amounts previously paid out under the award and
(ii) Operating PSU awards granted in Fiscal 2019 and the TSR PSU awards would vest at the target level. For purposes of determining whether any payment received by a Named Officer upon a Change in Control With Termination Without Good Cause or
With Good Reason would constitute an excess parachute payment subject to an excise tax under Section 4999 of the Code, the Operating and TSR PSUs are treated as performance-based compensation.
(4) Amounts in this column were calculated using an assumed total cost of welfare benefits of $22,081 per year. Mr. Whitehursts welfare benefits also include
an annual cost of $35,000 to continue his life insurance that he would receive upon a Change in Control With Termination Without Cause or With Good Reason.
purposes of determining whether any payment received by a Named Officer upon a Change in Control With Termination Without Good Cause or With Good Reason would constitute an excess parachute payment subject to an excise tax under
Section 4999 of the Code, the acceleration value of vested RSAs was calculated using the applicable federal rates published by the Internal Revenue Service.
ITEM NO. 2ADVISORY VOTE ON EXECUTIVE COMPENSATION
We are asking stockholders to approve, on an
advisory basis, a resolution relating to the Companys executive compensation program as reported in the sections of this Proxy Statement under Compensation Discussion and Analysis, which describes how our executive compensation
program is designed and operates, and the Summary Compensation Table and other related compensation tables, which provide additional information about the compensation of our Named Officers. Consistent with the preference expressed by our
stockholders at the Companys 2017 Annual Meeting of Stockholders, the Company will hold an annual advisory vote on executive compensation until the next vote on the preferred frequency of advisory votes on executive compensation.
The Board and the Compensation Committee believe that our executive compensation program has supported and contributed to the Companys recent and long-term success
and the creation of long-term stockholder value and is effective in helping the Company attract and retain the high caliber of executive talent necessary to drive our business forward and build sustainable value for our stockholders.
In accordance with regulations issued under Section 14A of the Exchange Act, we are asking stockholders to approve the following
non-binding advisory resolution at the Annual Meeting:
RESOLVED, that the compensation paid to the
Companys Named Officers, as disclosed in the Compensation Discussion and Analysis section, compensation tables and narrative discussion of the Proxy Statement for the 2019 Annual Meeting of Stockholders, is hereby APPROVED.
While this advisory resolution, commonly referred to as a say on pay resolution, is non-binding, the Compensation
Committee will carefully review and consider the voting results when making future decisions regarding our executive compensation program.
THE BOARD OF DIRECTORS
RECOMMENDS A VOTE FOR THE RESOLUTION
RELATING TO RED HATS EXECUTIVE
EVALUATION AND SELECTION OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Audit Committee of the Board is directly responsible for the appointment, compensation, retention and oversight
of the independent registered public accounting firm retained to audit our financial statements. The Audit Committee evaluates the performance of PricewaterhouseCoopers LLP (PwC), the Companys independent registered public
accounting firm, to determine whether to re-engage PwC or consider other audit firms and exercises sole authority to approve all audit engagement fees and terms associated with the retention of PwC. The Audit
Committees decision to retain and recommend that stockholders ratify the selection of PwC involved a number of considerations, including:
Performance on prior audits and the quality and efficiency of the services provided by PwC;
PwCs continued independence;
PwCs global capabilities and technical expertise;
PwCs tenure as the Companys independent registered public accounting firm, including PwCs significant
institutional knowledge and understanding of the Companys business and the independence risks of a long-tenured auditor;
The quality and depth of PwCs staff;
PwCs effectiveness of communications and working relationship with the Audit Committee, management and internal
The appropriateness of the fees paid to PwC; and
External data on audit quality and performance, including recent Public Company Accounting Oversight Board reports on PwC
and its peer firms.
The Audit Committee also reviews and evaluates the performance of the lead audit partner responsible for our audit, oversees
the required rotation of the lead audit partner and, through the Audit Committee Chair as a representative of the Audit Committee, reviews the selection of the lead audit partner. The lead partner for our audit rotates every five years and our
current lead partner was appointed in Fiscal 2020. The Audit Committee also discussed with PwC its independence from the Company and determined that PwCs provision of certain services to the Company, other than services rendered in connection
with the audit or review of the Companys financial statements, is compatible with maintaining PwCs independence.
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMS FEES
The following table summarizes the fees PwC billed to the Company for each of the last two fiscal years.
Audit Fees (1)
Audit-Related Fees (2)
Tax Fees (3)
All Other Fees (4)
(1) Audit Fees consist of fees for the integrated audit of the Companys annual financial statements, the review of the
interim financial statements included in the Companys Quarterly Reports on Form 10-Q and other professional services provided in connection with statutory and regulatory filings or engagements for those
fiscal years. The increase in Audit Fees in Fiscal 2019 is primarily due to an increase in the scope of the integrated audit given the Companys growth, the audit of the impact of ASC 606 and the audit of the impact of the 2017 Tax Act.
(2) Audit-Related Fees consist of fees for assurance and related services that are reasonably related to the performance of the audit or review of the
Companys financial statements and which are not reported under Audit Fees. For Fiscal 2019, fees for the review of the Companys continued assessment of ASC 606, the review of the Companys initial assessment of
Accounting Standards Update 2016-02, Leases (Topic 842), a grant audit and due diligence related to the Merger Transaction comprise substantially all of the amounts described. For Fiscal 2018,
fees for the review of the Companys initial assessment of ASC 606 comprise substantially all of the amounts described.
(3) Tax Fees consist of
fees for tax compliance, tax advice and tax planning services. For Fiscal 2019, tax audit assistance, tax planning services related to the 2017 Tax Act, tax compliance and tax advice comprise substantially all of the amounts described. For Fiscal
2018, fees for tax compliance, tax advice, and tax planning services related to the 2017 Tax Act comprise substantially all of the amounts described.
Other Fees consist of fees for products and services provided by the independent registered public accounting firm other than for the services reported above in Audit Fees, Audit-Related Fees or Tax Fees. For Fiscal 2019 and Fiscal 2018, fees
for conducting customer compliance audits and use of a research tool comprise substantially all of the amounts described. The increase in All Other Fees in Fiscal 2019 is primarily due to an increase in the number of customer compliance audits
PRE-APPROVAL POLICIES AND PROCEDURES
PRE-APPROVAL POLICIES AND
The Audit Committee has adopted policies and procedures relating to the approval of all audit and non-audit
services that are to be performed by our independent registered public accounting firm. This policy generally provides that we will not engage our independent registered public accounting firm to render audit or
non-audit services unless the service is specifically approved in advance by the Audit Committee or the engagement is entered into pursuant to one of the pre-approval
procedures described below.
From time to time, the Audit Committee may pre-approve specified types of services that are
expected to be provided by our independent registered public accounting firm during the next 12 months. Any such pre-approval is based upon a description of the particular service or type of services to be
provided and an estimate of the fee associated with such service.
The Audit Committee may delegate, and has delegated to the Chair of the Audit Committee, the
authority to pre-approve any audit or non-audit services to be provided by our independent registered public accounting firm. The Audit Committee also may delegate this pre-approval authority to other individual members of the Audit Committee from time to time. Any pre-approval of services by any member of the Audit Committee pursuant to this
delegated authority, whether the Chair or another member, is reported at the next meeting of the Audit Committee.
For Fiscal 2019 and Fiscal 2018, all audit and non-audit services provided by the independent registered public accounting firm were pre-approved by the Audit Committee directly or pursuant to this delegated authority.
AUDIT COMMITTEE REPORT
The following is the
report of the Audit Committee with respect to the Companys audited financial statements for Fiscal 2019 that are included in the Companys Annual Report on Form 10-K for Fiscal 2019.
The Audit Committee operates under a written charter last amended by the Board in December 2018. A copy of the Audit Committee Charter is available at the Companys
website at www.redhat.com under Red Hat & open sourceInvestor relationsCorporate GovernanceGovernance documents. The Audit Committee is comprised solely of independent directors as required by the listing
standards of the NYSE and rules and regulations of the SEC.
The membership of the Audit Committee and its responsibilities are further described in the section
entitled GovernanceCommittees of the BoardAudit Committee.
CONDUCT OF AUDIT COMMITTEE MEETINGS
The Audit Committees agenda is established by its chairperson with input from the committee members and the Companys Chief Financial Officer. Audit Committee
meetings are designed to facilitate and encourage communication among members of the Audit Committee and the Companys management, its head of the Internal Audit function and its independent registered public accounting firm,
PricewaterhouseCoopers LLP (PwC).
During its Fiscal 2019 meetings, the Audit Committee reviewed and discussed various financial and regulatory issues,
as well as reports of the Companys internal auditors, its independent registered public accounting firm and management. As a part of these meetings, the Audit Committee regularly held separate executive sessions with representatives of the
Companys independent registered public accounting firm, the Companys management and its head of the Internal Audit function, at which candid discussions of financial management, accounting, internal controls, legal and compliance issues
took place. Additionally, the Audit Committees chairperson held separate discussions from time to time with representatives of PwC and the Companys Chief Financial Officer, head of the Internal Audit function and General Counsel.
AUDIT COMMITTEE REVIEW OF PERIODIC REPORTS
Committee reviews each of the Companys quarterly and annual reports, including Managements Discussion and Analysis of Financial Condition and Results of Operations. As part of this review, the Audit Committee discusses the reports with
the Companys management and considers the reports prepared by the independent registered public accounting firm about the Companys annual reports and communications from the firm related to quarterly reviews, as well as related matters
such as the quality of the Companys accounting principles, alternative methods of accounting under U.S. generally accepted accounting principles and the preferences of the independent registered public accounting firm in this regard, the
Companys critical accounting policies and the clarity and completeness of the Companys financial and other disclosures.
AUDIT COMMITTEES ROLE IN CONNECTION WITH THE COMPANYS REPORT ON INTERNAL CONTROLS
The Audit Committee reviewed managements report on internal control over financial reporting, as required under Section 404 of the Sarbanes-Oxley Act of 2002
and related rules. As part of this review, the Audit Committee reviewed the bases for managements conclusions in that report and the report of the independent registered public accounting firm on internal control over financial reporting.
Periodically during Fiscal 2019, the Audit Committee reviewed plans for documenting and testing controls, the results of such documentation and testing, any deficiencies discovered and the status of remediation of deficiencies.
AUDIT COMMITTEES ROLE IN CONNECTION WITH THE FINANCIAL STATEMENTS AND CONTROLS OF THE COMPANY
Management of the Company has primary responsibility for the Companys financial statements and internal control over financial reporting. The independent registered
public accounting firm has responsibility for the integrated audit of the Companys financial statements and internal control over financial reporting. The responsibility of the Audit Committee is to oversee financial and control matters, among
other responsibilities fulfilled by the Audit Committee under its charter. The Audit Committee meets regularly with the independent registered public accounting firm, without the presence of management, to help ensure candid and constructive
discussions about the Companys compliance with accounting standards and best practices among public companies comparable in size and scope to the Company. The Audit Committee also reviews with its outside advisors material developments in
accounting that may be pertinent to the Companys financial reporting practices.
REVIEW AND DISCUSSIONS WITH INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
In its meetings with representatives of PwC, the Audit Committee asked the independent registered public accounting firm to address and
discuss its responses to several questions that the Audit Committee believed were particularly relevant to its oversight. These questions included:
Are there any significant judgments made by management in preparing the financial statements that would have been made
differently had the independent registered public accounting firm prepared and been responsible for the financial statements?
Based on the independent registered public accounting firms experience, and its knowledge of the Company, do the
Companys financial statements fairly present, in all material respects, to investors, the Companys financial position and performance for the reporting period in accordance with U.S. generally accepted accounting principles and SEC
Based on the independent registered public accounting firms experience, and its knowledge of the Company, has the
Company implemented internal controls over financial reporting that are appropriate for the Company and have such controls operated effectively as of the end of the Companys fiscal year?
During the course of the fiscal year, has the independent registered public accounting firm received any communication or
discovered any information indicating any improprieties with respect to the Companys accounting and reporting procedures or reports?
Audit Committee has also discussed with the independent registered public accounting firm that it is retained by the Audit Committee and that the independent registered public accounting firm must raise any concerns about the Companys
financial reporting and procedures directly with the Audit Committee. Based on these discussions and its discussions with management, the Audit Committee believes it has a basis for its oversight judgments and for recommending that the
Companys audited financial statements be included in the Companys Annual Report on Form 10-K for Fiscal 2019.
AUDIT COMMITTEE ACTIVITY WITH REGARD TO THE COMPANYS AUDITED FINANCIAL STATEMENTS FOR FISCAL 2019
The Audit Committee has, among other actions:
reviewed and discussed the audited financial statements with the Companys management; and
discussed with PwC the matters required to be discussed by the applicable requirements of the Public Company Accounting
Oversight Board (PCAOB).
INDEPENDENCE OF THE COMPANYS INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Audit Committee has received the written disclosures and the letter from PwC required by applicable requirements of the PCAOB regarding PwCs
communications with the Audit Committee concerning independence. The Audit Committee has reviewed these materials and discussed with PwC its independence. The Audit Committee has concluded that PwC is independent from the Company and its management.
Based on its review and discussion with management and the Companys independent registered public accounting firm, the Audit Committee recommended to the Board that
the Companys audited financial statements be included in the Companys Annual Report on Form 10-K for Fiscal 2019. The Audit Committee and Board also have recommended the stockholder ratification of
the selection of PwC as the Companys independent registered public accounting firm for Fiscal 2020.
THE AUDIT COMMITTEE
W. Steve Albrecht (Chair)
Charlene T. Begley
Alfred W. Zollar
The information contained in the foregoing
report shall not be deemed to be soliciting material, or to be filed with the SEC or subject to Regulation 14A or 14C (other than as provided in Item 407 of Regulation S-K) or to
the liabilities of Section 18 of the Exchange Act, except to the extent Red Hat specifically requests that the information be treated as soliciting material or specifically incorporates it by reference into a document filed under the Securities
Act of 1933, as amended, or the Exchange Act. This information shall not be deemed to be incorporated by reference into any filing of Red Hat under the Securities Act of 1933, as amended, or the Exchange Act, except as expressly set forth by
specific reference in such a filing.
ITEM NO. 3RATIFICATION OF SELECTION OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
The Audit Committee of the Board has appointed PwC to serve as our independent registered public accounting firm for
Fiscal 2020. PwC has served as our independent registered public accounting firm since 1999. The members of the Audit Committee and the Board believe that the continued retention of PwC to serve as our independent registered public accounting firm
is in the best interests of the Company and its stockholders.
Although stockholder ratification of the selection of our independent registered public accounting
firm is not required under Delaware law, our Certificate of Incorporation or our By-laws, the Company believes it is advisable to provide our stockholders with the opportunity to ratify this selection. If our
stockholders do not ratify the selection of PwC as our independent registered public accounting firm for Fiscal 2020, the Audit Committee of our Board will consider whether to select a new independent registered public accounting firm for Fiscal
2020 or to wait until the completion of the audit for Fiscal 2020 before considering a change in our independent registered public accounting firm.
of PwC are expected to attend our Annual Meeting, will have the opportunity to make a statement if so desired and will be available to respond to appropriate questions.
THE BOARD OF DIRECTORS
RECOMMENDS A VOTE FOR THE RATIFICATION
OF THE SELECTION OF
PRICEWATERHOUSECOOPERS LLP AS THE
COMPANYS INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM FOR FISCAL 2020
The tables below set forth, as of May 31, 2019 (unless
otherwise indicated), certain information regarding beneficial ownership of our common stock. We determine beneficial ownership of our common stock in accordance with the rules of the SEC. Under these rules, beneficial ownership includes any shares
as to which the individual or entity has sole or shared voting power or investment power and includes any shares of common stock which the individual has the right to acquire on or before July 30, 2019 through payout of DSUs or RSUs. As of
May 31, 2019, we had 178,083,153 shares of common stock outstanding. For purposes of computing the percentage and amount of outstanding shares of common stock held by each individual or entity, any shares which that individual or entity
has the right to acquire on or before July 30, 2019 are deemed to be outstanding for the individual or entity but such shares are not deemed to be outstanding for the purpose of computing the percentage ownership of any other individual or
OWNERSHIP BY OUR DIRECTORS AND EXECUTIVE OFFICERS
The following table includes information regarding the number of shares of our common stock beneficially owned by each of our directors, director nominees and Named
Officers, as well as all of our current directors and executive officers as a group, as of May 31, 2019.
NAME AND ADDRESS OF BENEFICIAL OWNER
James M. Whitehurst (3)
Paul J. Cormier (4)
Arun Oberoi (5)
William S. Kaiser (6)
Michael R. Cunningham (7)
Eric R. Shander (9)
Sohaib Abbasi (10)
W. Steve Albrecht (11)
Kimberly L. Hammonds (12)
Charlene T. Begley (13)
Alfred W. Zollar (14)
Kevin M. Murai (15)
All current executive officers and directors as a group (15 persons) (16)
* Less than one percent of the outstanding common stock.
(1) The address for each beneficial owner is c/o Red Hat, Inc., 100 East Davie Street, Raleigh, North Carolina 27601.
(2) Each person named in the table reported that he or she has sole voting and investment power (or shares such power with his or her spouse) with respect to all shares
shown as beneficially owned by him or her, except as noted in the footnotes below and subject to community property laws, if applicable. The inclusion herein of any shares of common stock does not constitute an admission of direct or indirect
beneficial ownership of those shares.
(3) Consists of (i) 265,187 shares of common stock and (ii) 116,746 shares of restricted stock vesting over three or four
years from the date of grant.
(4) Consists of (i) 46,061 shares of common stock, (ii) 56,165 shares of restricted stock vesting over three or four years from the
date of grant and (iii) 158,971 shares of common stock held of record by the Paul J. Cormier Grantor Retained Annuity Trust of 2018.
(5) Consists of (i) 141,021
shares of common stock and (ii) 44,078 shares of restricted stock vesting over three or four years from the date of grant.
(6) Consists of (i) 61,652 shares of
common stock, (ii) 1,710 shares of restricted stock vesting one year from the date of grant and (iii) 7,190 shares of common stock issuable upon payout of DSUs.
(7) Consists of (i) 30,860 shares of common stock and (ii) 29,072 shares of restricted stock vesting over three or four years from the date of grant.
(8) Consists of (i) 7,345 shares of common stock and (ii) 46,284 shares of common stock issuable upon payout of DSUs.
(9) Consists of (i) 12,695 shares of common stock, (ii) 38,878 shares of restricted stock vesting over three or four years from the date of grant and (iii) 1,716 shares
of common stock issuable upon vesting of RSUs.
(10) Consists of (i) 7,985 shares of common stock, (ii) 31,972 shares of common stock issuable upon payout of DSUs
and (iii) 60 shares of common stock held of record by the Abbasi Family 2003 Charitable Remainder Unitrust for which Mr. Abbasi is the trustee.
of (i) 15,144 shares of common stock and (ii) 15,392 shares of common stock issuable upon payout of DSUs.
(12) Consists of (i) 9,551 shares of common stock and
(ii) 1,710 shares of restricted stock vesting one year from the date of grant.
(13) Consists of (i) 8,144 shares of common stock and (ii) 1,710 shares of
restricted stock vesting one year from the date of grant.
(14) Consists of (i) 2,337 shares of restricted stock vesting over one year or three years from the date
of grant and (ii) 219 shares of common stock issuable upon payout of DSUs.
(15) Consists of 2,389 shares of restricted stock vesting over three years from the date
(16) Consists of (i) 803,702 shares of common stock, (ii) 336,947 shares of restricted stock vesting over one year, three years, or four years from the
date of grant and (iii) 102,773 shares of common stock issuable upon payout of DSUs or vesting of RSUs.
OWNERSHIP OF MORE THAN 5% OF OUR COMMON STOCK
The following table sets forth information on each person or entity who we believe, based on our review of public filings, or information provided, by such persons or
entities, beneficially owns more than 5% of our common stock as of May 31, 2019.
NAME AND ADDRESS OF BENEFICIAL OWNER
The Vanguard Group, Inc. (2)
100 Vanguard Boulevard
T. Rowe Price Associates, Inc. (3)
100 East Pratt Street
BlackRock, Inc. (4)
East 52nd Street
New York, NY 10055
(1) Percentages are calculated based on our common stock outstanding as of May 31, 2019.
(2) Based solely on a Schedule 13G/A filed with the SEC on February 11, 2019 by The Vanguard Group, Inc. (Vanguard). As of December 31, 2018,
Vanguard reported sole power to vote or direct the vote over 217,012 shares, shared power to vote or direct the vote over 43,666 shares, sole power to dispose or direct the disposition of 18,424,351 shares and shared power to dispose or direct the
disposition of 258,170 shares. Includes 162,430 shares beneficially owned by Vanguard Fiduciary Trust Company (VFTC) as a result of its serving as investment manager of collective trust accounts. Also includes 148,252 shares beneficially
owned by Vanguard Investments Australia, Ltd. (VIA) as a result of its serving as investment manager of Australian investment offerings. VFTC and VIA are wholly-owned subsidiaries of Vanguard.
(3) Based solely on information provided by T. Rowe Price Associates, Inc. (Price Associates) in a letter dated March 1, 2019 regarding its beneficial
ownership of our common stock as of December 31, 2018. As of December 31, 2018, Price Associates had sole power to vote or direct the vote over 6,296,872 shares and sole power to dispose or direct the disposition of 15,428,093 shares.
These securities are owned by various individual and institutional investors which Price Associates serves as an investment adviser with power to direct investments and/or sole power to vote the securities. For the purposes of the reporting
requirements of the Securities Exchange Act of 1934, Price Associates is deemed to be a beneficial owner of such securities; however, Price Associates expressly disclaims that it is, in fact, the beneficial owner of such securities.
(4) Based solely on a Schedule 13G/A filed with the SEC on February 11, 2019 by BlackRock, Inc. and includes shares held by certain of its subsidiaries. As of
December 31, 2018, BlackRock, Inc. reported sole power to vote or direct the vote over 10,666,401 shares and sole power to dispose or direct the disposition of 12,161,993 shares.
EQUITY COMPENSATION PLAN INFORMATION
table summarizes our equity compensation plan information as of February 28, 2019.
PLAN CATEGORY (1)
NUMBER OF SECURITIES
TO BE ISSUED UPON
WARRANTS AND RIGHTS
EXERCISE PRICE OF
WARRANTS AND RIGHTS
NUMBER OF SECURITIES
REMAINING AVAILABLE FOR
FUTURE ISSUANCE UNDER
EQUITY COMPENSATIONPLANS (EXCLUDINGSECURITIES
REFLECTED IN COLUMN (A)) (3)
Equity compensation plans approved bysecurity holders (4)
Equity compensation plans not approved bysecurity holders (5)(6)
(1) A total of 22,599 shares representing options and a total of 5,502,715 full value awards (DSUs, RSUs, PSUs, and RSAs) were
outstanding as of February 28, 2019; however, the table excludes: (i) 8,667 shares representing options outstanding under compensation plans assumed in connection with the acquisitions of Gluster, Inc. and Inktank Storage, Inc. and (ii) 191,563
shares underlying outstanding RSAs under the 2004 Long-Term Inc