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This excerpt taken from the WDC DEF 14A filed Dec 15, 2006. Policy
Regarding Section 162(m) of the Internal Revenue
Code
Section 162(m) of the Internal Revenue Code, enacted in
1993, generally disallows a tax deduction to public companies
for compensation in excess of $1 million paid to a
company’s chief executive officer or any of its four other
most highly compensated executive officers as of the end of any
fiscal year. Certain performance-based compensation, however, is
exempt from the Section 162(m) deduction limit. It is the
Committee’s current intent that, so long as it is
consistent with Western Digital’s overall compensation
objectives and philosophy, executive
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compensation will be structured so as to be deductible for
federal income tax purposes to the extent reasonably possible.
The 2004 Performance Incentive Plan has been structured so that
any taxable compensation derived pursuant to the exercise of
options approved by the Committee and granted under such plans
should not be subject to the Section 162(m) deductibility
limitations. In addition, the long-term cash awards to certain
of the executive officers are intended to be exempt from the
Section 162(m) deductibility limitations. Base salaries,
bonuses under the ICP, long-term cash retention awards and
restricted stock or stock unit awards with time-based vesting do
not, however, satisfy all the requirements of
Section 162(m) and, accordingly, are not exempt from the
Section 162(m) deductibility limitations. Nevertheless, the
Committee has determined that these plans and policies are in
the best interests of Western Digital and its stockholders since
the plans and policies permit Western Digital to recognize an
executive officer’s contributions as appropriate. The
Committee will, however, continue to consider, among other
relevant factors, the deductibility of compensation when the
Committee reviews Western Digital’s compensation plans and
policies. The Committee reserves the right to continue to award
non-deductible compensation in such circumstances as it deems
appropriate.
COMPENSATION COMMITTEE*
Michael D. Lambert, Chairman
Roger H. Moore
Thomas E. Pardun
October 30, 2006
* Our Board of Directors appointed Mr. Pardun as a
member of the Compensation Committee on October 30, 2006 to
replace Mr. Behrendt who resigned as a member, and as
Chairman, of the Compensation Committee on October 7, 2006.
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