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 companys 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 Committees current intent that, so long as it is consistent with Western Digitals overall compensation objectives and philosophy, executive
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 officers contributions as appropriate. The Committee will, however, continue to consider, among other relevant factors, the deductibility of compensation when the Committee reviews Western Digitals compensation plans and policies. The Committee reserves the right to continue to award non-deductible compensation in such circumstances as it deems appropriate.
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.