This excerpt taken from the WDC DEF 14A filed Sep 24, 2007.
Severance and Change in Control Benefits
Our executive officers are eligible to receive certain severance and change in control benefits under various severance plans or agreements with us. These severance and change in control benefits are an important component of each executives overall compensation as they help us to attract and retain our key executives. In addition, the change in control benefits we offer are intended to preserve executive productivity and encourage retention at the time of an actual or potential change in control when an executive might otherwise become distracted by his own future or financial situation.
Generally, severance benefits are available to our executives under our Executive Severance Plan. As described in more detail under Potential Payments Upon Termination or Change in Control on page 41 below, our executives are generally entitled to severance benefits only in the event of a termination of employment by us without cause.
Our Change of Control Severance Plan provides additional severance protections in the event an executives employment is terminated in connection with a change of control transaction. Under this plan, all of our executives are eligible to receive severance benefits if the executive is terminated by us without cause as well as if the executive voluntarily terminates his employment for good reason (generally consisting of adverse changes in responsibilities, compensation, benefits or location of work place, or breach of the plan by us or any successor) within one year after a change in control or prior to and in connection with, or in anticipation of, a change in control transaction. We believe that voluntary termination for good reason results in a constructive termination of an executives employment and is an appropriate trigger event for payment of these benefits because the likelihood of constructive termination increases in a change of control situation.
We are also required under our Change of Control Severance Plan to reimburse our executives for any excise taxes imposed by Section 4999 of the Internal Revenue Code as a result of receiving the severance benefits and for all taxes due on the amount of that reimbursement. This excise tax gross-up provision is intended to preserve the level of change-in-control severance protections that we have determined to be appropriate. We believe this protection is a reasonable part of the compensation package for these executives and generally consistent with industry practice.
We generally do not believe that severance benefits should be paid unless there is an actual or constructive termination of an executives employment in connection with or within one year of a change of control transaction. However, under our standard terms and conditions for stock options, restricted stock and restricted stock unit awards to our executive officers, all such awards will immediately vest upon the occurrence of a change in control as defined in our 2004 Performance Incentive Plan. In addition, the standard terms and conditions of long-term performance cash awards to our executive officers provide that the long-term performance cash award will become immediately payable at its target level in the event of a change in control. Although accelerated vesting will occur under these terms whether or not an executive officers employment terminates, we believe it is appropriate to fully vest equity and other long-term incentive awards in these change in control situations because such a transaction may effectively end the executives ability to realize any further value with respect to the awards.
Please see the Potential Payments Upon Termination or Change in Control and Calculation of Potential Payments upon Termination or Change in Control sections beginning on page 41 below for a description and quantification of the potential payments that may be made to the executive officers in connection with their termination of employment or a change in control.