DEF 14A 1 d333785ddef14a.htm DEF 14A DEF 14A
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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   ☐

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  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

salesforce.com, inc.

(Name of Registrant as Specified In Its Charter)

 

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LOGO

 

Company Logo.
Notice of the 2017 Annual Meeting and 2017 Proxy Statement
Tuesday, June 6, 2017 at 2:00 p.m. local time
358 Mission Street, San Francisco, California 94105


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LOGO

salesforce.com, inc.

The Landmark @ One Market

Suite 300

San Francisco, California 94105

 

LOGO

April 26, 2017

Dear Fellow Stockholders:

You are cordially invited to attend the 2017 Annual Meeting of Stockholders of salesforce.com, inc. on Tuesday, June 6, 2017 at 2:00 p.m. local time at 350 Mission Street, San Francisco, California 94105.

At this year’s meeting, we will vote on the election of directors, amendments to our 2013 Equity Incentive Plan and our 2004 Employee Stock Purchase Plan to increase the number of shares authorized for grant thereunder and the ratification of the selection of Ernst & Young LLP as Salesforce’s independent registered public accounting firm. We will also conduct a non-binding advisory vote to approve the compensation of Salesforce’s named executive officers, as well as a non-binding advisory vote on the frequency of future advisory votes to approve named executive officer compensation. If properly presented at the meeting, we will also consider one stockholder proposal as described in the Notice of 2017 Annual Meeting of Stockholders and Proxy Statement. Finally, we will transact such other business as may properly come before the meeting and stockholders will have an opportunity to ask questions.

Your vote is important. Whether or not you plan to attend the Annual Meeting, please vote as soon as possible. You may vote over the Internet, by telephone or by mailing a completed proxy card (if you request printed copies of the proxy materials to be mailed to you). Your vote by proxy will ensure your representation at the Annual Meeting regardless of whether you attend the meeting. Details regarding admission to the Annual Meeting and the business to be conducted are described in the accompanying Notice of 2017 Annual Meeting of Stockholders and Proxy Statement.

Thank you for your ongoing support of Salesforce. We look forward to seeing you at the Annual Meeting.

Aloha,

 

LOGO

Marc Benioff

Chairman of the Board of Directors and

Chief Executive Officer


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LOGO

salesforce.com, inc.

The Landmark @ One Market

Suite 300

San Francisco, California 94105

 

 

NOTICE OF 2017

ANNUAL MEETING OF STOCKHOLDERS

 

To be held Tuesday, June 6, 2017

TO THE STOCKHOLDERS OF SALESFORCE.COM, INC.:

NOTICE IS HEREBY GIVEN that the 2017 Annual Meeting of Stockholders (the “Annual Meeting”) of salesforce.com, inc., a Delaware corporation (“Salesforce”), will be held on Tuesday, June 6, 2017 at 2:00 p.m. local time at 350 Mission Street, San Francisco, California 94105 for the following purposes:

 

  1. To elect Marc Benioff, Keith Block, Craig Conway, Alan Hassenfeld, Neelie Kroes, Colin Powell, Sanford Robertson, John V. Roos, Robin Washington, Maynard Webb and Susan Wojcicki to serve as directors until the next Annual Meeting of Stockholders and until their successors are duly elected and qualified, subject to earlier resignation or removal;  

 

  2. To amend our 2013 Equity Incentive Plan to increase the number of shares authorized for grant by 37 million shares;  

 

  3. To amend our 2004 Employee Stock Purchase Plan to increase the number of shares authorized for employee purchase by 8 million shares;  

 

  4. To ratify the appointment of Ernst & Young LLP as our independent registered public accounting firm for the fiscal year ending January 31, 2018;  

 

  5. To approve, on an advisory basis, the fiscal 2017 compensation of our named executive officers;  

 

  6. To hold an advisory vote on the frequency of future advisory votes to approve our named executive officer compensation; and  

 

  7. To consider a stockholder proposal requesting, on an advisory basis, action to allow stockholders to request special meetings of stockholders.  

The foregoing items of business are more fully described in the Proxy Statement accompanying this Notice. We also will transact any other business that may properly come before the Annual Meeting, but are not aware of any such additional matters.

Stockholders at the close of business on April 12, 2017 and their proxies are entitled to attend and vote at the Annual Meeting and any and all adjournments, continuations or postponements thereof.

All stockholders are invited to attend the Annual Meeting in person. Any stockholder attending the Annual Meeting may vote even if such stockholder returned a proxy. You will need to bring your Notice of Internet Availability of Proxy Materials, or other proof of ownership of Salesforce common stock as of the record date, as well as photo identification, to enter the Annual Meeting.

U.S. Securities and Exchange Commission rules allow companies to furnish proxy materials to their stockholders over the Internet. This expedites stockholders’ receipt of proxy materials, lowers the annual meeting costs and conserves natural resources. Thus, we are mailing stockholders a Notice of Internet Availability of Proxy Materials, rather than a paper copy of the Proxy Statement and our 2017 Annual Report. The Notice of Internet Availability of Proxy Materials contains instructions on how to access our proxy materials online, vote and (if desired) obtain a paper copy of our proxy materials.

This Notice, the Notice of Internet Availability of Proxy Materials, the Proxy Statement and the 2017 Annual Report are first being made available to stockholders on April 26, 2017.

By Order of the Board of Directors

 

LOGO

Amy E. Weaver

President, Legal, General Counsel and Secretary

San Francisco, California

April 26, 2017

ALL STOCKHOLDERS ARE INVITED TO ATTEND THE ANNUAL MEETING. WHETHER OR NOT YOU EXPECT TO ATTEND THE ANNUAL MEETING, PLEASE VOTE AS PROMPTLY AS POSSIBLE IN ORDER TO ENSURE YOUR REPRESENTATION AT THE ANNUAL MEETING. YOU MAY VOTE ONLINE OR BY TELEPHONE OR, IF YOU REQUESTED PRINTED COPIES OF THE PROXY MATERIALS, BY USING THE PROXY CARD OR VOTING INSTRUCTION FORM PROVIDED WITH THE PRINTED PROXY MATERIALS. YOU MAY SUBSEQUENTLY CHANGE OR REVOKE YOUR VOTE AT THE ANNUAL MEETING IF YOU ATTEND THE MEETING.


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PROXY STATEMENT FOR 2017 ANNUAL MEETING OF STOCKHOLDERS

TABLE OF CONTENTS

 

 

     Page  

About the Annual Meeting

     1  

Who is soliciting my vote?

     1  

When and where will the Annual Meeting take place?

     1  

Where can I access the proxy materials?

     1  

What will I be voting on?

     1  

What are the Board’s voting recommendations?

     1  

How many votes do I have?

     2  

How do I vote?

     2  

What do I need to bring to attend and vote at the Annual Meeting?

     2  

Directors and Corporate Governance

     3  

Board and Corporate Governance Highlights

     3  

Board Members

     4  

Board Independence

     10  

Board Leadership Structure

     10  

Board Meetings and Director Communications

     11  

Corporate Governance and Board Committees

     11  

Compensation of Directors

     14  

Director Stock Ownership Requirement

     14  

Sustainability at Salesforce

     15  

Protecting our Planet

     15  

Fostering Employee Success

     15  

Giving Back

     15  

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

     16  

Equity Compensation Plan Information

     18  

Material Features of the 2014 Inducement Equity Incentive Plan

     18  

A Letter from our Compensation Committee

     19  

Compensation Discussion and Analysis

     20  

Named Executive Officers

     20  

Executive Summary

     20  

Stockholder Outreach and Board Responsiveness

     23  

Compensation Philosophy and Practices

     25  

Compensation Elements and Compensation for Named Executive Officers

     26  

Compensation-Setting Process

     31  

Decisions Regarding Fiscal 2018 Compensation

     33  

Other Compensation Policies

     33  

Post-Employment Compensation

     34  

Tax and Accounting Considerations

     35  

Compensation Risk Assessment

     36  

Summary Compensation Table

     37  

Grants of Plan-Based Awards

     38  

Option Exercises and Stock Vested

     39  

 

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  TABLE OF CONTENTS (CONTINUED)  

 

       

 

     Page  

Outstanding Equity Awards at Fiscal 2017 Year-End

     40  

Employment Contracts and Certain Transactions

     42  

Compensation Committee Interlocks and Insider Participation

     46  

Section 16(a) Beneficial Ownership Reporting Compliance

     46  

Committee Reports

     46  

Report of the Compensation Committee of the Board of Directors

     46  

Report of the Audit Committee of the Board of Directors

     47  

Proposal 1—Election of Directors

     49  

Vote Required and Board of Directors’ Recommendation

     49  

Proposal 2—Approval of the Amended and Restated Equity Incentive Plan, Including to Increase Plan Shares Reserved for Issuance

     50  

Increasing the Number of Shares Reserved for Issuance under the 2013 Plan

     50  

Summary of the 2013 Plan

     52  

Summary of U.S. Federal Income Tax Consequences

     58  

Number of Awards Granted to Employees, Consultants and Directors

     60  

Detailed Three Year Average Burn Rate Calculation

     60  

Vote Required and Board of Director’s Recommendation

     60  

Proposal 3—Approval of the Amended and Restated Employee Stock Purchase Plan to Increase Plan Shares Reserved for Issuance

     61  

Increasing the Number of Shares Reserved for Issuance under the ESPP

     61  

Summary of the ESPP

     62  

Number of Shares Purchased by Certain Individuals and Groups

     64  

Summary of U.S. Federal Tax Consequences

     65  

Summary

     65  

Vote Required and Board of Director’s Recommendation

     65  

Proposal 4—Ratification of Appointment of Independent Auditors

     66  

Engagement Letter and Fee Disclosure

     66  

Pre-Approval of Audit and Non-Audit Services

     66  

Vote Required and Board of Directors’ Recommendation

     67  

Proposal 5—Advisory Vote to Approve Named Executive Officer Compensation

     68  

Fiscal Year 2017 Business Highlights

     68  

Significant Fiscal 2017 Compensation Actions

     68  

Advisory Vote and Board of Directors’ Recommendation

     69  

Proposal 6—Advisory Vote on the Frequency of Future Advisory Votes to Approve Named Executive Officer Compensation

     70  

Advisory Vote and Board of Director’s Recommendation

     70  

Proposal 7—Stockholder Proposal Requesting, on an Advisory Basis, Action to Allow Stockholders to Request Special Meetings of Stockholders

     71  

Supporting Statement by Stockholder Proponent

     71  

The Company’s Statement of Opposition

     71  

Vote Required and Board of Directors’ Recommendation

     72  

Procedural Matters

     73  

General

     73  

Stockholders Entitled to Vote; Record Date

     73  

Quorum; Abstentions; Broker Non-Votes

     73  

Voting; Revocability of Proxies

     73  

Expenses of Solicitation

     74  

Procedure for Introducing Business or Director Nominations at our 2018 Annual Meeting of Stockholders

     74  

Delivery of Proxy Materials

     75  

Transaction of Other Business

     76  

Appendix A–Amended and Restated 2013 Equity Incentive Plan

     A-1  

Appendix B–Amended and Restated 2004 Employee Stock Purchase Plan

     B-1  

 

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  ABOUT THE ANNUAL MEETING   

 

 

ABOUT THE ANNUAL MEETING

Who is soliciting my vote?

 

The Board of Directors of salesforce.com, inc. (the “Board”) is soliciting your vote at Salesforce’s 2017 Annual Meeting of Stockholders (the “Annual Meeting”). Unless otherwise indicated, references in this Proxy Statement to “Salesforce,” “we,” “us,” “our” and the “Company” refer to salesforce.com, inc.

When and where will the Annual Meeting take place?

 

The Annual Meeting will take place on Tuesday, June 6, 2017 at 2:00 p.m. local time at 350 Mission Street, San Francisco, California 94105.

Where can I access the proxy materials?

 

Pursuant to the rules of the Securities and Exchange Commission, or SEC, we have provided access to our proxy materials over the Internet. Accordingly, a Notice of Internet Availability of Proxy Materials (the “Internet Notice”) has been mailed (or, if requested, emailed) to our stockholders owning our stock as of the record date, April 12, 2017. Our proxy materials were mailed to those stockholders who have asked to receive paper copies. Instructions on how to access the proxy materials over the Internet, how to receive our proxy materials via email, or how to request a printed copy by mail may be found in the Internet Notice.

By accessing the proxy materials on the Internet or choosing to receive your future proxy materials by email, you will save the Company the cost of printing and mailing documents to you and will reduce the impact of the Annual Meeting on the environment. If you choose to receive future proxy materials by email, you will receive an email next year with instructions containing a link to those materials. If you choose to receive future proxy materials by mail, you will receive a paper copy of those materials, including a form of proxy or voting instruction form. Your election to receive proxy materials by mail or email will remain in effect until you notify us that you are terminating such election.

What will I be voting on?

 

You will be voting on:

 

1. The election of Marc Benioff, Keith Block, Craig Conway, Alan Hassenfeld, Neelie Kroes, Colin Powell, Sanford Robertson, John V. Roos, Robin Washington, Maynard Webb and Susan Wojcicki to serve as directors until the next Annual Meeting of Stockholders and until their successors are duly elected and qualified, subject to earlier resignation or removal;

 

2. The amendment of our 2013 Equity Incentive Plan to increase the number of shares authorized for grant by 37 million shares;

 

3. The amendment of our 2004 Employee Stock Purchase Plan to increase the number of shares authorized for employee purchase by 8 million shares;

 

4. The ratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm for the fiscal year ending January 31, 2018;
5. An advisory vote to approve the fiscal 2017 compensation of our named executive officers;

 

6. An advisory vote on the frequency of future advisory votes to approve our named executive officer compensation; and

 

7. A stockholder proposal requesting, on an advisory basis, action to allow stockholders to request special meetings of stockholders.

We will also transact any other business that may properly come before the annual meeting, which could require a vote, although we are not aware of any such business as of the date of this Proxy Statement. An agenda and rules of procedure will be distributed at the Annual Meeting.

 

 

What are the Board’s voting recommendations?

 

The Board recommends that you vote your shares:

 

  FOR each of Marc Benioff, Keith Block, Craig Conway, Alan Hassenfeld, Neelie Kroes, Colin Powell, Sanford Robertson, John V. Roos, Robin Washington, Maynard Webb and Susan Wojcicki;
  FOR the amendment of our 2013 Equity Incentive Plan to increase the number of shares authorized for grant by 37 million shares;

 

  FOR the amendment of our 2004 Employee Stock Purchase Plan to increase the number of shares authorized for employee purchase by 8 million shares;
 

 

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  ABOUT THE ANNUAL MEETING (CONTINUED)  

 

       

 

  FOR ratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm for the fiscal year ending January 31, 2018;

 

  FOR the advisory vote to approve the fiscal 2017 compensation of our named executive officers;
  ONE YEAR on the advisory vote on the frequency of future advisory votes to approve our named executive officer compensation; and

 

  AGAINST the stockholder proposal requesting, on an advisory basis, action to allow stockholders to request special meetings of stockholders.
 

 

How many votes do I have?

 

All of our stockholders have one vote for every share of Salesforce common stock owned as of our record date of April 12, 2017.

How do I vote?

 

If you are a stockholder of record you may cast your vote in any of the following ways.

In advance of the Annual Meeting by:

 

LOGO

Internet

Visit www.proxyvote.com and follow the instructions on your proxy card or notice of internet availability of proxy materials.

LOGO

Phone

Call 1-800-690-6903 and follow the instructions provided in the recorded message (if you received paper copies of the proxy materials).

 

LOGO

Mail

Return your completed and signed proxy card in the enclosed postage-prepaid envelope.

LOGO

At the Meeting

See below regarding attending and voting at the Annual Meeting.

 

 

If you are a stockholder who holds shares through a brokerage firm, bank, trust or other similar organization (that is, in “street name”), please refer to the instructions from the broker or organization holding your shares.

What do I need to bring to attend and vote at the Annual Meeting?

 

Stockholders as of the record date, April 12, 2017, must bring the Internet Notice or other proof of ownership, as well as photo identification, for entrance to the Annual Meeting. Those stockholders whose shares are held in street name may attend and vote at the Annual Meeting by obtaining a legal proxy provided by their broker, bank or other organization and bringing that legal proxy to the Annual Meeting.

 

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  DIRECTORS AND CORPORATE GOVERNANCE  

 

 

DIRECTORS AND CORPORATE GOVERNANCE

Board and Corporate Governance Highlights

 

Salesforce has a Board of highly-experienced directors who have led, advised and established many of the premier companies of Silicon Valley and other leading global organizations. Our Board has taken a thoughtful approach to board composition to ensure that our directors have backgrounds that collectively add significant value to the strategic decisions made by the Company and that enable them to provide oversight of management to ensure accountability to our stockholders. Our directors have extensive backgrounds as entrepreneurs, technologists,

operational and financial experts, investors, advisors and government leaders. In addition, we have worked hard to strike the right balance between long-term understanding of our business and fresh external perspectives, as well as to ensure diversity within the boardroom. We discuss the qualitative elements of our Board in the “Board Members” section below, and a summary of key quantitative metrics for our current Board members is as follows:

 

 

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In addition to a strong, independent Board, we are committed to a corporate governance structure that promotes long-term stockholder value creation by providing the right leadership structure and composition of the Board and providing our stockholders with both the opportunity to provide direct feedback and key substantive rights to ensure accountability. Key highlights of our Board and corporate governance profile are set forth below:

 

Corporate Governance Best Practices

    Board Composed of 82% Independent Directors

 

   Commitment to Board Refreshment (Six New Directors in Past Five Years)

 

   Lead Independent Director

 

   Annual Election of Directors

 

   Majority Voting for Directors

 

   Proxy Access Right

   

   Rigorous Director Selection and Evaluation Process

 

   Limit on Outside Directorships

 

   Fully Independent Committees

 

   Comprehensive Risk Oversight by Full Board and Committees

 

   Extensive Stockholder Engagement Program (Covering More than 50% of Shares in fiscal 2017)

 

   Stock Ownership Policy for Directors and Executive Officers

 

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  DIRECTORS AND CORPORATE GOVERNANCE (CONTINUED)  

 

       

 

Board Members

 

Summary of Director Experience, Qualifications, Attributes and Skills

The matrix below summarizes what our Board believes are desirable types of experience, qualifications, attributes and skills possessed by one or more of Salesforce’s directors, because of their particular relevance to the Company’s business and structure. While all of these were considered by the Board in connection with this year’s director nomination process, the following matrix does not encompass all experience, qualifications, attributes or skills of our directors.

 

    Significant
technical
or
business
experience
in software
industry.
  Experience
with cloud
computing
technology
infrastructure.
  Experience
as CEO or
other
senior
executive
at another
public
company.
  Experience
as a
director of
another
public
company.
  Leadership
experience
in sales
and
distribution.
  Leadership
experience
in
marketing
and brand
building.
  Expertise in
financial
statements,
accounting.
  Professional
experience
in law.
  Experience
founding or
growing
new
businesses
directly or
through
venture
capital
work.
  Diversity of
gender,
race,
national
origin,
education,
professional
experience,
viewpoint,
etc.
  Leadership
experience
in
government
or military.
  Leadership
experience
involving
international
operations
or relations.
 
Marc Benioff                        
 
Keith Block                        
 
Craig Conway                        
 
Alan Hassenfeld                        
 
Neelie Kroes                        
 
Colin Powell                        
 
Sanford Robertson                        
 
John V. Roos                        
 
Lawrence Tomlinson*                        
 
Robin Washington                        
 
Maynard Webb                        
 
Susan Wojcicki                                      
* In March 2017, Lawrence Tomlinson informed the Board that he intends to retire from the Board at the Annual Meeting.

 

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  DIRECTORS AND CORPORATE GOVERNANCE (CONTINUED)  

 

 

Biographies of Our Board Members

The names and certain information as of March 31, 2017 about our director nominees, all of whom are currently members of our Board, are set forth below. There are no family relationships among any of our directors or executive officers. Our directors serve until the next Annual Meeting of Stockholders and until their successors are elected and qualified, subject to earlier resignation or removal. In March 2017, Lawrence Tomlinson informed the Board that he intends to retire from the Board at the Annual Meeting, and the Board wishes to thank Mr. Tomlinson for his commitment to the Company as reflected in his 14 years of distinguished service, including as the Chair of the Board’s Audit and Finance Committee. Please see Proposal 1 in this Proxy Statement for more information about the election of our directors.

 

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Marc Benioff

Chairman of the Board and
Chief Executive Officer

Age: 52

 

Director Since: 1999

Marc Benioff co-founded Salesforce in February 1999 and has served as our Chairman of the Board since inception. He has served as Chief Executive Officer since 2001. From 1986 to 1999, Mr. Benioff was employed at Oracle Corporation, an enterprise software company, where he held a number of positions in sales, marketing and product development, lastly as a Senior Vice President. Mr. Benioff also serves as Chairman of the Board of Salesforce.org, a non-profit public benefit corporation, The Salesforce.com Foundation, a philanthropic private foundation, and as a member of the Board of Trustees of the World Economic Forum. In the past five years, Mr. Benioff served as a director of Cisco Systems, Inc. Mr. Benioff received a B.S. in Business Administration from the University of Southern California, where he is also on the Board of Trustees.

Qualifications

Mr. Benioff’s vision and status as one of our founders, as well as his tenure as our Chief Executive Officer and Chairman of the Board, bring unique and invaluable experience to the Board. Further, his experience in sales, marketing and product development in the technology industry supports our conclusion that Mr. Benioff has the necessary and desired skills, experience and perspective to serve on our Board.

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Keith Block

Vice Chairman,

President and Chief Operating Officer

Age: 56

 

Director Since: 2013

Keith Block has served as our Vice Chairman, President and as a Director since joining Salesforce in June 2013, and has additionally served as our Chief Operating Officer since February 2016. Prior to that, Mr. Block was employed at Oracle Corporation from 1986 to June 2012 where he held a number of positions, most recently Executive Vice President, North America. Mr. Block currently serves on the World Economic Forum’s Information Technology Community as a Governor, the Board of Trustees for Carnegie-Mellon University, the President’s Advisory Council at Carnegie-Mellon University Heinz Graduate School and the Board of Trustees at the Concord Museum. Mr. Block received both a B.S. in Information Systems and an M.S. in Management & Policy Analysis from Carnegie-Mellon University.

Qualifications

Mr. Block’s extensive background in the technology sector and in global sales and business management, including his prior experience as an executive officer of another public technology company, supports our conclusion that Mr. Block has the necessary and desired skills, experience and perspective to serve on our Board.

 

 

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  DIRECTORS AND CORPORATE GOVERNANCE (CONTINUED)  

 

       

 

 

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Craig Conway

Age: 62

 

Director Since: 2005

 

Committees: Compensation

                     Real Estate (Chair)

                     Mergers &  Acquisitions

Craig Conway has served as a Director since October 2005. Mr. Conway served as President and Chief Executive Officer of PeopleSoft, Inc., an enterprise application software company, from 1999 to 2004. Mr. Conway also served as President and Chief Executive Officer of One Touch Systems from 1996 to 1999 and TGV Software from 1993 to 1996. Prior to that, Mr. Conway held executive management positions at a variety of leading technology companies, including Executive Vice President at Oracle Corporation. Mr. Conway currently serves as a director of Guidewire Software, Inc. During the past five years, Mr. Conway also served as a director of Advanced Micro Devices, Inc. Mr. Conway received a B.S. in computer science and mathematics from the State University of New York at Brockport.

Qualifications

Mr. Conway’s extensive and broad background in business management, including his experience as president and chief executive officer of three technology companies, as well as his service on the boards of other publicly-held companies, supports our conclusion that Mr. Conway has the necessary and desired skills, experience and perspective to serve on our Board.

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Alan Hassenfeld

Age: 68

 

Director Since: 2003

 

Committees: Audit & Finance

                     Nominating & Corporate

                     Governance

Alan Hassenfeld has served as a Director since December 2003. Mr. Hassenfeld has been a Director of Hasbro, Inc., a provider of children’s and family entertainment products, since 1978. He served as its Chairman from 1989 to 2008, and also served as its Chairman and Chief Executive Officer from 1989 to 2003. Mr. Hassenfeld is a trustee of the Hasbro Charitable Trust and Hasbro Children’s Foundation. During the past five years, Mr. Hassenfeld also served as a director of Global Cornerstone Holdings Limited. He also serves as a director of Salesforce.org, a non-profit public benefit corporation. Mr. Hassenfeld received a B.A. from the University of Pennsylvania.

Qualifications

Mr. Hassenfeld has an extensive and broad background in business management, including his experience as a chief executive officer of a publicly traded company. This deep business knowledge, combined with the leadership roles he plays within many philanthropic organizations, supports our conclusion that Mr. Hassenfeld has the necessary and desired skills, experience and perspective to serve on our Board.

 

 

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  DIRECTORS AND CORPORATE GOVERNANCE (CONTINUED)  

 

 

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Neelie Kroes

Age: 75

 

Director Since: 2016

Neelie Kroes has served as a Director since May 2016. Ms. Kroes is the former Vice President of the European Commission, European Commissioner for Competition and European Commission for Digital Agenda. Ms. Kroes served as Commissioner for Competition from 2004 to 2010 and as Vice President and Commissioner for Digital Economy and Society from 2010 to 2014. Prior to joining the European Commission, Ms. Kroes served in the Dutch House of Representatives and as State Secretary and Cabinet Minister. She is currently a member of the Global Policy Advisory Board of Uber Technologies Inc. She is also a member of the Advisory Board of Bank of America Merrill Lynch and a member of the Finance Committee of Rijksmuseum Fonds (Amsterdam). Ms. Kroes previously served on the boards of Lucent Netherlands, AB Volvo and McDonald’s Netherlands and was chairperson of Nyenrode University. Ms. Kroes received her M.S. in Economics from Erasmus University.

Qualifications

Ms. Kroes brings valuable international and leadership expertise to our Board and possesses an extensive background in cross-border technology, competition and data security. This extensive experience, combined with her leadership positions in governmental organizations, supports our conclusion that Ms. Kroes has the necessary and desired skills, experience and perspective to serve on our Board.

 

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General Colin Powell

Age: 80

 

Director Since: 2014

 

Committees: Nominating &

                     Corporate Governance

General Colin Powell has served as a Director since March 2014. General Powell is a retired four-star general and served for 35 years in the United States Army. He has served as U.S. National Security Advisor, Commander of the U.S. Army Forces Command, Chairman of the Joint Chiefs of Staff and was the 65th Secretary of State of the United States. General Powell is a member of the Board of Directors of the Council on Foreign Relations, the Chair of the Board of Visitors of the Colin Powell School for Civic and Global Leadership at the City College of New York and the Founder and Chairman Emeritus of the America’s Promise Alliance. Since 2005, General Powell has served as a strategic limited partner at Kleiner Perkins Caufield & Byers, a venture capital firm. General Powell received a B.S. from the City College of New York and an M.B.A. from The George Washington University.

Qualifications

General Powell has an extensive background in management and leadership, including at the highest levels of the U.S. government. This extensive experience, in addition to his leadership positions in various philanthropic organizations, supports our conclusion that General Powell has the necessary and desired skills, experience and perspective to serve on our Board.

 

 

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Sanford Robertson

Lead Independent Director

Age: 85

 

Director Since: 2003

 

Committees: Audit & Finance

                     Nominating &

                     Corporate Governance

                     (Chair)

                     Real Estate

                     Mergers & Acquisitions

Sanford Robertson has served as a Director since October 2003. Mr. Robertson has been an active technology investor and advisor to several technology companies. He is a principal of Francisco Partners, a technology buyout fund. Prior to founding Francisco Partners in 1999, Mr. Robertson was the founder and chairman of Robertson, Stephens & Company, a technology investment bank. Mr. Robertson was also the founder of Robertson, Colman, Siebel & Weisel, later renamed Montgomery Securities, another prominent technology investment bank. Mr. Robertson currently serves as a director of Pain Therapeutics, Inc. and RPX Corporation, and in the past five years, served as a director of Dolby Laboratories, Inc. Mr. Robertson received a B.B.A. and an M.B.A. from the University of Michigan.

Qualifications

Mr. Robertson brings valuable financial expertise to our Board of Directors. His extensive experience in investment banking, private equity and capital markets transactions, as well as his service on the boards of other publicly held companies, supports our conclusion that Mr. Robertson has the necessary and desired skills, experience and perspective to serve on our Board.

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John V. Roos

Age: 62

 

Director Since: 2013

 

Committees: Compensation (Chair)

John V. Roos has served as a Director since September 2013. He served as the U.S. Ambassador to Japan from 2009 to 2013. Ambassador Roos currently serves as Founder and General Partner of Geodesic Capital, a mid-late stage venture capital firm. Since April 2014, Ambassador Roos has also served as Senior Advisor to Centerview Partners, an international investment banking advisory firm, and since October 2013, he has served on the global advisory board of Mitsubishi UFJ Financial Group, a Japanese banking and financial network. Since January 2016, Ambassador Roos has served as Chairman of the Toyota Research Institute Advisory Board. From 1985 to 2009, Ambassador Roos practiced corporate and securities law at Wilson Sonsini Goodrich & Rosati, P.C., where he most recently served as Chief Executive Officer. Ambassador Roos also serves on the Board of Sony Corporation and the Board of the Maureen and Mike Mansfield Foundation. Ambassador Roos received an A.B. in Political Science and a J.D. from Stanford University.

Qualifications

Ambassador Roos brings valuable international and strategic expertise to our Board of Directors, and possesses an extensive and broad background in management, leadership and law. This extensive experience supports our conclusion that Ambassador Roos has the necessary and desired skills, experience and perspective to serve on our Board.

 

 

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Robin Washington

Age: 54

 

Director Since: 2013

 

Committees: Audit & Finance

Robin Washington has served as a Director since September 2013. Ms. Washington has served as Executive Vice President and Chief Financial Officer of Gilead Sciences, Inc., a biopharmaceutical company, since February 2014. She joined Gilead as Senior Vice President and Chief Financial Officer in 2008. From 2006 to 2007, Ms. Washington served as Chief Financial Officer of Hyperion Solutions, an enterprise software company. Prior to Hyperion, Ms. Washington served in a number of executive positions with PeopleSoft, Inc., a provider of enterprise application software. Ms. Washington currently serves as a director of Honeywell International, Inc. During the past five years, Ms. Washington has served as a director of MIPS Technology, Inc. Ms. Washington is a certified public accountant and received a B.A. in Business Administration from the University of Michigan and an M.B.A. from Pepperdine University.

Qualifications

Ms. Washington brings extensive experience in management, operations and accounting in the technology sector to our Board of Directors. Her financial expertise in tax, financial reporting, accounting and controls, corporate finance, mergers and acquisitions and capital markets, along with her service on the boards of other public companies, supports our conclusion that Ms. Washington has the necessary and desired skills, experience and perspective to serve on our Board.

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Maynard Webb

Age: 61

 

Director Since: 2006

 

Committees: Audit & Finance

                     Compensation

                     Merger & Acquisitions

                     (Chair)

Maynard Webb has served as a Director since September 2006. Mr. Webb is the founder of Webb Investment Network, an early stage venture capital firm he started in 2010. From 2006 to 2011, Mr. Webb served as Chief Executive Officer of LiveOps, Inc., a provider of on-demand call center solutions. From 2002 to 2006, Mr. Webb served as Chief Operating Officer of eBay Inc., an online global marketplace. From 1999 to 2002, Mr. Webb served as President of eBay Technologies. Prior to that, Mr. Webb served as Senior Vice President and Chief Information Officer at Gateway, Inc., a computer manufacturer, and Vice President and Chief Information Officer at Bay Networks, Inc., a manufacturer of computer networking products. Mr. Webb currently serves as Chairman Emeritus of the Board of Yahoo! Inc. and as a director of Visa Inc. Mr. Webb received a B.A.A. from Florida Atlantic University.

Qualifications

Mr. Webb brings extensive experience in management, engineering and technical operations to our Board of Directors. Additionally, his tenure in management positions at various technology companies, along with his service on the boards of other public companies, supports our conclusion that Mr. Webb has the necessary and desired skills, experience and perspective to serve on our Board.

 

 

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Susan Wojcicki

Age: 48

 

Director Since: 2014

 

Committees: Mergers & Acquisitions

Susan Wojcicki has served as a Director since December 2014. Ms. Wojcicki has served as Chief Executive Officer of YouTube, a digital video platform and subsidiary of Alphabet Inc. (previously Google Inc.), since February 2014. She joined Google as its marketing manager in 1999, and after serving in various positions in marketing, from April 2011 to January 2014, Ms. Wojcicki served as Google’s Senior Vice President of Advertising & Commerce. Prior to joining Google, she worked at Intel and

served as a management consultant at both Bain & Company and R.B. Webber & Company. During the past five years, Ms. Wojcicki has also served as a director of HomeAway, Inc. Ms. Wojcicki received an A.B. in History and Literature from Harvard University, an M.S. in Economics from the University of California, Santa Cruz and an M.B.A. from the University of California, Los Angeles.

Qualifications

Ms. Wojcicki brings extensive experience in management, operations and marketing in the technology sector to our Board of Directors. Additionally, her expertise in technology, brand building and product development supports our conclusion that Ms. Wojcicki has the necessary and desired skills, experience and perspective to serve on our Board.

 

 

Board Independence

 

The Board believes that it should consist of a substantial majority of independent directors. The Board has determined that, except for Mr. Benioff and Mr. Block, each of our directors has no material relationship with Salesforce and is independent within the meaning of the standards established by the New York Stock Exchange, or NYSE, as currently in effect. In making that determination, the Board considered all relevant facts and circumstances, including the director’s commercial, industrial, banking, consulting, legal, accounting, charitable and familial relationships, and applied the following standards under NYSE rules, which provide that a director will not be considered independent if he or she:

 

  is currently an employee of Salesforce or has an immediate family member who is an executive officer of Salesforce;

 

  has been an employee of Salesforce within the past three years or has an immediate family member who has been an executive officer of Salesforce within the past three years;

 

  has, or has an immediate family member who has, received within the past three years more than $120,000 during any twelve month period in direct compensation from Salesforce, other than director and committee fees and pension or other forms of deferred compensation for prior service (provided such compensation is not contingent in any way on continued
   

service), and other than a family member’s compensation for service as a non-executive employee;

 

  is a current partner or employee of a firm that is Salesforce’s internal or external auditor; has an immediate family member who is a current partner of such a firm; has an immediate family member who is a current employee of such firm and personally works on Salesforce’s audit; or was, or has an immediate family member who was within the last three years, a partner or employee of such a firm and personally worked on Salesforce’s audit within that time;

 

  has, or has an immediate family member who has, been employed as an executive officer of another company where any of Salesforce’s present executives have served on the other company’s compensation committee during the past three years; or

 

  is currently employed as an executive officer or employee, or has an immediate family member who is currently employed as an executive officer, of another company that makes payments to, or receives payments from, Salesforce for property or services in an amount which, in any single fiscal year, exceeds the greater of (a) $1 million or (b) 2% of such other company’s consolidated gross revenues.
 

 

Board Leadership Structure

 

Currently, the Company’s Chief Executive Officer, Marc Benioff, also serves as Chairman of the Board. The Board believes that its current leadership structure, coupled with a strong emphasis on Board independence, provides effective independent oversight of management while allowing both the Board and management to benefit from Mr. Benioff’s leadership and years of experience in the Company’s business and the technology industry. Serving as both Chairman of the Board and Chief Executive Officer since 2001, Mr. Benioff has been the director most capable of effectively identifying strategic priorities, coordinating the board

agenda to focus on discussions critical to the success of the Company and executing the Company’s strategy and business plans. Mr. Benioff possesses detailed and in-depth knowledge of the issues, opportunities and challenges facing the Company and its business. We believe this extensive Company-specific experience and expertise of our CEO, together with the outside experience, oversight and expertise of our independent directors, allows for differing perspectives and roles regarding strategy development that benefit our stockholders. Further, the Board believes that Mr. Benioff’s combined role enables decisive

 

 

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leadership, ensures clear accountability and enhances the Company’s ability to communicate its message and strategy clearly and consistently to its stockholders, employees and customers. Given our strong business, operational and financial performance, the Board believes that stockholders are best served by continuing this leadership structure.

Importantly, the Board also has a strong and empowered Lead Independent Director who provides an effective independent

voice in our leadership structure. The Lead Independent Director presides over the meetings of the independent directors, serves as a liaison between the independent directors and the Chairman of the Board and Chief Executive Officer, and has the authority generally held by a lead independent director and as the independent directors may determine from time to time. Sanford Robertson has served as the Lead Independent Director since June 2007 and his current two-year term will expire in June 2017.

 

 

Board Meetings and Director Communications

 

During the fiscal year ended January 31, 2017, or fiscal 2017, the Board held ten meetings. During fiscal 2017, all directors attended at least 75% of the aggregate of the total number of meetings of the Board and the total number of meetings held by any of the committees of the Board on which such director served, with the exception of Ms. Wojcicki, who was recused from several Board and committee meetings as a matter of good corporate governance due to a potential conflict of interest in connection with a corporate transaction that was considered by the Board. Excluding the meetings from which she was recused, Ms. Wojcicki attended more than 75% of the meetings of the Board and the committee on which she served that were held during the year.

Directors are also expected to attend our annual meeting of stockholders absent an unavoidable and irreconcilable conflict. In fiscal 2017, all directors attended the annual meeting of stockholders.

 

The non-management members of the Board also meet in executive sessions without management present. At these sessions, the Lead Independent Director acts as Presiding Director. In the absence of the Lead Independent Director at any such executive session, the chair of the Audit and Finance Committee serves as Presiding Director.

Stockholders and other interested parties may communicate with the Lead Independent Director, or with any and all other members of the Board, by mail addressed to the intended recipient in care of our Corporate Secretary at salesforce.com, inc. The Landmark @ One Market, Suite 300, San Francisco, California 94105 (our “principal executive offices”) or by email to corporatesecretary@salesforce.com. The Corporate Secretary will periodically forward such communications or a summary thereof to the Board or the applicable director or directors.

 

 

Corporate Governance and Board Committees

 

The Company and the Board regularly review and evaluate the Company’s corporate governance practices. The Board has adopted corporate governance principles that address the composition of, and policies applicable to, the Board, as well as a Code of Conduct applicable to all directors, officers and employees of the Company, including our Chief Executive Officer and Chief Financial Officer.

The Company’s corporate governance principles, set forth as Corporate Governance Guidelines, and its Code of Conduct are available in the Corporate Governance section of the Company’s website at www.salesforce.com/company/investor/governance/ or in print by contacting Investor Relations at our principal executive offices. Any substantive amendments to or waivers of

the Code of Conduct relating to the executive officers or directors of the Company will be disclosed promptly on our website. The Company’s philosophy related to executive compensation is described in the “Compensation Discussion and Analysis” section of this Proxy Statement.

The Board has also adopted a written charter for the Audit and Finance Committee (the “Audit Committee”), the Compensation Committee and the Nominating and Corporate Governance Committee. Each committee charter is available in the Corporate Governance section of the Company’s website at www.salesforce.com/company/investor/governance/ or in print by contacting Investor Relations at our principal executive offices.

 

 

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Primary Committees of the Board of Directors

 

Director    Independent      Audit and Finance      Compensation      Nominating and
Corporate
Governance
 

Marc Benioff (Chairman & CEO)

           

Keith Block

           

Craig Conway

                   

Alan Hassenfeld

                       

Neelie Kroes

               

Colin Powell

                   

Sanford Robertson (Lead Independent Director)

                      Chair  

John V. Roos

               Chair     

Lawrence Tomlinson*

            Chair            

Robin Washington

                   

Maynard Webb

                       

Susan Wojcicki

                                 

Total Meetings in Fiscal 2017

              9        9        5  
* In March 2017, Lawrence Tomlinson informed the Board that he intends to retire from the Board at the Annual Meeting.

 

Audit Committee.    The Audit Committee oversees our corporate accounting and financial reporting process. Among other matters, the Audit Committee: evaluates the independent registered public accountants’ qualifications, independence and performance; determines the engagement of the independent registered public accounting firm; approves the retention of the independent registered public accounting firm to perform any proposed permissible non-audit services; considers the rotation of partners of the independent registered public accounting firm on the Salesforce engagement team; reviews our consolidated financial statements; reviews our critical accounting policies and estimates; oversees our internal audit function; reviews with management and the Company’s independent auditors and internal auditors the adequacy of internal financial controls; oversees the Company’s financial and treasury policies, strategies and capital structure; annually reviews its charter and its performance; reviews and approves the scope of the annual audit and the audit fee; oversees management’s assessment and mitigation of enterprise risks, including cybersecurity risk; and discusses with management and the independent registered public accounting firm the results of the annual audit and the review of our quarterly financial statements. The Audit Committee held nine meetings in fiscal 2017. The report of the Audit Committee is included in this Proxy Statement.

The current members of the Audit Committee are Messrs. Tomlinson, who is the committee chair, Hassenfeld, Robertson and Webb, and Ms. Washington. The Board has determined that all members of our Audit Committee are independent and financially literate under applicable rules and regulations of the NYSE and the SEC. The Board has further determined that both Mr. Tomlinson and Ms. Washington qualify as audit committee financial experts as defined by the SEC.

Compensation Committee.    The Compensation Committee reviews and approves the compensation and benefits of our executive officers, including: reviewing and approving corporate goals and objectives relevant to compensation of the Chief Executive Officer and other executive officers; evaluating the performance of these officers in light of those goals and objectives; and setting compensation of these officers taking into account such evaluations. The Compensation Committee may delegate its authority to one or more subcommittees or to one member of the Compensation Committee. The Compensation Committee also oversees our equity and incentive-based plans and administers the issuance of stock options, restricted stock units and other awards under these plans. Although the Compensation Committee does not currently do so, it may delegate its authority to members of management to determine awards under the Company’s equity-based compensation plans for non-executive officer employees of the Company. The Compensation Committee has delegated authority to management to determine cash awards under our cash incentive plans for non-executive officers. The Compensation Committee also reviews and evaluates its performance, including compliance with its charter, and prepares any report required under SEC rules. The Compensation Committee held nine meetings in fiscal 2017. The report of the Compensation Committee is included in this Proxy Statement.

The Compensation Committee has the authority to engage independent advisors, such as compensation consultants, to assist it in carrying out its responsibilities. The Compensation Committee periodically engages an outside consultant to advise on compensation-related matters.

 

 

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The current members of the Compensation Committee are Messrs. Roos, who is the committee chair, Conway and Webb. The Board has determined that all members of the Compensation Committee are independent under the applicable rules and regulations of the NYSE and the SEC.

Nominating and Corporate Governance Committee. The Nominating and Corporate Governance Committee is responsible for: identifying individuals qualified to become members of the Board; recommending to the Board director nominees for each election of directors; developing and recommending to the Board criteria for selecting qualified director candidates; considering committee member qualifications, appointment and removal; recommending corporate governance principles applicable to the Company; and providing oversight in the evaluation of the Board and each committee. The Nominating and Corporate Governance Committee held five meetings in fiscal 2017.

The current members of the Nominating and Corporate Governance Committee are Messrs. Robertson, who is the committee chair, Hassenfeld, Tomlinson, and General Powell. The Board has determined that all members of the Nominating and Corporate Governance Committee are independent under applicable NYSE rules.

The Nominating and Corporate Governance Committee uses a variety of methods for identifying and evaluating director nominees. The Nominating and Corporate Governance Committee regularly assesses the appropriate size, composition and needs of the Board and its respective committees and the qualifications of candidates in light of these needs. Candidates may come to the attention of the Nominating and Corporate Governance Committee through directors or management. If the Nominating and Corporate Governance Committee believes that the Board requires additional candidates for nomination, the Nominating and Corporate Governance Committee may engage, as appropriate, a third-party search firm to assist in identifying qualified candidates. The evaluation of these candidates may be based solely upon information provided to the Nominating and Corporate Governance Committee or may also include discussions with persons familiar with the candidate, an interview of the candidate or other actions the Nominating and Corporate Governance Committee deems appropriate, including the use of third parties to review candidates.

The Nominating and Corporate Governance Committee will evaluate and recommend candidates for membership on the Board consistent with criteria established by the committee. Directors should possess the highest personal and professional ethics, integrity and values, and be committed to representing the long-term interests of our stockholders. They must have an inquisitive and objective perspective and mature judgment. They must also have experience in positions with a high degree of responsibility and be leaders in the companies or institutions with which they are affiliated. The Nominating and Corporate Governance Committee also focuses on diversity, such as diversity of gender, race and national origin, education,

professional experience and differences in viewpoints and skills. The Nominating and Corporate Governance Committee does not have a formal policy with respect to diversity; however, the Board and the Nominating and Corporate Governance Committee believe that it is essential that the Board members represent diverse viewpoints. Director candidates also must have sufficient time available in the judgment of the Nominating and Corporate Governance Committee to perform all Board and committee responsibilities. Members of the Board are expected to prepare for, attend and participate in all Board and applicable committee meetings. Other than the foregoing, there are no stated minimum criteria for director nominees, although the Nominating and Corporate Governance Committee may also consider such other factors as it may deem, from time to time, are in the best interests of the Company and its stockholders. The Nominating and Corporate Governance Committee will also seek appropriate input from the Chief Executive Officer from time to time in assessing the needs of the Board for relevant background, experience, diversity and skills of its members.

Stockholders may recommend director candidates for general consideration by the Nominating and Corporate Governance Committee by submitting the individual’s name, qualifications and the other information set forth in our bylaws applicable to director nominees by stockholders to the Secretary of the Company. The Nominating and Corporate Governance Committee will evaluate any candidates recommended by stockholders against the same criteria and pursuant to the same policies and procedures applicable to the evaluation of candidates proposed by directors or management.

Other Committees. Pursuant to the Company’s Bylaws, the Board may designate other standing or ad hoc committees to serve at the pleasure of the Board from time to time. For example, the Board has delegated certain authority to both a Real Estate Committee (comprised of Craig Conway (chair), Sanford Robertson and Lawrence Tomlinson) and a Mergers and Acquisitions Committee (comprised of Maynard Webb (chair), Craig Conway, Sanford Robertson and Susan Wojcicki). The Real Estate Committee met six times in fiscal 2017 and the Mergers and Acquisitions Committee met fourteen times in fiscal 2017.

Board’s Role in Risk Oversight. The Board as a whole has responsibility for risk oversight. This oversight is conducted primarily through committees of the Board, as disclosed in the descriptions of each of the committees above and in the charters of each of the committees. The Audit Committee primarily oversees enterprise risks, including those associated with our financial statements, financial reporting, internal controls, accounting policies and cybersecurity. The Compensation Committee considers the risks associated with our compensation policies and practices, with respect to both executive compensation and employee compensation generally. All committees receive regular reports from officers responsible for oversight of particular risks within the Company. The Board periodically receives reports by each committee chair regarding the committee’s considerations and actions.

 

 

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Adoption of Proxy Access. The Nominating and Corporate Governance Committee, after considering input received from stockholders, including during the Company’s stockholder engagement meetings, and other factors, recommended that the Board amend the Company’s Bylaws to implement procedures that allow a stockholder or a group of up to 20 stockholders that has continuously owned for at least three years 3% or more of the

Company’s common stock to nominate and include in the Company’s proxy materials for an annual meeting of stockholders up to the greater of two directors or 20% of the total number of directors serving on the Board, provided the stockholder(s) and the nominee(s) satisfy the requirements specified in the Bylaws. The Board amended the Bylaws to adopt this stockholder right of proxy access in March 2016.

 

 

Compensation of Directors

 

Under our compensation arrangement for non-employee directors, each non-employee director receives a fee of $12,500 per fiscal quarter. In addition, the chair of the Audit Committee receives an additional $10,000 per quarter, and the chair of each other Board committee receives an additional $5,000 per quarter. The Lead Independent Director also receives an additional $30,000 per year.

During fiscal 2017, each non-employee director received a quarterly grant of fully-vested shares of our common stock for service during the respective preceding quarter with a dollar value intended to approximate $125,000 based on the average recent trading price over a period of time before the grant date. All equity awards were made pursuant to our 2013 Equity Incentive Plan.

We reimburse our non-employee directors for travel, lodging and other reasonable expenses incurred in connection with attending Board and committee meetings and other Company events.

The Board periodically evaluates the compensation of our non-employee directors, including the recommendations of the Nominating and Corporate Governance Committee. The Board also considers input from the Compensation Committee’s compensation consultant, who reviews director pay levels at peer companies and provides feedback on where the Company is positioned relative to its peers.

The following table sets forth information concerning the compensation earned during fiscal 2017 by our Board members. The table excludes Messrs. Benioff and Block who are Named Executive Officers of the Company and did not receive separate compensation as directors for fiscal 2017.

 

 

DIRECTOR COMPENSATION FOR FISCAL 2017

 

Name    Fees Earned
or Paid in
Cash
     Stock
Awards
(2) (3)
     Total  

Craig Conway

   $ 70,000      $  491,278      $  561,278  

Alan Hassenfeld

   $ 50,000      $ 491,278      $ 541,278  

Neelie Kroes (1)

   $ 37,500      $  248,190      $ 285,690  

Colin Powell

   $ 50,000      $ 491,278      $ 541,278  

Sanford Robertson

   $ 100,000      $ 491,278      $ 591,278  

John V. Roos

   $ 70,000      $ 491,278      $ 561,278  

Lawrence Tomlinson

   $ 90,000      $ 491,278      $ 581,278  

Robin Washington

   $ 50,000      $ 491,278      $ 541,278  

Maynard Webb

   $ 70,000      $ 491,278      $ 561,278  

Susan Wojcicki

   $ 50,000      $ 491,278      $ 541,278  
(1) Neelie Kroes was appointed to the Board on May 1, 2016.
(2) Stock awards consist solely of grants of fully-vested shares of Salesforce common stock. The amounts reported are the aggregate grant date fair value, which is calculated by multiplying the number of shares subject to the stock grant by the closing price of one share of common stock on the date of grant. No directors held unvested stock awards as of the end of fiscal 2017.
(3) During fiscal 2017, all directors other than Ms. Kroes received a stock award of fully-vested shares of Salesforce common stock on February 22, 2016, May 22, 2016, August 22, 2016 and November 22, 2016, with grant date fair values of $105,759, $137,329, $118,965 and $129,225, respectively. Ms. Kroes received a stock award of fully-vested shares of Salesforce common stock on August 22, 2016 and November 22, 2016, with grant date fair values of $118,965 and $129,225, respectively.

Director Stock Ownership Requirement

 

The Board’s stock ownership policy provides that each non-employee director is required to attain, by the fifth anniversary of such director’s initial election to the Board, a minimum share ownership position of the lesser of (i) 7,500 shares of common

stock or (ii) such number of shares of common stock having an aggregate value of $400,000. As of April 1, 2017, all non-employee directors were in compliance with this stock ownership policy.

 

 

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  SUSTAINABILITY AT SALESFORCE  

 

 

SUSTAINABILITY AT SALESFORCE

 

We are committed to a sustainable, low-carbon future, advancing equality and fostering employee success. We try to integrate

social good into everything we do. All of these goals align with our long-term growth strategy and financial and operational priorities.

 

 

Protecting our Planet

 

Our cloud computing model has a much smaller environmental footprint than the traditional on-premise model, helping our customers operate more sustainably. We are also focused on managing our own environmental footprint as we grow. We are working toward a goal of 100% renewable energy for our global operations, and our data center site selection and energy

sourcing practices are designed to help manage our future carbon emissions. Additionally, in April 2017, we announced achievement of net-zero greenhouse gas emissions. We are also pursuing innovative green office initiatives and leveraging our people, technology and resources to help environmental causes around the world.

 

 

Fostering Employee Success

 

Equality is a core value at Salesforce. We have spearheaded initiatives to advance equal pay, equal advancement, equal opportunity and equal rights for our employees and the broader community. This includes our ongoing public commitment to eliminate gender-based wage disparities in our workforce. This effort began with our Equal Pay Assessment and an initial salary

adjustment in 2016 to eliminate statistically significant gender-associated differences in pay. In April 2017, we announced further pay adjustments, part of our ongoing work to ensure that all employees at Salesforce are treated equally in pay, opportunity and advancement. Since 2016 we have committed approximately $6 million to this end.

 

 

Giving Back

 

From our very inception, Salesforce has been committed to giving back. In February 2017, we were named by Fortune Magazine as the top “Workplace for Giving Back.” We believe that a company can do well, while also doing good in the world.

Salesforce pioneered and has inspired other companies to adopt its 1-1-1 integrated philanthropy model, which leverages 1% of a company’s equity, employee time and product to help improve communities around the world. Together with the Salesforce Foundation, a 501(c)(3) nonprofit organization, and Salesforce.org,

a nonprofit social enterprise, we now have given approximately $160 million to charitable organizations, logged over two million employee volunteer hours around the world and provided more than 31,000 nonprofit and higher education organizations with the use of our service offerings for free or at a discount.

You can read more about these initiatives at:

https://www.salesforce.com/company/sustainability/.

 

 

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Table of Contents

  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND  RELATED STOCKHOLDER MATTERS  

 

       

 

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

 

The following table sets forth certain information regarding beneficial ownership of our common stock as of March 1, 2017 by: (i) all those known by us to be beneficial owners of more than five percent of the outstanding shares of our common stock; (ii) each of our directors and director nominees; (iii) each Named Executive Officer; and (iv) all current directors and executive officers as a group. This table is based on information provided to us or filed with the SEC by our directors and director nominees, executive officers and principal stockholders. Unless otherwise indicated in the footnotes below, and subject to community property laws where applicable, each of the named persons has

sole voting and investment power with respect to the shares shown as beneficially owned.

Except as set forth below, the address of each stockholder listed in the following table is salesforce.com, inc., The Landmark @ One Market, Suite 300, San Francisco, California 94105. Applicable percentage ownership for our directors and executive officers in the following table is based on 708,915,365 shares of Salesforce common stock outstanding as of March 1, 2017, plus, as applicable, each holder’s options or other equity awards vesting or exercisable within 60 days thereof.

 

 

Name and Address of Beneficial Owner    Number of Shares
Beneficially Owned
     Percent of
Class
 

Five Percent Stockholders

                 

FMR LLC (1)

     84,910,663        12.2%  

245 Summer Street, Boston, Massachusetts 02210

     

T. Rowe Price Associates Inc. (2)

     53,555,605        7.6%  

100 East Pratt Street, Baltimore, Maryland 21202

     

The Vanguard Group (3)

     41,924,480        6.0%  

100 Vanguard Blvd. Malvern, PA 19355

     

BlackRock, Inc. (4)

     35,000,399        5.0%  

55 East 52nd Street, New York, New York 10022

     

Directors and Named Executive Officers

                 

Marc Benioff (5)

     38,073,434        5.3%  

Keith Block (6)

     875,060        *  

Craig Conway

     10,711        *  

Alexandre Dayon (7)

     453,582        *  

Parker Harris (8)

     2,788,602        *  

Alan Hassenfeld (9)

     142,947        *  

Mark Hawkins (10)

     113,287        *  

Neelie Kroes

     3,478        *  

Colin Powell

     47,908        *  

Sanford R. Robertson

     198,397        *  

John V. Roos

     19,066        *  

Lawrence Tomlinson

     31,997        *  

Robin Washington

     28,797        *  

Maynard Webb (11)

     36,408        *  

Susan Wojcicki

     24,330        *  

Directors and Executive Officers as a Group (20 Persons) (12)

     44,179,028        6.2%  
* Less than 1%.
(1) Based upon a Schedule 13G/A filed with the SEC on February 14, 2017 by FMR LLC, on behalf of itself, Crosby Advisors LLC, FIAM LLC (formerly known as Pyramis Global Advisors, LLC), Fidelity Institutional Asset Management Trust Company (formerly known as Pyramis Global Advisors Trust Company), Fidelity Management & Research (Hong Kong) Limited, Fidelity Management Trust Company, Inc., FMR Co., Inc. and Strategic Advisers, Inc.

 

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  SECURITY OWNERSHIP (CONTINUED)  

 

 

(2) Based upon a Schedule 13G filed with the SEC on February 7, 2017 by T. Rowe Price Associates, Inc.
(3) Based upon a Schedule 13G/A filed with the SEC on January 27, 2017 by BlackRock, Inc., on behalf of itself, BlackRock (Luxembourg) S.A., BlackRock (Netherlands) B.V., BlackRock (Singapore) Limited, BlackRock Advisors (UK) Limited, BlackRock Advisors, LLC, BlackRock Asset Management Canada Limited, BlackRock Asset Management Ireland Limited, BlackRock Asset Management North Asia Limited, BlackRock Asset Management Schweiz AG, BlackRock Capital Management, BlackRock Financial Management, Inc., BlackRock Fund Advisors, BlackRock Fund Managers Ltd, BlackRock Institutional Trust Company, N.A., BlackRock International Limited, BlackRock Investment Management (Australia) Limited, BlackRock Investment Management (UK) Ltd, BlackRock Investment Management, LLC, BlackRock Japan Co Ltd, BlackRock Life Limited and Future Advisor Inc.
(4) Based upon a Schedule 13G/A filed with the SEC on February 10, 2017 by The Vanguard Group on behalf of itself, Vanguard Fiduciary Trust Company and Vanguard Investments Australia, Ltd.
(5) Includes 3,888,134 shares issuable upon the exercise of options that are vested and exercisable or, assuming continued service to the Company, will vest within 60 days of March 1, 2017. All other shares are held in the Marc R. Benioff Revocable Trust.
(6) Includes 875,060 shares issuable upon the exercise of options that are vested and exercisable or, assuming continued service to the Company, will vest within 60 days of March 1, 2017.
(7) Includes 428,653 shares issuable upon the exercise of options that are vested and exercisable or, assuming continued service to the Company, will vest and be exercisable, and upon the settlement of RSUs that will vest, assuming continued service to the Company, within 60 days of March 1, 2017.
(8) Includes 711,166 shares issuable upon the exercise of options that are vested and exercisable or, assuming continued service to the Company, will vest and be exercisable, and upon the settlement of RSUs that will vest, assuming continued service to the Company, within 60 days of March 1, 2017. Also includes 2,037,209 shares held in trusts.
(9) Includes 1,350 shares held by a family member.
(10) Includes 100,647 shares issuable upon the exercise of options that are vested and exercisable or, assuming continued service to the Company, will vest and be exercisable, and upon the settlement of RSUs that will vest, assuming continued service to the Company, within 60 days of March 1, 2017.
(11) All shares held in a trust.
(12) Includes 7,172,194 shares issuable upon the exercise of options that are vested and exercisable or, assuming continued service to the Company, will vest and be exercisable, and upon the settlement of RSUs that will vest, assuming continued service to the Company, within 60 days of March 1, 2017.

 

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  EQUITY COMPENSATION PLAN INFORMATION  

 

       

 

EQUITY COMPENSATION PLAN INFORMATION

 

We currently maintain three equity compensation plans that provide for the issuance of shares of our common stock to our officers and other employees, directors and consultants: the 2004 Employee Stock Purchase Plan (the “ESPP”) and the 2013 Equity Incentive Plan (the “2013 Equity Plan”), which have both been approved by stockholders, and the 2014 Inducement Equity Incentive Plan (the “2014 Inducement Plan”), which has not been approved by stockholders. We previously maintained the 2004 Equity Incentive Plan (the “2004 Equity Plan”) and the 2004 Outside Directors Stock Plan (collectively, the “Prior Plans”), both of which had been approved by stockholders and both of which we replaced with the 2013 Equity Plan when that plan was established in June 2013, and the 2006 Inducement Equity Incentive Plan (the “Prior Inducement

Plan”), which had not been approved by stockholders and was replaced with the 2014 Inducement Plan when that plan was established in July 2014. We no longer grant new awards out of the Prior Plans or the Prior Inducement Plan, but the Prior Plans and the Prior Inducement Plan continue to govern awards previously granted under such plans. We have also assumed certain plans in connection with acquisitions, which plans have not been approved by Salesforce’s stockholders.

The following table sets forth information regarding outstanding stock options and restricted stock units as well as shares reserved for future issuance under the foregoing plans as of January 31, 2017:

 

 

Plan category   

Number of securities
to be issued upon
exercise of
outstanding
options, warrants
and rights

(a)

    

Weighted-average
exercise price of
outstanding
options,

warrants

and rights

(b) (1)

    

Number of securities
remaining available for
future issuance under  equity
compensation plans
(excluding securities
reflected in column (a))

(c)

 

Equity compensation plans approved by stockholders

     50,291,679(2)      $ 35.02        19,651,320(3)  

Equity compensation plans not approved by stockholders

     7,519,559(4)      $ 7.49        543,872(5)  
  

 

 

 

Total

     57,811,238        $ 31.44        20,195,192    
(1) The weighted average exercise price of outstanding options, warrants and rights includes the purchase price of $0.001 per restricted stock unit.
(2) Consists of options and restricted stock units granted under the 2004 Equity Plan and the 2013 Equity Plan. Performance-based restricted stock units are for purposes of this table assumed to be payable at 100% of target. If instead the maximum amount of shares were achieved the number of securities to be issued would be 50,691,772.
(3) Consists of 3,663,369 shares available under the ESPP and 15,987,951 shares available under the 2013 Equity Plan. Offerings under the ESPP were authorized by the Board of Directors in September 2011.
(4) Consists of shares issuable under the 2014 Inducement Plan, the Prior Inducement Plan and the following plans which have been assumed by us in connection with certain of our acquisition transactions: the Radian6 Technologies Inc. Third Amended and Restated Stock Option Plan assumed by us with our acquisition of Radian6 Technologies, Inc. in May 2011; the Assistly, Inc. 2009 Stock Plan assumed by us with our acquisition of Assistly, Inc. in September 2011; the Model Metrics, Inc. 2008 Stock Plan assumed by us with our acquisition of Model Metrics, Inc. in December 2011; the 2Catalyze, Inc. Second Amended 2008 Stock Option Plan assumed by us with our acquisition of 2Catalyze, Inc. d/b/a Rypple in February 2012; the Buddy Media, Inc. 2007 Equity Incentive Plan assumed by us with our acquisition of Buddy Media, Inc. in August 2012; the Goinstant, Inc. Stock Option Plan assumed by us with our acquisition of Goinstant, Inc. in September 2012; the EdgeSpring, Inc. 2010 Equity Incentive Plan assumed by us with our acquisition of EdgeSpring, Inc. in June 2013; the ExactTarget, Inc. 2004 Stock Option Plan and the ExactTarget, Inc. 2008 Equity Incentive Plan assumed by us with our acquisition of ExactTarget, Inc. in July 2013; the RelateIQ, Inc. 2011 Stock Plan assumed by us with our acquisition of RelateIQ, Inc. in August 2014; the SteelBrick Holdings, Inc. 2013 Equity Incentive Plan assumed by us with our acquisition of SteelBrick Inc. in December 2015; the MetaMind, Inc. 2014 Stock Incentive Plan assumed by us with our acquisition of MetaMind, Inc. in April 2016 (the “MetaMind Plan”); the Demandware, Inc. 2012 Stock Incentive Plan assumed by us with our acquisition of Demandware, Inc. in July 2016; the Backchannel, Inc. 2012 Equity Incentive Plan assumed by us with our acquisition of Quip, Inc. in August 2016; the BeyondCore, Inc. 2007 Stock Incentive Plan and 2016 Equity Incentive Plan assumed by us with our acquisition of BeyondCore, Inc. in August 2016; and the Krux Digital, Inc. 2010 Stock Plan assumed by us with our acquisition of Krux Digital, Inc. in November 2016.
(5) Consists of the 2014 Inducement Plan and the MetaMind Plan. The material features of this plan are described below.

Material Features of the 2014 Inducement Equity Incentive Plan

 

The 2014 Inducement Plan was established by the Board in July 2014 with the purpose of attracting, retaining and incentivizing employees in furtherance of Salesforce’s success. In accordance with NYSE rules, this plan is used to offer equity awards as material inducements for new employees to join Salesforce, typically in connection with acquisitions. As of July 2014, 335,000 shares of common stock were reserved solely for the granting of inducement stock options, restricted stock, restricted stock units and other awards. In addition, 319,957 shares that were previously authorized for issuance under the Prior Inducement Plan as of July 9, 2014 were added to the 2014 Inducement Plan and any shares subject to outstanding awards under the Prior

Inducement Plan that, after July 9, 2014, otherwise would have returned to the Prior Inducement Plan under its terms (for example, due to the expiration or forfeiture of an award under the Prior Inducement Plan) will become available for issuance under the 2014 Inducement Plan, provided that the maximum number of such shares will not exceed 2,750,000. The 2014 Inducement Plan provides for the granting of stock options with exercise prices equal to the fair market value of our common stock on the date of grant. The Company has also granted restricted stock unit awards under the 2014 Inducement Plan. As of January 31, 2017, 461,465 shares of Salesforce common stock remained available for issuance under the 2014 Inducement Plan.

 

 

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  A LETTER FROM OUR COMPENSATION COMMITTEE  

 

 

A LETTER FROM OUR COMPENSATION COMMITTEE

April 26, 2017

Dear Fellow Stockholders,

We want to thank you for your continued support of Salesforce and share with you the Committee’s perspective on our business, our leadership team, our approach to executive compensation, and our recent compensation decisions.

Innovation and a unique culture have been core to our extraordinary growth. When our CEO Marc Benioff founded the Company in 1999, he had a vision that businesses would move to the cloud and subscription-based services. Salesforce has grown into something far beyond that initial vision, exceeding anyone’s expectations and continuing, even as a large public company, to stand for growth and innovation today. Salesforce’s focus on innovation recently earned it recognition as “Innovator of the Decade” by Forbes Magazine, and innovation was a key factor contributing to its recent ranking by Fortune Magazine as the 20th “Most Admired Company in the World.”

The financial results Salesforce delivered this past year were exceptional and continue to reflect our executive team’s commitment to excellence and innovation.

 

    Revenue for fiscal 2017 was nearly $8.4 billion, up 26% year-over-year, with Salesforce achieving that milestone faster than any other enterprise software company

 

    We also improved non-GAAP operating margin and grew operating cash flow by 29% year-over-year

None of these achievements would be possible without the vision and leadership of an extremely talented executive management team, led by a visionary CEO, who together with Salesforce’s more than 25,000 dedicated employees, have fostered a unique culture. That culture not only drives Company success, it also includes a core belief that a company can do well, while also doing good in the world. This has contributed to Fortune Magazine recently ranking Salesforce 8th place in the “100 Best Companies to Work For” and the #1 “Workplace for Giving Back.”

In short, Salesforce is growing and achieving great financial results, and its formula for success is unique.

We are committed to representing the best interests of our stockholders. As directors and Compensation Committee members, we represent our stockholders, and we take this responsibility very seriously. When making compensation decisions, we carefully balance many considerations, factors and perspectives to determine what we believe is the right decision. Our overarching compensation philosophy is to provide compensation that is competitive and motivating in a highly competitive industry while also being highly performance-based to ensure that our management team is closely aligned with our business goals and the interests of our stockholders.

Stockholder feedback shaped our recent compensation program changes. Following low support for our executive pay program in 2015, we sought our stockholders’ perspectives on our pay program and factored that feedback into our fiscal 2016 compensation decisions. Those decisions included, despite strong performance under the leadership of our CEO, a decrease in overall CEO pay in fiscal 2016 by 16%, and the introduction of an additional performance-based element (performance-based restricted stock units, or PRSUs) into the CEO pay mix. While these changes were well-received by our stockholders, support for our pay program in 2016 still was not the level that we, or our CEO, had hoped for.

As a result, after the 2016 meeting, we sought additional feedback from our stockholders. The two main themes we heard were that, notwithstanding recognition of the enormous contributions and leadership provided by our CEO, the overall magnitude of CEO pay remained high, and that it would be beneficial to expand the use of PRSUs to our other senior executives.

We listened to our stockholders, and taking their input into account, we reduced overall CEO pay in fiscal 2017 by 60%, while expanding the use of PRSUs to our other senior executives. We believe these changes are consistent with our compensation philosophy and have directly addressed the concerns underlying our 2015 and 2016 Say on Pay results.

We ask for your support. We hope this letter provides useful context as you review the details of our executive compensation program in the Compensation Discussion & Analysis below. We hope that we can count on your support of our pay program this year, and we look forward to all of your continued support of this incredibly unique organization that is Salesforce.

Sincerely,

John V. Roos, Compensation Committee Chair

Craig Conway, Compensation Committee Member

Maynard Webb, Compensation Committee Member

 



 

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  COMPENSATION DISCUSSION AND ANALYSIS  

 

       

 

COMPENSATION DISCUSSION AND ANALYSIS

This Compensation Discussion and Analysis describes the material elements of our executive compensation program, providing an overview of our executive compensation philosophy, policies, practices and the corresponding pay decisions for our “Named Executive Officers” (“NEOs”). Specifically, it describes how and why the Compensation Committee of the Board (the “Compensation Committee” or “Committee”) arrived at the specific executive compensation decisions for and during fiscal 2017 (February 1, 2016 – January 31, 2017) and the key factors the Committee considered in making those decisions.

Named Executive Officers

 

For fiscal 2017, our NEOs included our principal executive officer, our principal financial officer and the three next most highly-compensated executive officers, who were:

 

  Marc Benioff, our Chairman of the Board and Chief Executive Officer (“CEO”);

 

  Mark Hawkins, our Chief Financial Officer (“CFO”);

 

  Keith Block, our Vice Chairman, President and Chief Operating Officer;

 

  Parker Harris, our Co-Founder and Chief Technology Officer; and

 

  Alexandre Dayon, our President and Chief Product Officer.

Executive Summary

 

Business Overview and Fiscal 2017 Performance Highlights

Salesforce is a leading provider of enterprise software, delivered through the cloud, with a focus on customer relationship management, or CRM. We introduced our first CRM solution in 2000, and we have since expanded our service offerings into new areas and industries with new editions, features and platform capabilities. Our core mission is to empower our customers to connect with their customers in entirely new ways through cloud, mobile, social, Internet of Things (“IoT”) and artificial intelligence technologies.

Salesforce is unique as both a high growth and top 10 software company. In fact, based on our fiscal 2017 revenues, we are the fastest-growing top five enterprise software company in the world. We are a member of the Fortune 500, have been recognized as the “Innovator of the Decade” by Forbes Magazine and as one of the top 10 “100 Best Companies to Work For” by Fortune Magazine.

In fiscal 2017, the Company delivered significant growth and strong financial performance, including:

 

  Revenue.    Fiscal 2017 revenue grew by 26% year-over-year.

 

  Operating Cash Flow.    Fiscal 2017 operating cash flow grew by 29% year-over-year.

 

  Deferred and Unbilled Deferred Revenue.    Fiscal 2017 deferred revenue grew by 29%, and unbilled deferred revenue (representing business that is contracted but unbilled and off the balance sheet) grew by 27%.

 

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Return to Stockholders

We have delivered significant long-term TSR, outperforming both the broader market and the technology sector as reflected by the Nasdaq Computer & Data Processing Index. The following chart shows how a $100 investment in Salesforce on January 31, 2012 would have grown to $271 on January 31, 2017. The chart also compares the TSR on an investment in our common stock to the same investment in the S&P 500 Index and the Nasdaq Computer & Data Processing Index over the last five fiscal years.

 

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     1/31/2012      1/31/2013      1/31/2014      1/31/2015      1/31/2016      1/31/2017  

salesforce.com

     $100            $147            $207            $193            $233            $271      

S&P 500 Index

     $100            $114            $136            $152            $148            $174      

Nasdaq Computer & Data Processing Index

     $100            $105            $134            $158            $166            $205      

 

Data for the Standard & Poor’s 500 Index and the Nasdaq Computer & Data Processing Index assume reinvestment of dividends. The comparisons in the graph above are based upon historical data and are not indicative of, nor intended to forecast, future performance of our common stock.

 

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  COMPENSATION DISCUSSION AND ANALYSIS (CONTINUED)  

 

       

 

Stockholder Responsiveness

Our Board and Compensation Committee value the perspectives of our stockholders and take stockholder feedback seriously. Over the past several years, the Compensation Committee and management have conducted extensive stockholder outreach on executive compensation and related governance topics. Over this period, the Compensation Committee, together with its independent compensation consultant, also conducted a broad review of our executive compensation program.

After meaningfully reducing CEO pay and making other changes in fiscal 2016, in fiscal 2017, the Compensation Committee made substantial additional reductions to CEO pay and implemented a number of significant executive compensation program changes. These changes, summarized below, reflect our responsiveness to our stockholders and our goal of further enhancing the alignment of our executive compensation program with our long-term strategy.

These compensation changes occurred in the context of consistently strong Company performance under our CEO’s leadership, and a stock price that has appreciated very well over the past five years. For example, our stock price on February 1, 2012 was $29.83 (as adjusted for our stock split) and our stock price on February 1, 2017 was $78.58, representing a gain of approximately 163%. The chart below illustrates the recent reductions to CEO pay in the context of the Company’s stock price performance.

 

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Significant Fiscal 2017 Compensation Actions

In fiscal 2017, our Compensation Committee took the following key actions:

 

  Reduced CEO Total Compensation by 60%.    We reduced our CEO’s total compensation by 60% year-over-year, after having reduced his total compensation in fiscal 2016 by 16%. These substantial reductions were made notwithstanding the very strong performance of both the CEO and the Company.

 

  Extended Performance-Based Equity to All NEOs.    We added performance-based restricted stock units, or PRSUs, to the compensation mix for all of our NEOs, after having introduced PRSUs for our CEO in fiscal 2016. Approximately 75% of our non-CEO NEOs’ fiscal 2017 equity compensation, and 100% of our CEO’s fiscal 2017 equity compensation, was delivered through PRSUs and stock options.

 

  Maintained CEO Target Total Cash Compensation at Fiscal 2016 Level.    We kept the CEO’s base salary and target bonus for fiscal 2017 at fiscal 2016 levels.

 

  Maintained Target Total Cash Compensation for All NEOs, Including the CEO, at Fiscal 2017 Levels for Fiscal 2018.    We determined to maintain fiscal 2018 base salary and target bonus for the CEO, as well as all other NEOs, at fiscal 2017 levels.

 

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  Continued a Highly Performance-Based CEO Pay Mix.    We maintained our commitment to significant reliance on at-risk, performance-based CEO compensation. For fiscal 2017, approximately 78% of our CEO’s total compensation was through at-risk awards (PRSUs, stock options and annual cash incentive) where amounts realizable were tied to Company performance.

 

  Eliminated Company-Paid CEO Personal Security Expense for Fiscal 2018. Commencing in fiscal 2018, our CEO will pay directly, or reimburse the Company for, security services that are provided outside of work hours or business-related travel.

Stockholder Outreach and Board Responsiveness

 

2016 Say-on-Pay Vote and Stockholder Outreach

Our Board and Compensation Committee value our stockholders’ views on our executive compensation program, as communicated through our outreach and engagement efforts and through our stockholders’ voting decisions. We take seriously, and believe it is important to respond to, the voting results on our annual stockholder advisory vote to approve our executive compensation, which were supported by approximately 60% and 52% of the shares voting at our 2016 and 2015 Annual Meetings. Following our 2015 Annual Meeting, we conducted extensive engagement with stockholders and made several significant changes to the executive compensation program ahead of our 2016 Annual Meeting, after which the Compensation Committee recognized the need for additional dialogue with our stockholders and the advisability of further review of the executive compensation program. Therefore, following our 2016 Annual Meeting, we engaged with investors representing more than 50% of our outstanding shares.

Following extensive dialogue with our stockholders and thoughtful Compensation Committee review of our compensation program, and taking into account extensive data and analysis from the Compensation Committee’s independent compensation consultant, the Compensation Committee made significant changes for fiscal 2017, in addition to those made for fiscal 2016. To illustrate the evolution of our compensation program over the past two years, the table below summarizes the year-over year changes we have made.

Summary of Fiscal 2016 and Fiscal 2017 Compensation Program Changes Responsive to Stockholder Feedback

 

Feedback We Heard  

Changes We Made in Fiscal 2016

 

Changes We Made in Fiscal 2017/2018

Concerns regarding CEO pay magnitude     Decreased total CEO compensation by 16%     Decreased total CEO compensation by an additional 60% ($33M to ~$13M)
      Froze CEO salary from FY16 to FY17     Froze CEO salary from FY17 to FY18
 
Preference for greater proportion of performance-based equity compensation     Introduced performance-based RSUs to our CEO compensation     Expanded performance-based RSUs to all NEOs
      Comprised 64% of target long-term compensation      
          Comprised 52% of the total direct compensation            
Concerns regarding CEO’s personal security costs               For FY18, we will eliminate company-funded personal security expenses for the CEO
Ensure that performance metrics are sufficiently rigorous and challenging     Continued to set rigorous performance targets for our fiscal 2016 cash incentive plan, which exceeded both guidance and prior year’s target and actual results    

Continued to maintain rigorous performance goals for both our fiscal 2017 cash incentive plan and performance-based RSUs for all NEOs

that require above-median relative TSR performance for target payouts

 

Ensure that incentives are appropriately aligned with stockholder interests     Introduced performance-based RSUs for our CEO, as set forth above     Introduced performance-based RSUs for our NEOs, as set forth above
    Increased share ownership requirements for the Board and executives            

We believe that the changes that we have made over the past two years are highly responsive to the feedback we have received from our stockholders. We believe these changes will serve to advance our compensation practices and governance in a manner that both benefits stockholders and continues to align with our strategy and pay philosophy.

 

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Impact of Executive Compensation Program Changes on CEO Pay for Fiscal 2017

The Compensation Committee has approved significant year-over-year reductions in CEO total direct compensation since 2015, in response to stockholder perspectives regarding magnitude of CEO pay. This has resulted in a cumulative 67% decrease in CEO pay since fiscal 2015, including a 60% reduction for fiscal 2017. Over fiscal years 2015-2017, the Company delivered Total Stockholder Return (“TSR”) of 40% (16% for fiscal 2017 and 21% for fiscal 2016).

                    Fiscal 2015 - 2017 CEO Compensation                    

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Structural Changes and Pay Mix for Fiscal 2017

As described above, our Compensation Committee has approved a number of changes to our pay mix since fiscal 2015 to more tightly link NEO pay with performance. These changes include the introduction of performance-based RSUs (PRSUs) to CEO compensation in fiscal 2016, taking into account our stockholders’ preference for a greater proportion of our long-term incentive to be delivered in the form of performance-based equity. Following positive feedback on this change, the use of PRSUs was extended to all NEO’s for fiscal 2017. As illustrated below, a substantial majority of our NEOs’ compensation is directly tied to Company and stock price performance.

 

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Compensation Philosophy and Practices

 

Compensation Philosophy, Objectives and Challenges

 

Philosophy and Objectives.    Our compensation philosophy is driven by our objective to attract and retain the premier talent needed to lead our Company in a dynamic, innovative and extremely competitive environment and to strongly align the interests of our executives with those of our stockholders for the long term. To accomplish this, we use compensation structures directly tied to the performance of our common stock, as well as key drivers of Company performance, including revenue, operating cash flow and non-GAAP income from operations. Our executive compensation is aligned with our overall business strategies, with a focus on driving growth and long-term value for our stockholders.

Our executive compensation program is structured to use a mix of base salary, annual performance-based cash incentive awards and long-term equity compensation awards to incentivize and reward those individuals who make the greatest contributions to our performance and creation of stockholder value over time. Within this mix, by far the largest portion is in the form of long-term equity awards and the majority is variable, utilizing an appropriate balance of short and long-term incentives.

Challenges.    We operate in a highly competitive market and industry and we face challenges in hiring and retaining executives due to a number of factors, including:

 

  Highly Competitive Cloud Computing Industry — We are a pioneer in the innovative and highly competitive enterprise cloud computing market. We are, however, an established, large public company, and some prospective executives may believe there is less opportunity to realize significant appreciation through equity compensation at an established public company of our size, as compared with a privately-held start-up or early stage public company. Further, some of our competitors are much larger than we are and may be able to offer higher compensation.

 

  Fiercely Competitive Employee Retention Environment — In the technology industry, there is substantial and continuous
   

competition for executive officers with the experience and aptitude to motivate and lead engineers in designing, developing and managing software and Internet-related services, as well as qualified sales and operations personnel familiar with the technology industry. Our headquarters are located in the San Francisco Bay Area, where competition for executive talent is particularly fierce. Further, our success has made our employees and executives more attractive as candidates for employment with other companies, and they are subject to significant ongoing recruiting efforts by other companies in the technology industry.

 

  High Growth — We are a high growth company that continues to experience rapid changes to our technology, personnel and business tactics. We have experienced rapid growth in the geographic breadth and technical scope of our operations, along with the number of personnel we employ. Not all executives desire or are suited to manage in such an environment, making the services of our current executives more valuable and in some cases hindering our efforts to recruit new executives.

 

  Executive Background — Typically, we hire experienced executives with specific skills in key functional areas who have worked in a high growth environment comparable to ours. The number of executives with the most desirable experience is relatively low and proven executives are difficult to find. We have expanded our recruiting efforts both geographically and into other industries and sectors, which leads to increased complexity in recruiting efforts and has required us to be more flexible with our executive compensation packages.

Given this challenging hiring environment, our compensation program is designed to be competitive with those companies with whom we compete for talent and to strengthen our ability to attract and retain the caliber of employees that we need to sustain our industry-leading success.

 

 

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Compensation and Governance Practices and Policies

 

We endeavor to maintain strong governance standards in our policies and practices related to executive compensation. Below

is a summary of key executive compensation and corporate governance practices in place during fiscal 2017.

 

 

What We Do    What We Don’t Do

  Actively engage in year-round dialogue with our stockholders to incorporate feedback into our compensation programs

  

×   No individual Supplemental Executive Retirement Plans

  Significant portion of compensation for Named Executive Officers is in the form of at-risk compensation

  

×   No stock option repricing

  Provide appropriate mix of fixed and variable pay

  

×   No hedging or pledging of our securities

  Implemented performance-based RSUs for all NEOs

  

×   No excise tax gross-ups upon a change of control

  Stringent stock ownership requirements for executives and directors

    

  Annual advisory vote on executive compensation

    

  Compensation Committee composed entirely of directors independent under NYSE rules

    

  Regular reviews of executive compensation and peer group data

    

  Maintain a compensation clawback policy

    

  Use an independent compensation consultant

    

Compensation Elements and Compensation for Named Executive Officers

 

We award cash compensation to our NEOs in the form of base salaries and annual cash incentives under our Kokua Bonus Plan and equity compensation in the form of stock options, restricted stock units (“RSUs”) and PRSUs, with the exception of our CEO, whose equity compensation consists solely of stock options and PRSUs. To a lesser extent, we also provide certain other benefits, generally consistent with what we provide to other employees, all as described further below. We believe that each of these compensation elements is necessary to attract and retain individuals in a very competitive market for executive talent. A description of each of these elements, the related performance measures (if any) and the rationale are set forth in the following table:

 

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Base Salaries

We believe we must offer competitive base salaries to attract, motivate and retain all employees, including our executives. The Compensation Committee has generally set the base salaries for our executives, including the NEOs other than our CEO, based on three primary factors:

 

  a comparison to the base salaries paid by the companies in our compensation peer group;

 

  the overall compensation that each executive may potentially receive during his or her employment with us; and

 

  internal parity considerations with respect to the base salaries of other executives who are comparably situated in terms of reporting structure and level of responsibility.

In November 2015, the Compensation Committee conducted a review of our executive compensation program for purposes of determining the base salaries and bonus opportunity for our executives for fiscal 2017, taking into account the above factors as well as overall Company and individual performance and the roles and responsibilities of each of our executives. For fiscal 2017, the Compensation Committee set base salaries for the NEOs, effective February 1, 2016, as follows:

 

Named Executive Officer   

Fiscal 2017

Base Salary

   Change from
Fiscal 2016

Mr. Benioff

   $1,550,000    No change

Mr. Hawkins

   $   750,000    7%

Mr. Block

   $1,150,000    7%

Mr. Harris

   $   900,000    29%

Mr. Dayon

   $   900,000    29%

For fiscal 2017, there was no change to Mr. Benioff’s base salary from fiscal 2016. For the other NEOs, base salaries represented increases over fiscal 2016 levels of 7% for Mr. Hawkins and Mr. Block, and 29% for Mr. Harris and Mr. Dayon. The relative size of these increases reflects a focus on internal parity with respect to similarly situated executives, and the increases were determined to be appropriate due to these executives’ paramount roles in our continuing growth and success, the increase in the size and complexity of our business, especially from a Products and Technology perspective, and our overall performance in fiscal 2016, including its significant revenue growth.

In October and November 2016, the Compensation Committee conducted a review of our executive compensation program for purposes of determining the base salaries and bonus opportunity for our executives for fiscal 2018. The Compensation Committee also considered overall Company and individual performance and the roles and responsibilities of each of our executives as well as considerations of internal parity with respect to similarly situated executives. For fiscal 2018, the Compensation Committee set base salaries for the NEOs, effective February 1, 2017, as shown below. For all NEOs, the Compensation Committee kept fiscal 2018 salaries at fiscal 2017 levels.

 

Named Executive Officer   

Fiscal 2018

Base Salary

   Change from
Fiscal 2017

Mr. Benioff

   $1,550,000    No change

Mr. Hawkins

   $   750,000    No change

Mr. Block

   $1,150,000    No change

Mr. Harris

   $   900,000    No change

Mr. Dayon

   $   900,000    No change

Performance-Based Cash Bonuses

We provide annual performance-based cash incentive awards linked to achievement against certain corporate performance goals under our broad-based Kokua Bonus Plan. The Compensation Committee believes that the annual performance metrics used in the bonus plan contribute to driving long-term stockholder value, play an important role in influencing executive performance and are an important component of our compensation program to help attract, motivate and retain our executives and other employees.

Under the Kokua Bonus Plan, the Compensation Committee establishes three bonus pool targets: one for our executive officers, including the NEOs, a second for non-executive officers at the Vice President level and above, and a third for employees at the level of Senior Director and below. Each pool may be funded based on achievement of certain Company performance goals pre-established by the Committee for each of the three groups. The performance goals applicable to executive officers in fiscal 2017 are discussed in more detail below.

Typically, after the first half of the fiscal year, we pay 25% of the full target bonus amount, and after the end of the fiscal year, we pay the remaining amount. The remaining amount is determined based on the level of achievement against the applicable Company performance goals, and may also take into account individual performance.

The Compensation Committee administers the Kokua Bonus Plan with respect to our executive officers and determines the amounts of any awards under this plan to our executive officers. The Committee may increase or decrease awards under this plan in its discretion based on factors the Committee deems appropriate, including an assessment of individual performance and input from our CEO.

 

 

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Fiscal 2017 Target Cash Bonus Opportunity

To establish our executive officers’ individual target cash bonus opportunities, which are expressed as a percentage of base salary, the Compensation Committee considers competitive pay data, input from its compensation consultant, and the level, position, objectives and scope of responsibilities of each executive, as well as considerations of internal parity among similarly situated Company executives.

In November 2015, based on its review of our executive compensation program as described above and peer company data, the Compensation Committee approved the following target annual cash bonus opportunities of the NEOs for fiscal 2017.

 

Named Executive

Officer

  

Fiscal 2017 Target

Cash Bonus
Opportunity (as a
Percentage of
Base Salary)

     Fiscal 2017 Target
Cash Bonus
Opportunity

Mr. Benioff

     200%      $3,100,000

Mr. Hawkins

     100%      $   750,000

Mr. Block

     100%      $1,150,000

Mr. Harris

     100%      $   900,000

Mr. Dayon

     100%      $   900,000

For fiscal 2017, the target bonus opportunity for our NEOs, expressed as a percentage of base salary, remained unchanged

from fiscal 2016 levels. The Compensation Committee maintained Mr. Benioff’s target bonus opportunity at 200% of base salary for fiscal 2017 in light of our continuing growth and success, the increasing size and complexity of our business and our overall fiscal 2017 performance, including significant revenue growth.

In addition, for fiscal 2018, the Compensation Committee did not make any increases to the target bonus opportunity of the NEOs for the second year in a row, keeping our CEO’s fiscal 2018 target bonus opportunity at 200% of base salary and each other Named Executive Officer’s target bonus opportunity for fiscal 2018 at 100% of base salary.

Fiscal 2017 Cash Bonus Pool Payout Metrics, Performance and Fiscal 2017 Payouts

For fiscal 2017, the amount of the bonus pool for executive officers was based on our performance during the fiscal year compared to pre-established target levels for three equally weighted measures. The Compensation Committee believes that these measures and this weighting are appropriate to influence executive performance in achieving certain annual corporate performance goals that further our strategy and that are used by investors to evaluate our financial performance. The Compensation Committee believes that targets for the cash pool should be rigorous and challenging and therefore has a practice of setting targets at levels that exceed financial guidance:

 

 

 

Annual Bonus Performance Metric Target Setting

(all amounts in millions)

 

     Fiscal 2016      Fiscal 2017  
   Guidance      Target      Actual      Guidance      Target      Actual      Achievement  

Revenue

   $ 6,475 - $6,520      $ 6,551      $ 6,667      $ 8,080 - $8,120      $ 8,268      $ 8,272        Exceeded by 0.04%  

Operating Cash Flow

   $ 1,432 - $1,444      $ 1,435      $ 1,613      $ 1,984 - $2,000      $ 2,118      $ 2,162        Exceeded by 2.1%  

Non-GAAP Income from Operations

     N/A      $ 811      $ 849        N/A      $ 1,170      $ 1,186        Exceeded by 1.4%  

 

 

 

For purposes of the Kokua Bonus Plan, “Revenue” is defined as our GAAP revenues, as may be adjusted for certain acquisitions. “Operating Cash Flow” is defined as our GAAP operating cash flow. “Non-GAAP Income from Operations” is defined as our non-GAAP income from operations (revenues less cost of revenues and operating expenses, excluding the impact of stock-based compensation expense and amortization of acquisition-related intangible assets), as adjusted for certain acquisitions and not including the impact of amounts payable under the Kokua Bonus Plan.

The Compensation Committee believes that basing the executive officer bonus pool under the Kokua Bonus Plan on these measures aligns executive incentives with stockholder interests in accordance with our compensation philosophy.

The Compensation Committee has the discretion to increase or decrease the bonus amounts actually paid to individual executives but did not exercise such discretion for fiscal 2017 awards,

although the Company’s performance for fiscal 2017 exceeded the target for all three measures. Instead, the Compensation Committee capped funding of the executive officer bonus pool and the amounts payable to each individual Named Executive Officer with respect to fiscal 2017 at 100% of the target opportunity.

Accordingly, the cash bonuses paid to the NEOs for fiscal 2017 under the Kokua Bonus Plan were:

 

Named Executive Officer    Fiscal 2017 Bonus Payment  

Mr. Benioff

     $3,100,000  

Mr. Hawkins

     $   750,000  

Mr. Block

     $1,150,000  

Mr. Harris

     $   900,000  

Mr. Dayon

     $   900,000  
 

 

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Equity Compensation

The Compensation Committee periodically reviews our equity compensation program from a market perspective as well as in the context of our overall compensation philosophy. The Compensation Committee also considers the appropriateness of various equity vehicles, such as stock options, PRSUs and RSUs, as well as overall program costs (which include both stockholder dilution and compensation expense), when evaluating the long-term incentive mix. Further, the Compensation Committee considers peer company data and competitive positioning analysis, each executive’s individual performance, as described below, as well as stockholder input. A subcommittee of the Compensation Committee considers and formally approves equity awards to our NEOs following discussions and policy determinations by the Compensation Committee.

Stock Options

We grant stock options to our executives when they join us, and periodically thereafter, to align their interests with those of our stockholders and as an incentive to remain with us. The Compensation Committee believes that options to purchase shares of our common stock, with an exercise price equal to the market price of our common stock on the date of grant, are inherently performance-based and are a very effective tool to motivate our executives to build stockholder value. With stock options, our executives can realize value only to the extent that the market price of our common stock increases during the period that the option is outstanding, which provides a strong incentive to our executives to increase stockholder value. Further, because these options typically vest over a four-year period, they incentivize our executives to build value that can be sustained over time.

Restricted Stock Units (RSUs)

We also grant restricted stock units, or RSUs, to our executives and other employees to help manage the dilutive effect of our equity compensation program. Our RSUs are subject to time-based vesting. Because RSUs have value to the recipient even in the absence of stock price appreciation, RSUs help us retain and incentivize employees during periods of market volatility, and also result in our granting fewer shares of common stock than through stock options of equivalent grant date fair value. Our RSUs typically vest over a four-year period and we believe that, like stock options, they help incentivize our executives to build value that can be sustained over time.

Performance-Based Restricted Stock Units (PRSUs)

We also grant equity awards subject to pre-established performance-based vesting conditions, which may be absolute or relative to the performance of other companies. We initially granted PRSUs to our CEO in fiscal 2016 and, in November 2016, the Compensation Committee granted PRSUs to all of the NEOs, including our CEO, for fiscal 2017.

The PRSUs granted to our NEOs for fiscal 2017 have the following key terms:

 

  A single, three-year performance period (starting from grant date)
  The performance metric is three-year relative TSR, as compared to the NASDAQ 100 Index group of companies as of the grant date

 

  Target payout requires 60th percentile TSR performance percentile

 

  No payout if performance is below the 30th TSR percentile

 

  No payout above target if TSR is negative on an absolute basis

 

  A maximum payout capped at 2x target

 

  Each percentile of TSR performance below target reduces payout by 31/3%, whereas performance above target only increases payout by 2.5641%

In developing the performance conditions, performance period, comparison group, payout scale and other terms of the PRSUs, the Compensation Committee undertook significant deliberation. It considered input received from institutional stockholders as well as market data and the advice of its compensation consultant. In determining the terms of the award, the Compensation Committee considered that the annual cash incentive plan (the Kokua Bonus Plan) already incentivizes performance on three key Company-specific financial measures. The Compensation Committee also considered the importance of emphasizing the performance of the Company as a whole, as opposed to an isolated metric; the importance of achieving a sufficiently difficult maximum payout; the benefit of a large and objectively determined performance comparator group; and the overarching goals of having an incentive that is clearly and directly aligned with stockholder interests.

 

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Specifically, the fiscal 2017 PRSUs provide that, if the NEO remains employed through December 15, 2019, the PRSUs granted to such officer will vest in a percentage of the target number of shares shown above, between zero and 200%, depending on how our TSR ranks over the three-year period from the grant date (the “Performance Period”), relative to the companies in the NASDAQ 100 Index as of the grant date (the “Index Group”). If our TSR over the Performance Period is at the 60th percentile when ranked against the TSRs of the companies in the Index Group, 100% of the target number of shares will be eligible to vest. For every percentile by which our TSR ranking within the Index Group exceeds the 60th percentile, the number of shares eligible to vest will increase by 2.5641% of target, up to a maximum payout of 200% of target if our TSR ranking is at the

 

 

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99th percentile. For every percentile by which our TSR ranking within the Index Group is below the 60th percentile, the number of shares eligible to vest will decrease by 31/3% of target, with no payout if our TSR ranking is below the 30th percentile. Additionally, if our absolute TSR over the Performance Period is negative, the number of shares eligible to vest will not exceed 100% of the target amount, even if our TSR ranks above the 60th percentile within the Index Group. A table setting forth the potential payouts based on relative TSR percentile performance is set forth below:

 

Percentile    Payout if TSR ³ 0    Payout if TSR < 0  

99th

   200%    100%  

90th

   177%    100%  

80th

   151%    100%  

70th

   126%    100%  

60th

   100%    100%  

50th

   67%    67%  

40th

   33%    33%  

30th

   0%    0%  

Additional vesting rules apply in the event of a change of control of the Company. These provide for measurement of TSR at the time of the change of control, if one occurs before the end of the Performance Period, with a portion of the award vesting pro-rata based on performance through the change of control, and the remaining eligible shares vesting quarterly over the balance of the Performance Period. The award also is subject to certain acceleration of vesting provisions that apply if the Named Executive Officer qualifies for severance payments and benefits under his Change of Control and Retention Agreement. These additional vesting rules are described under “Performance-Based Restricted Stock Units” beginning on page 43.

 

 

Fiscal 2017 Equity Award Decisions

 

In November 2016, after considering the recommendations of our CEO (except with respect to his own equity awards), its assessment of the performance and expected future contributions of each NEO, the NEOs’ overall compensation arrangements, the

highly competitive market for executive talent in which we operate, input from our stockholders and company performance, the Compensation Committee subcommittee approved equity awards for each of the NEOs as follows:

 

 

Named Executive Officer    Shares of our
Common Stock
subject to Stock
Options (1)
    

Shares of our

Common Stock
subject to
Restricted Stock
Unit Awards (1)

    

Shares of our

Common Stock subject
to Performance-Based
Restricted Stock
Unit Awards  (2)

 

Mr. Benioff

     151,057        —        56,531  

Mr. Hawkins

     159,119        19,850        19,850  

Mr. Block

     265,198        33,082        33,082  

Mr. Harris

     212,158        26,466        26,466  

Mr. Dayon

     212,158        26,466        26,466  

 

(1) Each of the options to purchase shares of our common stock was granted with an exercise price of $75.57 per share and all stock options and RSUs were subject to our standard four-year time-based vesting schedule.
(2) Target number of shares. Actual payout may range from zero shares to 2x target.

 

For Mr. Benioff, approximately 61% of the value of the fiscal 2017 equity compensation granted to him was in the form of PRSUs and 39% was in the form of stock options, which was consistent with the fiscal 2016 ratio for his equity awards of 64/36. For our NEOs other than our CEO, approximately 25% of the value of the fiscal 2017 equity compensation granted to them was in the form of PRSUs, 25% was in the form of RSUs, and 50% was in the form of stock options.

The Committee believes that this approach aligns the NEOs’ compensation packages with the creation of long-term

stockholder value and is an effective way to tie pay to our performance over time. Specifically, in the case of our CEO, no value will be realized from any of the stock option or PRSUs except to the extent that the market price of our stock increases above the market price on the grant date (for the options) or our TSR performance exceeds the 30th percentile of relative TSR performance of our comparison group TSR performance target at the end of the three-year performance period (for the PRSUs). Similarly, for our non-CEO NEOs, 75% of total equity compensation is based on the Company’s TSR and share price performance and 25% is time based.

 

 

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CEO Security Program

We have provided a security program for our CEO since fiscal 2012 and continued to do so in fiscal 2017. This CEO security program provides comprehensive physical and personal security services; accordingly, the program has not been limited to providing security services only at business facilities or during business-related travel. Because the security services provided for our CEO may be viewed as conveying a personal benefit to him, we have reported the incremental costs to us of the program in the “All Other Compensation” column in the Summary Compensation Table that accompanies this Compensation Discussion and Analysis. While the Compensation Committee believes that amounts paid by the Company for this security program have been reasonable, necessary and for the Company’s benefit, we acknowledge varied views on this practice, and for fiscal 2018, the Company will eliminate this benefit. The Company will continue to pay for CEO security arrangements that are provided at work and on business travel.

Other Benefits

Like other employees, our executive officers, including the NEOs, participate in our employee benefit and welfare plans, including medical and dental care plans, a fitness reimbursement plan and a 401(k) plan. We generally do not provide our executives, including the NEOs, with additional retirement benefits, pensions, perquisites or other personal benefits, except, in the case of our CEO, providing personal security through fiscal 2017 as

described above. We also occasionally provide certain benefits on an ad hoc basis, as noted for our NEOs in our Summary Compensation Table, if we believe that doing so is appropriate, reasonable and serves the interests of the Company, typically on the same terms we would provide such benefits for other employees. For example, we covered employee and guest costs associated with attending certain motivational and leadership Company events in fiscal 2017, as well as the associated taxes, for Messrs. Hawkins, Block and Dayon, consistent with how we treated this benefit for all other employees who attended these events.

In addition, in recognition of Mr. Harris’ leadership of the Company’s technology and engineering team in fiscal 2017, including achievements related to the launch of the Salesforce Lightning platform, the Compensation Committee approved a special one-time recognition bonus to him of an automobile and all associated taxes (see footnote 11 to Summary Compensation Table for details). The Committee is sensitive to potential over-reliance on such one-off benefits and reserves these kinds of awards for unique situations. In this case, the Committee approved this award because it believed that recognizing Mr. Harris’ leadership and success in achieving Company goals was warranted, and that doing so in a memorable and visible way would be motivational not only for the executive, but for other employees who observe exceptional performance being rewarded in exceptional ways consistent with the Company’s philosophy of paying for performance.

 

 

Compensation-Setting Process

 

Role of the Compensation Committee, Tally Sheets and Competitive Data

The Compensation Committee oversees and administers our executive compensation program in accordance with its Charter, which can be viewed in the Corporate Governance section of our Investor Relations website at http://investor.salesforce.com/about-us/investor/corporate-governance/. The Committee’s role includes oversight of our equity and incentive-based plans.

The Compensation Committee meets regularly throughout the year. It met nine times in fiscal 2017. At least annually, either before or near the beginning of the fiscal year, it reviews the executive compensation program and establishes base salaries and target annual cash bonus opportunities for the next fiscal year. Historically at this time it also has considered and granted equity awards to our executives and other eligible employees.

As discussed above, for fiscal 2017, the Compensation Committee designated a subcommittee (the “Subcommittee”) designed to satisfy the conditions of Section 162(m) of the Internal Revenue Code (“Section 162(m)”) and appointed Mr. Conway and Mr. Roos, both of whom are “outside directors,” to serve on it. This subcommittee participates in discussions and policy determinations by the Compensation Committee and has responsibility and authority to review and approve elements of compensation that are intended to qualify for deductibility under Section 162(m) and related regulations.

In setting the various elements of compensation, including base salaries, target annual cash bonus opportunities, and equity award amounts, the Compensation Committee, or Subcommittee, as applicable, reviews the total target compensation for our executives and also considers developments in compensation practices outside of the Company. Specifically, the Compensation Committee is provided with competitive positioning data for similarly situated executives at companies in our peer group, as well as summary consolidated information about our executives’ total compensation and pay history (commonly called “tally sheets”) to use in setting individual compensation elements and making decisions on total executive compensation levels.

Peer data is a helpful reference for the Compensation Committee to assess the competitiveness and appropriateness of our executive compensation program within our industry sector and the broader business community. Ultimately, the Compensation Committee applies its own business judgment and experience to determine the individual compensation elements, the amount of each compensation element and total target compensation; the Compensation Committee does not set or target the compensation of our executives at specific levels or within specified percentile ranges relative to peer company pay levels. Depending upon Company and individual performance, as well as the various other factors discussed in this Compensation Discussion and Analysis, target and actual total direct

 

 

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compensation of our executives, as well as individual compensation elements, may be within, below, or above the market range for their positions.

Role of Committee Advisors

The Compensation Committee has the authority to engage its own advisors to assist in carrying out its responsibilities. As in the past, the Compensation Committee continued to engage the services of Compensia, Inc., an independent, national compensation consulting firm (the “compensation consultant”) in fiscal 2017. The compensation consultant provides the Compensation Committee and the Board with guidance regarding the amount and types of compensation that we provide to our executives, how these compare to peer company compensation practices and advice regarding other compensation-related matters. The compensation consultant also provides the Compensation Committee with advice related to our equity plans and provides the Board with data that helps the Board develop the Board’s compensation program.

Representatives of the compensation consultant attend meetings of the Compensation Committee as requested and also communicate with the Compensation Committee outside of meetings. The compensation consultant reports to the Compensation Committee rather than to management, although representatives of the firm may meet with members of management, including our CEO and executives in our Employee Success (human resources) department, for purposes of gathering information on proposals that management may make to the Compensation Committee. During fiscal 2016 and fiscal 2017, the compensation consultant met with various executives to collect data and obtain management’s perspective on the fiscal 2017 compensation for our executives. The compensation consultant also provided services and advice, at the request of the Compensation Committee, in connection with the expansion of the performance equity program introduced for our CEO in fiscal 2016 and for other NEOs in fiscal 2016. The Compensation Committee may replace its compensation consultant or hire additional advisors at any time.

Role of Peer Companies

The Compensation Committee regularly reviews the appropriateness of the compensation peer group used by the compensation consultant to generate competitive pay data for the Committee’s review in connection with executive compensation decisions.

In the second half of fiscal 2016, when the Committee evaluated our executive compensation program and considered fiscal 2016 equity awards, as well as fiscal 2017 base salaries and target bonus opportunities, the compensation consultant provided a comparative analysis of our executive compensation program based on pay practices of the group of peer companies listed below (the “2017 Peer Group”). Selected based on similarity to us

on various financial and other measures, such as industry, revenue, market capitalization, number of employees and growth history and potential as well as competition for executives, the 2017 Peer Group was:

 

Adobe Systems, Inc.        LinkedIn Corporation
Amazon.com, Inc.      Microsoft Corporation
Autodesk, Inc.      Netflix, Inc.
CA Technologies, Inc.      Oracle Corporation
Cerner Corporation      SAP
Citrix Systems, Inc.      Symantec Corporation
Expedia, Inc.      The Priceline Group Inc.
Facebook, Inc.      Twitter, Inc.
IBM      VMware, Inc.
Intuit, Inc.      Yahoo! Inc.
Juniper Networks, Inc.         

In addition, the Compensation Committee reviewed aggregated survey data, which provided additional context regarding executive compensation practices in the marketplace, drawn from the Radford 2015 Custom Compensation Survey. The Compensation Committee also from time to time reviews compensation data from certain other companies in the market for the executive talent for whom we compete.

Similarly, in the second half of fiscal 2017, when the Compensation Committee was evaluating our executive compensation program and considering fiscal 2017 equity awards, as well as fiscal 2018 base salaries and target bonus opportunities, the compensation consultant provided a comparative analysis of the Company’s executive compensation program based on pay practices of the group of peer companies listed below (the “2018 Peer Group”). Also selected, based on similarity to us on various financial and other measures, such as industry, revenue, market capitalization, number of employees and growth history and potential as well as competition for executives, the 2018 Peer Group was:

 

Activision Blizzard, Inc.        LinkedIn Corporation
Adobe Systems, Inc.      Microsoft Corporation
Amazon.com, Inc.      Netflix, Inc.
CA Technologies, Inc.      Oracle Corporation
Cerner Corporation      SAP
Citrix Systems, Inc.      Symantec Corporation
eBay Inc.      The Priceline Group Inc.
Expedia, Inc.      Twitter, Inc.
Facebook, Inc.      VMware, Inc.
IBM      Workday, Inc.
Intuit, Inc.         
 

 

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In addition, the Compensation Committee reviewed aggregated survey data, which provided additional context regarding executive compensation practices in the marketplace, drawn from the Radford 2016 Custom Compensation Survey. The Compensation Committee also from time to time reviews compensation data from certain other companies in the market for the executive talent for whom we compete.

Role of Executive Officers

Our CEO provides general input to the Compensation Committee with respect to the compensation of executive officers who report directly to him, including the other NEOs, and reviews their performance at least annually. Our CEO considers all relevant factors in his review, including each executive officer’s performance and accomplishments during the year, areas of strength and areas for development. Our CEO may also meet with the compensation consultant if he chooses to do so as he prepares his recommendation. The Compensation Committee takes our CEO’s general input into consideration when determining and approving executive officer compensation, including for the NEOs other than the CEO.

The executives who lead our Legal and Global Employee Success organizations provide general administrative support to the Compensation Committee throughout the year, including providing legal advice and overseeing the documentation of equity plans and awards as approved by the Compensation Committee, and attending Compensation Committee meetings as requested.

Role of Stockholder Input

In setting the form and amount of compensation for our NEOs, the Compensation Committee also considers the voting results from our most recent annual stockholder advisory vote on executive compensation as well as specific input provided by stockholders throughout the year. In particular, in November 2016, when making decisions regarding fiscal 2017 equity awards and in setting cash compensation levels for fiscal 2018, the Compensation Committee gave significant consideration to the 2016 advisory vote as well as specific input provided by stockholders through our stockholder engagement program undertaken in calendar year 2016.

 

 

Decisions Regarding Fiscal 2018 Compensation

 

As set forth above, in November 2016, the Compensation Committee conducted a review of our executive compensation program for purposes of determining the base salaries and target bonus opportunity for our executives for fiscal 2018. As a result of this review, it determined that no NEO would receive an increase in base salary for fiscal 2018. In addition, the Compensation Committee did not make any increases to the target bonus opportunity of any NEO, keeping the CEO’s fiscal 2017 target

bonus opportunity at 200% of his base salary and each other NEO’s target bonus opportunity for fiscal 2017 at 100% of his base salary. Finally, for fiscal 2018, the Compensation Committee also decided to eliminate Company-paid expenses for CEO security arrangements that are provided outside of work or business travel, which may be deemed to convey a personal benefit. The Company will continue to pay for the CEO security arrangements that are provided at work and on business travel.

 

 

Other Compensation Policies

 

Stock Ownership Guidelines

We maintain a stock ownership policy for our non-employee directors, as described earlier in “Directors and Corporate Governance—Compensation of Directors” and as set forth in our Corporate Governance Guidelines (the “Guidelines”). The Guidelines also include stock ownership guidelines for our executive officers, including our NEOs. The Guidelines provide that our CEO must attain ownership of, by no later than March 14, 2018 or the fifth anniversary of his or her appointment as CEO, and maintain ownership throughout his or her tenure of a number of shares of our common stock equal to the lesser of 112,000 shares or the number of shares equivalent in value to four times his or her annual salary. With ownership of over 34 million shares, Mr. Benioff significantly exceeds his ownership requirement under these guidelines.

The Guidelines also provide that each other executive officer must attain ownership, by no later than the later of March 14, 2018 or the fifth anniversary from the date he or she becomes an executive officer, and maintain ownership throughout his or her tenure of a number of shares equivalent in value to 1.5 times his or her annual salary. Each of the NEOs, including our CEO, is in compliance with the stock ownership policy.

Performance-Based Compensation Recoupment “Clawback” Policy

The Guidelines include a clawback provision, which provides that if we restate our reported financial results, the Board will review the performance-based awards made to our executive officers. If and to the extent required by the Dodd-Frank Wall Street Reform and Consumer Protection Act, other clawback provisions of applicable law, or NYSE Listing Standards, we will seek to recover or cancel any such awards that were granted, vested or earned as a result of achieving performance targets that would not have been met under the restated financial results. We will also continue to monitor rule-making actions of the SEC and the NYSE related to clawback policies. In addition, if we are required as a result of misconduct to restate our financial results due to our material noncompliance with any financial reporting requirements under the federal securities laws, our CEO and CFO may be legally required to reimburse us for any bonus or other incentive- based or equity-based compensation they receive pursuant to the provisions of Section 304 of the Sarbanes-Oxley Act of 2002.

 

 

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  COMPENSATION DISCUSSION AND ANALYSIS (CONTINUED)  

 

       

 

Prohibition on Hedging and Pledging Transactions

Our insider trading policy prohibits any employee or director from, among other things, engaging in short sales, hedging of stock ownership positions and transactions involving derivative securities relating to our common stock. Executive officers and directors are also not permitted to pledge our securities.

 

Equity Award Grant Practices

The majority of our equity awards are granted on an annual basis, historically in the month of November, with new hire and ad hoc awards generally being granted monthly throughout the fiscal year, typically on the 22nd day of the month.

 

Post-Employment Compensation

 

We recognize that it is possible that we may be involved in a transaction involving a change of control of the Company, and that this possibility could result in the departure or distraction of our executives to the detriment of our business. The Compensation Committee and the Board believe that the prospect of such a change of control transaction would likely result in our executives facing uncertainties about their future employment and distractions resulting from concern over how the potential transaction might personally affect them.

To allow our executives to focus solely on making decisions that are in the best interests of our stockholders in the event of a possible, threatened, or pending change of control transaction, and to encourage them to remain with us despite the possibility that a change of control might affect them adversely, we have entered into Change of Control and Retention Agreements with each of the NEOs that provide them with certain payments and benefits in the event of the termination of their employment within the three-month period prior to, or the 18 month period following, a change of control of the Company (referred to as the “change of control period”). Severance payments and benefits under these agreements are conditioned on the executive’s signing a release of claims in favor of the Company. The Compensation Committee and the Board believe that these agreements serve as an important retention tool to ensure that personal uncertainties do not dilute our executives’ complete focus on building stockholder value.

These agreements provide each of the NEOs (other than, as described below, our CEO) who has a qualifying termination of employment during the change of control period with a payment equal to 150% of his annual base salary and target cash bonus, Company-paid premiums for health care (medical, dental and vision) continuation coverage for a period of up to 18 months following termination of employment, and the full and immediate vesting of all outstanding and unvested equity awards. See “Performance-Based Restricted Stock Units” on page 43 for specific information regarding how such a qualifying termination of employment would impact the non-CEO NEOs’ PRSUs.

If our CEO has a qualifying termination of employment during the change of control period, his Change of Control and Retention Agreement provides him with a lump-sum payment equal to 200% of his annual base salary and target cash bonus, Company-paid premiums for health care (medical, dental and vision) continuation coverage for a period of up to 24 months following termination of employment, and the full and immediate vesting of all outstanding and unvested equity awards. See

Performance-Based Restricted Stock Units” on page 43 for specific information regarding how such a qualifying termination would impact Mr. Benioff’s PRSUs.

In establishing the terms and conditions of these agreements, the Compensation Committee and the independent members of the Board considered competitive market data and governance best practices information provided by the compensation consultant. The Compensation Committee and the independent members of the Board also evaluated the cost to us of these arrangements and the potential payout levels to each affected executive under various scenarios. In approving these agreements, they determined that their cost to us and our stockholders was reasonable and not excessive, given the benefit conferred to us.

The Compensation Committee and the Board believe that these agreements will help to maintain the continued focus and dedication of our executives to their assigned duties without the distraction that could result from the possibility of a change of control of the Company.

In addition, in connection with the negotiation of Mr. Block’s employment terms when he joined us in 2013, and Mr. Hawkins’ employment terms when he joined us in 2014, each of these NEOs received an offer letter that provided for eligibility for ongoing severance payments and benefits in connection with involuntary terminations of employment. Under Mr. Block’s offer letter, if his employment is terminated without cause or he resigns for good reason, he will be entitled to payments equal to one year of his base salary and 100% of his annual target cash bonus, as well as any bonus earned as of his termination but not yet paid, and unpaid reimbursement of expenses. Receipt of these severance payments and benefits is conditioned on Mr. Block’s signing a release of claims in favor of the Company. In addition, Mr. Block’s offer letter provides him (or his estate) with certain severance payments and benefits in the event his termination of employment is due to death or disability. Under Mr. Hawkins’ offer letter, if his employment is terminated without cause or he resigns for good reason, he will be entitled to payments equal to one year of his base salary and 100% of his annual target cash bonus, and unpaid reimbursement of expenses. Receipt of these severance payments and benefits is conditioned on Mr. Hawkins’ signing a release of claims in favor of the Company.

For a summary of the material terms and conditions of agreements in effect during fiscal 2017, see “Employment Contracts and Certain Transactions—Change of Control,” elsewhere in this Proxy Statement.

 

 

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  COMPENSATION DISCUSSION AND ANALYSIS (CONTINUED)  

 

 

Tax and Accounting Considerations

 

Deductibility of Executive Compensation

Section 162(m) of the Internal Revenue Code imposes limitations on the deductibility for corporate federal income tax purposes of remuneration in excess of $1 million paid to the chief executive officer and each of the three next most highly compensated executive officers (other than the chief financial officer) of a public company. However, remuneration in excess of $1 million may be deducted if it qualifies as “performance-based compensation” within the meaning of the Internal Revenue Code.

We monitor the application of Section 162(m) and the associated Treasury regulations on an ongoing basis and the advisability of qualifying executive compensation for deductibility. The Compensation Committee considers whether to make efforts to qualify our executive compensation for deductibility under applicable tax laws to the extent practicable, balancing the desirability of having compensation qualify for deductibility with our need to maintain flexibility in compensating executive officers in a manner designed to promote our goals. The Compensation Committee has not adopted a policy that any or all compensation must be deductible. For example, compensation realized upon the vesting of time-based RSUs and fiscal 2017 bonuses paid to our executives are not designed to qualify as “performance-based” for purposes of Section 162(m) and so will not be deductible to the extent that they and the executive’s other non-“performance-based” compensation for the taxable year exceed $1 million. This affords us flexibility in designing the bonus structure best suited to our goals, and allows us the ability to grant time-based RSUs with strong retention value.

Taxation of “Parachute” Payments and Deferred Compensation

Sections 280G and 4999 of the Internal Revenue Code provide that executive officers, directors who hold significant equity interests, and certain other service providers may be subject to significant additional taxes if they receive payments or benefits in connection with a change of control of the Company that exceed certain prescribed limits, and that we (or our successor) may forfeit a deduction on the amounts subject to this additional tax. We did not provide any executive, including any Named Executive Officer, with a “gross-up” or other reimbursement payment for any

tax liability that the executive might owe as a result of the application of Sections 280G or 4999 during fiscal 2017 and we have not agreed and are not otherwise obligated to provide any executive with such a “gross-up” or other reimbursement.

Section 409A of the Internal Revenue Code imposes significant additional taxes in the event that an executive officer, director, or service provider receives “deferred compensation” that does not satisfy the restrictive conditions of the provision. Although we do not maintain a traditional nonqualified deferred compensation plan, Section 409A applies to certain equity awards and severance arrangements. We generally have structured our equity awards in a manner intended to comply with the applicable Section 409A conditions. In addition, the Change of Control and Retention Agreements that we have entered into with the NEOs generally have been drafted or modified in a manner intended to comply with Section 409A.

Accounting for Stock-Based Compensation

We follow the Financial Accounting Standards Board’s Accounting Standards Codification Topic 718 (“ASC Topic 718”) in connection with the financial reporting of our stock options and other stock-based awards. ASC Topic 718 requires companies to calculate the grant date “fair value” of their stock option grants using a variety of assumptions, as well as the grant date “fair value” of their other stock-based awards. This calculation is performed for accounting purposes and reported in the compensation tables below, even though our executives may never realize any value from their options or other stock-based awards. ASC Topic 718 also requires companies to recognize the compensation cost of their stock option grants and other stock-based awards in their income statements over the period in which an executive is required to render service in exchange for vesting of the option or other award. When determining the types and amounts of equity compensation granted to the NEOs, the Compensation Committee considers the advantages and disadvantages of various equity vehicles, such as stock options, RSUs and PRSUs. As part of this consideration, the Compensation Committee takes into account the overall program cost, which includes the associated compensation expense for financial reporting purposes.

 

 

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  COMPENSATION RISK ASSESSMENT  

 

       

 

COMPENSATION RISK ASSESSMENT

 

As part of its review of the compensation to be paid to our executives, as well as the compensation programs generally available to our employees, the Compensation Committee considers potential risks arising from our compensation programs and the management of these risks, in light of our overall business, strategy and objectives.

As is the case with our employees generally, our NEOs’ base salaries are fixed in amount and thus do not encourage risk-taking. Bonus amounts under our bonus plan are tied to overall corporate and individual performance, and the bonus pool for executive officers is based on our performance during the fiscal year compared to pre-established target levels for three equally-weighted measures: revenue, operating cash flow and non-GAAP income from operations. These three financial measures counterbalance each other, decreasing the likelihood that our NEOs will pursue any one measure to the detriment of overall

financial performance. Combined, these measures limit the ability of an executive to be rewarded for taking excessive risk on our behalf by, for example, seeking revenue enhancing opportunities at the expense of profitability. Moreover, a significant portion of compensation provided to our NEOs is in the form of long-term equity awards, including PRSUs, that help further align their interests with those of our stockholders. The Compensation Committee believes that these awards do not encourage unnecessary or excessive risk-taking because the ultimate value of the awards is tied to our stock price and because the awards are staggered and subject to long-term vesting schedules to help ensure that executives have significant value tied to long-term stock price performance. We have also implemented controls such as our Code of Conduct and periodic sub-certification processes for our executives to mitigate the risks of unethical behavior.

 

 

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  SUMMARY COMPENSATION TABLE  

 

 

SUMMARY COMPENSATION TABLE

The following table sets forth, for fiscal 2017 and the two prior years, the compensation reportable for our NEOs, as determined under SEC rules.

 

Name and Principal Position    Fiscal
Year
     Salary
($)
     Bonus
($)
    Stock
Awards
($) (1)
    Option
Awards
($) (2)
    Non-Equity
Incentive
Plan
Compens-
ation
($)
   

All Other
Compens-

ation
($)

    Total
($)
 

Marc Benioff

     2017        1,550,000        —         4,373,238 (3)      2,848,014       3,100,000       1,298,795 (4)      13,170,047  

Chairman of the Board and

Chief Executive Officer

     2016        1,550,000        —       17,455,952       9,807,069       3,100,000       1,449,882       33,362,903  
     2015        1,440,000        —         —         34,359,353       2,816,640       1,291,541       39,907,534  

Mark Hawkins

     2017        750,000        —         3,035,661 (5)      3,000,014       750,000       1,151 (6)      7,536,826  

Chief Financial Officer

     2016        700,000        250,000       1,200,029       4,800,004       700,000       29,362       7,679,395  
       2015        325,000        250,000       1,789,975       7,200,788       317,850       61,795       9,945,408  

Keith Block

     2017        1,150,000        —         5,059,230 (7)      5,000,017       1,150,000       91,438 (8)      12,450,685  

Vice Chairman, President and

Chief Operating Officer

     2016        1,077,000        40,564       —       10,000,003       1,077,000       58,663       12,253,230  
     2015        1,000,000        —         —         10,411,924       978,000       69,493       12,459,417  

Parker Harris

     2017        900,000        271,438 (9)      4,047,445 (10)      4,000,006       900,000       256,138 (11)      10,375,027  

Co-Founder and Chief Technology Officer

     2016        700,000        —         1,200,029       4,800,004       700,000       —         7,400,033  
     2015        650,000        —       1,435,613       5,830,678       635,700       —       8,551,991  

Alexandre Dayon

     2017        900,000        —         4,047,445 (12)      4,000,006       900,000       17,346 (13)      9,864,797  

President and Chief Product Officer

     2016        700,000        250,000       1,600,038       6,400,005       700,000       54,791       9,704,834  
     2015        650,000        611,686       1,435,613       5,830,678       636,892       —       9,164,869  

 

(1) Amounts reported under the Stock Awards column do not reflect compensation actually received by the NEO. Instead, the amounts reported reflect the aggregate grant date fair value of RSUs and PRSUs granted to the executives, which for RSUs is calculated by multiplying the number of shares subject to the award by the closing price of one share of our common stock on the date of grant and for PRSUs is calculated in the manner described in footnote (2) below, using a Monte Carlo valuation method.
(2) Amounts reported under the Option Awards column do not reflect compensation actually received by the NEO. Instead, the amounts reported are the grant date fair value of stock options granted to the executives as determined pursuant to FASB ASC Topic 718, excluding estimated forfeitures. The assumptions used to calculate the value of option awards are set forth under Note 1 of the Notes to Consolidated Financial Statements included in our annual report on Form 10-K for fiscal 2017 filed with the SEC on March 6, 2017.
(3) This amount consists solely of PRSUs granted to Mr. Benioff.
(4) This amount represents an allocation of costs paid by the Company for security arrangements provided for Mr. Benioff in addition to security arrangements provided while at work or on business travel. We view these security services as a necessary and appropriate business expense, but have reported incremental costs to us of the arrangements because they may be viewed as conveying a personal benefit to him. On occasion, family members of Mr. Benioff also may accompany him, at no incremental cost to the Company, on corporate aircraft used for business purposes.
(5) This amount consists of RSUs valued at $1,500,065 and PRSUs valued at $1,535,596 granted in fiscal 2017.
(6) This amount consists of a tax gross-up provided with respect to the Company-paid costs of attending a Company leadership event, which was provided on the same terms to all other employees who attended the event.
(7) This amount consists of RSUs valued at $2,500,007 and PRSUs valued at $2,559,224 granted in fiscal 2017.
(8) This amount includes $47,356 for Company-paid costs of attending motivational Company sales team and leadership events and $42,080 for tax gross-ups provided with respect to such costs, consistent with how we treated these benefits for all other employees who attended such events, as well as de minimis items of apparel and consumable sundries provided to Mr. Block in connection with employee events. On occasion, family members of Mr. Block also may accompany him, at no incremental cost to the Company, on corporate aircraft used for business purposes.
(9) This amount represents the value of an automobile awarded in recognition of Mr. Harris’ achievements in leading the Company’s technology and engineering team.
(10) This amount consists of RSUs valued at $2,000,036 and PRSUs valued at $2,047,410 granted in fiscal 2017.
(11) This amount consists of a tax gross-up provided with respect to the company-paid cost of the automobile described in footnote (9) above.
(12) This amount consists of RSUs valued at $2,000,036 and PRSUs valued at $2,047,410 granted in fiscal 2017.
(13) This amount includes a tax gross-up equal to $8,111 provided with respect to the Company-paid costs of attending a Company leadership event, consistent with how we treated this benefit for all other employees who attended the event, as well as the costs of attending the leadership event and a separate Company motivational event.

 

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  GRANTS OF PLAN-BASED AWARDS TABLE  

 

       

 

GRANTS OF PLAN-BASED AWARDS TABLE

The following table sets forth certain information with respect to all plan-based awards granted to the NEOs during fiscal 2017.

 

         Estimated Future Payouts
Under Non-Equity Incentive
                Plan Awards                
    Estimated Future Payouts
Under Equity Incentive
                Plan Awards                
    All
Other Stock
Awards:
Number
of Shares
of Stock
or Units
(#) (3)
    All Other
Option
Awards:
Number of
Securities
Underlying
Options
(#) (3)
    Exercise
or Base
Price of
Option
Awards
(4)
    Grant
Date Fair
Value of
Stock
and Option
Awards
(5)
 
Name   Grant
Date
  Threshold     Target
(1)
    Maximum
(1)
    Threshold
(#)
    Target
(#) (2)
    Maximum
(#) (2)
         

Marc Benioff

  N/A     —     $ 3,100,000     $ 3,875,000       —       —       —       —       —       —       —  
  11/22/2016     —       —       —       —       —       —       —       151,057     $ 75.57     $ 2,848,014  
  11/22/2016     —       —       —       —       56,531       113,062       —       —       —     $ 4,373,238  

Mark Hawkins

  N/A     —     $ 750,000     $ 937,500       —       —       —       —       —       —       —  
  11/22/2016     —       —       —       —       —       —       —       159,119     $ 75.57     $ 3,000,014  
  11/22/2016     —       —       —       —       —       —       19,850       —       —     $ 1,500,065  
  11/22/2016     —       —       —       —       19,850       39,700       —       —       —     $ 1,535,596  

Keith Block

  N/A     —     $ 1,150,000     $ 1,437,500       —       —       —       —       —       —       —  
  11/22/2016     —       —       —       —       —       —       —       265,198     $ 75.57     $ 5,000,017  
  11/22/2016     —       —       —       —       —       —       33,082       —       —     $ 2,500,007  
  11/22/2016     —       —       —       —       33,082       66,164       —         $ 2,559,224  

Parker Harris

  N/A     —     $ 900,000     $ 1,125,000       —       —       —       —       —       —       —  
  11/22/2016     —       —       —       —       —       —       —       212,158     $ 75.57     $ 4,000,006  
  11/22/2016     —       —       —       —       —       —       26,466       —       —     $ 2,000,036  
  11/22/2016     —       —       —       —       26,466       52,932       —       —       —     $ 2,047,410  

Alexandre Dayon

  N/A     —     $ 900,000     $ 1,125,000       —       —       —       —       —       —       —  
  11/22/2016     —       —       —       —       —       —       —       212,158     $ 75.57     $ 4,000,006  
  11/22/2016     —       —       —       —       —       —       26,466       —       —     $ 2,000,036  
  11/22/2016     —       —       —       —       26,466       52,932       —       —       —     $ 2,047,410  

 

(1) The Company’s non-equity incentive plan awards, and how they were determined, are based upon a formula that may include some discretion as to amounts paid, as discussed under “Compensation Discussion and Analysis—Compensation Elements—Cash Bonuses.” Maximum amounts shown reflect a 125% individual multiplier limit on payouts to executive officers.
(2) This equity incentive plan award is discussed under “Compensation Discussion and Analysis—Employment Contracts and Certain Transactions—Performance-Based Restricted Stock Units.”
(3) All restricted stock unit awards, performance-based restricted stock unit awards and stock options were granted pursuant to the 2013 Equity Plan.
(4) The exercise price of the stock options is equal to the closing market price of our common stock on the date of grant.
(5) The value of a stock award or option award is based on the fair value as of the grant date of such award determined pursuant to FASB ASC Topic 718. Regardless of the reported value of a stock option on the grant date, the actual value realized will depend on the excess, if any, of the market value of our common stock over the exercise price if and when the option is exercised.

 

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  OPTION EXERCISES AND STOCK VESTED TABLE  

 

 

OPTION EXERCISES AND STOCK VESTED TABLE

The following table sets forth certain information concerning option exercises and the vesting of stock awards and the value realized upon exercise or vesting by the NEOs during fiscal 2017.

 

                          OPTION  AWARDS                                              STOCK  AWARDS                      
Name    Number of
Shares Acquired
on Exercise (#)
     Value Realized
on Exercise (1)
     Number of
Shares Acquired
on Vesting (#)
     Value Realized
on Vesting (2)
 

Marc Benioff

     1,600,000      $ 79,080,844        —        —  

Mark Hawkins

     103,493      $ 1,635,858        11,208      $ 855,524  

Keith Block

     600,000      $ 25,740,824        —        —  

Parker Harris

     188,000      $ 9,006,749        19,393      $ 1,484,002  

Alexandre Dayon

     33,408      $ 1,700,614        40,374      $ 3,061,073  

 

(1) The value realized on exercise is the difference between the market price of the shares of our common stock underlying the options when exercised and the applicable exercise price.
(2) The value realized on vesting is determined by multiplying the number of vested restricted stock units by the closing price of the Company’s common stock on the vesting date.

 

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  OUTSTANDING EQUITY AWARDS AT FISCAL 2017 YEAR-END  TABLE  

 

       

 

OUTSTANDING EQUITY AWARDS AT FISCAL 2017 YEAR-END TABLE

The following table sets forth information with respect to the value of all outstanding equity awards held by our NEOs as of January 31, 2017.

 

      OPTION AWARDS      STOCK AWARDS  
Name    Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
(1)
     Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
(1)
     Option
Exercise
Price
     Option
Expiration
Date
     Number of
Shares or
Units of
Stock That
Have Not
Vested
(#) (2)
    

Market
Value of
Shares or
Units of Stock

That Have

Not Vested
(3)

 

Marc Benioff

     1,300,000        —        $ 39.09        11/27/2017        —          —    
     1,464,141        385,300      $ 52.30        11/26/2020        —          —    
     1,065,110        901,248      $ 59.34        11/25/2021        —          —    
     140,325        340,791      $ 80.99        11/22/2022        —          —    
     —          151,057      $ 75.57        11/22/2023        
     —          —          —          —          191,382      $ 15,138,316  
     —          —          —          —          56,531      $ 4,471,602  

Mark Hawkins

     —          163,865      $ 59.64        08/26/2021        —          —    
     68,681        166,798      $ 80.99        11/22/2022        —          —    
     —          159,119      $ 75.57        11/22/2023        —          —    
     —          —          —          —          13,131      $ 1,038,662  
     —          —          —          —          11,113      $ 879,038  
     —          —          —          —          19,850      $ 1,570,135  
     —          —          —          —          19,850      $ 1,570,135  

Keith Block

     403,185        130,209      $ 37.95        6/5/2018        —          —    
     322,761        273,105      $ 59.34        11/25/2021        —          —    
     143,086        347,495      $ 80.99        11/22/2022        —          —    
     —          265,198      $ 75.57        11/22/2023        —          —    
     —          —          —          —          33,082      $ 2,616,786  
     —          —          —          —          33,082      $ 2,616,786  

Parker Harris

     240,800        —        $ 39.09        11/27/2017        —          —    
     171,802        45,212      $ 52.30        11/26/2020        —          —    
     180,746        152,939      $ 59.34        11/25/2021        —          —    
     68,681        166,798      $ 80.99        11/22/2022        —          —    
     —          212,158      $ 75.57        11/22/2023        —          —    
     —          —          —          —          4,341      $ 343,373  
     —          —          —          —          12,097      $ 956,873  
     —          —          —          —          11,113      $ 879,038  
     —          —          —          —          26,466      $ 2,093,461  
     —          —          —          —          26,466      $ 2,093,461  

Alexandre Dayon

     107,377        28,257      $ 52.30        11/26/2020        —          —    
     180,746        152,939      $ 59.34        11/25/2021        —          —    
     91,575        222,397      $ 80.99        11/22/2022        —          —    
     —          212,158      $ 75.57        11/22/2023        —          —    
     —          —          —          —          10,851      $ 858,314  
     —          —          —          —          12,097      $ 956,873  
     —          —          —          —          14,817      $ 1,172,025  
     —          —          —          —          26,466      $ 2,093,461  
     —          —          —          —          26,466      $ 2,093,461  

 

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  OUTSTANDING EQUITY AWARDS AT FISCAL 2017 YEAR-END  TABLE (CONTINUED)  

 

 

 

(1) Options shown in this table were granted under the 2004 Equity Plan and the 2013 Equity Plan and vest over four years, with 25% of the total shares granted vesting on the first anniversary of the date of grant and the balance vesting in equal monthly installments over the remaining 36 months.
(2) Restricted stock unit awards shown in this table were granted under the 2004 Equity Plan and the 2013 Equity Plan and vest over four years, with 25% of the units vesting on the first anniversary of the date of grant and the balance vesting in equal quarterly installments over the remaining 36 months.
(3) The market value of unvested restricted stock units is based on the closing market price of the Company’s common stock on January 31, 2017 of $79.10 per share.

 

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  EMPLOYMENT CONTRACTS AND CERTAIN TRANSACTIONS  

 

       

 

EMPLOYMENT CONTRACTS AND CERTAIN TRANSACTIONS

 

Executive Officer Offer Letters, Agreements and Bonuses.    Each NEO is an “at-will” employee. Offer letters with our NEOs provide for one or more of the following: annual base salary, an annual bonus based on Company and individual performance, stock options and other equity-based awards and participation in our Company-wide employee benefit plans. In addition, the offer letters we have entered into with Messrs. Block and Hawkins provide for severance payments and benefits as described below.

Keith Block.    Under Mr. Block’s offer letter with the Company, dated June 6, 2013, in the event we terminate Mr. Block’s employment without cause (as defined in his offer letter) or if he voluntarily terminates his employment for good reason (as defined in his offer letter), he will be entitled to receive the following payments and benefits (less applicable tax withholdings), subject to his execution of a release of claims in favor of the Company:

 

  An amount equal to 100% of his annual base salary and target bonus to be payable in monthly installments for 12 months following the termination date, but ending early if he accepts employment with another party during the 12 months following his termination (for the fiscal year ended January 31, 2017, Mr. Block’s annual base salary and target bonus amount were each $1,150,000);

 

  Payment equal to any performance or special incentive bonus earned as of the termination date but not yet paid; and

 

  Any compensation and benefits to which he may be entitled under applicable plans, programs and agreements of the Company (but ending immediately if he accepts employment with another party during the 12 months following his termination), and reimbursement of any expenses incurred but not yet reimbursed.

In the event Mr. Block’s employment terminates due to his death or disability (as defined in his offer letter), he or his estate will be entitled to receive the following payments and benefits (less applicable tax withholdings), in addition to any other compensation and benefits to which he (or his estate) may be entitled under applicable plans, programs and agreements of the Company:

 

  In the case of death, an amount equal to 100% of his annual base salary payable in monthly installments for 12 months following his death (for the fiscal year ended January 31, 2017, Mr. Block’s annual base salary was $1,150,000);

 

  In the case of disability, the disability benefit available under our normal procedures and policies for its most senior executives;

 

  Payment equal to his pro rata bonus(es) for the remainder of the year in which death or disability occurs (if Mr. Block’s termination due to death or disability had occurred on January 31, 2017, his bonus payment would have been $1,150,000, less applicable withholding taxes); and
  Payment equal to any base salary and any performance or special incentive bonus earned but not yet paid as of the termination due to death or disability, reimbursement of any expenses incurred but not yet reimbursed, and any compensation and benefits to which he (or his legal representatives) may be entitled under applicable plans, programs and agreements of the Company.

Mark Hawkins.    Under Mr. Hawkins’ offer letter with the Company, dated June 11, 2014, in the event we terminate Mr. Hawkins’ employment without cause (as defined in his offer letter) or if he voluntarily terminates his employment for good reason (as defined in his offer letter), he will be entitled to receive the following payments and benefits (less applicable tax withholdings), subject to his execution of a release of claims in favor of the Company:

 

  An amount equal to 100% of his annual base salary and target bonus to be payable in monthly installments for 12 months following the termination date, but ending early if he accepts employment with another party during the 12 months following his termination (for the fiscal year ended January 31, 2017, Mr. Hawkins’ annual base salary and target bonus amount were each $750,000); and

 

  Any compensation and benefits to which he may be entitled under applicable plans, programs and agreements of the Company (but ending immediately if he accepts employment with another party during the 12 months following his termination), and reimbursement of any expenses incurred but not yet reimbursed.

Change of Control.    In December 2008, we entered into a Change of Control and Retention Agreement with Mr. Benioff. Pursuant to this agreement, in the event that the employment of Mr. Benioff is terminated without cause (as defined in the agreement) or he resigns for good reason (as defined in the agreement) within three months prior to, or 18 months after, a change of control (as defined in the agreement) of the Company, he will be entitled to receive the following payments and benefits:

 

  A lump sum payment (less applicable tax withholdings) equal to 200% of his annual base salary and target bonus;

 

  Company-paid premiums for health care (medical, dental and vision) continuation coverage for him and his eligible dependents for a period of up to 24 months following termination; and

 

  Full vesting acceleration of the unvested portion of all equity incentive awards held by him at the time of termination.

We have also entered into Change of Control and Retention Agreements with the other NEOs. Pursuant to these agreements, in the event that the employment of any of these executives is terminated without cause or he resigns for good reason within three months prior to, or 18 months after, a change of control of

 

 

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  EMPLOYMENT CONTRACTS AND CERTAIN TRANSACTIONS (CONTINUED)  

 

 

the Company, he will be entitled to receive the following payments and benefits:

 

  A lump sum payment (payable with respect to Mr. Hawkins, in equal monthly installments over 12 months) (less applicable tax withholdings) equal to 150% of the executive’s annual base salary and target bonus;

 

  Company-paid premiums for health care (medical, dental and vision) continuation coverage for the executive and his eligible dependents for a period of up to 18 months following termination; and

 

  Full vesting acceleration of the unvested portion of all equity awards held by the executive at the time of termination.

Each Change of Control and Retention Agreement contains a “best of” provision that termination payments and benefits will be either delivered in full or to such lesser extent as would result in no portion of such termination benefits being subject to the excise tax imposed by the “golden parachute” rules of Section 4999 of the Internal Revenue Code of 1986, as amended, whichever of the foregoing amounts, after taking into account all applicable taxes, results in the greatest amount of termination benefits to the executive on an after-tax basis. Receipt of payments and benefits under each agreement is conditioned upon execution by the executive of a release of claims in favor of the Company, which release also requires continued compliance by the executive with confidentiality obligations.

Performance-Based Restricted Stock Units.    The PRSUs granted to our NEOs, including our CEO, in November 2016 provide that, if the applicable officer remains employed through December 15, 2019, each respective award will vest in a percentage of the target number of shares subject to the award, between zero and 200%, depending on how our total stockholder return (“TSR”) ranks over the three-year period from the grant date (the “performance period”), relative to the companies in the NASDAQ-100 Index as of the grant date (the “Index Group”). If our TSR over the Performance Period is at the 60th percentile when ranked against the TSRs of the companies in the Index Group, 100% of the target number of shares will be eligible to vest. For every percentile by which our TSR ranking within the Index Group exceeds the 60th percentile, the number of shares eligible to vest will increase by 2.5641% of target, up to a maximum payout of

200% of target if our TSR ranking is at the 99th percentile. For every percentile by which our TSR ranking within the Index Group is below the 60th percentile, the number of shares eligible to vest will decrease by 3 13% of target, with no payout if our TSR ranking is below the 30th percentile. Additionally, if our absolute TSR over the performance period is negative, in no event will the number of shares eligible to vest exceed 100% of the target amount, even if our TSR ranks above the 60th percentile within the Index Group.

Special vesting rules apply to the PRSUs granted to our NEOs, including our CEO, in November 2016 in the event of a change of control of the Company. The awards provide that if a change of control of the Company occurs during the NEO’s employment and before the end of the performance period, shares will become eligible to vest based on how our TSR performance ranks relative to the Index Group from the grant date through the date of the change of control (instead of through the three-year performance period), using the same zero to 200% scale described above. A portion of the award will be considered satisfied as of the date of a change of control, and a pro-rated portion of the eligible shares (if any) will vest to reflect service through that date, with the remaining eligible shares vesting in equal calendar quarterly installments thereafter over the balance of the original performance period, subject to the NEO’s continued employment through each vesting date. Any shares eligible to vest based on the TSR performance are also subject to accelerated vesting if each applicable officer’s employment terminates within three months before, or 18 months after, a change of control in a qualifying termination of employment, determined in accordance with the terms of his existing change of control and retention agreement.

If a change of control of the Company occurs within the three-month period after a NEO ceases to be an employee, and such officer qualified for severance payments and benefits under his Change of Control and Retention Agreement, the rules described in the preceding paragraph apply as if such officer had remained an employee through the date of the change of control. Therefore, assuming the NEO qualifies for severance payments and benefits under his Change of Control and Retention Agreement, he will be entitled to full vesting of any and all shares eligible to vest based on the TSR performance (determined as described above) as of the date the performance is certified.

 

 

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  EMPLOYMENT CONTRACTS AND CERTAIN TRANSACTIONS (CONTINUED)  

 

       

 

 

Payments Upon Qualifying Termination of Employment. Assuming the employment of the NEOs had been terminated on January 31, 2017 pursuant to a qualifying termination of

employment in connection with a change of control of the Company, they would have been entitled to payments and benefits in the amounts set forth below:

 

 

Name   

Salary and

Bonus (1)

    

Value of

Continuation

of Benefits

    

Value of

Accelerated Stock

Options,

Restricted

Stock Units and
Performance-Based
Restricted Stock
Units (2)

     Total (3)  

Marc Benioff

   $ 9,300,000      $ 47,571      $ 48,277,850(4)      $ 57,625,421  

Mark Hawkins

   $ 2,250,000      $ 26,591      $ 8,808,473(5)      $ 11,085,064  

Keith Block

   $ 3,450,000      $ 12,087      $ 16,924,376(6)      $ 20,386,463  

Parker Harris

   $ 2,700,000      $ 36,260      $ 11,348,879(7)      $ 14,085,139  

Alexandre Dayon

   $ 2,700,000      $ 36,260      $ 11,702,413(8)      $ 14,438,673  

 

(1) Based on salary and bonus targets as of January 31, 2017.
(2) Based on a common stock price of $79.10, the closing market price of the Company’s common stock on January 31, 2017, less the applicable exercise price for each option for which vesting would have been accelerated.
(3) The amounts presented reflect the maximum severance benefits that could have been paid out without giving effect to any potential reduction as a result of the “best of” provision of the Change of Control and Retention Agreements described above.
(4) Represents acceleration of unvested options and acceleration of PRSUs at 100% of target as if the Company’s TSR through the change of control ranked at the 60th percentile against the NASDAQ 100 Index Group. If instead the maximum amount possible were accelerated in connection with a change of control and qualifying termination (i.e., for the PRSUs, assuming the Company’s TSR from grant through change of control were positive and that, for the period from grant to the date of the change of control, the Company’s TSR performed at the 99th percentile relative to TSR of the Nasdaq 100 Index Group), the resulting total value of accelerated equity awards would be $67,887,768.
(5) Represents acceleration of unvested options and acceleration of PRSUs at 100% of target as if the Company’s TSR through the change of control ranked at the 60th percentile against the NASDAQ 100 Index Group. If instead the maximum amount possible were accelerated in connection with a change of control and qualifying termination (i.e., for the PRSUs, assuming the Company’s TSR from grant through change of control were positive and that, for the period from grant to the date of the change of control, the Company’s TSR performed at the 99th percentile relative to TSR of the Nasdaq 100 Index Group), the resulting total value of accelerated equity awards would be $10,378,608.
(6) Represents acceleration of unvested options and acceleration of PRSUs at 100% of target as if the Company’s TSR through the change of control ranked at the 60th percentile against the NASDAQ 100 Index Group. If instead the maximum amount possible were accelerated in connection with a change of control and qualifying termination (i.e., for the PRSUs, assuming the Company’s TSR from grant through change of control were positive and that, for the period from grant to the date of the change of control, the Company’s TSR performed at the 99th percentile relative to TSR of the Nasdaq 100 Index Group), the resulting total value of accelerated equity awards would be $19,541,163.
(7) Represents acceleration of unvested options and acceleration of PRSUs at 100% of target as if the Company’s TSR through the change of control ranked at the 60th percentile against the NASDAQ 100 Index Group. If instead the maximum amount possible were accelerated in connection with a change of control and qualifying termination (i.e., for the PRSUs, assuming the Company’s TSR from grant through change of control were positive and that, for the period from grant to the date of the change of control, the Company’s TSR performed at the 99th percentile relative to TSR of the Nasdaq 100 Index Group), the resulting total value of accelerated equity awards would be $13,442,340.
(8) Represents acceleration of unvested options and acceleration of PRSUs at 100% of target as if the Company’s TSR through the change of control ranked at the 60th percentile against the Nasdaq 100 Index Group. If instead the maximum amount possible were accelerated in connection with a change of control and qualifying termination (i.e., for the PRSUs, assuming the Company’s TSR from grant through change of control were positive and that, for the period from grant to the date of the change of control, the Company’s TSR performed at the 99th percentile relative to TSR of the Nasdaq 100 Index Group), the resulting total value of accelerated equity awards would be $13,795,873.

 

Indemnification Agreements.    The Company has entered into an indemnification agreement with each of our directors and executive officers. The indemnification agreements and our certificate of incorporation and bylaws require us to indemnify our directors and executive officers to the fullest extent permitted by Delaware law.

Policies and Procedures with Respect to Related Party Transactions.    Our Board is committed to the highest legal and ethical standards of conduct in fulfilling its responsibilities and recognizes that related party transactions can present a heightened risk of potential or actual conflicts of interest. Our Audit Committee Charter requires that the Audit Committee review and

approve any related party transactions, after reviewing each such transaction for potential conflicts of interests and other improprieties.

The Company has in place Related Party Transaction Policies and Procedures, under which the Audit Committee reviews and approves or ratifies any related party transactions. In approving or rejecting the proposed transaction, our Audit Committee will consider the relevant facts and circumstances, including the costs and benefits to the Company, the nature of the related party’s interest in the transaction, the availability and terms of other sources for comparable services or products, and, if applicable, the impact on a director’s independence.

 

 

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  EMPLOYMENT CONTRACTS AND CERTAIN TRANSACTIONS (CONTINUED)  

 

 

Related Party and Other Transactions.    Except for the compensation of directors and executive officers described earlier and as set forth below, there were no transactions during fiscal 2017 in which the Company was a party, the amount involved in the transaction exceeds $120,000 and in which any director, director nominee, executive officer, holder of more than 5% of our capital stock, or immediate family member of any of the foregoing individuals had or will have a direct or indirect material interest.

Andrea Conway, a non-executive employee of Salesforce, is the daughter of Craig Conway, a director. With respect to fiscal 2017, Ms. Conway earned $149,228 in base salary and $30,056 in annual cash incentive and other performance-based bonuses. She was also granted 465 RSUs vesting over the Company’s standard four-year vesting schedule. Ms. Conway is a Senior Product Designer and her total compensation is consistent with the total compensation provided to other employees of the same level with similar responsibilities. Our Audit Committee reviewed and approved the employment of Ms. Conway pursuant to our Related Party Transaction Policies and Procedures. The terms of Ms. Conway’s employment and compensation do not violate these policies or procedures nor do we believe they present a conflict of interest, particularly in light of the number of personnel employed by the Company overall (approximately 25,000 employees as of January 31, 2017), and the fact that neither the Board nor executive management directly oversee Ms. Conway or other personnel at her level, and the fact that her compensation is consistent with that of other employees at the same level with similar responsibilities.

As disclosed in our Annual Report on Form 10-K for fiscal 2017, in April 2016, the Company acquired MetaMind, Inc. (“MetaMind”), an artificial intelligence company specializing in deep learning, for a total purchase price of approximately $32.8 million in cash, net of cash acquired. This amount includes amounts to be paid after an initial holdback period and assumed equity awards. Marc Benioff, our CEO and Chairman of the Board, who held a greater than ten percent ownership interest in MetaMind, received approximately $6 million in total proceeds, subject to customary escrow amounts, in connection with the acquisition. Mr. Benioff was not involved in the acquisition negotiations, and our Audit Committee reviewed and approved the acquisition

pursuant to our Related Party Transaction Policies and Procedures.

In January 1999, the Salesforce.com Foundation, also referred to as the Foundation, was chartered on an idea of leveraging the Company’s people, technology and resources to help improve communities around the world. The Company calls this integrated philanthropic approach the 1-1-1 model. Beginning in 2008, Salesforce.org, which is a non-profit public benefit corporation, was established to resell the Company’s services to non-profit organizations and certain higher education organizations.

The Company’s Chairman is the chairman of both the Foundation and Salesforce.org. The Company’s Chairman holds one of the three Foundation board seats. The Company’s Chairman, one of the Company’s employees and one of the Company’s board members hold three of Salesforce.org’s nine board seats. The Company does not control the Foundation’s or Salesforce.org’s activities, and accordingly, the Company does not consolidate either of the related entities’ statement of activities with its financial results.

Since the Foundation’s and Salesforce.org’s inception, the Company has provided at no charge certain resources to those entities’ employees such as office space, furniture, equipment, facilities, services and other resources. The value of these items was approximately $3.3 million for fiscal 2017.

Additionally, the Company has donated subscriptions of the Company’s services to other qualified non-profit organizations. The Company also allows Salesforce.org to resell the Company’s service to non-profit organizations and certain higher education entities. The Company does not charge Salesforce.org for these subscriptions, therefore revenue from subscriptions provided to non-profit organizations is donated back to the community through charitable grants made by the Foundation and Salesforce.org. For instance, the reseller agreement was amended in August 2015 to include additional customer segments and certain customers outside the U.S. and was amended in October 2015 to add an addendum with model clauses for the processing of personal data transferred from the European Economic Area. The value of the subscriptions pursuant to reseller agreements, as amended, was approximately $112.4 million for fiscal 2017.

 

 

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  COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION  

 

       

 

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

 

During fiscal 2017, none of our executive officers served as a member of the board of directors or compensation committee of

any entity that has one or more executive officers serving as a member of our Board or Compensation Committee.

 

 

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

 

Section 16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) requires the Company’s officers and directors and persons who beneficially own more than 10% of the Company’s common stock (collectively, “Reporting Persons”) to file reports of beneficial ownership and changes in beneficial ownership with the SEC. Reporting Persons are required by SEC regulations to furnish the Company with copies of all Section 16(a) forms they file. Based solely on our review of such reports received or written representations from certain

Reporting Persons relating to fiscal 2017, the Company believes that all Reporting Persons complied with all applicable reporting requirements in fiscal 2017, except for one untimely Form 4 filed on behalf of Mr. Roos on November 22, 2016 and two untimely Forms 4 filed on behalf of Mr. Benioff on May 15, 2016 and July 8, 2016, in each case as a result of unintentional administrative error, and one untimely Form 4 filed on behalf of General Powell on November 22, 2016 as a result of untimely broker communication.

 

 

COMMITTEE REPORTS

 

The following reports by our Compensation Committee and Audit Committee shall not be deemed to be (i) “soliciting material,” (ii) “filed” with the SEC, (iii) subject to Regulations 14A or 14C of the Exchange Act, or (iv) subject to the liabilities of Section 18 of the Exchange Act. The reports shall not be deemed incorporated

by reference into any of our other filings under the Exchange Act or the Securities Act of 1933, as amended, except to the extent the Company specifically incorporates the report by reference into such filing.

 

 

Report of the Compensation Committee of the Board of Directors

 

We, the Compensation Committee of the Board of Directors of Salesforce, have reviewed and discussed the Compensation Discussion and Analysis contained in this Proxy Statement with management. Based on such review and discussion, we have recommended to the Board that the Compensation Discussion and Analysis be included in this Proxy Statement and in Salesforce’s Annual Report on Form 10-K for the fiscal year ended January 31, 2017.

THE COMPENSATION COMMITTEE

John V. Roos (Chair)

Craig Conway

Maynard Webb

 

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  REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS  

 

 

Report of the Audit Committee of the Board of Directors

 

Role of the Audit Committee

The Audit Committee operates under a written charter and its functions are discussed above in “Corporate Governance and Board Committees—Audit Committee.”

The Audit Committee, which is comprised entirely of non-management directors, oversees the Company’s financial reporting process on behalf of the Board. Management is responsible for the Company’s internal controls, financial reporting process and compliance with laws and regulations and ethical business standards. Ernst & Young LLP (“Ernst & Young”), the independent auditor, is responsible for performing an independent audit of the Company’s consolidated financial statements and an independent audit of the Company’s internal controls over financial reporting, both in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”). The Audit Committee’s responsibility is to monitor and oversee this process.

Review of Audited Financial Statements for Fiscal Year ended January 31, 2017

The Audit Committee generally meets twice per quarter, once in connection with quarterly Board meetings and once to review quarterly and year-end financial results. The Audit Committee also meets as needed to address developing accounting, compliance, or other matters. Specifically, in discharging its duties in fiscal 2017, the Audit Committee:

 

  reviewed and discussed with management and Ernst & Young our quarterly earnings press releases, related periodic reports filed with the SEC, and our audited financial statements for the fiscal year ended January 31, 2017, as well as the overall quality of our financial reporting process;

 

  reviewed and discussed with Ernst & Young the matters required to be discussed by Auditing Standard No. 1301, Communications with Audit Committees, as adopted by the PCAOB, which involves communications to the Audit Committee regarding responsibilities of the auditor and overall strategy and timing of the audit;

 

  received and discussed the written disclosures and the letter from Ernst & Young required by applicable requirements of the PCAOB regarding the independent auditor’s communications with the Audit Committee concerning independence;

 

  inquired about significant business and financial reporting risks, reviewed the Company’s policies for risk assessment and risk management, and assessed the steps management is taking to control these risks;

 

  reviewed actual and potential related party transactions and the Company’s policy regarding related party transactions;

 

  received reports about the receipt and resolution of employee or other concerns raised regarding financial reporting and other compliance matters;
  reviewed and assessed the qualitative aspects of the Company’s ethics and compliance programs;

 

  met periodically with management, the internal auditor and Ernst & Young regarding the evaluation and effectiveness of the Company’s internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act of 2002;

 

  considered the fees paid to Ernst & Young for the provision of non-audit related services and concluded that these fees did not compromise Ernst & Young’s independence in performing the audit; and

 

  monitored the Company’s internal and disclosure control structure, including the scope and adequacy of the Company’s internal audit program.

Based on the Audit Committee’s review and discussions noted above, the Audit Committee recommended to the Board that the Company’s audited consolidated financial statements be included in the Company’s annual report on Form 10-K for the fiscal year ended January 31, 2017 for filing with the SEC.

Review of Independent Auditor

The Audit Committee conducts an annual evaluation of the independent auditor in connection with the committee’s determination of whether to continue to retain Ernst & Young or engage another firm as the Company’s independent auditor. In the course of these reviews, the committee has considered, among other things:

 

  data relating to audit quality and performance, including recent PCAOB reports on Ernst & Young;

 

  the value of Ernst & Young’s services in light of the fees charged to the Company;

 

  Ernst & Young’s tenure as our independent auditor and its familiarity with our global operations and businesses, accounting policies and practices and internal control over financial reporting;

 

  Ernst & Young’s capability and expertise in handling the breadth and complexity of our worldwide operations;

 

  The periodic rotation of the lead audit partner, as required by Section 203 of the Sarbanes-Oxley Act, which most recently occurred effective as of fiscal 2017;

 

  Ernst & Young’s integrity and objectivity; and

 

  Ernst & Young’s independence.

Based on this evaluation, the Audit Committee has concluded that Ernst & Young is independent and believes it is in the best interests of the Company and its stockholders to retain Ernst & Young to serve as the Company’s independent registered public accounting firm for fiscal 2018. Accordingly, the Audit Committee has reappointed Ernst & Young as the Company’s independent auditor for fiscal 2018.

 

 

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  REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS  (CONTINUED)  

 

       

 

Members of the Audit Committee rely without independent verification on the information provided to them and on the representations made by management and the independent auditor. Accordingly, Audit Committee oversight does not provide an independent basis to determine that management has operated according to appropriate accounting and financial reporting principles or maintained appropriate internal controls and procedures designed to assure compliance with accounting standards and applicable laws and regulations. Furthermore, the Audit Committee’s considerations and discussions referred to above do not assure that the audit of our financial statements has

been carried out in accordance with the standards of the PCAOB, that the consolidated financial statements are presented in accordance with U.S. generally accepted accounting principles or that Ernst & Young is in fact “independent.”

THE AUDIT AND FINANCE COMMITTEE

Lawrence Tomlinson (Chair)

Alan Hassenfeld

Sanford Robertson

Robin Washington

Maynard Webb

 

 

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  PROPOSAL 1 — ELECTION OF DIRECTORS  

 

 

PROPOSAL 1 — ELECTION OF DIRECTORS

 

As recommended by the Nominating and Corporate Governance Committee, the Board’s nominees for election to the Board by the stockholders are the following current members of the Board: Marc Benioff, Keith Block, Craig Conway, Alan Hassenfeld, Neelie Kroes, Colin Powell, Sanford Robertson, John V. Roos, Robin Washington, Maynard Webb and Susan Wojcicki.

It is intended that the proxy in the form enclosed will be voted, unless otherwise indicated, for the election of the nominees as directors to the Board. If any of the nominees should for any reason be unable or unwilling to serve as of the Annual Meeting, the proxies will be voted for the election of such other person as the Board may designate, if any, in place of such nominee.

 

 

Vote Required and Board of Directors’ Recommendation

 

The Company’s Bylaws provide that each director nominee be elected to the Board if the votes cast for such nominee’s election exceed the votes cast against such nominee’s election. The Board, after taking into consideration the recommendation of the Nominating and Corporate Governance Committee, will determine

whether or not to accept the pre-tendered resignation of any nominee for director, in an uncontested election, who receives a greater number of votes against his or her election than votes for such election.

 

 

The Board of Directors Recommends a Vote FOR Each of the Nominees Listed Above.

 

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  PROPOSAL 2 — APPROVAL OF THE AMENDED AND RESTATED EQUITY INCENTIVE  PLAN,  
  INCLUDING TO INCREASE PLAN SHARES RESERVED FOR ISSUANCE  

 

       

 

PROPOSAL 2 — APPROVAL OF THE AMENDED AND RESTATED EQUITY INCENTIVE PLAN, INCLUDING TO INCREASE PLAN SHARES RESERVED FOR ISSUANCE

 

We are seeking stockholder approval to amend and restate our 2013 Equity Incentive Plan (the “2013 Plan”) to increase the number of shares of Common Stock of the Company (the “Shares”) reserved for issuance under the 2013 Plan by an additional 37 million Shares. Our continuing ability to offer equity incentive awards under the 2013 Plan is critical to our ability to attract, motivate and retain qualified personnel, particularly as we grow and in light of the highly competitive market for employee talent in which we operate. The proposed amendments to the 2013 Plan also include provisions subjecting awards to minimum vesting requirements and clarifying that dividends or dividend equivalents credited or payable in connection with restricted stock or restricted stock units are subject to the same restrictions as the underlying award and will not be paid until the underlying award vests.

The Board has determined that it is in the best interests of the Company and its stockholders to approve this proposal. The Board has approved the amendment and restatement of the 2013 Plan and share increase subject to stockholder approval,

and recommends that stockholders vote in favor of this proposal at the Annual Meeting. Stockholder approval of this proposal requires the affirmative vote of a majority of the outstanding Shares that are present in person or by proxy and entitled to vote on the proposal at the Annual Meeting.

If stockholders approve this proposal, the amendment and restatement of the 2013 Plan and share increase will become effective as of the date of stockholder approval. If stockholders do not approve this proposal, the amendment and restatement of the 2013 Plan and share increase will not take effect and our 2013 Plan will continue to be administered in its current form. Our executive officers and directors have an interest in this proposal by virtue of their being eligible to receive equity awards under the 2013 Plan. The remainder of this discussion, when referring to the 2013 Plan, refers to the amended and restated 2013 Plan as if this proposal is approved by our stockholders, unless otherwise specified or the context otherwise references the 2013 Plan prior to amendment and restatement.

 

 

Increasing the Number of Shares Reserved for Issuance under the 2013 Plan

 

Background

The 2013 Plan was initially adopted by the Board in March 2013, and our stockholders approved it in June 2013. As described in more detail below, the initial share reserve under the 2013 Plan was 48 million Shares, plus an additional 21,920,540 Shares that were available for grant under our 2004 Equity Incentive Plan and 2004 Outside Directors Stock Plan (the “Prior Plans”) as of the date stockholders approved the 2013 Plan. In addition, any Shares subject to outstanding awards under the 2013 Plan or, after the date stockholders approved the 2013 Plan, under the Prior Plans, that expire or are otherwise forfeited to, or repurchased by, the Company also become available for future grant under the 2013 Plan, although the number of Shares that can become available under the 2013 Plan in this manner is limited to 54,332,000 Shares.

At the 2015 Annual Meeting our stockholders, upon recommendation of the Board, approved the amendment and restatement of the 2013 Plan and share increase to reserve an additional 37 million Shares. As discussed in our 2015 proxy statement, when we sought stockholder approval of the amendment and restatement of the 2013 Plan, we believed that the Shares reserved for issuance under it following stockholder approval (along with Shares becoming available for future grant due to forfeitures and cancellations) would be sufficient to enable

us to continue to grant equity awards under the 2013 Plan through the 2016 or 2017 Annual Meeting. This estimate was based on a forecast that took into account our anticipated rate of growth in hiring, an estimated range of our stock price over time, and our historical forfeiture rates, as well as the number of Shares we have available for grant under the 2014 Inducement Equity Incentive Plan (the “2014 Plan”).

Shares Available for Future Awards

As of March 31, 2017, approximately 14,917,736 Shares remained available for grant under the 2013 Plan, 390,711 Shares remained available for grant under the 2014 Plan and 82,407 Shares remained available for grant under an acquired plan. The Board believes that additional Shares are necessary to meet the Company’s anticipated equity compensation needs. The proposed Share increase is expected to last approximately one to two years. This estimate is based on a forecast that takes into account our anticipated rate of growth in hiring, an estimated range of our stock price over time, and our historical forfeiture rates, as well as the number of Shares we have available for grant under our 2014 Plan. We have also considered stockholder feedback in determining an appropriate number of Shares to seek to add to the 2013 Plan.

 

 

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  PROPOSAL 2 — APPROVAL OF THE AMENDED AND RESTATED EQUITY  INCENTIVE PLAN,  
  INCLUDING TO INCREASE PLAN SHARES RESERVED FOR ISSUANCE (CONTINUED)  

 

 

Reasons for Voting for the Proposal

Long-Term Equity is a Key Component of our Compensation Objective

As discussed in the “Compensation Discussion and Analysis” section, our overall compensation objective is to compensate our personnel in a manner that attracts and retains the highly talented employees necessary to manage and staff a high-growth business in an innovative and competitive industry. Our employees are our most valuable asset, and we strive to provide them with compensation packages that are competitive, that reward personal and company performance and that help meet our retention needs. Equity awards, whose value depends on our stock performance and which require continued service over time before any value can be realized, help achieve these objectives and are a key element of our compensation program. Equity awards also incentivize our employees to manage our business as owners, aligning their interests with those of our stockholders. We believe we must continue to use equity compensation on a broad basis to help attract, retain and motivate employees to continue to grow our business, develop new products and ultimately increase stockholder value. As of March 31, 2017, approximately 14,000 of our regular, full-time employees held outstanding equity awards.

The 2013 Plan Requires Additional Shares to Meet our Forecasted Needs

We currently forecast granting equity awards representing approximately 23,065,000 Shares (or 42,855,000 fungible shares, i.e. taking into account that full value awards such as restricted stock units deplete the 2013 Plan share reserve at a rate of 2.15 Shares for every Share subject to the full value award) over the next one-year period, or approximately 6.0% of our Common Stock outstanding as of March 31, 2017. We also anticipate Share forfeitures and cancellations of approximately 4,288,000 Shares (or 6,595,000 fungible shares) over this period, based on our historic rates.

If our expectation for forfeitures is accurate, our net grants (grants less forfeitures and cancellations) over the next one-year period would be approximately 18,777,000 Shares (or 36,260,000 fungible shares), or approximately 5.1% of our Common Stock outstanding as of March 31, 2017.

As described above, the 2013 Plan has 14,917,736 Shares available for grant as of March 31, 2017. Our 2014 Plan allows us to grant awards to new employees as a material inducement to their joining the Company, such as in acquisitions, which assists us in meeting a portion of our equity compensation needs, but only with respect to a limited group. We believe additional Shares should be reserved for issuance under our 2013 Plan to meet our estimated near-term equity compensation needs.

We operate in a highly competitive industry and geography for employee talent and do not expect required rates of compensation to decline. One alternative to using equity awards would be to significantly increase cash compensation. We do not believe this would be practical or advisable. As a high-growth

company, we believe that a combination of equity and cash compensation is better for attracting, retaining and motivating employees. Any significant increase in cash compensation in lieu of equity awards would reduce the cash otherwise available for operations and investment in our business. Furthermore, we do not believe a more cash-oriented program would have the same long-term retention value or serve to align employees’ interests to those of our stockholders as well as a program that includes equity.

We Manage Our Equity Incentive Program Thoughtfully

We manage our long-term stockholder dilution by limiting the number of equity awards granted annually and limiting what we grant to what we believe is an appropriate amount of equity necessary to attract, reward and retain employees. Our three-year average burn rate, which we define as the number of Shares subject to equity awards granted in a fiscal year divided by the weighted average Shares outstanding for that fiscal year, was 3.04% for fiscal years 2015 through 2017 (see chart on page 60 for detailed calculation of our three-year burn rates). We are also mindful of the ratio of our stock-based compensation expense to our revenues over time; this ratio has decreased in recent years.

Equity Awards Outstanding

As of March 31, 2017, equity awards outstanding under Salesforce equity plans were approximately: 25,837,518 stock options, no unvested restricted shares, 24,345,753 restricted stock units and 400,093 performance-based restricted stock units. An additional 2,344,631 stock options, 807,520 restricted stock units and 525,310 unvested restricted shares were outstanding under equity awards that had been assumed in connection with mergers and other corporate transactions as of March 31, 2017. As of March 31, 2017, we had 711,706,563 Shares outstanding. Accordingly, our approximately 54,260,825 outstanding awards (not including awards under our employee stock purchase plan) plus 15,390,854 Shares available for future grant under our equity plans (not including under our employee stock purchase plan) as of March 31, 2017 represented approximately 9.8% of our Common Stock outstanding (commonly referred to as the “overhang”).

As of March 31, 2017, the average weighted per share exercise price of all outstanding stock options (whether granted under Salesforce-originated equity plans or assumed in connection with corporate transactions) was $62.1273 and the weighted average remaining contractual term was 5.24 years.

The 2013 Plan Incorporates Good Compensation and Governance Practices

 

  Administration.    The 2013 Plan is administered by the Compensation Committee of the Board, which is comprised entirely of independent non-employee directors.

 

 

Broad-based eligibility for equity awards.    We grant equity awards to a broad range of our employees. By doing so, we align employee interests with those of stockholders. Approximately 81% of all outstanding equity awards, on a share basis, as of March 31, 2017 were held by employees who are not Named Executive Officers or directors. In fiscal

 

 

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  PROPOSAL 2 — APPROVAL OF THE AMENDED AND RESTATED EQUITY INCENTIVE  PLAN,  
  INCLUDING TO INCREASE PLAN SHARES RESERVED FOR ISSUANCE (CONTINUED)  

 

       

 

   

2017, approximately 93% of all equity awards, on a share basis, were issued to employees who are not Named Executive Officers or directors, with approximately 34% of all employees who are not Named Executive Officers or directors receiving awards.

 

  Minimum vesting for equity awards.    The 2013 Plan, as proposed to be amended, provides that awards may not become exercisable, vest or settle prior to the one-year anniversary of the date of grant, except in the case of a participant’s death, disability or in the event of a transaction (as described in the 2013 Plan). The foregoing is subject to a 5% carve-out, as discussed in further detail below.

 

  Stockholder approval is required for additional Shares.    The 2013 Plan does not contain an annual “evergreen” provision but instead reserves a fixed maximum number of Shares for issuance. Stockholder approval is required to increase that number.

 

  Explicit prohibition on repricing without stockholder approval.    The 2013 Plan prohibits the repricing, cash-out or other exchange of underwater stock options and stock appreciation rights without prior stockholder approval.

 

  No discounted stock options or stock appreciation rights.    The 2013 Plan requires that stock options and stock appreciation rights issued under it must have an exercise price equal to at least the fair market value of our Common Stock on the date the award is granted, except in certain situations in which we are assuming or replacing options granted by another company that we are acquiring.

 

  No dividends or dividend equivalents on unvested restricted stock or restricted stock units.    The 2013 Plan, as proposed to be amended, provides that dividends or other distributions credited or payable in connection with restricted
   

stock or restricted stock units are subject to the same restrictions as the underlying award and will not be paid until the underlying award vests.

 

  Share counting provisions.    In general, when awards granted under the 2013 Plan expire or are canceled without having been fully exercised, or are settled in cash, the Shares reserved for those awards are returned to the share reserve and become available for future awards. However, if Shares are tendered to us or withheld by us to pay a stock option’s or stock appreciation right’s exercise price or satisfy such award’s tax withholding obligations, those Shares do not become available for future awards. Also, if a stock appreciation right is exercised, we subtract from the 2013 Plan share reserve the full number of Shares subject to the portion of the stock appreciation right actually exercised, regardless of how many Shares actually were used to settle the stock appreciation right.

 

  Full-value awards count more heavily in reducing the 2013 Plan share reserve.    The 2013 Plan uses a “fungible share” concept, under which options and stock appreciation rights reduce the share reserve on a one-for-one basis, but full-value awards, such as restricted shares and restricted stock units, reduce the reserve on a 2.15-for-one basis.

 

  Limited transferability.    In general, awards may not be sold, assigned, transferred, pledged or otherwise encumbered, either voluntarily or by operation of law, unless otherwise approved by the Board or a committee of the Board administering the 2013 Plan.

 

  Annual limits on non-employee director awards.    The 2013 Plan limits the number of Shares that may be granted under non-employee director awards each fiscal year.

 

  No tax gross-ups.    The 2013 Plan does not provide for any tax gross-ups.
 

 

Summary of the 2013 Plan

 

The following is a summary of the operation and principal features of the 2013 Plan. The summary is qualified in its entirety by the 2013 Plan as set forth in Appendix A.

Purpose

The purposes of the 2013 Plan are to attract and retain the best available personnel for positions of substantial responsibility, to provide incentives to individuals who perform services to the Company and to promote the success of the Company’s business. These incentives are provided through the granting of stock options, stock appreciation rights, restricted stock awards, restricted stock units, performance bonus awards, performance shares and performance units.

Authorized Shares

At the 2013 Annual Meeting, our stockholders approved reserving a total of 48 million Shares, plus

 

  any Shares reserved but not issued, and not subject to outstanding awards, under the Prior Plans as of the date
   

stockholders initially approved the 2013 Plan, on a one-for-one basis, but limited to a maximum of 23.8 million Shares; and

 

  any Shares subject to equity awards outstanding under the Prior Plans as of the date of initial stockholder approval of the 2013 Plan that thereafter expire, are forfeited, repurchased, cancelled or otherwise terminate (or otherwise would have, but for termination of the applicable Prior Plan, again become available for use under such Prior Plan), in this case with Shares underlying stock options and stock appreciation rights that so become available being credited to the 2013 Plan share reserve on a one-for-one basis, and Shares subject to other types of equity awards (i.e., full value awards), being credited to the 2013 Plan share reserve on a 2.15-for-one basis; provided, however, that no more than 54,332,000 Shares may be added to the 2013 Plan pursuant to this provision.

At the 2015 Annual Meeting, our stockholders approved reserving an additional 37 million Shares.

The stockholders are now being asked to approve an additional 37 million Shares to become available for issuance under the

 

 

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  PROPOSAL 2 — APPROVAL OF THE AMENDED AND RESTATED EQUITY  INCENTIVE PLAN,  
  INCLUDING TO INCREASE PLAN SHARES RESERVED FOR ISSUANCE (CONTINUED)  

 

 

2013 Plan. As of March 31, 2017, we had approximately 14,917,736 Shares available for issuance under the 2013 Plan.

Share Reserve Reduction and Share Recycling

Any Shares subject to options or stock appreciation rights are counted against the 2013 Plan share reserve as one Share for every one Share subject to the award. Any Shares subject to awards granted under the 2013 Plan other than options or stock appreciation rights (i.e., full value awards, including restricted stock, restricted stock units, performance units and performance shares) are counted against the 2013 Plan share reserve as 2.15 shares for every one Share subject thereto.

If any award granted under the 2013 Plan expires or becomes unexercisable without having been exercised in full, is surrendered or is forfeited to or repurchased by the Company due to failure to vest, the unpurchased or forfeited or repurchased Shares subject to such award become available for future grant or sale under the 2013 Plan. When Shares underlying full value awards are so returned to the 2013 Plan share reserve, 2.15 shares are returned to the 2013 Plan reserve for each Share underlying such award.

With respect to the exercise of stock appreciation rights, the gross number of Shares covered by the portion of the exercised award, whether or not actually issued pursuant to such exercise, cease to be available under the 2013 Plan. If Shares subject to restricted stock, restricted stock units, performance shares or performance units are repurchased by or forfeited to the Company due to failure to vest, such Shares become available for future grant under the 2013 Plan (and increase the 2013 Plan reserve on the 2.15-for-one basis described above).

Shares used to pay the purchase price or satisfy tax withholding obligations of awards other than stock options or stock appreciation rights become available for future issuance under the 2013 Plan. However, Shares used to pay the exercise price or purchase price of an option or stock appreciation right or to satisfy tax withholding obligations relating to such awards do not become available for future issuance under the 2013 Plan.

Adjustments to Shares Subject to the 2013 Plan

In the event of any dividend or other distribution (whether in the form of cash, Shares, other securities, or other property, but excepting normal cash dividends), recapitalization, stock split, reverse stock split, reorganization, reincorporation, reclassification, merger, consolidation, split-up, split-off, spin-off, combination, repurchase, or exchange of Shares or other securities of the Company, or other change in the corporate structure affecting the Company’s Common Stock, the Administrator (as defined below), in order to prevent diminution or enlargement of the benefits or potential benefits intended to be made available under the 2013 Plan, will adjust the number and class of Shares that may be delivered under the 2013 Plan, the number, class and price of Shares subject to outstanding awards and the numerical award limitations. Any fractional Shares resulting from the adjustment will be rounded down to the nearest whole number, and in no event may the exercise or purchase price under any award be decreased to an amount less than the par value.

Administration

The 2013 Plan will be administered by the Board or a committee of individuals satisfying applicable laws appointed by the Board (the “Committee”). The Board has appointed its Compensation Committee as the Committee administering the 2013 Plan. Different Committees may administer the 2013 Plan with respect to different groups of service providers. If the Administrator desires to qualify grants to certain officers and key employees of the Company as exempt under Rule 16b-3 of the Exchange Act, the members of the Committee must qualify as “non-employee directors” under such rule. In the case of awards intended to qualify for the performance-based compensation exemption under Section 162(m), administration must be by a compensation committee comprised solely of two or more “outside directors” within the meaning of Section 162(m). (For purposes of this summary of the 2013 Plan, the term “Administrator” will refer to either the Committee or the Board of Directors.) The Administrator may delegate day-to-day administration of the 2013 Plan, and any of the functions assigned to it, to one or more individuals.

Subject to the terms of the 2013 Plan, the Administrator has the sole discretion to select the employees, consultants, and directors who will receive awards, to determine the terms and conditions of awards (including the exercise price, the method of payment for Shares purchased under awards, the method of satisfaction of any tax withholding obligation arising in connection with an award, and the exercise terms for any award), to modify or amend each award subject to the restrictions of the 2013 Plan (including to accelerate vesting or waive forfeiture restrictions subject to any minimum vesting requirements set forth in the 2013 Plan), and to interpret the provisions of the 2013 Plan and outstanding awards. The Administrator may allow a participant to defer the receipt of payment of cash or delivery of Shares that otherwise would be due to such participant, provided that, unless expressly determined by the Administrator, such deferral election must comply with the requirements of Section 409A of the Internal Revenue Code of 1986, as amended and the guidance promulgated thereunder (“Section 409A”). The Administrator may make rules and regulations relating to sub-plans established for the purpose of satisfying applicable foreign laws or qualifying for favorable tax treatment under applicable foreign laws. The Administrator may correct any defect, supply any omission or reconcile any inconsistency in the 2013 Plan of any award agreement and may make all other determinations deemed necessary or advisable for administering the 2013 Plan.

Notwithstanding the foregoing, the Administrator cannot institute, without prior stockholder approval, an exchange program whereby the exercise prices of outstanding awards may be reduced, outstanding awards may be surrendered or cancelled in exchange for awards with a higher or lower exercise price, or outstanding awards may be transferred to a third party.

Eligibility

Awards may be granted to employees, directors and consultants of the Company and employees and consultants of any parent, subsidiary, or affiliate of the Company. Performance Bonus

 

 

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  PROPOSAL 2 — APPROVAL OF THE AMENDED AND RESTATED EQUITY INCENTIVE  PLAN,  
  INCLUDING TO INCREASE PLAN SHARES RESERVED FOR ISSUANCE (CONTINUED)  

 

       

 

Awards also may only be granted to employees of the Company or any parent, subsidiary, or affiliate of the Company. Incentive stock options may be granted only to employees who, as of the time of grant, are employees of the Company or any parent or subsidiary corporation of the Company. As of March 31, 2017, there were approximately 25,580 employees, including five Named Executive Officers, and ten non-employee directors, each of whom would be eligible to be granted awards under the 2013 Plan. In principle, any consultant to the Company is eligible to participate in the 2013 Plan, subject to certain SEC limitations. However, the Company’s current practice is generally not to grant equity awards to consultants except in certain limited cases. In fiscal 2017, five consultants received equity awards under the 2013 Plan.

Minimum Vesting

Notwithstanding anything in the 2013 Plan to the contrary, equity-based awards granted under the 2013 Plan may not become exercisable, vest or be settled, in whole or in part, prior to the one-year anniversary of the date of grant, except that the Administrator may provide that awards become exercisable, vest or settle prior to such date in the event of the participant’s death or disability or in the event of a transaction described in the 2013 Plan. Notwithstanding the foregoing, up to 5% of the sum of (a) the number of Shares available for future grants on the date the Board approved the amended and restated version of the 2013 Plan (15,144,057 Shares as of March 15, 2017), plus (b) the proposed increase in the number of Shares available for grant under the 2013 Plan (as described above), may be issued pursuant to awards subject to any, or no, vesting conditions, as the Administrator determines appropriate.

Stock Options

Options granted under the 2013 Plan are evidenced by a written agreement between the Company and the participant specifying the number of Shares subject to the option, the exercise price, the expiration date of the option, any conditions to exercise the options, and the other terms and conditions of the option, consistent with the requirements of the 2013 Plan.

The exercise price per Share of each option may not be less than the fair market value of a Share of the Company’s Common Stock on the date of grant. However, any incentive stock option granted to a person who at the time of grant owns stock possessing more than 10% of the total combined voting power of all classes of stock of the Company or any parent or subsidiary corporation of the Company (a “Ten Percent Stockholder”) must have an exercise price per share equal to at least 110% of the fair market value of a Share on the date of grant. In addition, stock options may be granted with an exercise price per share of less than the fair market value of a Share of the Company’s Common Stock in certain situations in which we are assuming or replacing options granted by another company that we are acquiring. The aggregate fair market value of the Shares (determined on the grant date) covered by incentive stock options which first become exercisable by any participant during any calendar year also may not exceed $100,000. Generally, the fair market value of the

Common Stock is the closing sales price per share on the relevant date as quoted on the NYSE.

The 2013 Plan provides that the Administrator will determine acceptable forms of consideration for exercising an option. An option is deemed exercised when the Company receives the notice of exercise and full payment for the Shares to be exercised, together with applicable tax withholdings.

Options are exercisable at such times or under such conditions as determined by the Administrator and set forth in the award agreement. The maximum term of an option is as specified in the award agreement, provided that options may not have a term of more than seven years, and provided further that an incentive stock option granted to a Ten Percent Stockholder must have a term not exceeding five years.

The Administrator determines and specifies in each written award agreement, and solely in its discretion, the period of post-termination exercise applicable to each option. In the absence of such a determination by the Administrator, the participant generally is able to exercise the option to the extent vested for (i) 90 days following the participant’s termination as a service provider for reasons other than death, disability, or cause and (ii) 12 months following his or her termination due to death or disability. If the exercise of the option is prevented by applicable law within the time periods otherwise applicable, the option generally will remain exercisable for 90 days (or such longer period determined by the Administrator) following the date the participant received notice that the option is exercisable. If a sale within the applicable post-termination exercise period would subject the participant to suit under Section 16(b) of the Exchange Act, the option generally will remain exercisable until the tenth day following the date on which a sale of the Shares by the participant would no longer be subject to suit. Options terminate immediately upon the participant’s termination for cause. In no event can an option be exercised after the expiration of the term of the option.

Restricted Stock Awards

Awards of restricted stock are rights to acquire or purchase Shares, which vest in accordance with the terms and conditions established by the Administrator in its sole discretion. Restricted stock awards are evidenced by a written agreement between the Company and the participant specifying the number of Shares subject to the award and the other terms and conditions of the award, consistent with the requirements of the 2013 Plan.

Restricted stock awards are subject to vesting conditions as the Administrator specifies, and the Shares acquired may not be transferred by the participant until the vesting conditions (if any) are satisfied. The Administrator may establish vesting criteria in its discretion, which may be based on continued employment or service, company-wide, departmental, divisional, business unit, or individual goals, applicable federal or state securities laws, or any other basis and which may include the performance goals listed below, and which, depending on the extent to which they are met, will determine the number of restricted stock units to be paid

 

 

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  PROPOSAL 2 — APPROVAL OF THE AMENDED AND RESTATED EQUITY  INCENTIVE PLAN,  
  INCLUDING TO INCREASE PLAN SHARES RESERVED FOR ISSUANCE (CONTINUED)  

 

 

out to participants. Notwithstanding the foregoing, if the Administrator desires that the award qualify as performance-based compensation under Section 162(m), any restrictions will be based on a specified list of performance goals and certain other requirements (see “Performance Goals” below for more information). Unless otherwise provided by the Administrator, a participant will forfeit any shares of restricted stock as to which the restrictions have not lapsed prior to the participant’s termination of service.

Participants holding restricted stock generally have the right to vote the Shares and to receive any dividends paid, provided that dividends or other distributions credited or payable in connection with shares of restricted stock that are not yet vested will be subject to the same restrictions and risk of forfeiture as the underlying award and will not be paid until the underlying award vests.

Restricted Stock Units

The Administrator may grant restricted stock units which represent a right to receive Shares at a future date as set forth in the participant’s award agreement. Restricted stock units granted under the 2013 Plan are evidenced by a written agreement between the Company and the participant specifying the number of restricted stock units subject to the award, any vesting conditions, and other terms and conditions of the award, consistent with the requirements of the 2013 Plan.

Restricted stock units vest if the performance goals or other vesting criteria the Administrator may establish are achieved. Earned restricted stock units may be settled, in the sole discretion of the Administrator, in cash, Shares, or a combination of both. The Administrator may establish vesting criteria in its discretion, which may be based on continued employment or service, company-wide, departmental, divisional, business unit, or individual goals, applicable federal or state securities laws, or any other basis and which may include the performance goals listed below, and which, depending on the extent they are met, will determine the number of Shares or amount of cash to be paid out to participants. Notwithstanding the foregoing, if the Administrator desires that the award qualify as performance-based compensation under Section 162(m), any restrictions will be based on a specified list of performance goals and certain other requirements (see “Performance Goals” below for more information).

A participant will forfeit any unearned restricted stock units as of the date or under the conditions set forth in the award agreement.

Participants holding restricted stock units have no voting rights with respect to the Shares represented by the restricted stock units until the date the underlying Shares are issued, consistent with the terms of the 2013 Plan. The Administrator, in its sole discretion, may provide in the participant’s award agreement that the participant shall be entitled to receive dividend equivalents with respect to the payment of cash dividends on Shares having a record date prior to the date on which the restricted stock units are settled or forfeited, consistent with the terms of the 2013 Plan. Settlement of dividend equivalents may be made in cash, Shares,

or a combination thereof as determined by the Administrator. Any additional restricted stock units resulting from dividend equivalents will be subject to the same terms and conditions, including vesting conditions, as the restricted stock units to which they relate and shall not be paid or settled prior to the time that the underlying award vests. In the event of a dividend or distribution paid in Shares or any other adjustment made upon a change in the capital structure of the Company, appropriate adjustments will be made to a participant’s restricted stock unit award so that it represents the right to receive upon settlement any new, substituted or additional securities or other property (other than normal cash dividends) to which the participant would be entitled by reason of the Shares issuable upon settlement of the award and any new, substituted, or additional securities or other property will be subject to the same vesting conditions as are applicable to the award.

Stock Appreciation Rights

A stock appreciation right gives a participant the right to receive the appreciation in the fair market value of Company Common Stock between the date of grant of the award and the date of its exercise. Each stock appreciation right granted under the 2013 Plan is to be evidenced by a written agreement between the Company and the participant specifying the exercise price and the other terms and conditions of the award, consistent with the requirements of the 2013 Plan.

The exercise price per share of each stock appreciation right may not be less than the fair market value of a Share on the date of grant, except in certain situations in which we are assuming or replacing stock appreciation rights granted by another company that we are acquiring. Upon exercise of a stock appreciation right, the holder of the award will be entitled to receive an amount determined by multiplying (i) the difference between the fair market value of a Share on the date of exercise over the exercise price by (ii) the number of exercised Shares. The Company may pay the appreciation in cash, in Shares, or in some combination thereof. The term of a stock appreciation right must be no more than seven years from the date of grant. The terms and conditions relating to the period of post-termination exercise with respect to options described above also apply to stock appreciation rights.

Performance Units and Performance Shares

Performance units and performance shares may also be granted under the 2013 Plan. Each award of performance units or performance shares granted under the 2013 Plan is to be evidenced by a written agreement between the Company and the participant specifying any vesting conditions, the number of performance units or performance shares (as applicable), and other terms and conditions of the award, consistent with the requirements of the 2013 Plan. Performance units and performance shares will result in a payment to a participant only if the performance goals or other vesting criteria (if any) the Administrator may establish are achieved or the awards otherwise vest (if applicable). Earned performance units and performance shares will be paid, in the sole discretion of the Administrator, in the form of cash, Shares, or in a combination thereof. The

 

 

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  PROPOSAL 2 — APPROVAL OF THE AMENDED AND RESTATED EQUITY INCENTIVE  PLAN,  
  INCLUDING TO INCREASE PLAN SHARES RESERVED FOR ISSUANCE (CONTINUED)  

 

       

 

Administrator may set vesting criteria based upon continued employment or service, the achievement of specific performance objectives (Company-wide, departmental, divisional, business unit or individuals goals, applicable federal or state securities laws, or any other basis), and which, depending on the extent to which they are met, will determine the number or value of performance units and performance shares to be paid out to participants. Notwithstanding the foregoing, if the Administrator desires that the award qualify as performance-based compensation under Section 162(m), any restrictions will be based on a specified list of performance goals and certain other requirements (see “Performance Goals” below for more information).

Performance units will have an initial value established by the Administrator on or before the date of grant. Each performance share will have an initial value equal to the fair market value of a Share on the grant date. A participant will forfeit any performance shares or performance units that are unearned or unvested as of the date set forth in the award agreement.

Participants holding performance units or performance shares have no voting rights with respect to the Shares represented by the performance units or performance shares until the date the underlying Shares are issued, consistent with the terms of the 2013 Plan. No dividend equivalents may be granted with respect to performance units. However, the Administrator, in its sole discretion, may provide in the participant’s performance share award agreement that the participant will be entitled to receive dividend equivalents with respect to the payment of cash dividends on Shares having a record date prior to the date on which the performance shares are settled or forfeited, consistent with the terms of the 2013 Plan. Settlement of dividend equivalents may be made in cash, Shares, or a combination thereof as determined by the Administrator. Any additional performance shares resulting from dividend equivalents will be subject to the same terms and conditions, including vesting conditions, as the performance shares to which they relate and shall not be paid settled prior to the time that the underlying award vests. In the event of a dividend or distribution paid in Shares or any other adjustment made upon a change in the capital structure of the Company, appropriate adjustments will be made to a participant’s award of performance shares so that it represents the right to receive upon settlement any new, substituted or additional securities or other property (other than normal cash dividends) to which the participant would be entitled by reason of the Shares issuable upon settlement of the award and any new, substituted, or additional securities or other property will be subject to the same vesting conditions as are applicable to the award.

Performance Bonus Awards

Performance bonus awards may also be granted under the 2013 Plan to employees in the form of a cash bonus payable upon the attainment of performance goals or objectives determined by the Administrator. Notwithstanding the foregoing, if the Administrator desires that an award qualify as performance-based compensation under Section 162(m), any restrictions will be based on a specified list of performance goals and certain other

requirements (see “Performance Goals” below for more information). The Administrator has complete discretion to determine the amount of the cash bonus that can be earned under a performance bonus award, provided that no one participant may be granted performance bonus awards that could result in the participant receiving more than $10,000,000 in any one fiscal year of the Company.

Performance Goals

The Administrator (in its discretion) may make performance goals applicable to an award recipient with respect to any award granted in its discretion, including but not limited to one or more of the performance goals listed below. If the Administrator desires that an award of restricted stock, restricted stock units, performance shares, performance units or performance bonuses under the 2013 Plan qualify as “performance-based compensation” under Section 162(m) (discussed below), then the award may be made subject to the attainment of performance goals relating to one or more business criteria within the meaning of Section 162(m) and may provide for a targeted level or levels of achievement using one or more of the following measures: revenue, gross margin, operating margin, operating income, operating profit or net operating profit, pre-tax profit, earnings (which may include earnings before interest, taxes and depreciation, earnings before taxes and net earnings), net income, cash flow (including operating cash flow or free cash flow), expenses, the market price of the Company’s Common Stock, earnings per share, return on stockholder equity, return on capital, return on assets or net assets, return on equity, return on investment, economic value added, number of customers, stock price, growth in stockholder value relative to the moving average on the S&P 500 Index or another index, market share, contract awards or backlog, overhead or other expense reduction, credit rating, objective customer indicators, new product invention or innovation, attainment of research and development milestones, or improvement in productivity. The performance goals may differ from participant to participant and from award to award. Any criteria used may be measured (as applicable), in absolute terms, in combination with another performance goal or goals (for example, as a ratio or matrix), in relative terms (including, but not limited to, results for other periods, passage of time or against another company or companies or an index or indices), on a per-Share or per-capita basis, against the performance of the Company as a whole or a segment of the Company (including, but not limited to, any combination of the Company and any subsidiary, division, joint venture, affiliate, or other segment), and on a pre-tax or after-tax basis. Prior to latest date that would meet the requirements under Section 162(m), the Administrator will determine whether any significant elements or items will be included or excluded from the calculation of performance goals with respect to any award recipient. As determined in the discretion of the Administrator by the latest date that would meet the requirements under Section 162(m), achievement of performance goals for a particular award may be calculated in accordance with the Company’s financial statements, prepared in accordance with generally accepted accounting principles (“GAAP”), or on a basis other than GAAP, including as adjusted

 

 

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  PROPOSAL 2 — APPROVAL OF THE AMENDED AND RESTATED EQUITY  INCENTIVE PLAN,  
  INCLUDING TO INCREASE PLAN SHARES RESERVED FOR ISSUANCE (CONTINUED)  

 

 

for certain costs, expenses, gains and losses to provide non-GAAP measures of operating results.

To the extent necessary to comply with the performance-based compensation provisions of Section 162(m), with respect to any award granted subject to one or more of the above-listed performance goals and intended to qualify as “performance-based compensation” under Section 162(m), within the first 25% of the performance period, but in no event more than 90 days following the commencement of any performance period (or such other time as may be required or permitted by Section 162(m)), the Administrator will, in writing: (i) designate one or more participants who are covered employees for Section 162(m) purposes, (ii) select the performance goals applicable to the performance period, (iii) establish the performance goals, and amounts or methods of computation of the awards which may be earned for the performance period, and (iv) specify the relationship between performance goals and the amounts or methods of computation of such awards, as applicable, to be earned by each participant for such performance period. Following the completion of each performance period, the Administrator will certify in writing whether the applicable performance goals have been achieved for such performance period. In determining the amounts earned by a participant, the Administrator may reduce or eliminate (but not

increase) the amount payable at a given level of performance to take into account additional factors that the Administrator may deem relevant to the assessment of individual or corporate performance for the performance period. A participant will be eligible to receive payment pursuant to an award for a performance period only if the performance goals for such period are achieved (unless otherwise permitted by Section 162(m) and determined by the Administrator).

Grants to Non-Employee Directors

Our non-employee directors are eligible to receive all awards under the 2013 Plan, except incentive stock options and performance bonus awards, and subject to the limits described below.

Individual Award Limitations (including Non-Employee Directors Award Limitations)

The 2013 Plan contains annual grant limits intended to satisfy Section 162(m). Specifically, subject to the adjustment provisions of the 2013 Plan, the maximum number of Shares or dollars that can be subject to awards granted to any one employee in any fiscal year is:

 

 

Award Type   

Annual Number

of Shares or

Dollar Value

    

Additional Shares

or Dollar Value in

Connection with

New Hire*

    

Maximum Number

of Shares and/or

Dollars

 

Stock Options, Stock Appreciation Rights or Combination Thereof

     20,000,000 shares        8,000,000 shares        28,000,000 shares  

Restricted Stock, Restricted Stock Units, Performance Shares or Combination Thereof

     10,000,000 shares        4,000,000 shares        14,000,000 shares  

Performance Units

   $ 15,000,000      $ 5,000,000      $ 20,000,000  

 

* May be granted in the Company’s fiscal year in which the employee’s employment with the Company (or a parent or subsidiary corporation of the Company or an affiliate of the Company) first commences.

 

In addition, the 2013 Plan limits the granting of cash performance bonus awards, such that no one employee may be granted performance bonus awards that could result in the employee receiving more than $10,000,000 in any one fiscal year of the Company.

If an award is cancelled in the same fiscal year of the Company in which it was granted (other than in connection with a merger of the Company with or into another corporation or entity or a change in control of the Company), the cancelled award will be counted against the Share limitations described above.

The 2013 Plan also provides that no non-employee director may be granted awards that cover more than 60,000 Shares in any one fiscal year of the Company, subject to the adjustment provisions of the 2013 Plan, provided that any awards granted to an individual while he or she was an employee or consultant but not a non-employee director shall not count for purposes of this limitation. This limit was decided in connection with the adoption of the 2013 Plan, and after consultation with the Compensation Committee’s independent compensation consultant, Compensia,

Inc. The limit accommodates the Company’s practice of granting non-employee directors Shares with an approximate value of $125,000 per quarter, and also allows us to have the flexibility to make corresponding adjustments to the grant levels in the future in order to maintain the value of the equity compensation paid to non-employee directors should the value of our stock significantly change, and to increase the value of such compensation if we believe it is appropriate or desirable to do so; for instance, to maintain the competitiveness of our compensation program and our ability to attract talented directors.

The Administrator will adjust the Share limitations in this section in the event of any adjustment to the Company’s Shares discussed above (under “Adjustments to Shares Subject to the 2013 Plan”).

Transferability of Awards

Awards granted under the 2013 Plan generally are not transferable, and all rights with respect to an award granted to a participant generally will be available during a participant’s lifetime only to the participant (or the participant’s guardian or legal representative).

 

 

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  PROPOSAL 2 — APPROVAL OF THE AMENDED AND RESTATED EQUITY INCENTIVE  PLAN,  
  INCLUDING TO INCREASE PLAN SHARES RESERVED FOR ISSUANCE (CONTINUED)  

 

       

 

Dissolution or Liquidation

In the event of the Company’s proposed dissolution or liquidation, the Administrator will notify each participant in writing as soon as practicable prior to the effective date of such proposed transaction. An award will terminate immediately prior to consummation of such proposed action to the extent the award has not been previously exercised.

Change in Control

The 2013 Plan provides that, in the event of a merger or our “change in control” (as defined in the 2013 Plan), the Administrator will have authority to determine the treatment of outstanding awards, including, without limitation, that awards be assumed or an equivalent option or right substituted by the successor corporation or a parent or subsidiary of the successor corporation. The Administrator will not be required to treat all outstanding awards similarly.

If the successor corporation does not assume or substitute outstanding awards, the options and stock appreciation rights will become fully vested and exercisable, all restrictions on restricted stock and restricted stock units will lapse, and, with respect to awards with performance-based vesting, unless determined otherwise by the Administrator, all performance goals or other vesting criteria will be deemed achieved at 100% of target levels and all other terms and conditions met. In addition, if an option or stock appreciation right is not assumed or substituted in the event of a change in control, the Administrator will notify the participant

in writing that the option or stock appreciation right will be fully vested and exercisable for a period of time determined by the Administrator in its sole discretion, and the option or stock appreciation right will terminate upon the expiration of such period.

If the successor corporation assumes or substitutes outstanding awards held by a non-employee director and the non-employee director’s status as a director of the Company or a director of the successor or acquiring company terminates other than upon voluntary resignation by the non-employee director (unless such resignation is at the request of the acquiror), then any options and stock appreciation rights held by the non-employee director will fully vest and become immediately exercisable. In addition, in such circumstances, all restrictions on restricted stock and restricted stock units held by such non-employee director will lapse, and, unless otherwise determined by the Administrator, all performance goals or other vesting requirements will be deemed achieved at 100% and all other terms and conditions met.

Termination or Amendment

The 2013 Plan will automatically terminate ten years from the date of its initial adoption by the Board, unless terminated at an earlier time by the Administrator. The Administrator may terminate or amend the 2013 Plan at any time; however, no amendment may be made without stockholder approval except as described under “Administration” above. No termination or amendment may impair the rights of any participant unless mutually agreed otherwise between the participant and the Administrator.

 

 

Summary of U.S. Federal Income Tax Consequences

 

The following summary is intended only as a general guide to the material U.S. federal income tax consequences of participation in the 2013 Plan. The summary is based on existing U.S. laws and regulations, and there can be no assurance that those laws and regulations will not change in the future. The summary does not purport to be complete and does not discuss the tax consequences upon a participant’s death, or the provisions of the income tax laws of any municipality, state or foreign country in which a participant may reside. As a result, tax consequences for any particular participant may vary from this summary based on individual circumstances.

Incentive Stock Options

An optionee recognizes no taxable income for regular income tax purposes as a result of the grant or exercise of an incentive stock option qualifying under Section 422 of the Code. Optionees who neither dispose of their Shares within two years following the date the option was granted nor within one year following the exercise of the option normally will recognize a capital gain or loss equal to the difference, if any, between the sale price and the purchase price of the Shares. If an optionee satisfies such holding periods upon a sale of the Shares, the Company will not be entitled to any deduction for federal income tax purposes. If an optionee disposes of Shares within two years after the date of grant or

within one year after the date of exercise (a “disqualifying disposition”), the difference between the fair market value of the Shares on the exercise date and the option exercise price (not to exceed the gain realized on the sale if the disposition is a transaction with respect to which a loss, if sustained, would be recognized) will be taxed as ordinary income at the time of disposition. Any gain in excess of that amount will be a capital gain. If a loss is recognized, there will be no ordinary income, and such loss will be a capital loss. Any ordinary income recognized by the optionee upon the disqualifying disposition of the Shares generally should be deductible by the Company for federal income tax purposes, except to the extent such deduction is limited by applicable provisions of the Code.

The difference between the option exercise price and the fair market value of the Shares on the exercise date is treated as an adjustment in computing the optionee’s alternative minimum taxable income and may be subject to an alternative minimum tax which is paid if such tax exceeds the regular tax for the year. Special rules may apply with respect to certain subsequent sales of the Shares in a disqualifying disposition, certain basis adjustments for purposes of computing the alternative minimum taxable income on a subsequent sale of the Shares and certain tax credits which may arise with respect to optionees subject to the alternative minimum tax.

 

 

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  PROPOSAL 2 — APPROVAL OF THE AMENDED AND RESTATED EQUITY  INCENTIVE PLAN,  
  INCLUDING TO INCREASE PLAN SHARES RESERVED FOR ISSUANCE (CONTINUED)  

 

 

Nonstatutory Stock Options

Options not designated or qualifying as incentive stock options will be nonstatutory stock options having no special tax status. An optionee generally recognizes no taxable income as the result of the grant of such an option. Upon exercise of a nonstatutory stock option, the optionee normally recognizes ordinary income equal to the amount that the fair market value of the Shares on such date exceeds the exercise price. If the optionee is an employee, such ordinary income generally is subject to withholding of income and employment taxes. Upon the sale of stock acquired by the exercise of a nonstatutory stock option, any gain or loss, based on the difference between the sale price and the fair market value on the exercise date, will be taxed as capital gain or loss. No tax deduction is available to the Company with respect to the grant of a nonstatutory stock option or the sale of the stock acquired pursuant to such grant.

Stock Appreciation Rights

In general, no taxable income is reportable when a stock appreciation right is granted to a participant. Upon exercise, the participant will recognize ordinary income in an amount equal to the fair market value of any Shares received. Any additional gain or loss recognized upon any later disposition of the Shares would be capital gain or loss.

Restricted Stock Awards

A participant acquiring restricted stock generally will recognize ordinary income equal to the fair market value of the Shares on the vesting date. If the participant is an employee, such ordinary income generally is subject to withholding of income and employment taxes. The participant may elect, pursuant to Section 83(b) of the Code, to accelerate the ordinary income tax event to the date of acquisition by filing an election with the Internal Revenue Service no later than 30 days after the date the Shares are acquired. Upon the sale of Shares acquired pursuant to a restricted stock award, any gain or loss, based on the difference between the sale price and the fair market value on the date the ordinary income tax event occurs, will be taxed as capital gain or loss.

Restricted Stock Unit Awards

There are no immediate tax consequences of receiving an award of restricted stock units. A participant who is awarded restricted stock units will be required to recognize ordinary income in an amount equal to the fair market value of Shares issued to such participant at the end of the applicable vesting period or, if later, the settlement date elected by the Administrator or a participant. Any additional gain or loss recognized upon any later disposition of any Shares received would be capital gain or loss.

Performance Shares, Performance Units, and Performance Bonus Awards

A participant generally will recognize no income upon the grant of a performance share, a performance unit, or performance bonus

award. Upon the settlement of such awards, participants normally will recognize ordinary income in the year of receipt in an amount equal to the cash received and the fair market value of any cash or nonrestricted Shares received. If the participant is an employee, such ordinary income generally is subject to withholding of income and employment taxes. Upon the sale of any Shares received, any gain or loss, based on the difference between the sale price and the fair market value on the date the ordinary income tax event occurs, will be taxed as capital gain or loss.

Section 409A

Section 409A provides certain requirements for non-qualified deferred compensation arrangements with respect to an individual’s deferral and distribution elections and permissible distribution events. Awards granted under the 2013 Plan with a deferral feature will be subject to the requirements of Section 409A. If an award is subject to and fails to satisfy the requirements of Section 409A, the recipient of that award may recognize ordinary income on the amounts deferred under the award, to the extent vested, which may be prior to when the compensation is actually or constructively received. Also, if an award that is subject to Section 409A fails to comply with Section 409A’s provisions, Section 409A imposes an additional 20% federal income tax on compensation recognized as ordinary income, as well as interest on such deferred compensation.

Tax Effect for the Company

The Company generally will be entitled to a tax deduction in connection with an award under the 2013 Plan in an amount equal to the ordinary income realized by a participant and at the time the participant recognizes such income (for example, the exercise of a nonstatutory stock option). Special rules limit the deductibility of compensation paid to our chief executive officer and other “covered employees” as determined under Section 162(m) and applicable guidance. Under Section 162(m), the annual compensation paid to any of these specified executives will be deductible only to the extent that it does not exceed $1 million. However, we can preserve the deductibility of certain compensation in excess of that amount if the conditions of Section 162(m) are met. These conditions include (among others) stockholder approval of the 2013 Plan and its material terms, setting limits on the number of awards that any individual may receive and for awards other than certain stock options and stock appreciation rights, establishing performance criteria that must be met before the award actually will vest or be paid. The 2013 Plan has been designed to permit (but not require) the Administrator to grant awards that are intended to qualify as performance-based for purposes of satisfying the conditions of Section 162(m).

The foregoing is only a summary of the effects of the U.S. federal income taxation upon participants and the Company with respect to awards under the 2013 Plan. It does not purport to be complete, and does not discuss the impact of employment or other tax requirements, the tax consequences of a participant’s death or the provisions of the income tax laws of any municipality, state or foreign country in which the participant may reside.

 

 

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Table of Contents

  PROPOSAL 2 — APPROVAL OF THE AMENDED AND RESTATED EQUITY INCENTIVE  PLAN,  
  INCLUDING TO INCREASE PLAN SHARES RESERVED FOR ISSUANCE (CONTINUED)  

 

       

 

Number of Awards Granted to Employees, Consultants, and Directors

 

The number of awards that an employee, director or consultant may receive under the 2013 Plan is in the discretion of the Administrator and therefore cannot be determined in advance, other than with respect to the automatic grants to non-employee directors, which have been approved by the Board based on a fixed value each quarter. The following table sets forth (i) the aggregate number of Shares subject to options granted under the

2013 Plan during the fiscal year ended January 31, 2017, (ii) the average per Share exercise price of such options, (iii) the aggregate number of Shares subject to awards of restricted stock and restricted stock units granted under the 2013 Plan during the fiscal year ended January 31, 2017, and (iv) the dollar value of such Shares or units based on $82.49 per share, the closing price of a Share on the NYSE on March 31, 2017.

 

 

Name of Individual or Group   Number
of
Options
Granted
(#)
  Average Per
Share
Exercise
Price
($)
  Number of
Shares subject to
Stock Awards
(#)
 

Dollar Value of Shares
subject to
Stock Awards

($)

Marc Benioff

Chairman of the Board and Chief Executive Officer

      151,057       $ 75.57         56,531 (1)      $ 4,663,242  

Mark Hawkins

Chief Financial Officer

      159,119       $ 75.57         39,700 (2)      $ 3,274,853  

Keith Block

Vice Chairman, President and Chief Operating Officer

      265,198       $ 75.57         66,164 (3)      $ 5,457,868  

Parker Harris

Co-Founder and Chief Technology Officer

      212,158       $ 75.57         52,932 (4)      $ 4,366,360  

Alexandre Dayon

President and Chief Product Officer

      212,158       $ 75.57         52,932 (5)      $ 4,366,360  

All current executive officers as a group

      1,583,126       $ 75.57         374,125 (6)      $ 30,861,570  

All non-employee directors as a group

      0       $ 0.00         62,632 (7)      $ 5,166,514  

All other employees (including all current officers who are not executive officers) as a group

      5,880,862       $ 75.34         11,979,884       $ 988,220,613  

 

(1) Consists entirely of performance-based restricted stock unit awards.
(2) Includes 19,850 restricted stock units and 19,850 performance-based restricted stock units.
(3) Includes 33,082 restricted stock units and 33,082 performance-based restricted stock units.
(4) Includes 26,466 restricted stock units and 26,466 performance-based restricted stock units.
(5) Includes 26,466 restricted stock units and 26,466 performance-based restricted stock units.
(6) Includes 165,414 restricted stock units and 208,711 performance-based restricted stock units.
(7) Consists entirely of restricted stock awards.

Detailed Three Year Average Burn Rate Calculation

 

 

     FY15   FY16   FY17   Average

Options granted under all plans (1)

      9,370,727         7,119,327         7,773,636      

Restricted stock units and awards granted under all plans (1)

      11,015,237         9,736,623         14,498,921      

Performance-based restricted stock units granted under all plans (2)

      —           191,382         208,711      

Total granted

      20,385,964         17,047,332         22,481,268      

Weighted Average # of Common Shares Outstanding

      624,147,514         661,646,615         687,797,104      

Burn Rate

      3.3%         2.6%         3.3%         3.04%  
(1) This table does not include appreciation and full value awards assumed in acquisitions.
(2) The performance-based restricted stock units noted in the table were granted in the year indicated but none have vested or been earned to date; such performance stock units vest, if at all, following a three-year performance period from the date of grant.

Vote Required and Board of Directors’ Recommendation

 

Approval of this proposal requires the affirmative vote of a majority of the votes cast.

 

The Board of Directors Recommends a Vote FOR the Proposal to Amend and Restate the 2013 Equity Incentive Plan, Including to Increase the Number of Plan Shares Reserved for Issuance.

 

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  PROPOSAL 3 — APPROVAL OF THE AMENDED AND RESTATED EMPLOYEE  STOCK PURCHASE PLAN  

  TO INCREASE PLAN SHARES RESERVED FOR ISSUANCE  

 

 

PROPOSAL 3 — APPROVAL OF THE AMENDED AND RESTATED EMPLOYEE STOCK PURCHASE PLAN TO INCREASE PLAN SHARES RESERVED FOR ISSUANCE

 

Our 2004 Employee Stock Purchase Plan, as amended (the “ESPP”), is a benefit that we make broadly available to our employees and employees of our participating subsidiary corporations that allows them to purchase shares of Company Common Stock (“Shares”) at a discount. The ESPP helps us attract, motivate and retain highly qualified employees and promotes employee stock ownership, which aligns employees’ interests with those of our stockholders. We are asking stockholders to approve amending the ESPP to increase by 8 million Shares the number of Shares reserved for issuance under the ESPP. The Board has approved the amendment and restatement of the ESPP, subject to stockholder approval at the Annual Meeting. Stockholder approval of the ESPP requires the affirmative vote of a majority of the outstanding Shares present in person or by proxy at the Annual Meeting and entitled to vote on the proposal.

If stockholders approve this proposal, the total number of Shares authorized and reserved for issuance under the ESPP will be 27 million Shares. However, if this proposal is rejected by stockholders, the total number of Shares authorized and reserved for issuance under the ESPP will remain at 19 million, of which approximately 3.7 million remain available for issuance as of

March 31, 2017. Based on our current forecasts and estimated participation rates, if the increase is not approved, it is anticipated that the ESPP will run out of available Shares in approximately December 2017.

We believe that the ESPP is an essential tool that helps us compete for talent in the labor markets in which we operate. We also believe the ESPP is a crucial element in rewarding and encouraging current employees that promotes stock ownership by employees, which aligns their interests with those of our stockholders. Without stockholder approval of this proposal, we believe our ability to attract and retain talent would be hampered, and our recruiting, retention and incentive efforts would become more difficult.

Our executive officers currently are not permitted to participate in the ESPP. However, they may be permitted to participate in the ESPP in the future and therefore they have an interest in this proposal. The remainder of this discussion, when referring to the ESPP, refers to the amended and restated ESPP as if this proposal is approved by our stockholders, unless otherwise specified or the context otherwise references the ESPP prior to amendment and restatement.

 

 

Increasing the Number of Shares Reserved for Issuance under the ESPP

 

Background

The ESPP was initially adopted by the Board in December 2003 and approved by our stockholders in March 2004. In September 2011, the Board amended and restated the ESPP to provide, among other changes, that the ESPP would be implemented through consecutive and overlapping offering periods of approximately 12 months in length, with each offering period divided into two purchase periods of approximately six months each. The ESPP was implemented and made available to employees beginning with the twelve month offering period starting in December 2011.

At the 2015 Annual Meeting our stockholders, upon recommendation of the Board, approved the amendment and restatement of the ESPP and share increase to reserve an additional 7 million Shares for issuance under the ESPP.

Under the ESPP, a participant may authorize participant contributions, generally in the form of payroll deductions, which may not exceed 15% of the participant’s eligible compensation during the offering period. Payroll deductions are applied on the last day of a purchase period (the “purchase date”) to purchase a

whole number of Shares on behalf of a participant. The purchase price is 85% of the fair market value of a Share on the first day of the offering period or on the purchase date, whichever date results in a lower price.

Reasons for Voting for the Proposal

We believe that the number of Shares remaining available for issuance under the ESPP will not be sufficient for the expected levels of ongoing participation in the ESPP. Therefore, increasing the number of Shares available under the ESPP would be appropriate to help the Company meet the goals of its compensation strategy. The Board believes that the interests of the Company and its stockholders will be advanced if the Company can continue to offer employees the opportunity to acquire or increase their ownership interests in the Company.

In considering its recommendation to seek stockholder approval for the addition to the ESPP of 8 million Shares, the Board considered the historical number of Shares purchased under the ESPP in the past three fiscal years, which were 3.2 million, 3 million, and 3.3 million, in fiscal years 2017, 2016 and 2015,

 

 

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  PROPOSAL 3 — APPROVAL OF THE AMENDED AND RESTATED EMPLOYEE STOCK  PURCHASE PLAN  

  TO INCREASE PLAN SHARES RESERVED FOR ISSUANCE (CONTINUED)  

 

   

 

respectively. The Board also considered the Company’s expectation that the additional Shares should last until approximately June 2018. In the event that more Shares are

required for the ESPP in the future, the prior approval of our stockholders will be required.

 

 

Summary of the ESPP

 

The following paragraphs provide a summary of the principal features of the ESPP and its operation. However, this summary is not a complete description of all of the provisions of the ESPP, and is qualified in its entirety by the specific language of the ESPP. A copy of the ESPP is provided as Appendix B to this proxy statement.

Purpose

The purpose of the ESPP is to advance the interests of the Company and its stockholders by providing an incentive to attract, retain and reward eligible employees and by motivating such employees to contribute to the growth and profitability of the Company and its participating parent and subsidiary corporations, in each case, by providing eligible employees with the opportunity to acquire a proprietary interest in the Company through the purchase of Shares. The ESPP is intended to qualify as an employee stock purchase plan under Section 423 of the Internal Revenue Code of 1986, as amended (“Section 423”). Under an employee stock purchase plan that qualifies under Section 423, no U.S. taxable income will be recognized by a participant, and no deductions will be allowable to the Company, upon either the grant or the exercise of the purchase rights. U.S. taxable income will not be recognized until there is a sale or other disposition of the Shares acquired under the ESPP or in the event the participant should die while still owning the purchased Shares. The ESPP also authorizes the grant of rights to purchase Shares that do not qualify under Section 423 pursuant to rules, procedures or sub-plans adopted by the Administrator of the ESPP (as described below) to achieve tax, securities law or other compliance objectives in particular locations outside of the United States (the “Non-Section 423 Plan”).

Eligibility to Participate

Most employees of the Company and its participating parent and subsidiary corporations whose customary employment is for at least twenty hours per week and more than five months per calendar year are eligible to participate in the ESPP. Currently, the Administrator has excluded from eligibility those employees who are both (1) “highly compensated employees” as defined under Section 414(q) of the Code and (2) officers or subject to the disclosure requirements of Section 16(a) of the Exchange Act. In addition, an employee is not eligible if he or she would own or hold outstanding options to purchase five percent or more of the total combined voting power or value of all classes of stock of the Company or of any parent or subsidiary corporation of the Company. Also, the Administrator generally has discretion to exclude employees from participating in the ESPP, for the Section 423 portion of the ESPP (the “Section 423 Plan”) on a uniform and nondiscretionary basis or as otherwise permitted by Section 423, if the employee normally is scheduled to work less than or equal to twenty hours per week or five months per calendar year, has worked for the Company for less than two

years, or is an officer or other highly compensated employee. As of March 31, 2017, approximately 25,700 employees were eligible to participate in the ESPP.

Number of Shares and Market Price of Shares Available under the ESPP

A total of 4 million Shares (after adjusting for the Company’s 4-to-1 stock split in 2013) were initially authorized and reserved for issuance under the ESPP. The ESPP provided for an automatic annual increase in the number of shares available under the ESPP on February 1 of each year from 2005 through 2013 equal to the smaller of (i) one percent of the number of Shares issued and outstanding on the immediately preceding January 31, (ii) 4 million Shares (after adjusting for the Company’s 4-to-1 stock split in 2013), or (iii) a lesser number of Shares determined by the Administrator.

The ESPP was suspended and not active from its original approval until it resumed in December 2011. During the period of ESPP suspension, the automatic annual increase to the share reserve also was suspended. This provision came back into effect in December 2011 when the ESPP became active; the automatic annual increase provision expired after a final increase in February 2013. A total of 8 million Shares became available for issuance under the ESPP as a result of the automatic annual increase provisions. At the 2015 Annual Meeting our stockholders approved a share increase to reserve an additional 7 million Shares, resulting in a maximum of 19 million Shares that have been authorized for issuance pursuant to the ESPP.

Because approximately 3.7 million Shares remained available for issuance as of March 31, 2017, if stockholders approve the increase of 8 million Shares, approximately 11.7 million Shares would remain available for issuance under the ESPP.

As of March 31, 2017, the closing price of our Common Stock on the NYSE was $82.49 per Share.

Administration

The Board or a committee of the Board administers the ESPP (the Board and any committee of the Board administering the ESPP is referred to as the “Administrator”). Currently, the Compensation Committee acts as Administrator of the ESPP. Subject to the terms of the ESPP, the Administrator has all of the powers and discretion necessary or appropriate to control the operation and supervise the administration of the ESPP. The Administrator’s authority under the ESPP includes, among other powers, interpreting and determining the terms and provisions of the ESPP and purchase rights thereunder. All actions, interpretations and decisions of the Administrator are conclusive and binding on all persons and will be given the maximum deference permitted by law.

 

 

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  PROPOSAL 3 — APPROVAL OF THE AMENDED AND RESTATED EMPLOYEE  STOCK PURCHASE PLAN  

  TO INCREASE PLAN SHARES RESERVED FOR ISSUANCE (CONTINUED)  

 

 

 

Enrollment and Contributions

Eligible employees voluntarily elect whether or not to enroll in the ESPP by completing, signing and submitting to the Company an enrollment form in a form and manner and by the deadline set by the Administrator. Each employee who joins the ESPP (a “participant”) is granted a right to purchase Shares on each first day of the applicable offering period (the “offering date”) while participating in the ESPP and, as long as he or she has not withdrawn from participation, reduced his or her contributions down to 0% or terminated employment or eligibility, automatically is re-enrolled in the subsequent offering period. An employee may cancel his or her enrollment in an offering period at any time (subject to ESPP rules).

Participants contribute to the ESPP through payroll deductions or, if permitted by the Administrator, through other means specified by the Administrator. Currently, contributions are permitted only through payroll deductions. Participants generally may contribute a minimum of 2% and up to a maximum of 15% of their eligible compensation through after-tax payroll deductions. After the start of an offering period, a participant can decrease his or her contribution rate to 0% while remaining a participant in the offering period, but if the decrease occurs during the first purchase period in an offering period, then the participant automatically will be deemed to withdraw from the second purchase period in that offering period. From time to time, the Administrator may establish a different maximum permitted contribution percentage, change the definition of eligible compensation, limit the nature or number of contribution rate changes that may be made during an offering period or purchase period, or change the length of the offering and purchase periods (but in no event may such periods exceed 27 months). A participant may increase or decrease his or her contribution percentage by following procedures established by the Administrator.

Offering Period and Purchase Periods

Each offering period is of a duration determined by the Administrator and is comprised of a series of one or more successive purchase intervals, also as determined by the Administrator. Currently, Shares are offered for purchase under the ESPP through a series of successive, overlapping offering periods, each with a maximum duration of approximately twelve months and two consecutive purchase periods. These offering periods begin with the first trading day on or after June 15 and December 15 each year and end on the first trading day on or after the next June 15 and December 15, respectively. Purchase periods within each offering period last approximately six months and each ends with a purchase date on the first trading day on or after June 15 or December 15, as applicable. Should the fair market value of our Shares on any purchase date within an offering period be less than the fair market value per Share on the start date of that offering period, then that offering period automatically terminates immediately after the purchase of Shares on such purchase date, and a new offering period commences on the next trading day following the purchase date.

Purchase of Shares

On the last trading day of each six-month purchase period in an offering period, the Company uses each participant’s payroll deductions or contributions to purchase Shares for the participant. The price of the Shares purchased is determined under a formula established in advance by the Administrator. However, in no event may the per Share purchase price be less than 85% of the lower of (i) the fair market value of a Share on the offering date of the offering period, or (ii) the fair market value of a Share on the purchase date (subject to the adjustment provisions of the ESPP). The fair market value of a Share on any relevant date will be the closing price of our Common Stock as quoted on the NYSE for the date of purchase, and as reported in The Wall Street Journal or such other source as the Administrator deems reliable.

The number of whole Shares a participant may purchase in each purchase period during an offering period is determined by dividing the total amount of payroll deductions withheld from the participant’s eligible compensation during that purchase period by the purchase price, but may not exceed the maximum permitted. The maximum number of Shares any participant may purchase during any purchase period is determined by dividing $12,500 by the fair market value of a Share on the first day of that offering period (subject to the adjustment provisions of the ESPP). In addition, a participant’s right to buy Shares may not accrue at a rate in excess of $25,000 in the fair market value of such Shares (determined as of the offering date) for each calendar year in which the purchase right is outstanding.

The Administrator has discretion to change the maximum number of Shares that may be purchased by one participant or all participants during an offering period or purchase period and, if necessary to avoid securities law filings, achieve tax objectives or meet other Company compliance objectives in particular locations outside the United States, may generally limit the number or value of the Shares available for purchase in a qualified period by participants in specified countries, locations or participating companies.

Termination of Participation

Participation in the ESPP generally terminates when a participating employee’s employment with the Company or its participating parent or subsidiary corporations ceases for any reason, the employee withdraws from the ESPP, or the Company terminates or amends the ESPP such that the employee no longer is eligible to participate. An employee may withdraw his or her participation in the ESPP at any time in accordance with procedures, and prior to the deadline, specified by the Administrator. Upon withdrawal from the ESPP, generally the employee will receive the return of any remaining amounts not used to purchase Shares that have been credited to his or her account, without interest (unless otherwise required by applicable law), and his or her payroll withholdings or contributions under the ESPP will cease.

 

 

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  PROPOSAL 3 — APPROVAL OF THE AMENDED AND RESTATED EMPLOYEE STOCK  PURCHASE PLAN  

  TO INCREASE PLAN SHARES RESERVED FOR ISSUANCE (CONTINUED)  

 

   

 

 

Non-transferability

Rights to purchase Shares and any other rights and interests under the ESPP may not be assigned, transferred, pledged or otherwise disposed of (other than by will or the laws of descent and distribution). A right to purchase shares under the ESPP is exercisable during the lifetime of a participant only by the participant.

Adjustments; Certain Transactions

Subject to any required action by the Company’s stockholders, in the event of any change in the Common Stock effected without receipt of consideration by the Company, whether through merger, consolidation, reorganization, reincorporation, recapitalization, reclassification, stock dividend, stock split, reverse stock split, split-up, split-off, spin-off, combination of shares, exchange of Shares, or similar change in the capital structure of the Company, or in the event of payment of a dividend or distribution to the stockholders of the Company in a form other than stock (excepting normal cash dividends) that has a material effect on the fair market value of our Shares, the Administrator, in order to prevent dilution or enlargement of a Participant’s rights under the ESPP, will adjust the number and class of Shares subject to the ESPP, the limit on the Shares that may be purchased by any participant during an offering and under each purchase right, and the purchase price.

In the event of a change in control of the Company, each outstanding purchase right may, without the participant’s consent,

be assumed by the surviving, continuing successor, or purchasing corporation (or parent of such successor corporation).

If such acquiror refuses to assume the outstanding purchase right, the offering period with respect to which it relates will be shortened by setting a new purchase date specified by the Administrator. The new purchase date will occur prior to the change in control. If a purchase right is neither assumed by the successor corporation nor exercised as of the date of the change in control, it automatically will terminate and cease to be effective as of such date.

Amendment and Termination

The Administrator generally may amend, suspend or terminate the ESPP or any part of the ESPP at any time and for any reason. If the ESPP is terminated, the Administrator may determine that all outstanding offering periods under the ESPP terminate immediately, upon completion of the next purchase date (which may be adjusted to occur sooner than originally scheduled), or in accordance with their terms. If purchase rights are terminated prior to expiration, then all amounts credited to participants that have not been used to purchase Shares will be returned, without interest (unless otherwise required by applicable law), as soon as administratively practicable. Amendments to increase the number of Shares available under the ESPP or to change the definition of the corporations that may be designated to participate in the ESPP must be approved by the stockholders of the Company within twelve months of the adoption of the amendment.

 

 

Number of Shares Purchased by Certain Individuals and Groups

 

Participation in the ESPP is voluntary and dependent on each eligible employee’s election to participate and his or her determination as to the level of payroll deductions. Further, the number of Shares that may be purchased under the ESPP is determined, in part, by the price of our Common Stock on the first and last day of each offering period or purchase period, as applicable. Accordingly, the actual number of Shares that may be purchased by any eligible individual is not determinable.

 

For illustrative purposes only, the following table sets forth (i) the number of Shares that were purchased during fiscal 2017 under the ESPP, and (ii) the weighted average per Share purchase price paid for such Shares, for all current executive officers as a group, all non-employee directors as a group and all other employees who participated in the ESPP as a group.

 

 

Identity of Group    Number of
Shares
Purchased
(#)
   Weighted
Average
Purchase
Price Per
Share ($)

All current executive officers as a group (1)

                0    $       0

All non-employee directors as a group (2)

                 0    $       0

All other employees (including all current officers who are not executive officers) as a group

   3,181,427    $61.37

 

(1) In fiscal 2017, none of our executive officers were eligible to participate in the ESPP. In 2017 and currently, the Administrator has excluded from eligibility those employees who are both (i) “highly compensated employees” as defined under Section 414(q) of the Code and (ii) officers or subject to the disclosure requirements of Section 16(a) of the 1934 Act.
(2) Non-employee directors are not eligible to participate in the ESPP.

 

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  PROPOSAL 3 — APPROVAL OF THE AMENDED AND RESTATED EMPLOYEE  STOCK PURCHASE PLAN  

  TO INCREASE PLAN SHARES RESERVED FOR ISSUANCE (CONTINUED)  

 

 

Summary of U.S. Federal Income Tax Consequences

 

The following brief summary of the effect of U.S. federal income taxation upon the participant and the Company with respect to the Shares purchased under the ESPP does not purport to be complete, and does not discuss the tax consequences of a participant’s death or the income tax laws of any state or foreign country in which the participant may reside.

The ESPP is intended to be an employee stock purchase plan within the meaning of Section 423. The ESPP also authorizes the grant of rights to purchase Stock that do not qualify under Section 423 pursuant to the Non-Section 423 Plan. Under an employee stock purchase plan that qualifies under Section 423, no taxable income will be recognized by a participant, and no deductions will be allowable to the Company, upon either the grant or the exercise of the purchase rights. Taxable income will not be recognized until there is a sale or other disposition of the Shares acquired under the ESPP or in the event the participant should die while still owning the purchased Shares.

If the participant sells or otherwise disposes of the purchased Shares within two years after the start date of the offering period in which the Shares were acquired or within one year after the actual purchase date of those Shares, then the participant generally will recognize ordinary income in the year of sale or disposition equal to the amount by which the fair market value of the Shares on the purchase date exceeded the purchase price paid for those Shares, and the Company will be entitled to an income tax deduction, for the taxable year in which such disposition occurs equal in amount to such excess. The amount of this ordinary

income will be added to the participant’s basis in the Shares, and any resulting gain or loss recognized upon the sale or disposition will be a capital gain or loss. If the Shares have been held for more than one year since the date of purchase, the gain or loss will be long-term.

If the participant sells or disposes of the purchased Shares more than two years after the start date of the offering period in which the Shares were acquired and more than one year after the actual purchase date of those Shares, then the participant generally will recognize ordinary income in the year of sale or disposition equal to the lesser of (a) the amount by which the fair market value of the Shares on the sale or disposition date exceeded the purchase price paid for those Shares, or (b) 15% of the fair market value of the Shares on the start date of that offering period. Any additional gain upon the disposition will be taxed as a long-term capital gain. Alternatively, if the fair market value of the Shares on the date of the sale or disposition is less than the purchase price, there will be no ordinary income and any loss recognized will be a long-term capital loss. The Company will not be entitled to an income tax deduction with respect to such disposition.

If the participant still owns the purchased Shares at the time of death, the lesser of (i) the amount by which the fair market value of the Shares on the date of death exceeds the purchase price or (ii) 15% of the fair market value of the Shares on the start date of the offering period in which those Shares were acquired will constitute ordinary income in the year of death.

 

 

Summary

 

The Board believes that it is in the best interests of the Company and its stockholders to continue to provide employees with the opportunity to acquire an ownership interest in the Company

through their participation in the ESPP and thereby encourage them to remain in the Company’s employ and more closely align their interests with those of our stockholders.

 

 

Vote Required and Board of Directors’ Recommendation

 

Approval of this proposal requires the affirmative vote of a majority of the votes cast.

 

The Board of Directors Recommends a Vote FOR the Proposal to Amend and Restate the 2004 Employee Stock Purchase Plan to Increase the Number of Shares Reserved for Issuance Thereunder.

 

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  PROPOSAL 4 — RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS   

 

     

 

PROPOSAL 4 — RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS

 

The Audit Committee has appointed Ernst & Young LLP as our independent registered public accounting firm for the fiscal year ending January 31, 2018. The Board recommends that stockholders vote for ratification of such appointment. In the event of a negative vote on such ratification, the Board will reconsider its selection. Even if the appointment is ratified, the Audit Committee may, in its discretion, direct the appointment of a different independent registered public accounting firm at any time during

the year if the Audit Committee determines that such a change would be in our stockholders’ best interests.

We expect representatives of Ernst & Young LLP to be present at the Annual Meeting and available to respond to appropriate questions. They will also have the opportunity to make a statement if they desire to do so.

 

 

Engagement Letter and Fee Disclosure

 

In connection with the audit of the fiscal 2017 financial statements, our Audit Committee entered into an engagement agreement with Ernst & Young LLP that sets forth the terms of Ernst & Young’s audit engagement. Among other things, the agreement is subject to alternative dispute resolution procedures.

The following table sets forth fees billed for professional audit services and other services rendered to the Company by Ernst & Young LLP for the fiscal years ended January 31, 2017 and 2016.

 

     Fiscal 2017    Fiscal 2016

Audit Fees, plus consultations (1)

   $10,155,246    $6,208,905

Audit-Related Fees (2)

   $     846,233    $1,584,069

Tax Fees (3)

   $  2,021,948    $1,199,519

All Other Fees

                 —                  —  

Total

   $13,023,427    $8,992,493

 

(1) Audit Fees consist of fees incurred for professional services rendered for the integrated audit of our annual consolidated financial statements, review of the quarterly consolidated financial statements and foreign statutory audits and services that are normally provided by Ernst & Young LLP in connection with statutory and regulatory filings or engagements. Audit fees also include accounting consultations and research related to the integrated audit.
(2) Audit-Related Fees consist of fees billed for assurance and related services that are reasonably related to the performance of the audit or review of the Company’s consolidated financial statements and are not reported under “Audit Fees.” These include fees for the audit of our employee benefit (401(k)) plan, service organization control examinations and fees for due diligence related to acquisitions.
(3) Tax Fees consist of fees billed for tax compliance, consultation and planning services.

Pre-Approval of Audit and Non-Audit Services

 

All audit and non-audit services provided by Ernst & Young LLP to the Company must be pre-approved by the Audit Committee. The Audit Committee uses the following procedures in pre-approving all audit and non-audit services provided by Ernst & Young LLP. At or before the first meeting of the Audit Committee each fiscal year, the Audit Committee is presented with a detailed listing of the individual audit and non-audit services and fees (separately describing audit-related services, tax services and other services) expected to be provided by Ernst & Young LLP during the year. Quarterly, the Audit Committee is presented with an update of any new audit and non-audit services to be provided by Ernst & Young LLP. The Audit Committee reviews the Company’s update and approves the services outlined therein if such services are acceptable to the Audit Committee.

To ensure prompt handling of unexpected matters, the Audit Committee delegates to the chair of the Audit Committee the authority to amend or modify the list of audit and non-audit services and fees. However, approval of such additional or amended services is not permitted if it would affect Ernst & Young LLP’s independence under applicable SEC rules. The chair of the Audit Committee reports any such action taken to the Audit Committee at the next Audit Committee meeting.

All Ernst & Young LLP services and fees in fiscal 2017 were approved according to the procedures described above.

 

 

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  PROPOSAL 4 — RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS  (CONTINUED)  

 

 

Vote Required and Board of Directors’ Recommendation

 

Approval of this proposal requires the affirmative vote of a majority of the votes cast on this proposal.

 

The Board of Directors Recommends a Vote FOR Ratification of the Appointment of Ernst & Young LLP as our Independent Registered Public Accounting Firm.

 

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  PROPOSAL 5 — ADVISORY VOTE TO APPROVE NAMED EXECUTIVE OFFICER  COMPENSATION  

 

     

 

PROPOSAL 5 — ADVISORY VOTE TO APPROVE NAMED EXECUTIVE OFFICER COMPENSATION

 

We are asking our stockholders to cast an advisory vote to approve the compensation of the Named Executive Officers during fiscal 2017 as disclosed in this Proxy Statement in accordance with the requirements of Section 14A of the Exchange Act. This Proposal gives our stockholders the opportunity to express their views on the design and effectiveness of our executive compensation program.

As described in detail under the heading “Compensation Discussion and Analysis,” our executive compensation program is designed to attract, motivate and retain the Named Executive

Officers, who are critical to our success, and to align their interests with the long-term interests of our stockholders. Under this program, the Named Executive Officers are rewarded for the achievement of both corporate and individual performance goals, which are intended to result in increased stockholder value. Please read the “Compensation Discussion and Analysis” and the compensation tables and narrative disclosure that follow for additional details about our executive compensation program, including information about the fiscal 2017 compensation of the Named Executive Officers.

 

 

Fiscal Year 2017 Business Highlights

 

In fiscal 2017 we achieved significant financial results and we believe the compensation program for the NEOs was instrumental in helping us achieve strong financial performance, including:

 

  Record revenue of $8.39 billion, up 26% year-over-year;

 

  Cash from operations of $2.16 billion, up 29% year-over-year;

 

  A fiscal 2017 year-end deferred revenue balance of $5.54 billion, up 29% year-over-year, and an unbilled deferred revenue balance (representing business that is contracted but unbilled and off the balance sheet) of approximately $9.0 billion.

Our overall compensation objective is to compensate our executives and other employees in a manner that attracts and retains the caliber of individuals needed to manage a high-growth business operation in an innovative and highly competitive industry. For our executives, including the Named Executive Officers, we align our executive compensation program with the

interests of our stockholders by tying a significant portion of their compensation to the performance of our common stock and other metrics of Company performance.

The Compensation Committee regularly reviews our executive compensation program in an effort to ensure that our executive compensation structure aligns with our stockholders’ interests. This includes establishing performance target levels based on financial measures believed to be important to our stockholders. The Company also reviews the compensation programs and pay levels of executives from companies of similar size and complexity, as well as companies with which we compete for talent, in an effort to ensure that our executive compensation program is competitive.

We believe that our executive compensation program has been effective at driving the achievement of strong Company performance, appropriately aligning pay and performance and enabling us to attract, retain and incentivize qualified executive talent.

 

 

Significant Fiscal 2017 Compensation Actions

 

In fiscal 2017, our Compensation Committee took the following key actions:

 

  Reduced CEO Total Compensation by 60%.    We reduced