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This excerpt taken from the WDC DEF 14A filed Dec 15, 2006. Executive
Compensation Components
Western Digital’s executive compensation package consists
primarily of the following components:
Base Salary. Executive officer base
salaries are reviewed annually, and base salary levels are
generally targeted at the median of competitive data. The base
salaries of individual executive officers can and do vary from
this salary benchmark based on such factors as the competitive
environment, the executive’s experience level and scope of
responsibility, Western Digital’s financial condition,
current performance, future potential and the overall
contribution of the executive. The Committee exercises its
judgment based on all the factors described above in making its
decisions. No specific formula is applied to determine the
weight of each criterion.
Annual Incentive Compensation. Western
Digital’s Incentive Compensation Plan, or ICP, formally
links cash bonuses for executive officers and other
participating employees to Western Digital’s semiannual
operating performance. The Committee establishes target awards
under the ICP for each executive officer, expressed as a
percentage of the executive’s semiannual base salary. The
Committee then semiannually establishes operating
and/or
financial performance goals under the ICP. For each of the first
half and second half of fiscal 2006, these goals were earnings
per share and revenue. The bonus pool payable under the ICP for
each semiannual period can vary from 0% to 200% of the aggregate
target bonuses, depending upon Western Digital’s
performance against the pre-established goals. Individual awards
to executive officers can also vary from their targets,
depending upon the size of the bonus pool and their individual
performance.
Equity and Other Long-Term Incentive
Awards. The Committee views the grant of
equity-based compensation and other like awards to be a key
component of its overall compensation program. Executive
officers, as well as other key employees, are eligible to
receive periodic grants of incentive or non-qualified stock
options, restricted stock, stock units, performance stock units
and/or other
cash or equity-based incentive awards pursuant to Western
Digital’s 2004 Performance Incentive Plan. Vesting
schedules are designed to balance the goals of encouraging
retention of executive officers and rewarding long-term
performance and commitment to Western Digital. While all
executive officers are eligible, the type of award as well as
the size of the grant each executive officer receives is
determined and approved by the Committee in consultation with
the Vice President, Human Resources and the Chief Executive
Officer (except in the case of the CEO’s own equity and
other long-term incentive awards, which are determined and
approved solely by the Committee).
The amount of each executive officer’s award is determined
by the Committee based upon the executive’s individual
performance, the executive’s current compensation package,
the value of the executive’s unvested stock options and
restricted stock or stock units, comparable competitive company
practices, and the Committee’s appraisal of the
executive’s anticipated long-term future contribution to
Western Digital.
In February 2006, based on a review and analysis provided by the
Committee’s independent consultant, the Committee approved
certain changes to Western Digital’s long-term incentive
program including limiting the participation in the program to
employees within senior management. For the most senior
participants, including all
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of Western Digital’s executive officers, the long-term
incentive opportunity includes a combination of restricted stock
units, stock options and long-term performance cash, which are
divided in accordance with guidelines established by the
Committee. Since the Committee’s adoption of the new
long-term incentive program, the Committee continues to make the
determination of the amount of awards in light of the factors
described above, and presently intends to make the awards
generally consistent with the new long-term incentive program
guidelines and structure.
In particular, long-term incentive compensation that may be
awarded by the Committee includes:
Stock Options: The Committee believes that the
grant of stock options to executive officers with an exercise
price per share equal to the fair market value of Western
Digital’s common stock on the date of grant is an effective
incentive for executive officers to create value for Western
Digital’s stockholders and is an effective means of
motivating, retaining and rewarding executives who are in a
position to contribute to Western Digital’s long-term
growth and profitability.
Restricted Stock and Restricted Stock
Units: The Committee considers awards of
restricted stock or restricted stock units to be the key
component of compensation when long-term retention is desired.
In February 2006, the Committee initiated the award of
restricted stock units to employees in lieu of restricted stock
in order to enable the recipient to defer the payout of such
awards in accordance with Western Digital’s Deferred
Compensation Plan. By their nature, restricted stock and stock
unit awards create both retention and stockholder alignment and,
therefore, can be a useful compensation tool.
Long-Term Cash Awards: The Committee considers
long-term cash awards to be performance based. This program
formally links long-term cash awards for executive officers and
other participating employees to Western Digital’s
operating performance over a multiple year timeframe and based
upon a pre-determined financial metric approved by the
Committee. The total amount payable pursuant to a long-term cash
award can vary from 0% to 200% of the target award, depending
upon Western Digital’s performance against the
pre-established goals.
In addition, from time to time, Western Digital may grant cash
and/or
equity awards to key employees whose retention is deemed
critical to Western Digital’s future success. The purpose
of these awards is to retain critical talent by providing a
significant incremental opportunity for capital accumulation and
to focus participants on increasing the value of Western
Digital’s common stock.
All equity awards and long-term cash awards are granted by the
Committee pursuant to Western Digital’s 2004 Performance
Incentive Plan and certain other cash awards are documented by
individual agreements with the executive. The awards vest in
accordance with schedules designed to maximize retention value
for the executives receiving such awards. In addition, beginning
in October 2006, all equity awards will be granted in accordance
with a grant policy that Western Digital has implemented to
achieve additional process improvements adopted by the Board of
Directors in response to the recommendation of a special
committee of the Board following a company-initiated, voluntary
review of Western Digital’s historical stock options. These
additional process improvements are designed to improve Western
Digital’s controls and procedures with respect to the
granting of stock options, restricted stock units and other
equity awards.
Severance Benefits. Executive
officers are eligible to receive certain severance benefits
under Western Digital’s Executive Severance Plan and Change
of Control Severance Plan. These plans are described in more
detail under “Employment Contracts, Termination of
Employment and Change in Control Arrangements” beginning on
page 27.
Benefits. Benefits offered to
executive officers serve a different purpose than do the other
elements of total compensation. In general, they provide a
safety net of protection against the financial catastrophes that
can result from illness, disability or death. These benefits are
largely those that are offered to the general employee
population, with some variation, primarily with respect to
eligibility for participation in the Deferred Compensation Plan,
the availability of expanded medical benefits, and the
availability of various limited allowances, including life
insurance, financial planning and club memberships. The
Committee believes that the benefits offered to executive
officers generally are competitive. From time to time, Western
Digital’s Human Resources Department obtains data to help
ensure that such benefit plans and programs remain competitive
and reports its findings to the Committee.
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