ntap-def14a_20190912.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

SCHEDULE 14A

PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE

SECURITIES EXCHANGE ACT OF 1934

(Amendment No.      )

 

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

Check the appropriate box:

Preliminary Proxy Statement

Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

Definitive Proxy Statement

Definitive Additional Materials

Soliciting Material Pursuant to §240.14a-12

NETAPP, INC.

(Name of Registrant as Specified In Its Charter)

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

No fee required.

Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

 

(1)

Title of each class of securities to which transaction applies:

 

 

(2)

Aggregate number of securities to which transaction applies:

 

 

(3)

Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):

 

 

(4)

Proposed maximum aggregate value of transaction:

 

 

(5)

Total fee paid:

 

Fee paid previously with preliminary materials.

Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

 

(1)

Amount Previously Paid:

 

 

(2)

Form, Schedule or Registration Statement No.:

 

 

(3)

Filing Party:

 

 

(4)

Date Filed:

 

 


NETAPP, INC.

1395 Crossman Avenue

Sunnyvale, California 94089  

www.virtualshareholdermeeting.com/NTAP2019

 

 

 

 

You are cordially invited to attend the Annual Meeting of Stockholders, and any adjournment, postponement or other delay thereof (the “Annual Meeting”), of NetApp, Inc., a Delaware corporation (“NetApp”), which will be held on Thursday, September 12, 2019 at 2:30 p.m. Pacific time at NetApp’s headquarters located at 1395 Crossman Avenue, Sunnyvale, California 94089. You may also attend the Annual Meeting via the Internet at www.virtualshareholdermeeting.com/NTAP2019. We are holding the Annual Meeting for the following purposes:  

 

1.

To elect the following individuals to serve as members of the Board of Directors until the 2020 Annual Meeting of Stockholders (the “2020 Annual Meeting”) or until their respective successors are duly elected and qualified: T. Michael Nevens, Gerald Held, Kathryn M. Hill, Deborah L. Kerr, George Kurian, Scott F. Schenkel and George T. Shaheen;

 

2.

To approve amendments to NetApp’s Amended and Restated 1999 Stock Option Plan to increase the share reserve by an additional 4,000,000 shares of common stock and to approve a new 10-year term for the 1999 Stock Option Plan;

 

3.

To approve an amendment to NetApp’s Employee Stock Purchase Plan to increase the share reserve by an additional 2,000,000 shares of common stock;

 

4.

To hold an advisory vote to approve Named Executive Officer compensation;

 

5.

To ratify the appointment of Deloitte & Touche LLP as NetApp’s independent registered public accounting firm for the fiscal year ending April 24, 2020; and

 

6.

To transact such other business as may properly come before the Annual Meeting.

The foregoing items of business are more fully described in the Proxy Statement that accompanies this Notice of Annual Meeting of Stockholders. The Board of Directors has fixed the close of business on July 17, 2019, as the record date for determining the stockholders entitled to notice of and to vote at the Annual Meeting.


In accordance with the rules and regulations of the Securities and Exchange Commission, we have elected to provide access to our proxy materials over the Internet. Accordingly, NetApp will mail, on or about July 24, 2019, a Notice of Internet Availability of Proxy Materials to its stockholders of record and beneficial owners. The Notice of Internet Availability of Proxy Materials will identify: (1) the website where our proxy materials will be made available; (2) the date, time and location of the Annual Meeting; (3) the matters to be acted upon at the Annual Meeting and the Board of Directors’ recommendation with regard to each matter; (4) a toll-free telephone number, an e-mail address, and a website where stockholders can request a paper or e-mail copy of the Proxy Statement, (together with a form of proxy) and our Annual Report on Form 10-K; (5) instructions on how to vote your shares by proxy; and (6) information on how to obtain directions to attend the Annual Meeting and vote in person by ballot or electronically. All proxy materials will be available free of charge.

To assure your representation at the Annual Meeting, you are urged to cast your vote as instructed in the Notice of Internet Availability of Proxy Materials over the Internet or by telephone as promptly as possible. You may also request a paper proxy card to submit your vote by mail, if you prefer. Any stockholder of record attending the Annual Meeting may vote in person by ballot, even if such stockholder has previously voted over the Internet, voted by telephone or returned a signed proxy card. Any beneficial owner who is not a stockholder of record will be required to show a legal proxy from such stockholder’s bank, broker or other nominee in order to vote in person by ballot at the Annual Meeting.

Thank you for your interest in NetApp.

BY ORDER OF THE BOARD OF DIRECTORS,

Chief Executive Officer and President

Sunnyvale, California

August 2, 2019

YOUR VOTE IS EXTREMELY IMPORTANT. TO ENSURE YOUR REPRESENTATION AT THE ANNUAL MEETING, YOU ARE URGED TO VOTE BY TELEPHONE OR OVER THE INTERNET AS PROMPTLY AS POSSIBLE. ALTERNATIVELY, YOU MAY REQUEST A PAPER PROXY CARD, WHICH YOU SHOULD SIGN, DATE AND RETURN BY MAIL

 

 


 

 

PROXY SUMMARY

4

Voting Matters and Recommendation

4

Fiscal 2019 Business Highlights

4

Corporate Governance and Executive Compensation

5

Director Nominees

5

Corporate Governance and Executive Compensation Highlights

5

Cautionary Statement Regarding Forward-Looking Statements

6

GENERAL INFORMATION

7

Why am I receiving these materials?

7

Why did I receive a Notice in the mail regarding the Internet availability of proxy materials?

7

Who can vote at the Annual Meeting?

7

When and where will the Annual Meeting take place?

8

How do I gain admittance to the Annual Meeting?

8

How many shares must be present to hold the Annual Meeting?

8

How many shares of NetApp common stock are entitled to vote at the Annual Meeting?

8

Who will count the votes?

8

How many votes are required for each proposal?

8

How do I vote?

8

How can I change my vote or revoke my proxy?

9

What are abstentions and broker non-votes?

9

How many copies of the proxy materials will be delivered to stockholders sharing the same address?

9

Where may I obtain a copy of the Annual Report?

9

Who pays for the solicitation of proxies?

10

How and when may I submit proposals for consideration at next year’s Annual Meeting of Stockholders?

10

Proposals to be Considered for Inclusion in NetApp’s Proxy Materials

10

Director Nominations for Inclusion in NetApp’s Proxy Materials (Proxy Access)

10

Other Proposals and Nominations

10

OUR BOARD OF DIRECTORS

11

CORPORATE GOVERNANCE

15

Summary

15

Board Leadership Structure

15

Corporate Governance Guidelines

15

Strategy and Risk Oversight

15

Succession Planning

16

Independent Directors

16

Committees of the Board of Directors

16

Corporate Governance and Nominating Committee

16

Compensation Committee

17

Audit Committee

17

Director Selection

17

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Meetings and Committees of our Board of Directors

18

Stockholder Meeting Attendance for Directors

20

Code of Conduct

20

Political Contributions Policy

20

Personal Loans to Executive Officers and Directors

20

Stockholder Communications Policy

20

DIRECTOR COMPENSATION

21

Director Compensation Table

21

Summary of Director Compensation Policy

22

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

25

Section 16(a) Beneficial Ownership Reporting Compliance

27

COMPENSATION DISCUSSION AND ANALYSIS

28

Executive Summary

28

Our Fiscal 2019 Company Performance

28

Objectives of Our Pay Program and the Link Between Pay and Performance

29

Best Practices in Governance

31

Key Elements of Fiscal 2019 Compensation

32

Establishing Compensation

33

Role of the Compensation Committee

33

CEO Input

33

Role of the Compensation Consultant

33

Compensation Peer Group and Use of Market Data

33

Stockholder Engagement and Advisory Vote on Executive Compensation

34

Components of Compensation

35

Base Salary

35

Annual ICP

36

PBRSUs

42

Service-Vested RSUs

43

Other Compensation for NEOs

44

Severance and Change of Control Arrangements

44

Supplemental Benefits and Perquisites

44

Other Benefits and Reimbursements

45

Compensation Policies and Practices

45

Stock Ownership Guidelines

45

Clawback Policy

46

Anti‐Hedging and Anti‐Pledging Policies

46

Tax Deductibility of Compensation

46

COMPENSATION COMMITTEE REPORT

47

EXECUTIVE COMPENSATION AND RELATED INFORMATION

48

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Summary Compensation Table

48

Grants of Plan-Based Awards

50

Outstanding Equity Awards at Fiscal Year End

52

Option Exercises and Stock Vested for Fiscal 2019

53

Nonqualified Deferred Compensation

53

Nonqualified Deferred Compensation for Fiscal 2019

54

Pension Benefits

54

TERMINATION OF EMPLOYMENT AND CHANGE OF CONTROL AGREEMENTS

55

Potential Payments upon Termination or Change of Control

55

Change of Control Severance Agreements

55

Term of Change of Control Severance Agreement

55

Circumstances Triggering Payment under Change of Control Severance Agreement

55

Timing and Form of Severance Payments under Change of Control Severance Agreement

56

Severance Payments Under Change of Control Severance Agreement

56

Conditions to Receipt of Severance under Change of Control Severance Agreement

57

Excise Tax under Change of Control Severance Agreement

57

Definitions Contained in Change of Control Severance Agreement

57

PBRSUs

58

Executive Medical Retirement Plan

59

Estimated Payments Upon Termination of Employment and/or a Change of Control

59

Equity Compensation Plan Information

62

PAY RATIO

63

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

64

CERTAIN TRANSACTIONS WITH RELATED PARTIES

64

AUDIT COMMITTEE REPORT

64

MANAGEMENT PROPOSALS

66

Proposal Number 1: Election of Directors

66

Proposal Number 2: Amendments to the Company’s Amended and Restated 1999 Stock Option Plan

67

Proposal Number 3: Amendment to the Company’s Employee Stock Purchase Plan

78

Proposal Number 4: Advisory Vote to Approve Named Executive Officer Compensation (“Say On Pay”)

84

Proposal Number 5: Ratification of Independent Registered Public Accounting Firm

86

OTHER BUSINESS

88

Annex A

A-1

Non-GAAP Financial Measures

A-2

Appendix A

A-1

Appendix B

B-1

 

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PROXY SUMMARY

This summary highlights information contained within this Proxy Statement. It does not contain all the information found in this Proxy Statement and is qualified in its entirety by the remainder of this Proxy Statement. You should read the entire Proxy Statement carefully and consider all information before voting. Page references are supplied to help you find further information in this Proxy Statement.

Voting Matters and Recommendation

 

Voting Matter

Board Vote

Recommendation

Page

Election of seven director nominees

FOR each nominee

66

Approval of amendments to NetApp’s Amended and Restated 1999
Stock Option Plan

FOR

67

Approval of an amendment to NetApp’s Employee Stock Purchase Plan

FOR

84

Advisory approval of our executive compensation

FOR

86

Ratification of appointment of independent registered public accounting
firm

FOR

88

 

Fiscal 2019 Business Highlights

 

$6.15B
NET REVENUES

$1.17B
GAAP NET INCOME

$1.34B
CASH FLOWS FROM OPERATIONS

 

$13.2B
CASH RETURNED TO STOCKHOLDERS
SINCE MAY 2013

 

EARNINGS PER SHARE

GAAP $4.51
NON-GAAP $4.52

In fiscal 2019, NetApp generated $6.15 billion in net revenues. GAAP net income for fiscal 2019 was $1.17 billion, or $4.51 per share.1 Non-GAAP net income in fiscal 2019 was $1.17 billion, or $4.52 per share.2 Over the course of the year, we generated $1.34 billion in cash flows from operations. We also returned approximately $2.51 billion to stockholders, comprising approximately $2.11 billion through share repurchases and $403 million through dividends. Through share repurchases and dividends, we have returned approximately $13.2 billion to stockholders since May 2013.

In fiscal 2019, NetApp continued to advance its Data Fabric Strategy. In a world where technology is changing our everyday lives, digital transformation remains top of mind for executives. When successful in their digital transformation, organizations use technology to create new customer touchpoints, reinventing customer experiences and relationships through business-oriented approaches to data. Additionally, organizations are able to create innovative business opportunities, taking advantage of emerging market opportunities by rapidly deploying new technologies and optimizing operations to fund new innovations. NetApp delivers a Data Fabric built for the data-driven world. Our Data Fabric simplifies and integrates data management across hybrid

 

1 

GAAP earnings per share is calculated using the diluted number of shares for the period presented. A reconciliation of non-GAAP to GAAP results can be found in Annex A.

2 

Non-GAAP earnings per share is calculated using the diluted number of shares for the period presented. A reconciliation of non-GAAP to GAAP results can be found in Annex A.

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multicloud environments to accelerate digital transformation, enabling our customers to manage, secure and protect their data at the scale needed to accommodate the exponential data growth of the digital world. The Data Fabric delivers integrated data management services and applications for data visibility and insights, data access and control, and data protection and security. By coupling the strength of our Data Fabric strategy and the benefits we deliver to customers with a more efficient and agile business, we believe that we can generate long-term value for stockholders.

See also the “Our Fiscal 2019 Company Performance” section within our “Compensation Discussion and Analysis” on page 28 of this Proxy Statement. Detailed information on our products and our financial performance can be found in our Annual Report on 10-K for the year ended April 26, 2019.

Corporate Governance and Executive Compensation

Director Nominees

 

Name of Nominee

Age

Director Since

Independent

NetApp Committee
Memberships

T. Michael Nevens*

69

2009

Yes

Audit, Corporate Governance and Nominating (Chair)

Gerald Held

71

2009

Yes

Compensation

Kathryn M. Hill

62

2013

Yes

Compensation (Chair), Corporate Governance and Nominating

Deborah L. Kerr

47

2017

Yes

Audit

George Kurian

52

2015

No

 

Scott F. Schenkel

51

2017

Yes

Audit (Chair)

George T. Shaheen

75

2004

Yes

Compensation, Corporate Governance and Nominating

 

 *Chairman of the Board

Audit Committee Financial Expert

Corporate Governance and Executive Compensation Highlights

We are committed to good corporate governance, which promotes the long-term interests of our stockholders and strengthens our Board and management accountability. Our executive compensation program is designed to hold our executives accountable for results over the long-term and reward them for consistently strong corporate performance. Since the 2017 Annual Meeting of Stockholders (the “2017 Annual Meeting”), in response to feedback from our stockholders, we have adopted proxy access bylaws and agreed to share diversity data on our website, which we update annually. We have also adopted bylaw provisions providing stockholders holding at least 25% of the outstanding stock of the Company the right to request special stockholder meetings. In fiscal 2019, we conducted significant stockholder outreach to discuss and solicit feedback on a variety of topics, including our executive compensation and performance-based pay metrics, governance philosophy and practices and board structure and composition.

Governance and executive compensation highlights include:

 

Other than the Chief Executive Officer, our Board comprises all independent directors (i.e., six out of seven directors will be independent);

 

Separation of the roles of Chair of the Board and Chief Executive Officer;

 

Three new directors joined the Board in the last five years;

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Increased board diversity;

 

Majority voting in the uncontested election of directors;

 

Each director is required to submit an irrevocable, conditional resignation effective only upon both (1) the failure to receive the required vote for reelection and (2) our Board’s acceptance of such resignation;

 

Three active standing Board committees with 100% independent members;

 

Proxy access bylaws;

 

Stockholder right to call special meeting;

 

Performance-based equity compensation;

 

Annual Say-on-Pay vote;

 

Director and executive stock ownership guidelines;

 

Anti-hedging and anti-pledging policies;

 

Compensation clawback policy;

 

Diversity data posted on Company website;

 

Board involvement in setting long-term corporate strategy;

 

Board oversight of risk management, including financial, operational, strategic, data privacy, cyber security, legal and regulatory risks;

 

Annual Board and Board committee self-evaluations;

 

Annual assessment of director compensation; and

 

Robust Code of Conduct.

For more information about our corporate governance practices, please refer to the information under “Corporate Governance” beginning on page 15 of this Proxy Statement. For more information about our executive compensation program, please refer to the information under “Compensation Discussion and Analysis” beginning on page 28 of this Proxy Statement.

Cautionary Statement Regarding Forward-Looking Statements

This Proxy Statement may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements are all statements (and their underlying assumptions) included in this Proxy Statement that refer, directly or indirectly, to future events or outcomes and, as such, are inherently not factual, but rather reflect only our current projections for the future. Consequently, forward-looking statements usually include words such as “estimate,” “intend,” “plan,” “predict,” “seek,” “may,” “will,” “should,” “would,” “could,” “anticipate,” “expect,” “believe,” or similar words, in each case, intended to refer to future events or circumstances. Our future results may differ materially from our past results and from those projected in the forward-looking statements due to various uncertainties and risks, including, but not limited to, those described in Item 1A (Risk Factors) of Part I of our Annual Report on Form 10-K and any additional risk factors disclosed in Item 1A (Risk Factors) of Part II of our Quarterly Report on Form 10-Q for the quarter ended July 26, 2019. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof and are based upon information available to us at this time. These statements are not guarantees of future performance. We disclaim any obligation to update information in any forward-looking statement. Actual results could vary from our forward-looking statements due to the factors described in our Annual Report on Form 10-K and Quarterly Report on Form 10-Q, as well as other important factors.


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PROXY STATEMENT

1395 Crossman Avenue

Sunnyvale, California 94089

www.virtualshareholdermeeting.com/NTAP2019

FOR THE ANNUAL MEETING OF STOCKHOLDERS OF

NETAPP, INC.

To Be Held Thursday, September 12, 2019

GENERAL INFORMATION

Why am I receiving these materials?

The Board of Directors of NetApp, Inc. (“Board” or “Board of Directors”) has made these materials available to you on the Internet or, upon your request, has delivered printed proxy materials to you in connection with the solicitation of proxies for use at the Annual Meeting of Stockholders, and any adjournment, postponement or other delay thereof (the “Annual Meeting”). NetApp, Inc., a Delaware corporation, is referred to in this Proxy Statement as the “Company,” “NetApp,” “we” or “our.” This Proxy Statement describes proposals on which you, as a stockholder, are being asked to vote. It also gives you information on these proposals, as well as other information, so that you can make an informed decision. As a stockholder, you are invited to attend the Annual Meeting and are requested to vote on the items of business described in this Proxy Statement.

Why did I receive a Notice in the mail regarding the Internet availability of proxy materials?

In accordance with rules and regulations adopted by the Securities and Exchange Commission (the “SEC”), instead of mailing a printed copy of our proxy materials to each of our stockholders, we are furnishing proxy materials to our stockholders over the Internet. If you received a Notice of Internet Availability of Proxy Materials (the “Notice”) by mail, you will not receive a printed copy of the proxy materials. Instead, the Notice instructs you as to how you may access and review all of the information contained in the proxy materials. The Notice also instructs you as to how you may submit your proxy over the Internet or by telephone. If you received a Notice by mail and would like to receive a printed copy of our proxy materials, you should follow the instructions for requesting such materials included in the Notice.

Who can vote at the Annual Meeting?

Stockholders of record as of the close of business July 17, 2019 (the “Record Date”) are entitled to vote at the Annual Meeting. If your shares are registered directly in your name with our transfer agent, Computershare Trust Company, N.A., you are considered, with respect to those shares of common stock, the stockholder of record. If your shares of common stock are held by a bank, broker or other nominee, you are considered the “beneficial owner” of those shares, which are held in “street name.” As the beneficial owner, you have the right to direct your bank, broker or other nominee how to vote your shares by following the voting instructions that your bank, broker or other nominee provides you. If you do not provide your bank, broker, or other nominee with instructions on how to vote your shares, your bank, broker or other nominee may not vote your shares with respect to any non-routine matters, but may, in its discretion, vote your shares with respect to routine matters. For more information on routine and non-routine matters, see “What are abstentions and broker non-votes?” below.

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When and where will the Annual Meeting take place?

The Annual Meeting will be held on Thursday, September 12, 2019, at 2:30 p.m. Pacific time at the Company’s headquarters located at 1395 Crossman Avenue, Sunnyvale, California 94089. You may also attend via the Internet at www.virtualshareholdermeeting.com/NTAP2019. You may contact the Company at (408) 822‑6000 for directions to the Annual Meeting.

How do I gain admittance to the Annual Meeting?

You may attend the Annual Meeting in person by presenting a valid picture identification, such as a driver’s license or passport, and proof of stock ownership as of the Record Date. Stockholders holding shares of common stock in brokerage accounts through a bank, broker or other nominee may be required to show a brokerage or account statement reflecting their stock ownership. Cameras, recording devices and other electronic devices will not be permitted at the Annual Meeting.

You may also attend the Annual Meeting via the Internet at www.virtualshareholdermeeting.com/NTAP2019. To participate in the Annual Meeting, you will need the control number included on your Notice of Internet Availability of Proxy Materials, on your proxy card or on the instructions that accompanied your proxy materials.

How many shares must be present to hold the Annual Meeting?

To hold the meeting and conduct business, a majority of NetApp’s shares of common stock issued and outstanding and entitled to vote, in person or by proxy, at the Annual Meeting must be present in person or by proxy. This is called a quorum.

How many shares of NetApp common stock are entitled to vote at the Annual Meeting?

At the Annual Meeting, each holder of common stock is entitled to one vote for each share of common stock held by such stockholder on the Record Date. On the Record Date, the Company had 238,948,638 shares of common stock outstanding and entitled to vote at the Annual Meeting. No shares of the Company’s preferred stock were outstanding. There are no cumulative voting rights.

Who will count the votes?

A representative of Broadridge Financial Solutions, Inc. will act as the inspector of elections and tabulate the votes.

How many votes are required for each proposal?

For Proposal No. 1, a nominee for director will be elected to the Board if the number of votes cast “FOR” a nominee’s election exceed the number of votes cast “AGAINST” such nominee’s election. Approval of each of Proposal Nos. 2, 3, 4 and 5 requires the affirmative vote of a majority of the stock having voting power present in person or represented by proxy. Voting results will be published in a Current Report on Form 8-K, which will be filed with the SEC within four business days of the Annual Meeting.

How do I vote?

The Company is offering stockholders of record four methods of voting: (1) you may vote by telephone; (2) you may vote over the Internet; (3) you may vote in person by ballot at the Annual Meeting; and (4) finally, you may request a proxy card from us and indicate your vote by signing and dating the card where indicated, and mailing or otherwise returning the card in the prepaid envelope provided.  

If you submit a proxy card but do not specify your votes, your shares of common stock will be voted:

 

“FOR” the election of all the nominees named in Proposal No. 1; and

 

“FOR” Proposal Nos. 2, 3, 4 and 5.

Uninstructed proxies will be voted in the proxy holder’s discretion as to any other matter that may properly come before the Annual Meeting.

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If you hold your shares of common stock through a bank, broker or other nominee, you will receive a voting instruction form from your bank, broker or other nominee with instructions on how to vote. You will not be able to vote by ballot in person at the Annual Meeting unless you have previously obtained a legal proxy from your bank, broker or other nominee and present it with your ballot at the Annual Meeting. Please contact your bank, broker or other nominee for information on obtaining a legal proxy.

How can I change my vote or revoke my proxy?

Any stockholder of record voting by proxy has the power to revoke a proxy at any time before the polls close at the Annual Meeting. You may revoke your proxy by filing with the Secretary of the Company an instrument of revocation or a duly executed proxy bearing a later date or by attending the Annual Meeting and voting in person by ballot. If you are attending the Annual Meeting virtually, you may change your vote electronically. If you are the beneficial owner of your shares, you must contact the bank, broker or other nominee holding your shares and follow the instructions of such bank, broker or other nominee to revoke your proxy or change your vote.

What are abstentions and broker non-votes?

Abstentions will be counted for the purposes of determining both (1) the presence or absence of a quorum for the transaction of business; and (2) the total number of shares entitled to vote in person or by proxy at the Annual Meeting with respect to a proposal. Accordingly, abstentions will have the same effect as a vote against a proposal, except with respect to Proposal No. 1, where they will have no effect.

A “broker non-vote” occurs when a bank, broker or other nominee holding shares for a beneficial owner does not vote on a particular proposal because the bank, broker or other nominee does not have discretionary voting power with respect to such proposal and has not received voting instructions from the beneficial owner. Broker non-votes will be counted for the purpose of determining the presence or absence of a quorum for the transaction of business, but will not be counted for the purpose of determining the number of votes cast on a proposal. Accordingly, a broker non-vote will make a quorum more readily attainable, but will not otherwise affect the outcome of the vote on a proposal.

If your shares are held in street name and you do not instruct your bank, broker or other nominee on how to vote your shares, your bank, broker or other nominee may, at its discretion, either leave your shares unvoted or vote your shares on routine matters, but is not permitted to vote your shares on non-routine matters. Proposal No. 5 is considered a routine matter. Proposal Nos. 1, 2, 3 and 4 are considered non-routine matters.

How many copies of the proxy materials will be delivered to stockholders sharing the same address?

The SEC has adopted rules that permit companies and intermediaries, such as brokers, to satisfy delivery requirements for proxy materials with respect to two or more stockholders sharing the same address by delivering a single Proxy Statement addressed to those stockholders. This process, which is commonly referred to as “householding,” potentially provides extra convenience for stockholders and cost savings for the Company. The Company and some banks and brokers household proxy materials unless contrary instructions have been received from one or more of the affected stockholders. If, at any time, you no longer wish to participate in householding and would prefer to receive a separate Proxy Statement, or if you are receiving multiple copies of the Proxy Statement and wish to receive only one, please (1) follow the instructions provided when you vote over the Internet; or (2) contact Broadridge Financial Solutions, Inc., either by calling toll free at (800) 542-1061 or by writing to Broadridge Financial Solutions, Inc., Householding Department, 51 Mercedes Way, Edgewood, New York 11717.

Where may I obtain a copy of the Annual Report?

The Notice, this Proxy Statement and the Company’s Annual Report on Form 10-K for our fiscal year that ended on April 26, 2019 (the “Annual Report”) have been made available on our website. Our fiscal year is reported on a 52- or 53-week year that ends on the last Friday in April, and our fiscal 2019 began on April 28, 2018 and ended on April 26, 2019 (“fiscal 2019”). The Annual Report is not incorporated into this Proxy Statement and is not considered proxy soliciting material. The Annual Report is posted at the following website address: http://investors.netapp.com/financial-information/annual-reports.

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Who pays for the solicitation of proxies?

We will bear the cost of soliciting proxies. Copies of solicitation materials will be made available upon request to brokerage houses, fiduciaries, and custodians holding shares in their names that are beneficially owned by others to forward to such beneficial owners. The Company may reimburse such persons for their costs of forwarding the solicitation materials to such beneficial owners. The Company has retained Innisfree M&A Incorporated, a professional proxy solicitation firm, to assist in the solicitation of proxies from stockholders of the Company. Innisfree M&A Incorporated, may solicit proxies by personal interview, mail, telephone, facsimile, email, or otherwise. The Company expects that it will pay Innisfree M&A Incorporated a customary fee, estimated to be approximately $22,500, plus reasonable out-of-pocket expenses incurred in the process of soliciting proxies. In addition, the original solicitation of proxies may be supplemented by solicitation by telephone, electronic communication or other means by directors, officers, employees or agents of the Company. No additional compensation will be paid to these individuals for any such services.

How and when may I submit proposals for consideration at next year’s Annual Meeting of Stockholders?

The Company’s stockholders may submit proposals for consideration at the Annual Meeting. Stockholders may also recommend candidates for election to our Board of Directors for the Annual Meeting (see “Corporate Governance — Corporate Governance and Nominating Committee”).

Proposals to be Considered for Inclusion in NetApp’s Proxy Materials

Pursuant to Rule 14a-8 under the Exchange Act, stockholder proposals may be included in our 2020 Proxy Statement. Any such stockholder proposals must be submitted in writing to the attention of the Corporate Secretary, NetApp, Inc., 1395 Crossman Avenue, Sunnyvale, California 94089, no later than April 3, 2020, which is 120 calendar days prior to the first anniversary of the mailing date of this Proxy Statement.

Director Nominations for Inclusion in NetApp’s Proxy Materials (Proxy Access)

Under the Company’s proxy access bylaw, a stockholder (or a group of up to 20 stockholders) owning at least 3% of the Company’s outstanding stock continuously for at least three years may nominate and include in the Company’s annual meeting materials director nominees constituting up to the greater of two directors or twenty percent of the Board, provided that the stockholders and nominees satisfy the requirements specified in the bylaws. Notice of a proxy access nomination for consideration at our 2020 Annual Meeting must be received no later than April 3, 2020 and no earlier than March 4, 2020.

Other Proposals and Nominations

Under the Company’s bylaws, a proposal that a stockholder intends to present for consideration at the 2020 Annual Meeting but does not seek to include in the Company’s proxy materials for the 2020 Annual Meeting (including the nomination of an individual to serve as a director other than pursuant to our proxy access bylaw as described immediately above) must be received by the Corporate Secretary (at the address specified in the preceding paragraph) not less than 120 calendar days nor more than 150 days prior to the first anniversary of the Annual Meeting. The stockholder’s submission must include the information specified in the Company’s bylaws.

Stockholders interested in submitting such a proposal are advised to contact knowledgeable legal counsel with regard to the detailed requirements of applicable securities laws.

If a stockholder gives notice of a proposal or a nomination after the applicable deadline specified above, the notice will not be considered timely, and the stockholder will not be permitted to present the proposal or the nomination to the stockholders for a vote at the 2020 Annual Meeting.

-10-


 

OUR BOARD OF DIRECTORS

The name, age and position of each of the Company’s directors as of August 2, 2019 are set forth below. Except as described below, each director has been engaged in his or her principal occupation during the past five years. There are no family relationships among any of our directors or executive officers. Mr. Wallace will not be standing for re-election. The Board thanks him for his distinguished service.

 

T. Michael Nevens

Chairman of the Board

Independent

 

Age

69

 

Tenure

9 years

 

Committees

Audit

Corporate Governance and
Nominating (Chair)

 

Skills

Financial

Executive Level Leadership

Strategy

Technology

Risk Management

Biography

Mr. Nevens has been a senior advisor to Permira Funds, an international private equity fund, since May 2006. Prior to his position with Permira Funds, Mr. Nevens spent 23 years advising technology companies with McKinsey & Co., where he managed the firm’s Global High Tech Practice and chaired the firm’s IT vendor relations committee. Mr. Nevens has served as the Chairman of the Board since June 2015.

Qualifications

As an investor in, advisor to and current or former member of the board of directors of public and private technology companies, Mr. Nevens brings to the Board extensive expertise and insight into growth, management and governance, as well as expert knowledge of enterprise technology.

Other Public Company Directorships (past 5 years)

Ciena Corporation (2014 – present)

Altera Semiconductors, Inc. (2009 – 2015)

Education

University of Notre Dame (B.S., Physics)

Purdue University (M.S., Industrial Administration)

 

Gerald Held

Independent

 

Age

71

 

Tenure

9 years

 

Committees

Compensation

 

Skills

Executive Level Leadership

Strategy

Sales & Marketing

Technology

Biography

Dr. Held has been Chief Executive Officer of Held Consulting, LLC, a strategic consulting firm, since 1999. From 2006 to 2010, he was the Executive Chairman of Vertica Systems, an analytic database company that was acquired by Hewlett-Packard Company. Dr. Held served in director and executive roles at a variety of technology companies, including Business Objects SA, Tandem Computers, Inc., Oracle Corporation, Microplace, Inc., and Bella Pictures, Inc. Dr. Held also serves on the board of several private companies, including Tamr Inc., Madaket Inc. and Informatica Corporation, a formerly public technology company.

Qualifications

Dr. Held brings to the Board a strong technical background and over 40 years of experience in developing, managing and advising technology organizations through periods of growth.

Education

Purdue University (B.S., Electrical Engineering)

University of Pennsylvania (M.S., Systems Engineering)

UC Berkeley (Ph.D., Computer Science)

 

-11-


 

Kathryn M. Hill

Independent

 

Age

62

 

Tenure

6 years

 

Committees

Compensation (Chair)

Corporate Governance and
Nominating

 

Skills

Financial

Executive Level Leadership

Strategy

Technology

Risk Management

Biography

Ms. Hill served in a number of leadership positions in engineering and operations at Cisco Systems, Inc., a communications company, from 1997 to 2013, including, Executive Advisor from 2011 to 2013, Senior Vice President, Development Strategy and Operations from 2009 to 2011, Senior Vice President, Access Networking and Services Group from 2008 to 2009 and Senior Vice President, Ethernet Systems and Wireless Technology Group from 2005 to 2008. Prior to Cisco, Ms. Hill had a number of engineering roles at various technology companies.

Qualifications

Ms. Hill brings to the Board substantive experience in management and leadership of global engineering and operations teams acquired over her 16 years at Cisco and in her previous roles at other technology companies.

Other Public Company Directorships (past 5 years)

Moody’s Corporation (2011 – present)

Celanese Corporation (2015 – present)

Education

Rochester Institute of Technology (B.S., Computational Mathematics)

 

Deborah L. Kerr

Independent

 

Age

47

 

Tenure

2 years

 

Committees

Audit

 

Skills

Financial

Executive Level Leadership

Strategy

Sales & Marketing

Technology

Risk Management

Biography

Ms. Kerr has served as a Managing Partner of Warburg Pincus since January 2019 and as a Senior Advisor from October 2017 to December 2018. Previously, Ms. Kerr served as Executive Vice President and Chief Product and Technology Officer at Sabre Corporation from 2013 to 2017 and as Executive Vice President, Chief Product and Technology Officer at FICO from 2009 until 2012. Prior to her time at Sabre Corporation and FICO, Ms. Kerr held senior leadership roles at Hewlett-Packard, Peregrine Systems and NASA’s Jet Propulsion Laboratory.

Qualifications

With over 25 years of diverse experience leading product and technology organizations, Ms. Kerr is a proven technology leader in the software industry who brings extensive leadership, product and technology experience, expertise in cloud and digital, and significant public company board experience to the Board.

Other Public Company Directorships (past 5 years)

International Airline Group (2018 – present)

Chico’s FAS, Inc. (2017 – present)

EXLService Holdings (2015 – present)

DH Corporation (2013 – 2017)

Education

Cal State University, Northridge

Azusa Pacific University (M.S., Computer Science)

 

-12-


 

George Kurian

 

Age

52

 

Tenure

4 years

 

Skills

Financial

Executive Level Leadership

Strategy

Sales & Marketing

Technology

Risk Management

Biography

Mr. Kurian has served as our Chief Executive Officer since June 1, 2015 and as our President since May 20, 2016. Mr. Kurian joined NetApp in 2011 and has served in a variety of senior leadership roles, including Executive Vice President of Product Operations, Senior Vice President of the Data ONTAP group and Senior Vice President of the Storage Solutions Group. Prior to NetApp, Mr. Kurian held leadership positions at Cisco Systems, Akamai Technologies, McKinsey & Company, and Oracle Corporation.

Qualifications

As the Company’s Chief Executive Officer, Mr. Kurian brings exceptional leadership skills, extensive experience and knowledge of the Company’s business, operations and strategy, which enable him to keep the Board apprised of significant developments impacting the Company and the industry and to guide the Board’s discussion and review of the Company’s strategy.

Education

Princeton University (B.S., Electrical Engineering)

Stanford University (M.B.A.)

 

Scott F. Schenkel

Independent

 

Age

51

 

Tenure

2 years

 

Committees

Audit (Chair)

 

Skills

Financial

Executive Level Leadership

Strategy

Sales & Marketing

Technology

Risk Management

Biography

Mr. Schenkel has served as Senior Vice President and Chief Financial Officer of eBay, Inc. since 2015, leading finance, analytics and information technology. Mr. Schenkel joined eBay, Inc. in 2007 and also served as Senior Vice President and Chief Financial Officer of eBay Marketplace from 2009 to 2015 and Vice President of Global Financial Planning and Analytics. Previously, Mr. Schenkel spent nearly 17 years at General Electric in a variety of finance roles.

Qualifications

Mr. Schenkel brings to our Board more than 25 years of extensive financial leadership and operational expertise across technology and commerce industries, deep knowledge of financial and accounting issues, and a wealth of experience with financial planning and analytics, strategy, audit, mergers and acquisitions, Six Sigma and process improvement. Mr. Schenkel qualifies as an “audit committee financial expert” under the rules and regulations of the SEC.

Education

Virginia Polytechnic Institute and State University (B.S., Finance)

 

-13-


 

George T. Shaheen

Independent

 

AgeTenure

7515 years

 

Committees

Compensation

Corporate Governance and
Nominating

 

Skills

Financial

Executive Level Leadership

Strategy

Sales & Marketing

Technology

Biography

Mr. Shaheen has served in a variety of senior leadership roles, including Chief Executive Officer and Chairman of the Board of Directors of Entity Labs, Ltd., a technology company in the data collection, storage and analytics space, Chief Executive Officer of Siebel Systems, Inc., a customer relationship management software company, Chairman of the Board of Webvan Group, Inc. and Global Managing Partner of Andersen Consulting, which later became Accenture. In addition to his public and private board service, Mr. Shaheen has also served as an IT Governor of the World Economic Forum and on the Board of Advisors of Northwestern University Kellogg Graduate School of Management and the Board of Trustees of Bradley University.

Qualifications

Mr. Shaheen brings to the Board significant experience leading, managing and advising companies and expertise in compliance matters as a result of his service on public and private company boards and their audit and compensation committees. His consulting background gives him keen insight into sales and the customer-based service aspect of the Company's operations and.

Other Public Company Directorships (past 5 years)

Marcus & Millichap Inc. (2013 – present)

Green Dot Corporation (2013 – present)

Korn/Ferry International (2007 – present)

Education

Bradley University (B.S., Business)

Bradley University (M.B.A.)

 

-14-


 

CORPORATE GOVERNANCE

Summary

Our Board has adopted policies and procedures that our Board believes are in the best interests of the Company and its stockholders while being compliant with the Sarbanes-Oxley Act of 2002 and the rules and regulations of the SEC and the Nasdaq Stock Market, LLC (“Nasdaq”).

Our Board leadership structure reflects our Company leadership needs and provides effective oversight of Company management and risk management. Seven of our eight directors are independent, including our Chairman of the Board. Within the last five years, the Company has added three new independent directors to our Board and increased Board diversity.

The operation and functions of the Board are governed by our Corporate Governance Guidelines. In addition, all of the Company’s directors, officers and employees are subject to our Code of Conduct.

Further details on our governance practices are provided in the following sections.

Board Leadership Structure

Our Board does not view any particular leadership structure as preferred and routinely considers the appropriate leadership structure. This consideration includes the pros and cons of alternative leadership structures in light of the Company’s operating and governance environment at the time, with the goal of achieving the optimal model for Board leadership and effective oversight of management by our Board.

Our Board consists of eight directors, seven of whom are independent. Our only management director is Mr. Kurian, our Chief Executive Officer. Mr. Nevens, an independent director, holds the role of Chairman of the Board. The Board believes this structure benefits the Board and the Company by enabling the Chief Executive Officer to focus on operational and strategic matters while enabling the Chairman to focus on Board and governance matters, including, among other things, the creation of long-term stockholder value and long-range strategic planning.

As described in more detail below, our Board of Directors has three standing committees, each of which is composed solely of independent directors and chaired by an independent director. Our Board delegates substantial responsibility to each Board committee, which regularly reports its activities and actions back to the Board. We believe that our independent Board committees and their respective chairs are an important aspect of our Board leadership structure.

Corporate Governance Guidelines

Our Board has adopted a formal set of Corporate Governance Guidelines concerning various issues related to Board membership, structure, function and processes; Board committees; leadership development, including succession planning; oversight of risk management; and our ethics helpline. A copy of the Corporate Governance Guidelines is available on our website at http://investors.netapp.com/corporate-governance.  

Strategy and Risk Oversight

Our Board oversees and contributes to the formation of the Company’s strategy and provides oversight of management’s execution and refinement of our strategic plans. The Board engages in discussions regarding our corporate strategy at every Board meeting and, at least annually, receives a formal update on the company’s short- and long-term objectives, including the company’s operating plan and long-term strategic plan.

Our Board, as a whole and through its committees, also has responsibility for the oversight of risk management. With the oversight of our Board, our executive officers are responsible for the day-to-day management of the material risks the Company faces. In its oversight role, our Board has the responsibility to satisfy itself that the risk management processes designed and implemented by our executive officers are adequate and functioning as designed. The involvement of our Board in setting our long-term business strategy is a key part of our Board’s oversight of risk management and allows our Board to assess and determine what constitutes an appropriate level of risk for the Company and review and consider management’s role in risk

-15-


 

management. Our Board regularly receives updates from management and outside advisors regarding material risks the Company faces.

Each committee of our Board oversees specific aspects of risk management. For example, our Audit Committee oversees overall integrity of our financial statements, accounting and auditing matters, our compliance with legal, regulatory and public disclosure requirements, our enterprise risk management program, and our initiatives related to cybersecurity, including prevention and monitoring; our Compensation Committee oversees the management risks associated with succession planning and the relationship between our compensation policies and programs; and our Corporate Governance and Nominating Committee oversees the management of risks associated with director independence, conflicts of interest, board composition and organization, and director succession planning. Our committees regularly report their findings to our Board.

Other than when our Board or a committee of our Board meets in executive session, senior management attends all meetings of our Board and its committees and is available to address questions raised by directors with respect to risk management and other matters.

Succession Planning

The Board plans for succession to the position of CEO and other senior management positions to help ensure continuity of leadership. To assist the Board in this effort, the CEO provides the Board with an assessment of other executives and their potential as a suitable successor. The CEO also provides the Board with an assessment of individuals considered to be potential successors to certain other senior management positions. The Board discusses and evaluates these assessments, including in private sessions, and provides feedback to the CEO. Management is responsible for developing retention and development plans for potential successors and periodic progress reports and reviews are provided to the Board.

Independent Directors

A majority of our Board of directors and nominees is composed of “independent directors,” as defined in the applicable laws and regulations of the SEC and the Listing Rules of Nasdaq. The independent directors regularly meet in executive session, without management, as part of the normal agenda of our Board meetings. Our Chairman, Mr. Nevens, is a non-employee director and is independent (as defined by the Nasdaq Listing Rules).

Committees of the Board of Directors

Our Board of Directors maintains three standing committees and has adopted a charter for each that meets applicable Nasdaq rules. Charters are reviewed by their respective committees annually and are available at http://investors.netapp.com/corporate-governance.  

Corporate Governance and Nominating Committee

The responsibilities of the committee include:

 

Review of matters concerning corporate governance and providing recommendations to the Board;

 

Review of composition of the Board of Directors and its committees and providing recommendations to the Board;

 

Evaluation of the performance of the Board;

 

Review of conflicts of interest of members of the Board and corporate officers;

 

Review and approval of related person transactions; and

 

Oversight and management of risks associated with director independence, conflicts of interest, board composition and organization, and director succession planning.

-16-


 

All of the members of the Corporate Governance and Nominating Committee meet the applicable requirements for independence from Company management.

Compensation Committee

The responsibilities of the committee include:

 

Review of the Company’s overall compensation and benefits philosophy and strategy and advising the Company’s management;

 

Oversight, evaluation and approval of the compensation of the Company’s Chief Executive Officer, other executive officers and non-employee directors;

 

Review and approval of the Company’s compensation and benefits plans and programs in accordance with the Compensation Committee charter;

 

Oversight of the management of risks associated with the Company’s compensation policies and programs; and

 

In accordance with Nasdaq rules, review and assessment of the independence of any compensation consultant, legal counsel or other advisor that provides advice to the Compensation Committee.

All of the members of the Compensation Committee meet the applicable requirements for independence as defined by applicable Nasdaq and Internal Revenue Service rules.

Audit Committee

The responsibilities of the committee include:

 

Oversight of the integrity of the Company’s financial statements and adequacy of the Company’s internal controls;

 

Appointment, compensation, retention, termination and oversight of the work of the Company’s independent registered public accounting firm, Deloitte & Touche LLP, which reports directly to the Audit Committee;

 

Oversight of the quality of the internal audit function of the Company, which reports directly to the Audit Committee;

 

Oversight of the Company’s risk management program, including financial, operational, strategic, privacy, cyber security, legal and regulatory risks; and

 

Oversight of compliance with legal, regulatory and public disclosure requirements.

All of the members of the Audit Committee meet the applicable requirements for independence from Company management and requirements for financial literacy. Each member of the Audit Committee has the requisite financial management expertise.

Director Selection

Our Board has adopted guidelines for the identification, evaluation and nomination of candidates for director.

To assist with director nominations, our Board has assigned the Corporate Governance and Nominating Committee responsibility for reviewing and recommending nominees to our Board. Although there are no specific minimum qualifications for director nominees, the ideal candidate should have the highest professional and personal ethics and values, and broad experience at the policy-making level in business, government, education, technology, or public service. In evaluating the suitability of a particular director nominee, our Board considers a broad range of factors, including, without limitation, diversity of business experience, professional expertise, length of service, character, integrity, judgment, independence, diversity with respect to race and gender, age, skills, education, understanding of the Company’s business, and other commitments. In addition, our Corporate Governance and Nominating Committee may consider such other factors as it may deem, from time to time, are in our and our stockholders’ best interests.

-17-


 

The Corporate Governance and Nominating Committee makes an effort to ensure that our Board’s composition reflects a broad diversity of experience, professions, skills, viewpoints, geographic representation, personal traits and backgrounds. Additionally, although we have no formal policy with respect to diversity, due to the global and complex nature of our business, our Board believes it is important to identify otherwise qualified candidates who would increase our Board’s racial, ethnic, gender and/or cultural diversity. No specific weights are assigned to particular criteria, and the Corporate Governance and Nominating Committee does not believe that any specific criterion is necessarily applicable to all prospective nominees. When the Corporate Governance and Nominating Committee reviews a potential new candidate, it looks specifically at the candidate’s qualifications in light of the needs of our Board at that time, given the then-current mix of director attributes. With respect to the nomination of continuing directors for re-election, each continuing director’s past contributions to our Board are also considered.

In the case of new director candidates, the Corporate Governance and Nominating Committee reviews whether the nominee is independent for Nasdaq purposes and recommends a determination to the Board, which determination is based upon applicable Nasdaq listing standards, applicable SEC rules and regulations and the advice of counsel, if necessary. The Corporate Governance and Nominating Committee generally relies on a variety of resources to compile a list of potential candidates, including, among other things and depending upon the circumstances, its network of contacts, searches of corporate, academic and government environments and resources, and, professional search firms. We believe utilizing such a broad variety of resources furthers our Board’s goal of ensuring the identification and consideration of a diverse range of qualified candidates, including, without limitation, women and minority candidates. After considering the function and needs of our Board, the Corporate Governance and Nominating Committee conducts appropriate and necessary inquiries into the backgrounds and qualifications of possible candidates. The Corporate Governance and Nominating Committee meets to discuss and consider such candidates’ qualifications and then selects a nominee for recommendation to our Board by majority vote.

If the Corporate Governance and Nominating Committee determines that it wants to identify new independent director candidates for Board membership, it is authorized to retain and to approve the fees of third-party executive search firms to help determine the skills and qualifications that would best complement our Board and identify prospective director nominees.

The Corporate Governance and Nominating Committee uses the same process for evaluating all nominees, regardless of the source of the nomination. The Corporate Governance and Nominating Committee will retain the services of an executive search firm to assist it in identifying new candidates to join the Board.

A stockholder meeting the ownership requirements in our bylaws, including our proxy access bylaw, who desires to nominate a candidate for election to our Board must direct the nomination in writing to NetApp, Inc., 1395 Crossman Avenue, Sunnyvale, California 94089, Attention: Corporate Secretary in the time periods prescribed by the Company’s bylaws. The nomination must include the same information required by the Company’s bylaws in connection with the nomination of a director of our Board, including, without limitation, the candidate’s name and age; home and business contact information; principal occupation or employment and the name, type of business and address of the nominee’s employer; information regarding the nominee’s and the nominating person’s ownership of Company stock; a description of any arrangement or understanding of the nominee and the nominating person with each other or any other person regarding future employment or any future transaction to which the Company will or may be a party; and a written consent to be nominated and written statement that, if nominated, such candidate will tender an irrevocable advance resignation in accordance with the Company’s Corporate Governance Guidelines. As detailed in the Company’s bylaws, every nominee, whether nominated by the Board or a stockholder, must also deliver to the Company’s Corporate Secretary certain written representations and agreements, including a representation and agreement regarding such person’s agreement, arrangements or understandings with any person or entity as to how such person, if elected as a director of the Company, will act or vote on any issue or question.

Meetings and Committees of our Board of Directors

Our Board held five meetings and also acted by written consent during fiscal 2019. During fiscal 2019, each member of our Board attended at least 75% of the aggregate of (1) the total number of meetings of our Board held during fiscal 2019; and (2) the total number of meetings held by all Board committees on which such

-18-


 

director served, in each case covering the periods of fiscal 2019 during which such director served on our Board or such committees, as applicable.  

There are no family relationships among executive officers, directors or nominees of the Company. Our Board currently has three standing committees, each of which is composed entirely of independent directors, and each of which operates under a charter approved by our Board: the Audit Committee, the Corporate Governance and Nominating Committee, and the Compensation Committee.

The members of the committees as of the date of this Proxy Statement are identified in the following table:

 

Director

Audit

Compensation

Corporate Governance

and Nominating

T. Michael Nevens

 

Chair

Gerald Held

 

 

Kathryn M. Hill

 

Chair

Deborah L. Kerr

 

 

Scott F. Schenkel

Chair

 

 

George T. Shaheen

 

Richard P. Wallace*

 

 

 

 *Richard Wallace will not be standing for re-election at the Annual Meeting.

All members of the Audit Committee are independent in accordance with the applicable laws and regulations of the SEC and the Listing Rules of Nasdaq. Our Board has determined that Mr. Schenkel qualifies as an “audit committee financial expert” under the rules and regulations of the SEC. The Audit Committee reviews, acts on and reports to our Board with respect to various auditing and accounting matters, including the selection of the Company’s independent registered public accounting firm, the scope of the annual audits, fees to be paid to the independent registered public accounting firm, the performance of the Company’s independent registered public accounting firm, the accounting practices of the Company and other such functions as detailed in the Audit Committee Charter, which can be found on the Company’s website at http://investors.netapp.com/corporate-governance. The Audit Committee held eleven meetings during fiscal 2019.

All members of the Compensation Committee are independent in accordance with the applicable laws and regulations of the SEC and the Listing Rules of Nasdaq and each member qualifies as an “outside director” within the meaning of Section 162(m) of the Internal Revenue Code, as amended. The Compensation Committee establishes salaries, incentive and equity compensation programs, and other forms of compensation for our officers and non-employee directors; creates the compensation guidelines under which management establishes salaries for non-officers and other employees of the Company; and administers the compensation and benefit plans of the Company. In carrying out its responsibilities, the Compensation Committee reviews, at least annually, the compensation for the Chief Executive Officer, all executive vice presidents, all senior vice presidents and non-employee directors, the corporate goals relevant to compensation, and our executive and leadership development policies. The functions of the Compensation Committee are detailed in the Compensation Committee Charter, which can be found on the Company’s website at http://investors.netapp.com/corporate-governance. The Compensation Committee meets regularly with its outside advisors independently of management. The Compensation Committee held six meetings during fiscal 2019.

All members of the Corporate Governance and Nominating Committee are independent in accordance with the applicable laws and regulations of the SEC and the Listing Rules of Nasdaq. The Corporate Governance and Nominating Committee evaluates and recommends to our Board candidates for Board membership and considers nominees recommended by stockholders who satisfy the conditions described above under “Director Selection.” The Corporate Governance and Nominating Committee also develops and recommends corporate

-19-


 

governance policies and other governance guidelines and procedures to our Board. The functions of the Corporate Governance and Nominating Committee are detailed in the Corporate Governance and Nominating Committee Charter, which can be found on the Company’s website at http://investors.netapp.com/corporate-governance. The Corporate Governance and Nominating Committee held five meetings during fiscal 2019.

Stockholder Meeting Attendance for Directors

While we do not have a formal policy for director attendance at our annual meetings, historically they have been scheduled on the same day as a Board of Directors meeting and have been attended by the directors. All but one of the directors then serving attended the 2018 Annual Meeting of Stockholders (the “2018 Annual Meeting”) in person.

Code of Conduct

The Company has adopted a Code of Conduct that includes a conflict of interest policy that applies to all directors, officers and employees. All employees are required to affirm in writing their understanding and acceptance of the Code of Conduct.

The Code of Conduct is posted on the Company’s website at: http://investors.netapp.com/corporate-governance. The Company will post any amendments to or waivers of the provisions of the Code of Conduct on its website.

Political Contributions Policy

The Company’s Political Contributions Policy and its Code of Conduct prohibit political contributions of any kind, by or on behalf of the Company. Our Code of Conduct also requires advance approval of any donation of NetApp assets or funds. We believe this provides an additional measure of oversight in enforcing our policy against Company political contributions.

Personal Loans to Executive Officers and Directors

The Company does not provide personal loans or extend credit to any executive officer or director.

Stockholder Communications Policy

Stockholders may contact any of the Company’s directors by writing to them c/o NetApp, Inc., 1395 Crossman Avenue, Sunnyvale, California 94089, Attn: Corporate Secretary. Employees and others who wish to contact our Board or any member of the Audit Committee to report questionable practices may do so anonymously by using this address and designating the communication as “confidential.”

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DIRECTOR COMPENSATION

The Compensation Committee evaluates the compensation and form of compensation for non-employee directors annually. As a part of this process, the Compensation Committee reviews market data for director compensation as well as director compensation data from the Company’s Compensation Peer Group, the same group used for our executive compensation review, including cash compensation, equity compensation and stock ownership requirements. Non-employee director compensation is generally targeted at the market median and is periodically adjusted to maintain alignment with market and peer director pay practices. Non-employee directors receive annual cash retainers as well as equity awards for their service on our Board. Details of the compensation are discussed in the narrative below. Employee directors do not receive any compensation for their services as members of our Board.

Director Compensation Table

The table below summarizes the total compensation paid by the Company to our directors for fiscal 2019.  

 

Name

 

Fees

Earned

or Paid

in Cash

($)(1)

 

 

Restricted

Stock

Units

($)(2)

 

 

Option

Awards

($)(3)

 

 

Nonequity

Incentive Plan

Compensation

($)

 

 

Change in

Pension

Value and

Nonqualified

Deferred

Compensation

Earnings

($)

 

 

All Other

Compensation

($)

 

 

Total

($)

 

T. Michael Nevens

 

 

190,000

 

 

 

245,397

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

435,397

 

Gerald Held

 

 

85,000

 

 

 

245,397

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

330,397

 

Kathryn M. Hill

 

 

117,500

 

 

 

245,397

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

362,897

 

Deborah L. Kerr

 

 

90,000

 

 

 

245,397

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

335,397

 

Scott F. Schenkel

 

 

110,000

 

 

 

245,397

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

355,397

 

George T. Shaheen

 

 

91,667

 

 

 

245,397

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

337,064

 

Richard P. Wallace

 

 

85,000

 

 

 

245,397

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

330,397

 

George Kurian(4)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

The amounts in this column represent compensation that was earned in fiscal 2019. Our Board year does not correspond with our fiscal year. Our Board year begins on the date of each annual meeting and runs until the next annual meeting. Cash board fees are paid on a quarterly basis. In September 2018, the Company changed from paying such fees quarterly in advance to quarterly in arrears. A portion of the fees earned during the first quarter of fiscal 2019 were paid in the last quarter of fiscal 2018 and are not included in this table. Likewise, a portion of the fees earned during the last quarter of fiscal 2019 were paid in the first quarter of fiscal 2020 and are not included in this table.

(2)

The amounts reported represent the grant date fair value of time-based restricted stock unit (“RSU”) awards to the director under the Company’s Amended and Restated 1999 Stock Option Plan and are computed in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718 (FASB ASC 718). Assumptions used in the valuations of these awards are included in Note 11 of the Annual Report. These amounts do not necessarily represent the actual value that may be realized by the non-employee director.

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(3)

The table below sets forth the number of shares of common stock subject to outstanding options and RSUs (including RSUs for which the payout of shares has been deferred by such director) held by the non-employee directors as of April 26, 2019:

 

Name

 

# of Outstanding

Options

(in Shares)

 

 

# of RSUs

(in Shares)

 

 

Total Equity Awards

Outstanding

 

T. Michael Nevens

 

 

22,831

 

 

 

2,924

 

 

 

25,755

 

Gerald Held

 

 

28,416

 

 

 

41,100

 

 

 

69,516

 

Kathryn M. Hill

 

 

 

 

 

2,924

 

 

 

2,924

 

Deborah L. Kerr

 

 

 

 

 

8,380

 

 

 

8,380

 

Scott F. Schenkel

 

 

 

 

 

2,924

 

 

 

2,924

 

George T. Shaheen

 

 

 

 

 

19,618

 

 

 

19,618

 

Richard P. Wallace

 

 

 

 

 

32,078

 

 

 

32,078

 

 

(4)

During fiscal 2019, Mr. Kurian served as our Chief Executive Officer, President and a member of the Board. Mr. Kurian did not receive any additional compensation for serving on our Board. For more information on Mr. Kurian’s compensation as our Chief Executive Officer and President, please see the “Executive Compensation and Related Information—Summary Compensation Table” below.

Summary of Director Compensation Policy

The following table sets forth a summary of our total compensation policy for our non-employee directors as of the end of fiscal 2019:

 

Position

 

Annual

Cash Retainer

($)

 

 

Equity

Grants

($)

 

Board of Directors

 

 

 

 

 

 

 

 

Lead Independent Director/Chairperson

 

 

150,000

 

 

 

250,000

 

Board Member (other than Lead Independent Director/Chairperson)

 

 

75,000

 

 

 

250,000

 

Audit Committee

 

 

 

 

 

 

 

 

Chairperson

 

 

30,000

 

 

 

 

 

Member

 

 

20,000

 

 

 

 

 

Compensation Committee

 

 

 

 

 

 

 

 

Chairperson

 

 

22,500

 

 

 

 

 

Member

 

 

15,000

 

 

 

 

 

Corporate Governance and Nominating Committee

 

 

 

 

 

 

 

 

Chairperson

 

 

15,000

 

 

 

 

 

Member

 

 

10,000

 

 

 

 

 

 

 

In June 2019, in accordance with its annual practice, the Compensation Committee evaluated the compensation for non-employee directors, including benchmarking the directors’ cash and equity compensation against our Compensation Peer Group (as disclosed in the section titled “Compensation Peer Group and Use of Market Data” beginning on page 33 of this Proxy Statement) modified to exclude Amazon Web Services, BMC Software, Cohesity, Hitachi, Rubrik and SAP SE because they are foreign and/or private companies. In connection with this evaluation, the Compensation Committee reviewed the annual cash retainer, the annual equity grant, fees for committee services, fees for chairs, grants on initial appointment, and stock ownership guidelines for our non-employee directors. The Compensation Committee reviewed data compiled by Meridian, including average compensation per director of peer companies, premiums paid for

-22-


 

chair positions, director equity grant practices and other relevant director pay practices. The Compensation Committee determined, with the assistance of its independent advisor, that the additional compensation paid to our non-employee independent Chair of the Board was 50% below the median paid by peer companies and that the additional compensation should be adjusted upward in order to be consistent with our pay practices and to remain competitive. The Compensation Committee further determined that adjusting the equity component of the independent Chair of the Board’s additional compensation would align the Chair of the Board’s additional compensation with stockholder interests. Accordingly, effective as of the Annual Meeting, the annual equity grant to our non-employee Chair of the Board was increased from $250,000 to $325,000. The additional cash compensation of the independent Chair of the Board remains the same. No other adjustments to director compensation were made.

Our non-employee directors receive automatic annual equity grants under the Automatic Award Program of the Stock Plan pursuant to an outside director compensation policy adopted by our Board and the Compensation Committee, which may be revised from time to time as our Board or the Compensation Committee deems appropriate. Since fiscal 2016, all non-employee director automatic annual equity grants have been in the form of RSUs.

Following the 2018 Annual Meeting, each of the individuals re-elected as a non-employee director received a number of RSUs as indicated in the table below with respect to their automatic annual equity awards.

 

Name

 

RSUs

 

 

Stock Option Grants

(in Shares)

 

 

Stock Option

Exercise Price

($)

 

 

Grant Date

T. Michael Nevens

 

 

2,924

 

 

 

 

 

 

 

 

 

September 13, 2018

Gerald Held

 

 

2,924

 

 

 

 

 

 

 

 

 

September 13, 2018

Kathryn M. Hill

 

 

2,924

 

 

 

 

 

 

 

 

 

September 13, 2018

Deborah L. Kerr

 

 

2,924

 

 

 

 

 

 

 

 

 

September 13, 2018

Scott F. Schenkel

 

 

2,924

 

 

 

 

 

 

 

 

 

September 13, 2018

George T. Shaheen

 

 

2,924

 

 

 

 

 

 

 

 

 

September 13, 2018

Richard P. Wallace

 

 

2,924

 

 

 

 

 

 

 

 

 

September 13, 2018

 

 

A newly elected or appointed non-employee director receives a grant of RSUs upon his or her first election or appointment to the Board with a value of $250,000 (if such election or appointment occurs before February of the applicable year) or with a value of $125,000 (if such election or appointment occurs in or after February of the applicable year). On the date of each annual stockholders meeting, but after any stockholder votes are taken on such date, each outside director who is re-elected receives a grant with a value of $250,000. Starting with the Annual Meeting, as described above, the Chair of the Board shall receive a grant with a value of $325,000.

Equity awards for non-employee directors are represented as a dollar value. For these purposes, the value of any awards of RSUs will equal the product of (1) the fair market value of one share of common stock on the grant date of such award and (2) the aggregate number of RSUs.

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Each non-employee director is also eligible to receive an annual cash retainer for his or her Board and committee service, pursuant to the terms of the outside director compensation policy. The Compensation Committee has approved a deferral program for our non-employee directors, which allows each non-employee director to elect to defer the receipt of his or her annual cash retainer until a later date in accordance with applicable tax laws. Additionally, for any automatic equity grant in the form of RSUs, the director may elect in accordance with federal tax laws when he or she will receive payout from his or her vested RSUs and defer income taxation until the award is paid. In connection with this deferral, a director may elect to receive payout within 30 days of the earliest of: (1) if the director so specifies, a specified date that is no earlier than January 1 of the second calendar year immediately following the date on which the RSUs vested; (2) the date the director ceases to serve as a director for any reason (in accordance with Section 409A of the Internal Revenue Code of 1986, as amended and the regulations thereunder); and (3) the date on which a Change of Control occurs. If the director does not specify a date per (1) above, then the RSUs shall be paid out upon the earlier to occur of (2) and (3) above. For the definition of “Change of Control”, please see “Termination of Employment and Change of Control Agreements – Definitions Contained in Change of Control Severance Agreement” below. An election to defer the payout of vested RSUs is not intended to increase the value of the payout to the non-employee director, but rather to give the non-employee director the flexibility to decide when he or she will be subject to taxation with respect to the award. Any election to defer payment of any vested RSUs will not alter the other terms of the award, including the vesting requirements. Dividends will accrue on each equity award granted to our non-employee directors in fiscal 2019 and onwards if any such equity award is vested but has been deferred by such director.

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

To the Company’s knowledge, the following table sets forth certain information regarding beneficial ownership of the Company’s common stock as of July 17, 2019, except as otherwise set forth below, by (1) each person or entity who is known by the Company to own beneficially more than 5% of the Company’s common stock; (2) each of the Company’s directors and nominees for director; (3) each of the Company’s executive officers set forth in the Summary Compensation Table; and (4) all of the Company’s current directors and executive officers as a group.

Except as indicated, the address of the beneficial owners is c/o NetApp, Inc., 1395 Crossman Avenue, Sunnyvale, California 94089. Information related to holders of more than 5% of the Company’s common stock was obtained from filings with the SEC pursuant to Sections 13(d) or 13(g) of the Exchange Act.

 

Name of Beneficial Owners

 

Number of

Shares

Beneficially

Owned

 

 

Percentage of

Class(1)

 

PRIMECAP Management Company(2)

   177 E. Colorado Blvd, 11th Floor

   Pasadena, CA 91105

 

 

35,467,578

 

 

 

15.3

%

The Vanguard Group(3)

   100 Vanguard Boulevard

   Malvern, PA 19355

 

 

28,849,601

 

 

 

10.6

%

BlackRock, Inc.(4)

   55 East 52nd Street

   New York, NY 10055

 

 

19,020,182

 

 

 

7.8

%

Vanguard Chester Funds – Vanguard Primecap Fund(5)

   100 Vanguard Boulevard

   Malvern, PA 19355

 

 

13,172,241

 

 

 

5.5

%

George Kurian(6)

 

 

367,601

 

 

*

 

Ronald J. Pasek(7)

 

 

76,202

 

 

*

 

Joel D. Reich(8)

 

 

22,612

 

 

*

 

Henri P. Richard(9)

 

 

148,855

 

 

*

 

Matthew K. Fawcett(10)

 

 

38,527

 

 

*

 

T. Michael Nevens(11)

 

 

52,865

 

 

*

 

Gerald Held(12)

 

 

21,731

 

 

*

 

Kathryn M. Hill(13)

 

 

29,834

 

 

*

 

Deborah L. Kerr(14)

 

 

2,924

 

 

*

 

Scott F. Schenkel(15)

 

 

8,380

 

 

*

 

George T. Shaheen(16)

 

 

16,206

 

 

*

 

Richard P. Wallace(17)

 

 

10,056

 

 

*

 

All current directors, director nominees and executive officers as a group (12 persons)(18)

 

 

795,793

 

 

*

 

 

 

 

 

 

 

 

 

 

 

*

Less than 1%

(1)

Percentage of Class is based on 238,948,638 shares of common stock outstanding on July 17, 2019. Shares of common stock subject to stock options and RSUs that are currently exercisable or will become exercisable or issuable within 60 days of July 17, 2019 are deemed outstanding for computing the percentage of the person or group holding such options and/or RSUs, but are not deemed outstanding for computing the percentage of any other person or group. This table does not include the vested options or RSUs held by our directors for which release has been deferred. Except as

-25-


 

indicated in the footnotes to this table and pursuant to applicable community property laws, the persons named in the table have sole voting and investment power with respect to all shares of common stock.

(2)

Information concerning stock ownership was obtained from Amendment No. 6 to the Schedule 13G filed with the SEC on February 8, 2019 by PRIMECAP Management Company, which reported sole voting power with respect to 11,171,107 of such shares of common stock and sole dispositive power with respect to 35,467,578 shares of common stock.

(3)

Information concerning stock ownership was obtained from Amendment No. 5 to the Schedule 13G filed with the SEC on February 11, 2019 by The Vanguard Group, which reported sole voting power with respect to 315,006 of such shares of common stock and sole dispositive power with respect to 28,486,643 shares of common stock.

(4)

Information concerning stock ownership was obtained from Amendment No. 7 to the Schedule 13G filed with the SEC on February 6, 2019 by BlackRock, Inc., which reported sole voting power with respect to 16,665,405 of such shares of common stock and sole dispositive power with respect to 19,020,182 shares of common stock.

(5)

Information concerning stock ownership was obtained from Amendment No. 2 to the Schedule 13G filed with the SEC on January 31, 2019 by Vanguard Chester Funds – Vanguard Primecap Fund, which reported sole voting power with respect to 13,172,241 of such shares of common stock and sole dispositive power with respect to 0 shares of common stock.

(6)

Consists of (i) 206,801 shares of common stock held of record by Mr. Kurian; and (ii) 160,800 shares of common stock issuable to Mr. Kurian upon exercise of outstanding stock options exercisable within 60 days of July 17, 2019, of which all shares were fully vested as of such date.

(7)

Consists of 76,202 shares of common stock held of record by Mr. Pasek.

(8)

Consists of (i) 16,212 shares of common stock held of record by Mr. Reich; and (ii) 6,400 shares of common stock issuable to Mr. Reich upon exercise of outstanding stock options exercisable within 60 days of July 17, 2019, all of which all shares were fully vested as of such date.

(9)

Consists of 148,855 shares of common stock held of record by Henri Richard and Gay Richard JWTROS.

(10)

Consists of 38,527 shares of common stock held of record by Mr. Fawcett.

(11)

Consists of (i) 27,120 shares of common stock held of record by The Nevens Family 1997 Trust; (ii) 22,831 shares of common stock issuable to Mr. Nevens upon exercise of outstanding stock options exercisable within 60 days of July 17, 2019, of which all shares were fully vested as of such date and (iii) 2,924 shares of common stock issuable to Mr. Nevens upon the vesting of RSUs within 60 days of July 17, 2019.

(12)

Consists of (i) 7,391 shares of common stock held of record by Mr. Held; (ii) 11,416 shares of common stock issuable to Mr. Held upon exercise of outstanding stock options exercisable within 60 days of July 17, 2019, of which all shares were fully vested as of such date and (iii) 2,924 shares of common stock issuable to Mr. Held upon the vesting of RSUs within 60 days of July 17, 2019.

(13)

Consists of (i) 26,910 shares of common stock held of record by a trust of which Ms. Hill is the trustee and (ii) 2,924 shares of common stock issuable to Ms. Hill upon the vesting of RSUs within 60 days of July 17, 2019.

(14)

Consists of 2,924 shares of common stock issuable to Ms. Kerr upon the vesting of RSUs within 60 days of July 17, 2019.

(15)

Consists of (i) 5,456 shares of common stock shares of common stock held of record by Mr. Schenkel and (ii) 2,924 shares of common stock issuable to Mr. Schenkel upon the vesting of RSUs within 60 days of July 17, 2019.

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(16)

Consists of (i) 13,282 shares of common stock shares of common stock held of record by Mr. Shaheen and (ii) 2,924 shares of common stock issuable to Mr. Shaheen upon the vesting of RSUs within 60 days of July 17, 2019.

(17)

Consists of (i) 7,132 shares of common stock shares of common stock held of record by Mr. Wallace and (ii) 2,924 shares of common stock issuable to Mr. Wallace upon the vesting of RSUs within 60 days of July 17, 2019.

(18)

Consists of (i) 573,888 shares of common stock held of record by our current directors, director nominees and executive officers; (ii) 201,437 shares of common stock issuable upon the exercise of outstanding options held by our current directors, director nominees and executive officers and exercisable within 60 days of July 17, 2019, of which all were fully vested as of such date; and (iii) 20,468 shares of common stock issuable to our current directors, director nominees and executive officers upon the vesting of RSUs within 60 days of July 17, 2019.

 

Delinquent Section 16(a) Reports

Section 16(a) of the Exchange Act requires the Company’s directors and executive officers and persons who own more than 10% of a registered class of the Company’s equity securities to file with the SEC initial reports of ownership and reports of changes in their ownership of common stock and other equity securities of the Company. Executive officers, directors and greater than 10% stockholders are required by SEC regulations to furnish the Company with copies of all Section 16(a) forms they file.

Based solely on the review of the copies of such reports furnished to the Company and written representations that no other reports were required, the Company believes that during fiscal 2019, its executive officers, directors and greater than 10% stockholders complied with all Section 16 filing requirements, except a Form 4 filed on behalf of Mr. Kurian on June 5, 2018 reporting the exercise of a Company stock option for 6,000 shares that was not timely filed due to an administrative error.

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COMPENSATION DISCUSSION AND ANALYSIS

Executive Summary

This Compensation Discussion and Analysis (“CD&A”) provides information on our executive compensation program and our compensation philosophy for our named executive officers (“NEOs”), who, in fiscal 2019, were3:

George Kurian

Chief Executive Officer and President

Ronald J. Pasek

Executive Vice President and Chief Financial Officer

Joel D. Reich

Executive Vice President and General Manager, Storage Systems and Software Business Unit

Henri Richard

Executive Vice President, Worldwide Field and Customer Operations

Matthew K. Fawcett

Senior Vice President, General Counsel and Secretary

Our Fiscal 2019 Company Performance

$6.15B
NET REVENUES

99% OF TARGET ACHIEVEMENT

GREW 4% YEAR-OVER-YEAR

 

$1.23B
ADJUSTED OPERATING INCOME4

109% OF TARGET ACHIEVEMENT

GREW 27% YEAR-OVER-YEAR

 

+32% 3-YEAR
+29% 2-YEAR
EXCESS TSR5

vs

MEDIAN TSR OF S&P 1500 TECHNOLOGY HARDWARE & EQUIPMENT INDEX

Key Compensation Decisions in Fiscal 2019

As described below, the Compensation Committee approved the following pay actions in fiscal year 2019.  We believe these pay actions are consistent with our commitment to a pay-for-performance compensation philosophy, and align NEO compensation with stockholder interests:

 

Provided an average base salary increase of 2.2% across all of our NEOs.  These adjustments were made to keep NEO salaries aligned with market movements and recognize NEO performance in their roles.

 

Set revenue and adjusted operating income (“Adjusted Operating Income” or “AOI”) target performance goals in the Executive Compensation Plan (“ICP”) that required 4.8% and 17.3% year-over-year growth compared to actual fiscal year 2018 results.

 

3 

For certain information concerning our Executive Officers, see “Executive Officers” in Item 1 of Part I of our Form 10-K.

4 

A reconciliation of non-GAAP to GAAP results can be found in Annex A.

5 

Total Shareholder Return

-28-


 

 

Approved fiscal year 2019 payouts ranging from 122% to 137% of target for our NEOs. These payouts were driven by 99% of target performance in revenue and 109% of target performance in AOI, as well as individual performance against pre-established Management Business Objectives (“MBOs”) linked to strategic and operational achievements.

 

Granted NEOs Performance Based Restricted Stock Units (“PBRSUs”) that will vest at the end of three years, with 50% vesting based on the achievement of cumulative AOI and 50% vesting based on relative total shareholder return (“TSR”).

 

Updated the benchmark for relative TSR measurement from the S&P 1500 Technology Hardware and Equipment Index to a group of selected peer companies for fiscal 2019 grants to increase the relevance of the benchmark for performance comparison purposes.

 

Approved payouts under the Fiscal 2017 3-year PBRSUs of 200% of target due to NetApp’s relative TSR outperformance versus the S&P 1500 Technology Hardware and Equipment Index.

 

Approved payouts under the Fiscal 2018 2-year PBRSUs of 197% of target, due to NetApp’s relative TSR outperformance versus the S&P 1500 Technology Hardware and Equipment Index.

Each of the above described payouts is further detailed in the table below:

PROGRAM ELEMENT

AWARD

PERFORMANCE CATEGORY

PERFORMANCE METRIC

Performance % OF TARGET

Payout % of TARGET AWARD

OVERALL PAYOUT VALUE

ANNUAL ICP

Fiscal 2019 ICP Award

Financial
(75% of Award)

Adjusted Operating Income

(2/3 weighting)

109%

157%

122%-137%

Revenue

(1/3 weighting)

99%

96%

Strategic/
Operational
(25% of Award)

Individual MBOs

0%-200%

0%-200%

PBRSUs

Fiscal 2017

3-year PBRSUs

TSR

TSR vs S&P 1500 Technology Hardware and Equipment Index

Outperformed the index median by 32 percentage points

200%

492% of grant date value (including stock price appreciation)

Fiscal 2018

2-year PBRSUs

Outperformed the index median by 29 percentage points

197%

368% of grant date value (including stock price

Detailed descriptions of Annual ICP and PBRSUs are found in the section “Key Elements of Fiscal 2019 Compensation” below.

Objectives of Our Pay Program and the Link Between Pay and Performance

The Compensation Committee’s objectives for our executive compensation programs are to:

-29-


 

 

Drive long-term stock price appreciation by linking a meaningful portion of executive compensation to financial and non-financial measures that will drive or reflect the creation of stockholder value;

 

Help recruit and retain experienced and highly qualified executives given the competitive labor environment in which the Company competes for such talent; and

 

Motivate our executives to perform to the best of their abilities while holding them accountable for business results, and for obtaining those results ethically.

Further, our compensation program is designed to focus our executive team on growing NetApp’s business and building long-term stockholder value by linking a substantial portion of pay to performance. The pay mix at target grant values for our chief executive officer and other NEOs for fiscal 2019 was primarily long-term and performance-based as illustrated in the charts below.6

 

6 

Charts reflect target ICP value and target equity award value. Amounts reflected in these charts may differ from the amounts in the Summary Compensation Table because the values in the Summary Compensation Table are based on accounting standards and reflect actual bonus payouts, not target.

 

-30-


 

Best Practices in Governance

NetApp’s Compensation Committee emphasizes the following best practices in compensation-related governance:

WHAT WE DO

 

WHAT WE DON’T DO

 

Employ a pay-for-performance philosophy reflected in program design and target pay levels for NEOs

 

X

Guarantee bonuses

Cap maximum annual incentive and performance-vested equity award payouts

 

X

Provide tax gross-ups

Provide modest perquisites

 

X

Pay dividends/dividend equivalents on unvested equity awards

Maintain stock ownership guidelines for officers and directors

 

X

Permit hedging or pledging Company stock by employees or directors

Rely on an independent Compensation Committee and engage an independent Compensation Consultant

 

X

Maintain plans that encourage excessive risk taking

Maintain a clawback policy

 

 

 

Provide only double trigger change of control vesting

 

 

 

Engage regularly with stockholders

 

 

 

-31-


 

Key Elements of Fiscal 2019 Compensation

The key elements of our fiscal 2019 executive compensation program were as follows:

Compensation Element

Form

Performance/Vesting Period

Performance Metric

Alignment to Compensation Objectives

Base Salary

Cash

To attract and retain talent to successfully operate the Company and execute our strategic plans

Annual ICP

Cash

Fiscal year

75% based achievement of fiscal 2019 AOI and revenue targets

25% based on achievement of MBOs

Aligns executive compensation to our annual performance and creates accountability for NEOs to enhance the value of the Company and drive strategic objectives

Long-Term Equity Awards

Service-Vested RSUs

Vest annually in equal installments over four years

Promotes retention while aligning NEOs’ and stockholders’ interests

PBRSUs

PBRSUs vest after a three-year performance period

50% vest based on our TSR vs. Performance Peer Group

50% vest based on cumulative Adjusted Operating Income vs Target

Encourages and rewards financial performance that contributes to creating long-term stockholder value, providing strong alignment between the interests of NEOs and stockholders

 

-32-


 

Establishing Compensation

Role of the Compensation Committee

The Compensation Committee oversees and approves all compensation arrangements for our NEOs. Each year, the Compensation Committee:

 

Approves compensation decisions for NEOs, as recommended by the CEO for all NEOs except himself, by setting compensation levels and targets for the performance-based elements of our compensation program for the current fiscal year and certifying achievement of performance targets and determining the associated payouts for the prior fiscal year;

 

Reviews our executive compensation program design, its effectiveness and adjusts the program to support our business, taking into consideration the needs of the business, compensation peer data and other market prevalence and trend data, recommendations by our CEO and compensation consultant, retention and succession planning considerations, and legal, financial and regulatory developments;

 

Assesses performance of our CEO (together with the independent members of our Board);

 

Addresses executive compensation matters as they arise during the fiscal year due to personnel changes, changes in status and retention considerations; and

 

Evaluates the effectiveness of our executive compensation program, including whether the program encourages excessive risk-taking.

CEO Input

The Compensation Committee solicits input from our CEO regarding all elements of the compensation to be paid to those executives reporting to him, including all NEOs other than himself. As part of the annual review process, our CEO provides compensation recommendations for the executives consistent with our pay principles and competitive market data. His recommendations are based on his assessment of each NEO’s responsibilities and contributions to overall Company performance. With respect to compensation for our CEO, the Chair of the Compensation Committee reviews the CEO’s self-assessment and also solicits input from the Board of Directors as to their perspectives of the CEO’s and the Company’s performance. The Compensation Committee approves all aspects of our CEO’s pay.

Role of the Compensation Consultant

In making its decisions regarding compensation, the Compensation Committee obtains the advice and counsel of an independent compensation consultant. In fiscal 2019, the Compensation Committee elected to change from Farient Advisors to Meridian Compensation Partners, LLC (the “Consultant”). The Consultant provides information and guidance on our compensation strategy, peer group, competitive pay levels and pay practices, investor and proxy advisor preferences, alignment between our executive pay and performance, design of our incentive plans, including performance measures and goals, our annual compensation risk assessment, and Board compensation.  No independent compensation consultants provided any services to the Company other than those requested and approved by the Compensation Committee in fiscal 2019. The Compensation Committee assessed the independence of the Consultant pursuant to SEC rules and concluded that no conflict of interest exists that would prevent the Consultant from independently advising the Compensation Committee.

Compensation Peer Group and Use of Market Data

The Compensation Committee annually reviews and approves a peer group composed of similarly situated technology companies, for which the median revenue approximates NetApp’s revenue. Peer group companies were primarily selected based on the following criteria:

 

Similar revenue, market capitalization, number of employees or other comparable business considerations;

-33-


 

 

Similar operating or business models; and

 

Various markets with whom we compete for talent.

The Compensation Committee also used relevant subsets of these peers to investigate certain other pay practices, including the mix of compensation vehicles and measures used in incentive plans. For fiscal 2019, the Compensation Committee removed Nimble Storage, Brocade Communications Systems and SanDisk Corp. because these companies were acquired by, or merged with, other companies. The Compensation Committee added Arista Networks, Palo Alto Networks and F5 Networks because these companies share aspects of the Company’s business model and compete with the Company for talent.

The fiscal 2019 “Compensation Peer Group” consisted of:

Adobe, Inc.

Alphabet Inc.

Amazon Web Services

Apple Inc.

Arista Networks

BMC Software

Broadcom Corporation

CA Technologies

Cisco Systems, Inc.

Citrix Systems, Inc.

CommVault Systems, Inc.

Dell/EMC

F5 Networks

HP Enterprise Company

  

Hitachi Data Systems

Intel Corporation

International Business Machines Corp.

Intuit Inc.

Juniper Networks, Inc.

KLA Corporation

Logitech International

Marvell Technology

Micron Technology

Microsoft Corporation

Nutanix

Open Text

Oracle Corp.

    

Palo Alto Networks

Pure Storage

QLogic Corp.

QUALCOMM Incorporated

Red Hat, Inc.

Salesforce.com

SAP SE

Seagate Technology

Symantec Corporation

Teradata Corporation

VMware, Inc.

Western Digital Corp.

Yahoo! Inc.

The Compensation Committee reviewed each NEO’s current target total compensation and the ranges of base salary, target annual cash incentive and equity compensation at the 25th, 50th, and 75th percentiles within the Compensation Peer Group. The Compensation Committee then applied its judgment in determining proper levels of each component of compensation for NEOs. Multiple factors influence a NEO’s pay positioning, including, but not limited to, internal equity and hierarchy, succession planning, individual performance, Company performance, strategic role and tenure.  The end result for fiscal 2019 was a target total compensation package for NEOs positioned between the 50th and 65th percentiles for target total compensation relative to the Compensation Peer Group. The actual total compensation received by NEOs varied due to Company and individual performance.

Stockholder Engagement and Advisory Vote on Executive Compensation

NetApp values the input of our stockholders on our compensation programs. We hold an advisory vote on executive compensation on an annual basis. We also regularly communicate with our stockholders to better understand their opinions on governance issues, including compensation.

In fiscal 2019, we solicited feedback from our top stockholders. Prior to the 2018 Annual Meeting, our management team communicated with holders of more than 40% of our outstanding shares, in aggregate. During the discussions between our management team and certain of our stockholders, we obtained feedback on a stockholder proposal and other topics, including executive compensation.

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Then in January 2019, management conducted a “corporate governance roadshow” during which executives from our Investor Relations and Legal departments met with holders of more than 20% of our outstanding shares, in aggregate, to discuss and obtain feedback on our governance philosophy and practices, board structure and composition, executive compensation, stockholder voting guidelines and current topics in corporate governance. The stockholders’ feedback included their perspectives on executive compensation, in particular, their views on the metrics we use for performance-based pay.

At the 2018 Annual Meeting, approximately 97% of the votes cast were voted “FOR” approval of our executive compensation proposal. The Compensation Committee believes that the result of this vote affirms our stockholders’ support for our approach to executive compensation. The Compensation Committee will continue to consider input from stockholders and the outcome of our annual say-on-pay votes when making future executive compensation decisions.

Components of Compensation

The principal components of our Fiscal 2019 executive compensation program – Base Salary, Annual ICP and Long-Term (Incentive) Equity Compensation – are described in more detail below.

 

BASE SALARY

What is it?


Base salary provides a fixed level of cash compensation designed to be commensurate with an executive’s qualifications, experience, responsibilities, performance, potential and tenure.

How is it set?

The Compensation Committee reviews base salaries at least annually with the aim of paying market-competitive base salaries to attract and retain key executive talent. Annual salary increases are not automatic or guaranteed.

Why is it important?

Base salaries promote excellence in day-to-day management and operation of our business. Base salaries also serve as the basis for Annual ICP and change of control severance benefits.

 

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Fiscal 2019 Base Salary Decisions

The Compensation Committee made no changes to Mr. Kurian’s base salary for fiscal 2019. The Compensation Committee approved increases to the base salaries for other NEOs after it determined such increases were merited to align with market movements and to recognize NEO performance.

 

Name

Fiscal 2019 Base Salary

Percentage Increase
from Fiscal 2018

George Kurian

$925,000

0%

Ronald J. Pasek

$600,000

2.6%

Joel D. Reich

$524,000

2.1%

Henri Richard

$600,000

4.4%

Matthew K. Fawcett

$538,000

3.5%

 

ANNUAL ICP

What is it?

 

Annual ICP is cash earned based on NetApp’s financial performance (weighted 75%) and individual MBOs (weighted 25%). Threshold levels of financial performance are required to earn a payout.

How is it set?

The Compensation Committee determines the eligibility of NEOs to participate in Annual ICP when it approves the terms and conditions, including the performance targets and payout levels, which are set in the first quarter of our fiscal year. NetApp does not guarantee payment of Annual ICP to any NEO.

The Compensation Committee certifies the level of performance achieved and resulting payouts shortly after the end of the fiscal year.

Why is it important?

Annual ICP is designed to align executive compensation to our annual performance and drive the achievement of key business results, which ultimately lead to long-term stockholder value. It also creates accountability for, and rewards NEOs for, driving strategic objectives.

 

Target Annual ICP Awards

Target Annual ICP awards for NEOs are set so that target total short-term cash compensation (salary plus target ICP award) is between the 50th and 65th percentiles relative to the Compensation Peer Group. For fiscal 2019, our NEOs’ target total short-term cash compensation was positioned at approximately the median relative to the Compensation Peer Group and there were no changes to target annual incentive compensation opportunities for NEOs. Our CEO’s target Annual ICP award is 170% of his base salary, which is higher than the other NEOs’ targets. The higher target Annual ICP award percentage:

 

Reflects Mr. Kurian’s responsibility for driving the Company’s strategy to remain competitive in the rapidly evolving data services and storage market; and

 

Places a greater portion of his total annual cash compensation at risk.

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Name

Fiscal 2019 Target ICP Award % of Salary7

George Kurian

170%

Ronald J. Pasek

110%

Joel D. Reich

110%

Henri Richard

110%

Matthew K. Fawcett

80%

Determination of Awards

Payouts are earned based on NetApp’s performance against financial goals and each NEO’s achievement of their MBOs. The Compensation Committee approves such goals and MBOs at the beginning of each fiscal year. Each participant was eligible to earn a maximum award of 200% of such participant’s target award. Following the end of fiscal 2019, the Compensation Committee determined: (1) the level of achievement by the Company of revenue and AOI goals (“Financial Goals”) and (2) the Annual ICP pool. Subject to the limitation of the overall award pool, the Compensation Committee determined awards to each NEO based on a combination of financial performance relative to the Financial Goals and achievement by the NEO of individual MBOs tied to the Company’s strategic business objectives, as further described below.

Financial Goals

The Compensation Committee believes that the continued use of revenue and AOI in our Annual ICP drives the right decisions and behaviors of our NEOs. These measures are intended to reflect the Company’s business strategy, which includes making tradeoffs between operating income and revenue growth, encouraging executives to make balanced decisions intended to benefit the Company as a whole, while mitigating the potential for executives to take undue risks. The measures, weighting and rationales for the Financial Goals are as follows:

 

7 

Percentage of salary used for target ICP award remained unchanged from fiscal 2018.

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Measure

Weighting

Metric Definition

Rationale

Revenue

1/3rd

GAAP net revenues

Encourage growth and the long-term creation of stockholder value through market development and market share acquisition

Adjusted Operating Income

2/3rds

Non-GAAP operating income minus stock-based compensation expense

Encourage effective management of Company resources and the creation of stockholder value

The measure of non-GAAP operating income is derived from net revenues from our products and services and the costs related to the generation of those revenues, including cost of revenue, sales and marketing, research and development, and general and administrative expenses. To promote disciplined use of equity-based compensation for incentive compensation purposes, NetApp defines Adjusted Operating Income as non-GAAP operating income minus stock-based compensation expense. Non-GAAP operating income and Adjusted Operating Income for fiscal 2019, both on an actual and target basis, excluded items that we believe are not reflective of our short-term operating performance, such as amortization of intangible assets, restructuring charges and gains on the sale of or losses on impairments of assets. We publicly disclose a detailed reconciliation of GAAP to non-GAAP net income and operating income, along with other statement of operations items, on a regular basis with the Company’s quarterly earnings announcements. A reconciliation of non-GAAP operating income and Adjusted Operating Income to GAAP operating income can be found in Annex A.

Individual MBOs

At the end of the fiscal year, Mr. Kurian considers each NEO's achievement of their MBOs for the period and then determines each NEO’s individual rating on a scale of 1 to 5. Based on Mr. Kurian’s determination of NEO ratings, Mr. Kurian then recommends to the Compensation Committee a payout percentage of between 0% and 200% for each NEO’s target individual MBOs. After reviewing Mr. Kurian’s assessment and recommendation, the Compensation Committee determines and approves the payout percentage.

For Mr. Kurian, the Compensation Committee determines Mr. Kurian’s achievement of his MBOs. Mr. Kurian submits a self-assessment to the Compensation Committee. After reviewing Mr. Kurian's self-assessment and making its own evaluation of Mr. Kurian’s performance after consulting with the Board, the Compensation Committee determines and approves Mr. Kurian's payout. In assessing Mr. Kurian's achievements and approving his compensation, the Compensation Committee considers his achievements within a broader set of expectations, including strategic leadership, organizational quality and effectiveness, management abilities, and responsiveness to economic conditions.

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2019 Annual ICP Decisions

The portion (75%) of Annual ICP based on Financial Goals was calculated based on the Company’s achievement of revenue and Adjusted Operating Income versus targets, with revenue weighted at one-third and Adjusted Operating Income weighted at two-thirds. The chart below shows the Adjusted Operating Income and revenue goals and our achievement for fiscal 2019. (†)

 

 

Fiscal 2019 Revenue Goals ($MMs) (1/3rd weighting)

% of Target

% of Target Award

Fiscal 2019 AOI Goals ($MMs) (2/3rds weighting)

% of Target

% of Target Award

Maximum

$6,815

110%

200%

$1,302

110%

200%

Target

$6,195

100%

100%

$1,132

100%

100%

Threshold

$5,266

85%

25%

$906

80%

20%

<Threshold

<$5,266

<85%

0%

<$906

<80%

0%

Fiscal 2019 Achievement

$6,146

99%

96%

$1,229

109%

157%

(†) Amount of awards determined by interpolating for performance between discrete points shown in the table.

Based on this performance relative to target goals for the blend of revenue and AOI into a percent of target awards, the Annual ICP pool was funded at 136.77% of target.

Once the Annual ICP pool was determined, the Compensation Committee allocated the pool and calculated the actual awards for each NEO based on achievement by the Company against the ICP revenue and AOI targets, which results were applied to 25% and 50% respectively of each NEO’s total ICP award opportunity (i.e., 1/3rd and 2/3rds, respectively, of the 75% Financial Goal weighting) and each NEO’s achievement of their MBOs and associated performance rating, which determined the payout percentage (0% to 200%) for the 25% of their target ICP award opportunity.

For fiscal 2019, MBOs for NEOs related to the Company’s strategic objectives within the following categories:

 

Establish a scalable, rapidly growing SaaS business;

 

Accelerate innovation, win customers and become a top 3 HCI vendor;

 

Become #1 in All Flash FAS;

 

Acquire new customers in new ways; and

 

Accelerate speed of execution.

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Based on the level of achievement on both the Company and individual performance metrics for fiscal 2019, the Annual ICP payouts to NEOs were as follows:

Name

Target Award

Corporate Financial Award as a % of Target (Weighted 75%)

Individual MBO Award as a % of Target (Weighted 25%)

Fiscal 2019 Annual ICP

Actual Award as a % of Target Award

George Kurian

$1,572,500

136.77%

140%

$2,163,356

137.6%

Ronald J. Pasek

$660,000

136.77%

85%

$817,240

123.8%

Joel D. Reich

$576,400

136.77%

80%

$706,518

122.6%

Henri Richard

$660,000

136.77%

100%

$841,990

127.6%

Matthew K. Fawcett

$430,400

136.77%

120%

$570,600

132.6%

Long-Term Equity Incentive Compensation

The grant of equity awards to our NEOs is designed to align their interests with stockholders and provide them with a significant incentive to manage the Company from the perspective of an owner with an equity stake in the business. The mix of PBRSUs versus RSUs is reviewed by the Compensation Committee annually and may change from year to year.

Grant Values

Equity award guidelines for our NEOs were targeted, on average, at approximately the 50th percentile relative to the Compensation Peer Group. The size of the actual equity grant to each NEO is designed to create a meaningful opportunity for stock ownership and is based on several factors, including the NEO’s current position, level of performance, market data results, strategic importance to the Company, potential for future responsibility and promotion over time, as well as the remaining share reserve under the Company’s equity plan. The Compensation Committee does not place any particular weight on any one individual factor and does not strictly adhere to any specific guidelines in making its determinations.

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2019 Long-Term Equity Incentive Compensation Decisions

In fiscal 2019, the Compensation Committee granted PBRSUs and RSUs to all of our NEOs.  The target mix of equity awards was 75% PBRSUs and 25% RSUs for the CEO and 60% PBRSUs and 40% RSUs for the other NEOs. We believe that this mix of long-term performance-based versus service-vested awards for these executives appropriately reflects their relative impact upon, and accountability for, our stock price performance over time.

The following chart shows the grants of PBRSUs and RSUs to our NEOs in fiscal 2019. The target dollar values of the grants differ from the dollar values in the Summary Compensation Table because the values in the Summary Compensation Table reflect the final payout versus target, in the case of PBRSUs, and are based on accounting standards.

 

Name

Total Target $
Value of Grants

Target Number
of PBRSUs

RSUs

George Kurian

$9,000,000

101,500

34,000

Ronald J. Pasek

$3,713,000

33,500

22,500

Joel D. Reich

$2,700,000

24,500

16,000

Henri Richard

$4,050,000

36,500

24,500

Matthew K. Fawcett

$2,025,000

18,500

12,000

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PBRSUs

What are they?

 

PBRSUs provide an opportunity for each NEO to earn shares of our common stock based on achievement of performance goals approved by the Compensation Committee. In fiscal 2019, NEOs were granted PBRSUs subject to the achievement of goals based on cumulative AOI and TSR performance.

How are they set?

The Compensation Committee determines the eligibility of each NEO for PBRSUs annually at the beginning of the fiscal year when it approves the performance goals, performance periods, compensation and performance peer groups and target share amounts that can be earned. The Company does not guarantee PBRSU grants or minimum payouts to any executive.

The Compensation Committee certifies the level of performance achieved and resulting payouts shortly after the end of the performance period.

Why are they important?

Performance-based, long-term equity compensation aligns the interests of our NEOs with the interests of our stockholders, rewards executives for delivering long-term performance, serves as an important retention tool and aligns the contributions and efforts of NEOs with NetApp’s future success.

As depicted in the chart below, the PBRSUs granted in fiscal 2019 have the following features:

 

All PBRSUs vest at the end of a three-year performance period (unless shortened due to a change of control or termination due to death or disability), subject to continued service through the vesting date, which is the last day of each performance period.

 

50% of the PBRSUs may be earned and issued based on the Company’s TSR measured against the median TSR of the companies in the fiscal 2019 Performance Peer Group (as defined below) at the end of the performance period, with the actual award amount determined according to the payout schedule.  

 

50% of the PBRSUs may be earned and issued based on the Company’s achievement of cumulative AOI measured at the end of the performance period, with the actual award amount determined according to the payout schedule.

The Compensation Committee selected TSR as a performance metric because it is an important and objective indicator of the Company’s long-term performance and provides strong alignment between the interests of NEOs and the stockholders. The TSR performance will be measured against our “2019 Performance Peer Group”, which includes all of the companies in our fiscal 2019 Compensation Peer Group other than Amazon Web Services, BMC Software, Dell/EMC, Hitachi Data Systems, Logitech International, QLogic Corp. and Yahoo! Inc., because the excluded companies were not publicly traded at the time of grant. Measuring against our 2019 Performance Peer Group increased the relevance of the benchmark to our business. The Compensation Committee selected Adjusted Operating Income to provide a more direct reward for long-term profitable growth.

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SERVICE-VESTED RSUs

What are they?

 

Service-vested RSUs allow the recipient to earn a fixed number of shares of our common stock for their continued service to the Company. The RSUs vest in four equal annual installments beginning on the first anniversary of the grant date, subject to continued service through the applicable vesting date.

How are they set?

The Compensation Committee determines the eligibility of each NEO for RSUs annually in the first quarter of the fiscal year when it approves the share amounts granted. The Company does not guarantee RSU grants to any executive.

Why are they important?

The Compensation Committee grants service-vested RSUs to promote retention while aligning the ultimate award value directly with changes in our stock price over the vesting period.

Payouts for the Fiscal 2017 and Fiscal 2018 PBRSUs

PBRSUs granted in fiscal 2017 and 2018 allowed the recipient to earn a variable number of shares of our common stock based on the relative performance of our TSR compared to the median TSR of companies listed in the S&P 1500 Technology Hardware and Equipment Index. The performance period for the PBRSUs: (1) granted in fiscal 2017 with a three-year vesting period and (2) granted in fiscal 2018 with a two-year vesting period both ended as of April 26, 2019. The Compensation Committee certified performance and vesting for the NEOs based on the following pre-determined payout scale:

Relative NetApp TSR Performance vs S&P 1500 Tech Hardware & Equipment Index

% of Target Shares Vested

≥ +30% pts

200%

0% pts

100%

-20% pts

50%

< -20% pts

0%

 

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The performance outcome for fiscal 2017 PBRSUs was 32 percentage points above median, which resulted in a 200%-of-target payout. The performance outcome for fiscal 2018 PBRSUs was 29 percentage points above median, which resulted in a 197%-of-target payout. The Compensation Committee certified PBRSU performance and vesting, by NEO, as follows:

Name

Award

Target Number of PBRSUs

PBRSUs Vested

TSR % Above Median

% of Target Vested

George Kurian

Fiscal 2017 3-year

Fiscal 2018 2-year

87,500

85,450

175,000

168,054

32%

29%

200%

197%

Ronald J. Pasek

Fiscal 2017 3-year

Fiscal 2018 2-year

23,893

27,500

47,966

54,084

32%

29%

200%

197%

Joel D. Reich

Fiscal 2017 3-year

Fiscal 2018 2-year

27,000

22,000

54,000

43,267

32%

29%

200%

197%

Henri Richard

Fiscal 2017 3-year

Fiscal 2018 2-year

45,473

28,500

90,946

56,050

32%

29%

200%

197%

Matthew K. Fawcett

Fiscal 2017 3-year

Fiscal 2018 2-year

19,500

15,000

39,000

29,500

32%

29%

200%

197%

Other Compensation for NEOs

Severance and Change of Control Arrangements

The Compensation Committee maintains change of control severance agreements for its key senior executives to: (1) assure we will have the continued dedication and objectivity of our senior executives, notwithstanding the possibility of a change of control of the Company, thereby aligning the interests of these key senior executives with those of the stockholders in connection with potentially advantageous offers to acquire the Company; and (2) create a total executive compensation plan that is competitive with our peer group. The Compensation Committee from time to time determines which key senior executives will receive a change of control severance agreement. Individuals are selected as needed to support the above outlined objectives.

The terms of the individual Change of Control Severance Agreements are described in further detail in the section below titled “Potential Payments upon Termination or Change of Control.” The Compensation Committee believes that these change of control severance agreements satisfy the objectives above and ensure that key executives are focused on the Company’s goals and objectives and the interests of our stockholders.

Effective June 2019, as a result of the expiration of existing Change of Control Severance Agreements and in connection with a review of executive compensation, the Company entered into New Change of Control Severance Agreements with each of our NEOs, which replaced their expired Change of Control Severance Agreements, as amended. Please see “Termination of Employment and Change of Control Agreements – Change of Control Severance Agreements” below for further information on the New Change of Control Agreements.

Supplemental Benefits and Perquisites

The Company provides limited supplemental benefits and perquisites to our NEOs.

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Two of our NEOs are eligible to participate in the Company’s Executive Medical Retirement Plan (the “Medical Plan”), which upon retirement provides a health reimbursement account to reimburse eligible retired executives for premiums paid for individual insurance covering the retiree and any eligible dependents for the period from January 1, 2017 through December 31, 2019. The Medical Plan was no longer available to new participants as of November 12, 2015. The Medical Plan terminates by its terms on December 31, 2019. Mr. Kurian and Mr. Reich are the only NEOs that are eligible for benefits under the Medical Plan. On or after December 31, 2019 but ending on December 31, 2021, Mr. Kurian and Mr. Reich will be eligible to receive a lump sum cash payment equal to two years of projected health care costs, or a prorated portion thereof, pursuant to the methodology set forth in the Medical Plan.

Our NEOs are also entitled to a preventative care medical benefit of an annual physical with a dollar value of up to $2,500 per calendar year not available to nonexecutives.

The Compensation Committee approved the use of a car service by Mr. Kurian for travel between his residence and the office in an amount of up to $40,000 per year so that he can conduct business during his commute. In fiscal 2019, the expense for Mr. Kurian’s car service was $1,377. The Compensation Committee approved payment by the Company of rental expenses for Mr. Reich for a residence and rental furniture in Sunnyvale, California, along with a gross-up for associated taxes. Although Mr. Reich is based in the Company’s Waltham, Massachusetts office, his position requires frequent travel to the Company’s headquarters in Sunnyvale. In fiscal 2019, the Company paid $108,155 for Mr. Reich’s housing related expenses.

Other Benefits and Reimbursements

NEOs are eligible to participate in all of our employee benefit plans, such as medical, dental, vision, group disability, life and accidental death and dismemberment insurance, our 401(k) plan and our nonqualified deferred compensation program. Effective January 1, 2015, we match 100% of the first 2% of eligible earnings contributed to our 401(k) plan, and match 50% of the next 4% of eligible earnings contributed, up to a maximum of $6,000 per calendar year. Under the Company’s nonqualified deferred compensation program (discussed in further detail below), eligible participating employees (including NEOs) may defer a percentage of their compensation. The program permits contributions on a tax deferred basis in excess of IRS limits imposed on 401(k) plans as permitted and in compliance with Internal Revenue Code Section 409A. The only additional retirement benefits (other than the 401(k) plan) that we offer to certain of our NEOs are those under the Medical Plan discussed above.  

Compensation Policies and Practices

Stock Ownership Guidelines

The Board believes that stock ownership by the Company’s directors and executives helps to align the interests of the Company’s directors and executives with the interests of the Company’s stockholders. The Company has established the following minimum share ownership guidelines for the Company’s directors, CEO, and Executive Vice Presidents:

Position

Guideline as a Multiple of Salary/Cash Board Retainer

Independent Directors

5x

CEO

5x

EVPs

2x

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Once a covered executive or independent director becomes subject to these guidelines (i.e., generally upon hire, promotion, or election), they have five years to comply with these guidelines. Once achieved, ownership at the guideline amount must be maintained. All of the covered executives were in compliance with the guidelines as of the end of fiscal 2019.  All of the directors, other than Ms. Kerr and Mr. Schenkel, also met the guidelines as of the end of fiscal 2019. Ms. Kerr and Mr. Schenkel were appointed to the Board in November 2017 and are not required to meet the guidelines until 2022.

Clawback Policy

The Board adopted a clawback policy for NEOs and other senior executives, which gives the Board discretion to require that designated Company employees repay cash incentive or equity compensation to the Company if the Board determines that the individual’s actions caused or partially caused the Company to materially restate all or a portion of its financial statements on which such compensation was calculated. Such determination must be made by the Board within three years of the date of filing of the applicable financial statements. The Compensation Committee believes that the Company’s clawback policy is in keeping with good standards of corporate governance and mitigates the potential for excessive risk taking by Company executives.

Anti-Hedging and Anti-Pledging Policies

Our Board has adopted a policy prohibiting all employees and members of the Board from engaging in any hedging transactions with respect to any equity securities of the Company held by them, including the purchase of any financial instrument (including prepaid variable forward contracts, equity swaps, collars, and exchange funds) designed to hedge or offset any decrease in the market value of such equity securities. The Company’s Insider Trading Policy prohibits all employees of the Company and members of the Board from pledging the Company’s securities as collateral for a loan.

Tax Deductibility of Compensation

Prior to January 1, 2018, Section 162(m) of the Internal Revenue Code generally disallowed a tax deduction to publicly held companies for compensation paid to certain executive officers to the extent that compensation exceeded $1 million per officer in any year unless such compensation was considered “performance-based compensation.” As a result of the Tax Cuts and Jobs Act, and except for certain grandfathered arrangements, Section 162(m) was amended to eliminate the deduction for performance-based compensation for periods after 2018. The Compensation Committee is expected to consider the potential future effects of Section 162(m) (as amended) when determining NEO compensation, including the added flexibility in structuring compensation in light of the elimination of the performance-based compensation deduction.

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COMPENSATION COMMITTEE REPORT

The information contained in the following Compensation Committee Report shall not be deemed to be soliciting material or to be filed with the Securities and Exchange Commission, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that the Company specifically incorporates it by reference in such filing.

The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management and, based upon such review and discussions, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in this Proxy Statement.

Submitted by the Compensation Committee of the Board of Directors:

Kathryn Hill, Chair

Gerald Held

George T. Shaheen

Richard P. Wallace

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EXECUTIVE COMPENSATION AND RELATED INFORMATION

Summary Compensation Table

The table below summarizes the compensation information for the NEOs for fiscal 2019, fiscal 2018 and fiscal 2017.

 

Name and Principal Position

 

Year

 

Salary

($)(1)

 

 

Bonus

($)(2)

 

 

Stock Awards

($)(3)

 

 

Option

Awards

($)

 

 

Non-Equity

Incentive Plan

Compensation

($)(4)

 

 

Change in

Pension Value

and

Nonqualified

Deferred

Compensation

Earnings

($)

 

 

All Other

Compensation

($)(5)

 

 

Total

($)

 

George Kurian

 

2019

 

 

925,000

 

 

 

 

 

 

10,065,244

 

 

 

 

 

 

2,163,356

 

 

 

 

 

 

11,369

 

 

 

13,164,969

 

Chief Executive Officer

 

2018

 

 

925,000

 

 

 

 

 

 

9,611,646

 

 

 

 

 

 

2,307,516

 

 

 

 

 

 

15,205

 

 

 

12,859,367

 

and President(6)

 

2017

 

 

875,000

 

 

 

 

 

 

6,179,678

 

 

 

 

 

 

1,920,650

 

 

 

 

 

 

29,913

 

 

 

9,005,241

 

Ronald J. Pasek

 

2019

 

 

600,000

 

 

 

 

 

 

4,082,279

 

 

 

 

 

 

817,240

 

 

 

 

 

 

11,922

 

 

 

5,511,441

 

Executive Vice President

 

2018

 

 

585,000

 

 

 

 

 

 

3,757,967

 

 

 

 

 

 

953,184