Western Digital (WDC)

Performance Goal and Achievement Levels.  For fiscal 2009, shortly after the start of each semi-annual performance period, the Compensation Committee established specific operating and/or financial performance goals to correspond to specific ICP achievement levels ranging between 0% and 200% of the target bonus opportunity for executive officers. For both the first half and second half of fiscal 2009, the Compensation Committee selected earnings per share as the financial performance goal and established specific earnings per share goals to correspond to specific achievement levels ranging between 0% and 200% of the target bonus opportunity for executive officers. For fiscal 2009, earnings per share was calculated under generally accepted accounting principles. The Compensation Committee believes that earnings per share is the appropriate performance goal for the ICP because earnings per share closely reflects our overall performance and profitability and the returns achieved by our stockholders. In so doing, the Compensation Committee believes that the ICP assists in achieving our compensation objectives of motivating executives to improve our overall performance and profitability and tying incentive awards to financial metrics that drive the performance of our common stock over the long term.

 

At the end of the applicable performance period, the Compensation Committee determines the ICP achievement level for executive officers based upon our performance against the established operating and/or financial performance goals for the period. In its discretion and based upon the recommendation of the Chief Executive Officer, the Compensation Committee may adjust the achievement percentage upward (subject to a cap of 200%) or downward according to our overall achievement of other key non-financial and strategic operating objectives as well as changes in the business and industry that occur during the performance period and how well we and our executive officers were able to adapt to those changes. The ICP achievement percentage, as adjusted by the Compensation Committee, determines the overall funding level for bonus payments to our executives for the applicable semi-annual performance period.

 

For the first half of fiscal 2009, the Compensation Committee set an earnings per share target of $2.12 correlated to a payout equal to 100% of the executive’s target bonus opportunity (which, as indicated above, was 125% of semi-annual base salary for Mr. Coyne, and 75% of semi-annual base salary for the other executive officers). Due primarily to the effects of the adverse macroeconomic conditions, actual earnings per share for the first half of fiscal 2009 was $1.00, resulting in a 0% achievement rate under the ICP. The Compensation Committee did not exercise any upward discretion on the achievement rate, and therefore no bonus payments were approved for executive officers under the ICP for the first half of fiscal 2009. For the second half of fiscal 2009, the Compensation Committee slightly modified its approach to establishing the ICP metrics due to the increased difficulty in forecasting demand during the entire six-month ICP period as a result of the economic challenges faced at the time. Rather than establishing an aggregate earnings per share target for the second half of fiscal 2009, the Compensation Committee set quarterly goals shortly after the start of each of the third and fourth fiscal quarters. The earnings per share goals for the third and fourth fiscal quarters were $0.02 and $0.24, respectively. The combined earnings per share target of $0.26 correlated to a payout equal to 100% of the executive’s target bonus opportunity (which, as indicated above, was 150% of semi-annual base salary for Mr. Coyne, and 75% of semi-annual base salary for the other executive officers). Actual earnings per share for the second half of fiscal 2009 was $1.08, resulting in a 191% achievement rate. However, in light of such factors as the unexpected surge in market demand during the fourth fiscal quarter on second half earnings per share and the relative uncertainty regarding future market conditions, the Compensation Committee exercised its discretion to reduce the ICP achievement rate from 191% to 160% for the second half of fiscal 2009.

 

Bonus Calculation and Discretionary Adjustments.  Actual bonus amounts to the executive officers for each semi-annual performance period under the ICP are calculated by multiplying the executive’s target semi-annual bonus opportunity by the achievement percentage approved by the Compensation Committee based on achievement of the applicable performance metrics.

 

Following determination of the ICP bonus amount for the applicable semi-annual period, the Compensation Committee reserves the discretion to further adjust the individual bonus payment to an executive officer based upon his individual and business group performance. For the Chief Executive Officer, any adjustments are made by the Compensation Committee based on their assessment of the Chief Executive Officer’s performance. For the other executive officers, any adjustments are made by the Compensation Committee, taking into account the recommendation of the Chief Executive Officer, based upon individual

performance goals developed by the Chief Executive Officer with input from the executive that are intended to focus the executive’s attention on the achievement of financial and other business objectives within his individual area of responsibility and management. For fiscal 2009, the Compensation Committee did not exercise its discretion to adjust the individual ICP award for any particular executive officer. Accordingly, no ICP bonuses were paid to executive officers for the first half of fiscal 2009, and each executive officer received an ICP bonus equal to 160% of his target bonus opportunity for the second half of fiscal 2009.

 

Please see the section entitled “— Incentive Compensation Plan” on page 37 for a table that reflects each executive’s target semi-annual bonus opportunity under the ICP for each half of fiscal 2009 and the actual semi-annual bonuses paid to the executive under the ICP for fiscal 2009.

 

accepted accounting principles, but excluding tax and other non-recurring charges. The Compensation Committee believes that earnings per share is the appropriate performance goal for the ICP because earnings per share closely reflects our overall performance and profitability and the returns achieved by our stockholders. In so doing, the Compensation Committee believes that the ICP assists in achieving our compensation objectives of motivating executives to improve our overall performance and profitability and tying incentive awards to financial metrics that drive the performance of our common stock over the long term.

 

At the end of the applicable performance period, the Compensation Committee determines the ICP funding percentage for executive officers based upon our performance against the established operating and/or financial performance goals for the period. In its discretion and based upon the recommendation of the Chief Executive Officer, the Compensation Committee may adjust the company funding percentage upward (subject to a cap of 200%) or downward according to our overall achievement of other key non-financial and strategic operating objectives as well as changes in the business and industry that occur during the performance period and how well we and our executive officers were able to adapt to those changes. The ICP funding percentage, as adjusted by the Compensation Committee, determines the overall funding level for bonus payments to our executives for the applicable semi-annual performance period.

 

For the first half of fiscal 2008, the Compensation Committee set an earnings per share target of $0.91 correlated to a 100% payout. Actual earnings per share for the first half of fiscal 2008 was $2.14, resulting in a payout under the ICP equal to 200% of target. For the second half of fiscal 2008, the Compensation Committee set an earnings per share target of $1.12 correlated to a 100% payout. Actual earnings per share for the second half of fiscal 2008 was $2.17, also resulting in a payout under the ICP equal to 200% of target. Earnings per share for ICP purposes was calculated under generally accepted accounting principles, but excluding tax and other non-recurring charges.

 

Bonus Calculation and Discretionary Adjustments.  Actual bonus amounts to the executive officers for each semi-annual performance period under the ICP are calculated by multiplying the executive’s target semi-annual bonus amount by the funding percentage approved by the Compensation Committee based on achievement of the applicable performance metrics.

 

Following determination of the ICP bonus amount for the applicable semi-annual period, the Compensation Committee reserves the discretion to further adjust the bonus payment to an executive officer based upon his individual and business group performance. For the Chief Executive Officer, any adjustments are made by the Compensation Committee based on their assessment of the Chief Executive Officer’s performance. For the other executive officers, any adjustments are made by the Compensation Committee, taking into account the recommendation of the Chief Executive Officer, based upon individual performance goals developed by the Chief Executive Officer with input from the executive that are intended to focus the executive’s attention on the achievement of financial and other business objectives within his individual area of responsibility and management. For fiscal 2008, the Compensation Committee did not exercise its discretion to adjust the ICP award for executive officers based on these factors given the extraordinary operational and financial achievements noted above.

 

For calendar year 2007, Mr. Coyne, our President and Chief Executive Officer, recommended to the Compensation Committee a special discretionary bonus (referred to as the “president’s award”) to all executive officers (other than Mr. Coyne himself). The special bonus award for executive officers equaled 25% of the executive’s target annual bonus opportunity under the ICP and was paid during fiscal 2008. In recommending approval of the discretionary bonuses to the Compensation Committee, Mr. Coyne noted the following significant financial achievements for calendar year 2007 versus calendar year 2006:

 

 

Mr. Coyne also noted that the ratio of bonuses paid to employees (including the president’s award) to net income for the first half of 2008, sometimes referred to as the “sharing ratio,” would be consistent with the

sharing ratio for the preceding two semi-annual bonus periods. After considering these factors, the company’s significant achievements and the extraordinary returns received by stockholders during calendar year 2007, the Compensation Committee approved the president’s award for these executive officers in the amounts recommended by Mr. Coyne.

 

Please see the section entitled “— Incentive Compensation Plan” on page 36 for a table that reflects each executive’s target semi-annual bonus opportunity under the ICP for fiscal 2008, the actual semi-annual bonuses paid to the executive under the ICP for fiscal 2008 and any additional discretionary bonus (such as the president’s award) paid to the executive for fiscal 2008.