DEF 14A of F5, Inc.
Filed Jan 26, 2024 · FY20230001140361-24-004097
Proxy Summary
Proxy Summary This summary highlights information contained elsewhere in this Proxy Statement. This summary does not contain all of the information that you should consider, and you should read the entire Proxy Statement carefully before voting.
Proxy Summary
| ANNUAL MEETING OF SHAREHOLDERS | | Time and Date March 14, 2024 at 11:00 a.m. Pacific Time | | | | Virtual Meeting Location This year is a virtual meeting at www.virtualshareholdermeeting.com/FFIV2024 | | | | Record Date January 8, 2024 | | | | Mailing Date Approximately January 26, 2024 | | | | Voting Shareholders as of the record date are entitled to vote. Each share of Company Common Stock is entitled to one vote for each director nominee and one vote for each of the proposals |
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| MEETING AGENDA | • Election of the 11 directors listed in this Proxy Statement and on the proxy card |
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| • | Advisory vote on compensation of our named executive officers |
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| • | Ratification of PricewaterhouseCoopers LLP (PWC) as our independent registered public accounting firm for fiscal year 2024 |
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| • | Transact other business that may properly come before the meeting, or any adjournment or postponement |
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| Fiscal Year 2023 Proxy Statement | 1 |
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| | Proposal | | Board Vote Recommendation | Page References for More Detail | | VOTING MATTERS AND VOTE RECOMMENDATION | 1 | To elect 11 directors nominated by the Board to hold office until the Annual Meeting of Shareholders for fiscal year 2024 | FOR (each nominee) | pp. 73 | | | 2 | Advisory vote to approve the compensation of our named executive officers | FOR | pp. 74 | | | 3 | To ratify the selection of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for fiscal year 2024 | FOR | pp. 76 |
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| ABOUT F5 | | | OUR VALUES: | |
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| 2 | Fiscal Year 2023 Proxy Statement |
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| BOARD & GOVERNANCE HIGHLIGHTS | Independent Board Chair | 10 of 11 Board Nominees are Independent | 7 of 11 Board Nominees Identify as Diverse | | | Declassified Board — All Directors Elected Annually | Share Ownership Guidelines for Executives & Directors | Clawback Policy for Named Executive Officers | | | One-year Post-vesting Holding Period for Executive Equity Awards Beginning with Grants Awarded in Fiscal Year 2022 | Majority Voting for All Directors | Third-Party Led Board Self-Assessment Process | | | Independent Directors Meet Without Management Present | Prohibition on Hedging, Pledging and Short Sale of Company Stock | |
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| AWARDS AND COMPANY RECOGNITION | Ranked #1 in Fortune Modern Board | Application Delivery Controller 2023 PeerSpot Tech Leader Award | F5 named among 2023 America’s Climate Leaders in USA Today and Statista | | | Merit Award Silver recipient for Excellence in Brand Activation | F5 named in the Top 10 in the Computer Services sector for America’s Most JUST Companies, by JUST Capital | Ten company employees were included in CRN’s 2023 Women of the Channel |
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| FISCAL YEAR 2023 PERFORMANCE HIGHLIGHTS | Annual revenue $2.8 BILLION ↑4% over fiscal year 2022 | Cash flow from operations $653 MILLION | | | GAAP net income $395 MILLION | Cash returned to shareholders through share repurchases $350 MILLION |
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| Fiscal Year 2023 Proxy Statement | 3 |
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| COMPENSATION POLICIES AND PRACTICES LINKED TO SHAREHOLDER VALUE CREATION AND RISK MITIGATION | Pay for performance | We emphasize pay for performance and align executive compensation with the Company’s business objectives and performance, and the creation of long-term shareholder value. | | | Threshold performance metrics | Incentive-based compensation is at risk and payable only if certain threshold performance metrics are achieved. | | | No excise tax gross-ups | The Company does not provide “golden parachute” excise tax gross-ups upon a change in control of the Company. | | | Benefit plans | The Company offers its executive officers only modest perquisites that are supported by a business interest and are consistent with broad-based benefit plans available to other employees. | | | Stock ownership guidelines | Directors and Company executives are subject to stock ownership requirements that encourage alignment with the interests of shareholders. | | | Clawback policy | In the event of a restatement of any financial measure used in determining performance-based compensation for Company executives, the Company shall recover any payments to an executive in excess of what would have been received if determined based on the restated financial measure subject to limited exceptions. | | | No hedging of stock | Executive officers, directors and other employees are prohibited from trading in puts, calls or other derivatives of Company Common Stock or otherwise engaging in short sales of Company Common Stock or hedging transactions related to Company Common Stock. In addition, executive officers, directors and other employees are prohibited, except under limited exceptions, from holding Company Common Stock in a margin account or pledging Company Common Stock as collateral for a loan. | | | No re-pricing of options | Under the terms of the equity plan, the re-pricing of underwater options is prohibited absent shareholder approval. | | | Double-trigger change of control agreements | The Company’s change of control agreements with its executives contain a “double trigger” feature. | | | Post-vesting holding requirement | Beginning with awards granted in fiscal year 2022, Company executives must retain for at least one year the net shares received on the vesting of Restricted Stock Units, which aligns executives’ long-term incentives with the interests of shareholders. | | | Annual advisory vote | Annual advisory vote on executive compensation provides shareholders with a direct opportunity to express their opinion regarding the Company’s executive pay practices. | | | Capped incentive compensation | Executive incentive compensation is capped avoiding excessive risk-tasking and limiting to a reasonable level the amount of total performance-based compensation paid. |
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| 4 | Fiscal Year 2023 Proxy Statement |
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| Director Nominees | The following table provides summary information about each director nominee. Each director named below is a continuing director and all directors are elected annually by a majority of votes cast. |
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| | | | | | | | Committees | | | | Name | Age | Director Since | Occupation | Independent | Diverse(1) | Other Public Boards | Audit & Risk Oversight | Talent and Compensation | Nominating and ESG | | Marianne N. Budnik | 55 | October 2022 | Chief Marketing Officer, VAST Data; Director, Cerence, Inc. | | | | | | | | Elizabeth L. Buse | 62 | September 2020 | Director, U.S. Bancorp; Retired Chief Executive Officer, Monitise, Plc. | | | | | | | | Michel Combes | 61 | September 2023 | Executive Vice President, Claure Group; Director, Phillip Morris International; Director, Etisalat; non-voting Board Observer, Assystem SA | | | | | | | | Michael L. Dreyer | 60 | October 2012 | Director, Coherent Corp. (formerly II-VI Inc.); Retired Chief Operations Officer, Silicon Valley Bank | | | | | | | | Tami Erwin | 59 | October 2023 | Director, John Deere; Director, York Space Systems; Former Chief Executive Officer, Verizon Business Group | | | | | | | | Alan J. Higginson | 76 | May 1996 | Chairperson of the Board, F5; Former Chairperson, Hubspan, Inc. | | | | | | | | Peter S. Klein | 61 | March 2015 | Director, Denali Therapeutics; Director, Accolade; Retired Chief Financial Officer, Microsoft | | | | | | | | François Locoh-Donou | 52 | April 2017 | President and Chief Executive Officer, F5; Director, Capital One | | | | | | | | Nikhil Mehta | 46 | January 2019 | Chief Executive Officer, Gainsight, Inc.; Director, Lead Edge Growth Opportunities, Ltd.; Director, Pubmatic | | | | | | | | Michael F. Montoya | 52 | June 2021 | Chief Information Security Officer, Equinix | | | | | | | | Sripada Shivananda | 51 | April 2020 | Executive Vice President and Chief Technology Officer, PayPal Holdings, Inc. | | | | | | |
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| | = Chair | | = Member | | = Financial Expert |
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| Fiscal Year 2023 Proxy Statement | 5 |
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| 1. | Directors included in the diverse designation represent individuals whose race, ethnicity, gender, or LGBTQ+ self-identification contribute to Board heterogeneity and expand the Board’s understanding of the needs and viewpoints of our customers, partners, employees, investors, and other stakeholders, and meet the definition of “diverse director” under the Nasdaq Listing Rules. |
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| BOARD SKILLs AND DIVERSITY MATRIX | Three of our 11 Director nominees are women, four of our 11 Director nominees are ethnically diverse with one identifying as Black, two identifying as Asian and one identifying as Hispanic/Latino(a). No Directors identify as LGBTQ+. One director identifies as a military veteran. |
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| 6 | Fiscal Year 2023 Proxy Statement |
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| Total number of directors: 11 |
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| (1) Represents Director nominees with financial fluency. The Board of Directors has determined that Mr. Klein is an “audit committee financial expert” as defined in Item 407 of Regulation S-K. |
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| Fiscal Year 2023 Proxy Statement | 7 |
Board of Directors
Board of Directors The Board of Directors of the Company currently consists of eleven (11) directors. The Board of Directors has nominated the following eleven (11) directors for election to the Board of Directors at the Annual Meeting:
Board of Directors
| Name | Director Since | | Marianne N. Budnik | October 2022 | | Elizabeth L. Buse | September 2020 | | Michel Combes | September 2023 | | Michael L. Dreyer | October 2012 | | Tami Erwin | October 2023 | | Alan J. Higginson | May 1996 | | Peter S. Klein | March 2015 | | François Locoh-Donou | April 2017 | | Nikhil Mehta | January 2019 | | Michael F. Montoya | June 2021 | | Sripada Shivananda | April 2020 |
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All directors or their respective successors will stand for election on an annual basis. The nominees have consented to serve as directors of the Company if elected. If a nominee declines to serve or becomes unavailable for any reason, or if a vacancy occurs before the election (although we know of no reason to anticipate that this will occur), the proxies may be voted for a substitute nominee as the Company may designate.
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| Director Independence | The Nasdaq Listing Rules require that a majority of the Company’s directors be “independent,” as defined by Nasdaq Listing Rule 5605(a)(2) and determined by the Board of Directors. The Board of Directors consults with the Company’s legal counsel to ensure that the Board of Directors’ determinations are consistent with all relevant securities and other laws and regulations regarding the definition of “independent.” After a review of relevant transactions or relationships between each director, or any of his or her family members, and the Company, its senior management and its independent registered public accounting firm, the Board of Directors determined that the following directors and nominees were independent: Marianne N. Budnik, Elizabeth L. Buse, Michel Combes, Michael L. Dreyer, Tami Erwin, Alan J. Higginson, Peter S. Klein, Nikhil Mehta, Michael F. Montoya and Sripada Shivananda. François Locoh-Donou is not considered independent because he is the Company’s President and Chief Executive Officer. Prior to their respective resignations, each of Ms. Bergeron, Ms. Myers and Mr. Phillips were deemed independent directors. |
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| Stock Ownership Guidelines for Directors | In October 2010, the Board of Directors adopted stock ownership guidelines for the Company’s directors and executive officers. Directors are required to own shares of Common Stock equal in value to five times the directors’ annual cash retainer. Directors are required to achieve this ownership level within three years of joining the Board. Shares of Common Stock that count toward satisfaction of the guidelines include shares purchased on the open market, shares obtained through stock option exercises, shares obtained through grants of Restricted Stock Units (RSUs), and shares beneficially owned in a trust, by a spouse and/or minor children. Shares owned by directors are valued at the greater of (i) the price at the time of acquisition/purchase or (ii) the current market value. |
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| Nominees and Continuing Directors | The following individuals have been nominated for election to the Board of Directors or will continue to serve on the Board of Directors after the Annual Meeting: |
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| François Locoh-Donou Age: 52 Director Since: 4/2017 | François Locoh-Donou has served as our President, Chief Executive Officer, and a director since April 2017. Prior to joining us, Mr. Locoh-Donou served as Chief Operating Officer at Ciena, a network strategy and technology company, from November 2015 to January 2017 and as Senior Vice President, Global Products Group, from August 2011 to November 2015. Mr. Locoh-Donou serves as a director of Capital One Financial Corporation, a publicly held bank holding company specializing in credit cards, auto loans, banking, and savings accounts, and is also the Co-Founder and Chairperson of Cajou Espoir, a social enterprise focused on cashew-processing that employs several hundred people in rural Togo, 80 percent of whom are women. Mr. Locoh-Donou holds an engineering degree from École Centrale de Marseille and a Masters in Sciences from Télécom ParisTech in France, and an M.B.A. from the Stanford Graduate School of Business. | | | With a 25-year background in enterprise technology, Mr. Locoh-Donou has extensive executive experience spanning the security, networking, and telecommunications industries. In his seven years as F5 CEO, he has led F5’s transformation from a datacenter hardware-centric company to a software-first leader in multi-cloud application security and delivery. Over 70% of revenues are now recurring, and our SaaS portfolio of services is rapidly expanding. Prior to F5, Locoh-Donou held leadership positions in Sales, Marketing, Operations and Product functions at global telecom solutions provider Ciena. As the sole management member of the Board of Directors, he serves a critical role in the communication between the Board and company leadership. |
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| Alan J. Higginson Age: 76 Director Since: 5/1996 | Alan J. Higginson has served as Chair of the Board since April 2004 (with the exception of the period of July 1, 2015 to December 13, 2015 when he served as our Lead Independent Director), and as one of our directors since May 1996. Mr. Higginson served as Chairperson of Hubspan, Inc., an e-business infrastructure provider, from September 2009 to March 2012. He served as President and Chief Executive Officer of Hubspan from August 2001 to September 2007. From November 1995 to November 1998, Mr. Higginson served as President of Atrieva Corporation, a provider of advanced data backup and retrieval technology. | | | Mr. Higginson also served as a director of Pivot3, Inc., a privately held company that develops and markets automated hyperconverged infrastructure solutions, from December 2011 to February 2020. Mr. Higginson also served as a director of adeptCloud Inc., a privately held company that provides cloud-based collaboration services, and Clarity Health Services, a privately held company that provides web-based health care coordination services. Mr. Higginson holds a B.S. in Commerce and an M.B.A. from Santa Clara University. | | | Mr. Higginson has over 30 years of experience as a senior executive in a wide range of both public and private software and other technology companies. His experience includes leading worldwide sales organizations and the management of international joint ventures and distribution channels. He has also been active in a number of software and technology industry associations, and as an advisor to early-stage technology companies. Mr. Higginson joined our Board of Directors shortly after the Company was founded. His deep understanding of the Company’s historical and current business strategies, and objectives and technologies, provides an important and insightful perspective for our Board of Directors, as well as our senior management. |
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| Marianne N. Budnik Age: 55 Director Since: 10/2022 | Marianne N. Budnik has served as one of our directors since October 2022. Ms. Budnik currently serves as Chief Marketing Officer for VAST Data, a privately held AI data platform company, since September 2023. She also serves on the board of Cerence, Inc., a publicly traded provider of artificial intelligence powered assistants for connected autonomous vehicles, since October 2019. Prior to joining VAST Data, Ms. Budnik served as Chief Marketing Officer for Talon Cyber Security (recently acquired by Palo Alto Networks in November 2023), a privately held provider of cybersecurity solutions for the distributed workforce, from March 2022 through July 2023. From December 2020 through March 2022, Ms. Budnik served as Chief Marketing Officer for CrowdStrike Holdings, Inc., a publicly traded cybersecurity technology company. Prior to that time, Ms. Budnik served as Chief Marketing Officer for CyberArk Software, Ltd., a publicly traded information security technology company, from May 2017 through December 2020. Her previous experience includes leadership roles with SimpliVity, Acme Packet, CA Technologies, and EMC Corporation. Ms. Budnik holds an M.B.A. from Boston University and a B.S. from Babson College. | | | Ms. Budnik’s extensive experience as a Chief Marketing Officer in the cybersecurity industry brings a valuable perspective on best practices and solutions. Ms. Budnik’s cybersecurity expertise combined with her extensive experience in marketing makes her well qualified to serve on our Board of Directors. |
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| Elizabeth L. Buse Age: 62 Director Since: 9/2020 | | | | Elizabeth L. Buse has served as one of our directors since September 2020. Ms. Buse served as Co-Chief Executive Officer and Chief Executive Officer of Monitise, PLC, a publicly traded financial services technology company, from June 2014 through October 2015. Prior to that time, Ms. Buse served as Executive Vice President of Global Services with Visa, Inc., a publicly traded leading global payments technology company. Ms. Buse held various other senior leadership positions at Visa during her 16-year tenure there, including Group President for Asia-Pacific, Central Europe, Middle East, and Africa. Ms. Buse has served on the Board of Directors of U.S. Bancorp, a publicly traded bank holding company, since June 2018. She also served on the Board of Directors of eNett International, a privately held payment services company specializing in B2B international payment solutions, from March 2016 until June 2019, and Travelport Worldwide Limited, a publicly traded travel technology company, from September 2014 until June 2019. Ms. Buse holds a B.A. in Spanish Linguistics from UCLA and an M.B.A. from University of California – Berkeley, Haas School of Business. | | | Ms. Buse has extensive experience in the financial services industry. She brings to our Board of Directors insights regarding the financial services industry globally and provides a valuable perspective on best practices and solutions. Ms. Buse’s financial services and technology expertise combined with her background as a Chief Executive Officer in the financial services industry makes her well qualified to serve on our Board of Directors. |
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| Michel COMBES Age: 61 Director Since: 9/2023 | | | | Michel Combes re-joined our Board of Directors in September 2023. Mr. Combes previously served as one of our directors from July 2018 through March 2021. He currently serves as Executive Vice President of Claure Group, a privately held global entrepreneurial and investment firm. Mr. Combes previously served as the President and Chief Executive Officer of SoftBank Group International, an international arm of SoftBank Group Corp., a publicly traded multinational investment holding company from June 2020 through June 2022. Prior to joining SoftBank Group International, Mr. Combes served as the President and Chief Executive Officer of Sprint from January 2018 through April 2020. Mr. Combes also served as Chief Executive Officer and director of Altice N.V., a Netherlands-based multinational telecoms company, where he was responsible for telecom, media and content operations around the world. Before joining Altice, Mr. Combes was the Chief Executive Officer at Alcatel-Lucent, a global telecommunications equipment company, from April 2013 to August 2015. He also held the positions of CEO of Vodafone Europe, Chairperson and CEO of TDF Group, and Chief Financial Officer and Senior Executive Vice President of France Telecom. Mr. Combes currently serves on the Board of Directors for Phillip Morris International, a publicly traded American multinational tobacco company building a future on smoke-free products, since December 2020, as well as Etisalat, a publicly traded global telecommunications company, since March 2021. He also sits on the Advisory Committee for McLaren Group Ltd since November 2017. He previously served on the Board of Directors for Assystem SA from 2003 to 2023, where he remains a non-voting Board Observer. Mr. Combes received a Master of Science degree from École Polytechnique with a focus in engineering and a doctorate from Paris Dauphine University. | | | Mr. Combes has extensive experience as a telecommunications and technology executive. He brings to our Board of Directors insights regarding the telecommunications industry in Europe and provides a valuable perspective on best practices and solutions. Mr. Combes’ telecommunications and technology expertise combined with his background as a chief executive officer in the telecommunications industry make him well qualified to serve on our Board of Directors. |
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| Tami Erwin Age: 59 Director Since: 10/2023 | Tami Erwin joined our Board of Directors in October 2023. Ms. Erwin served as Executive Vice President and Chief Executive Officer of Verizon Business Group, a division of Verizon Communications, Inc., a publicly traded multinational telecommunications conglomerate, from February 2019 through September 2022, where she was one of Verizon’s top three operating executives responsible for operating the company’s wireless and premier all-fiber network as well as strategy, marketing, and sales and operations. Prior to that, Ms. Erwin served as Executive Vice President and Chief Operating Officer of Verizon Wireless from 2016 through April 2019. Ms. Erwin held various other senior leadership positions at Verizon during her 35-year tenure there, including Senior Vice President and Group President of Consumer & Mass Business Markets, and Chief Marketing Officer. Ms. Erwin has served on the Board of Directors of John Deere, a publicly traded tractor and heavy equipment manufacturer, since May 2020. She also serves on the Board of Directors of York Space Systems, a privately held provider of mission-ready spacecraft platforms, since February 2023. Additionally, Ms. Erwin serves on the Advisory Council of Aptiv, a publicly traded automotive technology supplier, since February 2023 and is an Operating Partner for Digital Gravity Infrastructure Partners, a UK based mid-market investment firm with a sustainability mandate, joining in July 2023. Ms. Erwin holds an Executive Program Certification from the Stanford Graduate School of Business. | | | Ms. Erwin has extensive leadership experience in the telecommunications and technology industry. She brings to our Board of Directors insights regarding digital transformation and growth and provides a valuable perspective on scaling innovation and driving transformation across large and complex organizations. Ms. Erwin’s telecommunications and technology expertise combined with her background as a Chief Executive Officer, Chief Operating Officer and Chief Marketing Officer in the telecommunications industry makes her well qualified to serve on our Board of Directors. |
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| Michael L. Dreyer Age: 60 Director Since: 10/2012 | | | | Michael L. Dreyer has served as one of our directors since October 2012. Mr. Dreyer retired in 2019 as Chief Operations Officer for Silicon Valley Bank, a high-tech commercial bank, and prior to that served as Chief Operating Officer at Monitise, a technology leader in mobile banking. Before joining Monitise, he was the Chief Information Officer at Visa Inc. from July 2005 to March 2014, where he was responsible for Visa’s systems and technology platforms. Before the formation of Visa Inc., he was Chief Information Officer of Inovant, where he oversaw the development and management of Visa’s global systems technology. Previously, Mr. Dreyer held executive positions at VISA USA as Senior Vice President of processing and emerging products, and Senior Vice President of commercial solutions. He also held senior positions at American Express, Prime Financial, Inc., Federal Deposit Insurance Corporation, Downey Savings, Bank of America, and the Fairmont Hotel Management Company. From October 2018 to August 2022, Mr. Dreyer served as a Director of Deep Labs, Inc., a private company specializing in artificial intelligence and machine learning. Mr. Dreyer currently serves as a Director of Coherent Corporation (formerly II-VI Incorporated), a publicly held company that supplies engineered materials, optoelectronic components and optical systems solutions that acquired Finisar in 2019 (previous board). Mr. Dreyer received an M.B.A. and a B.S. in psychology from Washington State University. | | | Mr. Dreyer has extensive experience as an information technology executive. He brings to our Board of Directors valuable insights regarding data center operations and the role of our technology in the data center, as well as an understanding of data traffic management technologies, data security, and other networking technology trends. Mr. Dreyer’s information technology and data management expertise combined with his background as a senior executive in the financial industry make him well qualified to serve on our Board of Directors. |
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| Peter S. Klein Age: 61 Director Since: 3/2015 | Peter S. Klein has served as one of our directors since March 2015. Mr. Klein has 25 years of experience as a senior finance executive. He served as Chief Financial Officer of WME, a global leader in sports and entertainment marketing, from January 2014 until June 2014. Prior to that, he served as Chief Financial Officer of Microsoft Corporation from November 2009 until May 2013. Mr. Klein spent over 11 years at Microsoft, including roles as Chief Financial Officer of Server and Tools and Chief Financial Officer of Microsoft Business Division. From 1990 until 2002, Mr. Klein held senior finance roles with McCaw Cellular Communications, Orca Bay Capital, Asta Networks and Homegrocer.com. He currently serves on the Board of Directors of Denali Therapeutics, a publicly traded biotechnology company, and Accolade, a publicly traded health care technology and services company. He previously served on the Board of Directors of Sarcos Technology and Robotics Corp., a publicly traded robotics and microelectromechanical company, from September 2016 through January 2024, and Apptio Inc., a publicly traded software company, from October 2013 through January 2019, as well as Joshua Green Corporation, a privately held investment company, from May 2015 to February 2023. Mr. Klein holds a B.A. from Yale University and an M.B.A. from the University of Washington. | | | Mr. Klein’s extensive experience as a finance executive in a variety of technology companies, including experience as the Chief Financial Officer of the world’s largest software company, and experience managing the finance function for significant enterprises with diverse operating models, bring important and valuable perspectives to our Board of Directors. His experience as a public company chief financial officer qualifies him as an “audit committee financial expert” as defined in Item 407 of Regulation S-K. |
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| Nikhil Mehta Age: 46 Director Since: 1/2019 | Nikhil Mehta has served as one of our directors since January 2019. Mr. Mehta has been the Chief Executive Officer of Gainsight, Inc., a leading Customer Success Software-as-a-Service (“SaaS”) platform provider, since February 2013. Prior to joining Gainsight, he served as Chief Executive Officer of LiveOffice, which was acquired by Symantec in January 2012. Before joining LiveOffice, Mr. Mehta served in several product management and engineering leadership roles at Symantec. Mr. Mehta has served on the Board of Directors of Lead Edge Growth Opportunities, Ltd., a publicly traded blank check company focused on technology businesses, since March 2021, as well as Pubmatic, a publicly traded company that develops and implements online advertising software and strategies for the digital publishing and advertising industry, since August 2023. Mr. Mehta holds a B.A. in biochemistry from Harvard University and an M.S. in computer science from Harvard Graduate School of Arts and Sciences. | | | Mr. Mehta has extensive experience as an executive at leading SaaS companies. His insights regarding SaaS and related technology combined with his background serving as a Chief Executive Officer make him well qualified to serve on our Board of Directors. |
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| Michael F. Montoya Age: 52 Director Since: 6/2021 | Michael F. Montoya joined the Board in June 2021. Mr. Montoya has served as the Senior Vice President and Chief Information Security Officer of Equinix, Inc., a global interconnection and data center company, since October 2019. Prior to joining Equinix, he served as Senior Vice President and Chief Information Security Officer of Digital Realty Trust, Inc. from September 2018 through September 2019. Before joining Digital Realty Trust, Inc., Mr. Montoya served as Chief Security Advisor for Microsoft Singapore from August 2016 through September 2018, where he was responsible for incident response, security services, and security revenue for the Asia region. Prior to Microsoft, Mr. Montoya served as Vice President, Cloud Security for FireEye Singapore, responsible for Asia services and global cloud security operations. Mr. Montoya also held various senior IT and Operational roles at Microsoft UK, Microsoft Redmond, and EMC. Mr. Montoya has served on the Board of Directors of Sygnia, a global leader of security incident response since August 2022. Mr. Montoya holds a B.A. in economics from The University of New Mexico. | | | Mr. Montoya’s extensive experience as an information security executive provides a valuable perspective on best practices and solutions. His insights regarding cybersecurity combined with his background serving as a Chief Information Security Officer make him well qualified to serve on our Board of Directors. |
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| Sripada Shivananda Age: 51 Director Since: 4/2020 | Sripada Shivananda has served as one of our directors since April 2020. Mr. Shivananda joined PayPal Holdings, Inc., a publicly traded financial technology company and global leader in digital payment technologies, in June 2015 as Vice President, Global Platform and Infrastructure and currently serves as Executive Vice President and Chief Technology Officer as of March 2021. Prior to joining PayPal, he served as Vice President, Global Platform and Infrastructure of eBay, Inc., a publicly traded global ecommerce company, from November 2013 to June 2015, and prior to that he served in other positions during his 14-year tenure with eBay. Mr. Shivananda currently serves as a Director of KindKart, a charitable marketplace that connects donors with charities, as of November 2023. Mr. Shivananda holds a Bachelor of Technology in mechanical engineering from Jawaharlal Nehru Technology University and a Master of Science in mechanical engineering from Ohio University, Russ College of Engineering. | | | Mr. Shivananda’s extensive experience as a technology executive brings insights regarding product, technology, infrastructure, and cybersecurity and provides a valuable perspective on best practices and solutions. Mr. Shivananda’s technology expertise combined with his extensive experience managing the technology for publicly traded technology companies makes him well qualified to serve on our Board of Directors. |
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There are no family relationships among any of the Company’s directors or executive officers. None of the corporations or other organizations referred to in the biographical information set forth above is a parent, subsidiary, or other affiliate of the Company.
Board of Directors
| Director Nomination | Board Composition and Effectiveness. In fiscal year 2022, the Board, led by the Chairperson of the Nominating and ESG Committee retained an outside consultant, Spencer Stuart, to embark on a three-year engagement to assist the Board in evaluating its composition, working practices, and effectiveness utilizing a framework focused on the Council of Investors Seven Indicators of Strength. In fiscal year 2023, Spencer Stuart delivered its initial assessment along with recommendations for continued alignment with best practices, which the Board and management adopted. |
Board of Directors
Criteria for Nomination to the Board of Directors. The Nominating and ESG Committee considers the appropriate balance of experience, skills, and characteristics required of the Board of Directors, and seeks to ensure that at least a majority of the directors are independent under the Nasdaq Listing Rules, that members of the Company’s Audit & Risk Oversight Committee meet the financial literacy requirements under the Nasdaq Listing Rules and that at least one of them qualifies as an
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Board of Directors
“audit committee financial expert” under the rules of the Securities and Exchange Commission (the SEC). Nominees for director are selected on the basis of, among other things, their depth and breadth of experience, integrity, diversity, ability to work effectively as part of a team, understanding of the Company’s business environment, and willingness to devote adequate time to Board duties. In evaluating director candidates, regardless of the source of the nomination, the Nominating and ESG Committee will consider, in accordance with its charter and the Company’s Corporate Governance Guidelines, the composition of the Board as a whole, the requisite characteristics (including independence, diversity, skills, and experience) of each candidate, and the performance and continued tenure of incumbent Board members, as well as Board succession plans. With respect to Board diversity, we broadly construe diversity to mean not only diversity of race, gender, sexual orientation, and ethnicity, but also diversity of geography, culture, opinions, perspectives, and professional and personal experiences. Nominees are not discriminated against on the basis of race, religion, national origin, sexual orientation, disability or any other basis proscribed by law. The Board believes that the backgrounds and qualifications of the directors, considered as a group, should provide a significant composite mix of experience, knowledge, and abilities that will allow the Board to fulfill its responsibilities. The Board therefore considers diversity in identifying nominees for director but does not have a separate policy directed toward diversity. The Nominating and ESG Committee, as well as the full Board, also considers the candidate’s outside board service in evaluating their ability to serve. The Company’s Corporate Governance Guidelines provide that Directors generally cannot serve on a total of more than three public company boards, including the F5 Board. Directors who wish to serve on more than three public company boards may request an exception from the full F5 Board, which may approve the request if it determines, following consultation with the Nominating and ESG Committee, that such service will not adversely affect the requesting director's ability to serve effectively on the F5 Board and its committees. Pursuant the process outlined above and following careful consideration of all facts and circumstances including Mr. Combes availability and commitment to the F5 Board, the Board approved Mr. Combes serving as a director on three public company boards (including F5) as well as a non-voting board observer for another public company board. A copy of the Company’s Corporate Governance Guidelines can be found on our website at www.f5.com under the “Company – Investor Relations – ESG – Governance Documents.” Process for Identifying and Evaluating Nominees. The process for identifying and evaluating nominees to fill vacancies on the Board of Directors is initiated by assessing critical Company and Board needs, based on the present and future strategic objectives of the Company and the specific skills required for the Board as a whole and for each Board committee. A third-party search firm is generally used by the Nominating and ESG Committee to identify qualified candidates. These candidates are evaluated by the Nominating and ESG Committee by reviewing the critical needs assessment, the candidates’ biographical information and qualifications, and checking the candidates’ references. Serious candidates meet with all members of the Board and as many of the Company’s executive officers as practical. Using the input from such interviews and the information obtained from and recommendation provided by the Nominating and ESG Committee, the full Board determines whether to appoint or nominate, as the case may be, a candidate to the Board. The Nominating and ESG Committee will evaluate the skills and experience of existing Board members against the Company’s critical needs assessment in making recommendations for nomination by the full Board of candidates for election by the shareholders. The nominees to the Board of Directors described in this Proxy Statement were unanimously approved by the Company’s directors. The Board appointed Mr. Combes and Ms. Erwin to the Board on September 29, 2023 and October 31, 2023, respectively. Mr. Combes was recommended by the Nominating and ESG Committee based upon his prior experience with the Board and operational experience as CEO of very large and complex telecommunications companies. Mr. Combes underwent a further vetting process and background check conducted by the Company as well as interviews with the Board and management. Ms. Erwin was recommended by a third-party search firm the Nominating and ESG Committee retained at the expense of the Company. The third-party
Board of Directors
| Fiscal Year 2023 Proxy Statement | 29 |
Board of Directors
| | Board of Directors |
Board of Directors
search firm was provided guidance as to the skills, experience, and other characteristics the Nominating and ESG Committee was seeking in potential candidates and was specifically requested to include diverse candidates in the search. The third-party search firm identified a number of potential candidates, including Ms. Erwin, and prepared background materials on these candidates, which were provided to the members of the Nominating and ESG Committee for their review. The third-party search firm interviewed those candidates whom the Nominating and ESG Committee determined merited further consideration and assisted in arranging interviews of selected candidates with members of the Nominating and ESG Committee, other members of the Board of Directors, and certain of the Company’s executive officers. The third-party search firm also completed reference checks on Ms. Erwin. The Nominating and ESG Committee expects that a process similar to that with respect to Ms. Erwin’s candidacy will be used to evaluate nominees recommended by shareholders. Shareholder Recommendations and Nominations—Proxy access candidates. The Company’s Bylaws permit a shareholder or group of up to 20 shareholders, owning 3% or more of the Company’s outstanding common stock continuously for at least three years, to nominate and include in the Company’s proxy materials director nominees constituting up to two directors or 20% of the Board, whichever is greater, provided that the shareholder(s) and the nominee(s) satisfy the requirements specified in the Company’s Bylaws. A nominating shareholder is required to provide appropriate written notice of that shareholder’s intent to make the nomination to the Secretary of the Company not less than 120 days nor earlier than 150 days before the first anniversary of the date that the Company sent out its Proxy Statement for the prior year’s Annual Meeting of Shareholders. In order to be considered timely for the 2024 Annual Meeting, appropriate notice of the nomination must be received by the Secretary of the Company on or after August 29, 2024 and on or before September 28, 2024. Nominating shareholders and nominees must satisfy the notice, information, and consent requirements set forth in the Company’s Bylaws. The Nominating and ESG Committee will consider written proposals from shareholders for nominees for director. Any such nominations should be submitted to the Nominating and ESG Committee c/o the Corporate Secretary and should include the following information: (a) all information relating to such nominee that is required to be disclosed pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) (including such person’s written consent to being named in the Proxy Statement as a nominee and to serving as a director if elected); (b) the name(s) and address(es) of the shareholder(s) making the nomination and the number of shares of Common Stock that are owned beneficially and of record by such shareholder(s); (c) appropriate biographical information and a statement as to the qualification of the nominee; and (d) any other applicable information required by the Bylaws of the Company or otherwise reasonably requested by the Company. Such nominations should be submitted in the timeframe regarding nominations described in the Bylaws of the Company and under the caption “Shareholder Proposals for the Annual Meeting for Fiscal Year 2024” below.
Board of Directors
| Communications with Directors | Shareholders who wish to communicate with our directors may do so by contacting them c/o Corporate Secretary, F5, Inc., 801 Fifth Avenue, Seattle, Washington 98104. As set forth in the Company’s Corporate Governance Guidelines, a copy of which may be found under the “Company — Investor Relations — ESG — Governance Documents” section of our website, www.f5.com, these communications will be forwarded by the Corporate Secretary to a Board member, Board committee or the full Board of Directors, as appropriate. |
Board of Directors
| 30 | Fiscal Year 2023 Proxy Statement |
Board of Directors
| | Board of Directors |
Board of Directors
| Compensation of Directors | Prior to each Annual Meeting of Shareholders, the Compensation Committee reviews with its compensation consultant the appropriate level and form of compensation for non-employee directors and makes recommendations to the Board of Directors. In making non-employee director compensation recommendations, the Compensation Committee takes various factors into consideration, including the compensation consultant’s review of the equity award and cash retainer elements of non-employee director compensation in terms of practice and pay level with respect to both the Company and companies comprising the same peer group used by the Compensation Committee in connection with its review of executive compensation, market trends, and the emphasis on equity to support alignment with shareholders. The Compensation Committee did not recommend any changes to non-employee director compensation based on its review and the Board of Directors made no changes to the director compensation level for fiscal year 2023. The Board of Directors approves all equity awards to be granted to non-employee directors on the date of the Annual Meeting of Shareholders as well as the amount of the annual cash retainer, paid in quarterly installments. |
Board of Directors
The table below summarizes the compensation paid by the Company to non-employee directors for the fiscal year ended September 30, 2023.
Board of Directors
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Director Compensation for Fiscal Year 2023
Director Compensation for Fiscal Year 2023
Director Compensation for Fiscal Year 2023
| Name(1) | Fees Earned or Paid in Cash ($)(2) | Stock Awards ($)(3) | Total ($) | | Sandra E. Bergeron | 37,687 | __ | 37,687 | | Marianne N. Budnik | 87,411 | 355,273 | 442,684 | | Elizabeth L. Buse | 95,986 | 250,048 | 346,034 | | Michel Combes | 394 | — | 394 | | Michael L. Dreyer | 105,000 | 250,048 | 355,048 | | Alan J. Higginson | 185,000 | 250,048 | 435,048 | | Peter S. Klein | 100,000 | 250,048 | 350,048 | | Nikhil Mehta | 85,000 | 250,048 | 335,048 | | Michael F. Montoya | 92,500 | 250,048 | 342,548 | | Marie E. Myers | 80,000 | 250,048 | 330,048 | | James M. Phillips | 68,601 | 250,048 | 318,649 | | Sripada Shivananda | 92,500 | 250,048 | 342,548 |
Director Compensation for Fiscal Year 2023
| 1. | François Locoh-Donou, the Company’s President and Chief Executive officer, is not included in this table as he is an employee of the Company and thus receives no compensation for his services as a director. In addition, Tami Erwin did not join the Board until after (i.e., on October 31, 2023) the completion of the Company’s fiscal year 2023. |
Director Compensation for Fiscal Year 2023
| 2. | Represents the aggregate annual retainers, Board of Directors chair retainer, committee chair retainers, and member committee fees. Non-employee directors of the Company are currently paid $60,000 annually for their services as members of the Board of Directors. The Chair of the Board of Directors receives an additional $100,000 paid annually. Chairs of the Audit & Risk Oversight, Compensation, and Nominating and ESG Committees receive an additional $20,000, $12,500, and $12,500, respectively, annually. In addition, the members of the Audit & Risk Oversight, Compensation, and Nominating and ESG Committees (including the Committee chairs) are paid annual payments of $20,000, $12,500, and $12,500, respectively. Directors receive cash fees in quarterly installments. Mr. Phillips resigned from the Board of Directors on July 21, 2023, and Ms. Myers resigned from the Board of Directors on January 3, 2024. Ms. Budnik was appointed to the Board of Directors on October 7, 2022, at which time Ms. Budnik also became a member of the Audit & Risk Oversight Committee. Mr. Combes was appointed to the Board of Directors on September 29, 2023, at which time Mr. Combes also became a member of the Compensation Committee. Mses. Budnik and Buse became members of an additional committee on January 20, 2023. The following table provides a breakdown of fees earned or paid in cash: |
Director Compensation for Fiscal Year 2023
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Director Compensation for Fiscal Year 2023
| | Director Compensation for Fiscal Year 2023 |
Director Compensation for Fiscal Year 2023
| Name | Annual Retainers ($) | Board and Committee Chair Fees ($) | Member Committee Fees ($) | Total ($) | | Sandra E. Bergeron | 26,333 | 3,785 | 7,569 | 37,687 | | Marianne N. Budnik | 59,022 | 0 | 28,389 | 87,411 | | Elizabeth L. Buse | 60,000 | 8,715 | 27,271 | 95,986 | | Michel Combes | 326 | 0 | 68 | 394 | | Michael L. Dreyer | 60,000 | 12,500 | 32,500 | 105,000 | | Alan J. Higginson | 60,000 | 100,000 | 25,000 | 185,000 | | Peter S. Klein | 60,000 | 20,000 | 20,000 | 100,000 | | Nikhil Mehta | 60,000 | 0 | 25,000 | 85,000 | | Michael F. Montoya | 60,000 | 0 | 32,500 | 92,500 | | Marie E. Myers | 60,000 | 0 | 20,000 | 80,000 | | James M. Phillips | 48,424 | 0 | 20,177 | 68,601 | | Sripada Shivananda | 60,000 | 0 | 32,500 | 92,500 |
Director Compensation for Fiscal Year 2023
| 3. | This column represents the aggregate grant date fair value of restricted stock units (RSUs) granted to directors in the applicable year computed in accordance with ASC Topic 718 and determined as of the grant date. The amounts shown exclude the impact of estimated forfeitures related to service-based vesting conditions. For additional information, please refer to note 1 in our financial statements, “Summary of Significant Accounting Policies — Stock-based Compensation,” included in our Annual Report to Shareholders on Form 10-K for the year ended September 30, 2023. On March 9, 2023, the Board of Directors approved the recommendations of the Compensation Committee that each non-employee director receive a grant on March 9, 2023 of RSUs representing the right to receive 1,770 shares of Common Stock under the F5, Inc. Incentive Plan (with a grant date fair value of $250,048 in accordance with ASC Topic 718), which will fully vest on March 13, 2024 if the non-employee director continues to serve as a director on that date. On October 31, 2022, the Board of Directors approved the recommendations of the Compensation Committee that Ms. Budnik receive in connection with her appointment to the Board a grant on November 1, 2022 of RSUs representing the right to receive 728 shares of Common Stock under the F5, Inc. Incentive Plan (with a grant date fair value of $105,225 in accordance with ASC Topic 718), which fully vested on March 8, 2023. As of September 30, 2023, the 1,770 RSUs awarded to each non-employee director were the only RSUs held by each such director, and they were not yet vested. Due to the timing of their respective departure from and appointment to the Board, Ms. Bergeron and Mr. Combes were not granted RSUs in fiscal year 2023. |
Director Compensation for Fiscal Year 2023
| Compensation Risk Assessment | The Compensation Committee and Company management have reviewed the Company’s compensation plans and programs and have concluded that none of these plans or programs is reasonably likely to have a material adverse effect on the Company. In making this evaluation, the Compensation Committee reviewed the key elements of each of the Company’s compensation programs and the means by which any potential risks are mitigated, including through various elements in the Company’s enterprise risk management program. |
Director Compensation for Fiscal Year 2023
The Company’s compensation programs include a mix of base salary, cash incentive compensation, and long-term equity compensation. We structure our compensation program for executive officers to consist of both fixed and variable components. The fixed (or base salary) component of our compensation programs is designed to provide income independent of our stock price performance so that executive officers will not focus exclusively on stock price performance to the detriment of other important business metrics. The variable (cash bonus and
Director Compensation for Fiscal Year 2023
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Director Compensation for Fiscal Year 2023
| | Director Compensation for Fiscal Year 2023 |
Director Compensation for Fiscal Year 2023
equity) components of our compensation programs are designed to reward both short-term and long-term company performance, which we believe discourages our executive officers from taking actions that focus only on our short-term success and helps align our employees with our shareholders and on our longer-term success. We maintain internal controls over the measurement and calculation of financial information, which are designed to prevent this information from being manipulated by any employee, including our executive officers. Our employees, including executive officers, are required to comply with our Code of Conduct, which covers, among other things, accuracy in keeping financial and business records. As discussed more thoroughly below, the Company also has a Clawback Policy to recoup performance compensation in the event the Company restates its reported financial results to correct a material accounting error on an interim or annual financial statement included in a report on Form 10-Q or 10-K due to material noncompliance with a financial reporting requirement. The Compensation Committee approves the overall annual equity pool based upon annual target levels and approves each equity award at the time of grant. We believe that this helps ensure we grant equity compensation appropriately and in a sustainable manner. The annual cash incentive compensation for the executive officers in fiscal year 2023 included both revenue and earnings before interest, taxes, depreciation, and amortization (EBITDA) targets, as well as targets for Diversity and Inclusion (D&I) metrics. These targets were intended to ensure that the executive officers appropriately manage operating risks, avoid excessive risk-taking, and maintain the Company’s gross margin and operating margin targets while growing our revenue base, as well work to make F5 a diverse and inclusive organization. The revenue and EBITDA targets were also used for setting the pool for cash incentive compensation (MBOs) for all Company employees. In addition, in fiscal year 2024 the Company adjusted it’s vesting period for the relative total shareholder return metric to transition to a three year vesting period by fiscal year 2027 to tie the incentive compensation of the executives directly to longer term shareholder performance. As part of our equity policies, we prohibit hedging and pledging transactions involving our securities so that our executive officers and other employees cannot insulate themselves from the effects of poor stock price performance.
Director Compensation for Fiscal Year 2023
| Compensation Committee Report | The Compensation Committee has reviewed and discussed with management the Company’s “Compensation Discussion and Analysis.” Based on this review and discussions, the Compensation Committee recommended to the Board of Directors that the “Compensation Discussion and Analysis” be included in this Proxy Statement and the Company’s Annual Report to Shareholders on Form 10-K for the fiscal year ended September 30, 2023. |
Director Compensation for Fiscal Year 2023
Members of the Compensation Committee: Elizabeth L. Buse, Chair Marianne N. Budnik Michel Combes Tami Erwin Alan J. Higginson Nikhil Mehta
Director Compensation for Fiscal Year 2023
| 34 | Fiscal Year 2023 Proxy Statement |
Executive Compensation
| COMPENSATION POLICIES AND PRACTICES LINKED TO SHAREHOLDER VALUE CREATION AND RISK MITIGATION | WHAT WE DO | | | | | PAY FOR PERFORMANCE EMPHASIZED AND EXECUTIVE COMPENSATION ALIGNED WITH F5’S BUSINESS OBJECTIVES AND PERFORMANCE, AND THE CREATION OF SHAREHOLDER VALUE | | | | LISTEN TO SHAREHOLDER FEEDBACK - REPLACED THE SOFTWARE REVENUE GROWTH PERFORMANCE METRIC IN THE LONG-TERM INCENTIVE PROGRAM WITH AN EARNINGS PER SHARE (EPS) METRIC TO INCREASE FOCUS ON PROFITABILITY | | | | INCENTIVE-BASED COMPENSATION AT RISK IF THRESHOLD PERFORMANCE METRICS NOT ACHIEVED | | | | EXECUTIVE COMPENSATION IS REVIEWED ANNUALLY BY AN INDEPENDENT COMPENSATION CONSULTANT HIRED BY THE TALENT AND COMPENSATION COMMITTEE | | | | STOCK OWNERSHIP GUIDELINES THAT ENCOURAGE ALIGNMENT WITH THE INTERESTS OF SHAREHOLDERS | | | | POST-VESTING HOLDING REQUIREMENTS EXPANDED TO REQUIRE A MINIMUM OF ONE YEAR HOLD AFTER VESTING OF THOSE EQUITY AWARDS GRANTED IN FISCAL YEAR 2022 AND THEREAFTER | | | | INCENTIVE COMPENSATION CLAWBACKS |
Executive Compensation
| | SHAREHOLDER ENGAGEMENT AND ANNUAL ADVISORY VOTE ON EXECUTIVE COMPENSATION | | | DOUBLE-TRIGGER CHANGE OF CONTROL AGREEMENTS |
Executive Compensation
| WHAT WE DON’T DO | | | | NO “GOLDEN PARACHUTE” EXCISE TAX GROSS-UPS UPON A CHANGE IN CONTROL | | | NO HEDGING OR PLEDGING OR OTHERWISE ENGAGING IN SHORT SALES OF COMMON STOCK OF THE COMPANY | | | NO RE-PRICING OF STOCK OPTIONS | | | NO EXCESSIVE PERQUISITES | | | NO DIVIDENDS/DIVIDEND EQUIVALENTS PAID ON EQUITY AWARDS PRIOR TO VESTING |
Executive Compensation
| updates to the compensation program for fiscal year 2024 | The Committee with the assistance of its independent compensation consultant continues to monitor and evaluate the Company’s compensation practices for its executive officers and has implemented three changes for fiscal year 2024 to further align executive compensation with the creation of long-term shareholder value and expectations of our shareholders. |
Executive Compensation
The first change is to implement a transition of the measurement and vesting periods for the performance based RSU’s (“Performance Awards”) earned by executives based upon the Company’s rTSR performance. Over the coming three years shares earned for rTSR performance will transition to a three-year measurement period with a three-year cliff vesting at the end of the measurement period. The Company believes that this three-year measurement period and cliff vesting better rewards the creation of long-term shareholder value. The second change is to implement a new performance metric for the Company’s short-term cash incentive (STI) program for executives and to rebalance the weighting for the STI metrics. Specifically, the Company replaced the EBITDA metric with a new Non-GAAP Operating Income metric as it is more reflective of the Company’s near-term financial performance. In addition, the Company re-weighted its top line and bottom line STI metrics (revenue and non-GAAP operating income) from a 60% weighting for revenue to a 45% weighting for revenue and an equal weighting of 45% for non-GAAP operating income. The remaining 10% will continue to be based upon the Company’s performance against its DEI goals. The Company believes that this new weighting is appropriate as it continues to grow profitability through operating leverage while also driving top line growth. Finally, in order to simplify the Company’s LTI program, the Company moved from a series of three one-year measurement periods for Performance Awards for executives based on financial metrics to a one-year performance measurement period and a series of one year cliff vesting periods with one third vesting each year based upon achievement over the one-year performance period. The Company believes that this arrangement, along with the three-year performance period and cliff vesting for Performance Awards associated with the Company’s rTSR metric provides a balance of incentives to drive shareholder value and motivate and retain top executives.
Executive Compensation
| • | Links incentive compensation to the performance of the Company and aligns the interests of executive officers with the long-term interests of shareholders; and |
Executive Compensation
| • | Establishes incentives that relate to the Company’s annual and long-term business strategies and objectives. |
Executive Compensation
For fiscal year 2023 the Committee evaluated target total direct compensation for each NEO against benchmarks at the 25th, 50th and 75th percentiles with a goal to set target total direct cash compensation for the NEOs (base salary plus the target bonus) and total direct compensation (cash and equity compensation) at or near the 50th percentile range relative to the Company’s peer group. Total direct compensation for Messrs. Locoh-Donou and Whalen are well aligned to the 50th percentile of the proxy peers, while the other NEOs are below the 50th percentile.
Base Salary
| • | Market data from the Radford salary survey covering technology companies in comparable areas (Survey Companies); and |
Base Salary
| • | Compensation paid to comparable executives as set forth in proxy statements for the Peer Group Companies developed by an outside independent compensation consultant (See “Factors Considered by The Committee in Establishing Executive Compensation — Market Analysis”). |
Cash Incentive Compensation
Cash Incentive Compensation The Committee believes that incentives based on attaining or exceeding established financial and operational targets properly align the interests of our executive officers with the interests of our shareholders. All of our executive officers participate in our annual cash incentive program, with each NEO assigned a target bonus amount expressed as a percentage of the NEO’s base salary. The Committee, and in the case of the NEOs other than the President and CEO in consultation with our President and CEO, determines the target bonus percentages based on its assessment of the Executive Compensation impact each position has on the Company’s performance and compensation data from the Peer Group Companies and Survey Companies (where peer proxy data is not available). For fiscal year 2023, target awards ranged from 90% to 130% of NEO base salaries. However, in recognition of the tough macroeconomic environment and the Company’s focus on increasing profitability, the Compensation Committee utilized its discretion and capped the cash incentive compensation of the NEOs other than Mr. Locoh-Donou at 30% of target and at 0% of target in the case of Mr. Locoh-Donou. The table below sets forth the actual attainment for each NEO as well as the capped amount.
Cash Incentive Compensation
| | Base Salary Annual Rate ($) | Incentive Plan Target as a % of Base Salary | Incentive Plan Maximum as a % of Base Salary | Attainment as % of Target(1) | Compensation Committee- Imposed Cap | Actual ($) | | François Locoh-Donou | $962,000 | 130% | 260% | 85.6% | 0% | $0 | | Frank Pelzer | $562,000 | 90% | 180% | 85.6% | 30% | $151,740 | | Tom Fountain | $582,000 | 100% | 200% | 85.6% | 30% | $174,600 | | Kara Sprague | $525,000 | 90% | 180% | 85.6% | 30% | $141,750 | | Chad Whalen | $499,000 | 100% | 200% | 85.6% | 30% | $149,700 |
Cash Incentive Compensation
| 1. | Rounded to nearest tenth of a percent. |
Fiscal Year 2023 Performance Metrics
Fiscal Year 2023 Performance Metrics In alignment with the Company’s commitments to its ESG initiatives, and to continue to make F5 a more diverse and inclusive place to work, the Committee continued to include quantitative diversity
Fiscal Year 2023 Performance Metrics
| 42 | Fiscal Year 2023 Proxy Statement |
Fiscal Year 2023 Performance Metrics
| | Executive Compensation |
Fiscal Year 2023 Performance Metrics
and inclusion (“D&I”) metrics to its executive officers’ fiscal year 2023 annual cash incentive program. As described above in “Corporate Governance - Social - Diversity and Inclusion,” the Company believes our differences—when embraced with humility and respect—drive smarter decisions, increased innovation, stronger performance, and a culture where everyone can be themselves and reach their full potential. The metrics for the annual cash incentive program were 60% based on the Company achieving target revenue for the fiscal year, 30% based on the Company achieving target EBITDA for the fiscal year, and 10% based on the Company achieving target growth in D&I representation. The formula is more heavily weighted toward revenue growth based on the Company’s belief that revenue growth is a key driver of shareholder return. The focus on revenue growth balanced by the EBITDA and D&I targets ensures that the Company appropriately manages operating risks, avoids excessive risk-taking, and maintains its gross margin and operating margin targets while building a company culture of belonging and representation. The Company believes these targets appropriately reflect and address the interests of our shareholders and promote the Company’s business strategies and objectives. Accordingly, the Committee approved these targets as metrics for the cash annual incentive program. The Committee determines each target and will not pay cash incentive bonuses with respect to the revenue and EBITDA performance goals unless at least 80% of the applicable target goal is achieved. Payment with respect to the revenue and EBITDA performance goals are linear above 80% of the applicable target goal and subject to a 200% cap. Each revenue and EBITDA goal is evaluated individually and to earn more than 100%, the aggregate results for both revenue and EBITDA performance goals must equal or exceed 100% of the applicable target goal. The D&I performance goal is weighted in four equal parts consisting of growth of global female employees, growth of U.S. Black employees, growth of U.S. Hispanic/Latino(a) employees (“Diversity Goals”) and a favorable global belonging score (“Inclusion Goal”) returned in the most recent employee survey results. The attainment for the Diversity Goals is straight-line for growth over the baseline and subject to the 200% cap. The Inclusion Goal is subject to a 70% achievement threshold providing for a 50% payout and paid linear between threshold and target performance and paid linear above the applicable target and subject to the 200% cap at a 90% achievement level. For example, if 90% of the revenue goal, 85% of the EBITDA goal and 80% of the D&I goal are achieved, the annual cash incentive bonus is paid out at 87.5%. If 90% of the revenue goal, 150% of the EBITDA goal and 110% of the D&I goal are achieved the annual cash incentive bonus with respect to the aggregate of the revenue and EBITDA performance goals are capped at 100% and the annual cash incentive bonus is paid out at 110%. If 100% of the revenue goal, 120% of the EBITDA goal and 110% of the D&I goal are achieved, the annual cash incentive bonus is paid out at 107% since both revenue and EBITDA goals were achieved at 100% or more.
Fiscal Year 2023 Performance Metrics
| | Weight | Performance Formula Examples | | | | | | % of Revenue Target Achieved | 60% | 90 | 90 | 100 | 70 | 70 | | % of EBITDA Target Achieved | 30% | 85 | 150 | 120 | 90 | 75 | | % of Diversity and Inclusion Target Achieved | 10% | 80 | 110 | 110 | 65 | 65 | | Total % Achieved | | 87.5 | 110.0 | 107.0 | 33.5 | 6.5 |
Fiscal Year 2023 Performance Metrics
For fiscal year 2023, the annual revenue target was $3,000 million and the annual EBITDA target was $652.7 million. (The EBITDA target was adjusted downward from $696.2 million to reflect extraordinary charges associated with certain acquisition and restructuring related costs which are non-recurring and which the Company believes are not reflective of the overall performance.)
Fiscal Year 2023 Performance Metrics
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Fiscal Year 2023 Performance Metrics
| | Executive Compensation |
Fiscal Year 2023 Performance Metrics
The diversity metric was based on driving percentage growth targets in fiscal year 2023 compared to fiscal year 2022, including increasing our Black representation by 14.7% (+0.5% target growth) and Latino(a) representation by 5.7% (+0.3% target growth) in the United States and increasing our female representation by 5.1% (+1.3% target growth) globally (“Diversity Goals”). Percentage growth for the Diversity Goals is determined without regard to any acquisitions or similar transactions during the fiscal year. The inclusion metric was based on an 80% target global belonging engagement survey favorability score. These metrics were set at a level that the Committee believes would require solid execution by the executive team, and, if achieved, will contribute to growing shareholder value. In fiscal year 2023, the Company achieved 93.8% of the annual revenue target, 89.5% of the annual EBITDA target, and 25% of the D&I target and, as a result, the executive officers earned 85.6% of their total target cash incentive bonus. Despite these achievements the Compensation Committee capped the NEO cash incentive bonuses at 30% of target for the NEOs other than Mr. Locoh-Donou and at 0% for Mr. Locoh-Donou.
2023 Cash Incentive Award
2023 Cash Incentive Award
2023 Cash Incentive Award
| Performance measure | Weighting | Threshold | Target | Maximum | Actual | Attainment as a % of Target(1) | | Revenue | 60% | $2,400.0M | $3,000.0M | $6,000.0M | $2,813.2M | 93.8% | | EBITDA | 30% | $522.2M | $652.7M | $1,305.4M | $584.4M | 89.5% | | Diversity and Inclusion | 10% | | | | | 25.0% | | Global Female Diversity Goal | 2.5% | 25.3% | +1.3% | +2.6% | +0% | 0% | | U.S. Black Diversity Goal | 2.5% | 3.4% | +0.5% | +1.0% | +0.1% | 20% | | U.S. Hispanic/Latino(a) Diversity Goal | 2.5% | 5.3% | +0.3% | +.6% | -.1% | 0% | | Inclusion Goal | 2.5% | 70% | 80% | 90% | 76% | 80% | | Cash bonus as a % of target | | | | | | 85.6%(2) |
2023 Cash Incentive Award
| 1. | Rounded to nearest tenth of a percent. |
2023 Cash Incentive Award
| 2. | The Compensation Committee capped the NEO cash incentive bonuses at 30% of target for the NEOs other than Mr. Locoh-Donou and at 0% for Mr. Locoh-Donou |
Equity Compensation
Equity Compensation To further align the compensation of the Company’s executive officers with the creation of shareholder value, the Company grants to its NEOs long-term incentive compensation composed of equity compensation that is both performance-based and time-based (the “LTI Grants”). The Committee evaluates market conditions for executive compensation in determining the levels of LTI Grants for each of the NEOs (see section entitled “Factors Considered by The Committee in Establishing Executive Compensation – Market Analysis”). The Committee believes that equity ownership aligns the interests of executive officers with those of shareholders and provides significant motivation to executive officers to maximize value for the Company’s shareholders. The Committee periodically approves grants of equity-based compensation in the form of RSUs under the Company’s equity incentive plan. Beginning in fiscal year 2022, to reflect a greater emphasis on pay for performance, we increased the performance-based portion of the Chief Executive Officer’s target equity award from 50% to 60%. For fiscal year 2023, the RSUs were 50% time-based for NEOs other than the CEO (40% for the CEO), vesting over three years in equal
Equity Compensation
| 44 | Fiscal Year 2023 Proxy Statement |
Equity Compensation
| | Executive Compensation |
Equity Compensation
quarterly increments, and 50% performance-based for NEOs other than the CEO (60% for the CEO), vesting over three years annually, subject to the Company achieving specified performance targets over the three-year period following the awards (the “2023 Performance Awards”). The Committee considers the following factors in determining the size of the grants:
Equity Compensation
| • | Relative position and responsibilities of each NEO, |
Equity Compensation
| • | Previous and expected contributions of each officer to the Company’s success, and |
Equity Compensation
| • | Equity compensation data from peer group companies provided by the independent compensation consultant, including data at the 25th, 50th, and 75th percentiles. |
Equity Compensation
The Board of Directors has adopted a “Policy Regarding the Granting of Equity-Based Compensation Awards,” which provides that the Committee or the Board of Directors, as applicable, will approve equity awards to current employees and service providers (other than newly promoted individuals and non-employee directors) on an annual basis on the first business day in November. A copy of this Policy may be found under the “Company — Investor Relations — ESG — Governance Documents” section of the Company’s website.
Fiscal Year 2023 Equity Awards
Fiscal Year 2023 Equity Awards For fiscal year 2023, the Committee made annual equity awards (2023 Equity Award) to the NEOs as set forth below.
Fiscal Year 2023 Equity Awards
| | 2023 Service- Based Equity Awards | 2023 Performance- Based Equity Awards | 2023 Annual Target Value | | François Locoh-Donou | 30,442 | 45,662 | $11,000,072 | | Frank Pelzer | 9,686 | 9,686 | $2,800,029 | | Tom Fountain | 12,108 | 12,108 | $3,500,036 | | Kara Sprague | 13,146 | 13,146 | $3,800,101 | | Chad Whalen | 11,416 | 11,416 | $3,300,137 |
Fiscal Year 2023 Equity Awards
The annual equity awards to Messrs. Pelzer, Fountain, Whalen, and Ms. Sprague vest over three years, with 50% of the awards vesting in equal quarterly increments. The other 50% of the awards are performance-based and vest in three equal (at target) annual increments subject to the achievement of performance-based goals as set forth below. The annual equity award to Mr. Locoh-Donou vests over three years, with 40% of the award vesting in equal quarterly increments. The other 60% of the award is performance-based and vests in three equal (at target) annual increments subject to the achievement of performance-based goals as set forth below.
Performance Metrics
Performance Metrics The Committee worked in conjunction with its independent compensation consultants to choose the performance goals for the LTI performance-based RSUs. In accordance with the Company’s stated growth strategy, the Committee believes that top line revenue growth continues to be a primary driver of shareholder value creation. The Committee believes that revenue growth is the most heavily weighted measure for shareholder value creation and as such it furthers the shared interests of the Company’s executive officers and shareholders. In addition, the Committee recognized the significant transformation of its business to be software and SaaS led as well as investor sentiment regarding the prior inclusion of the software growth metric and renewed focus on profitability in the current macroenvironment, and therefore replaced the software revenue growth performance metric with an Earnings Per Share (EPS) metric. Finally, to continue to align executive compensation with shareholder returns, the Committee used a relative TSR metric as benchmarked against the S&P 500. The TSR metric is measured over two and three years for outstanding awards.
Performance Metrics
| Fiscal Year 2023 Proxy Statement | 45 |
Performance Metrics
| | Executive Compensation |
Performance Metrics
One third of the 2023 Performance Awards vested on November 1, 2023, based on achieving the goals set forth below. The remaining two thirds of the awards are subject to vesting annually thereafter based on achieving performance goals established by the Committee. The Committee established the following performance metrics for the 2023 Performance Awards and the fiscal 2023 vesting of the equity awards made to NEOs in fiscal years 2022 and 2021 (2022 and 2021 Performance Awards):
Performance Metrics
| • | 50% of the goal was based on the Company achieving target GAAP revenue for the fiscal year; |
Performance Metrics
| • | 25% of the goal was based on the Company achieving target Non-GAAP earnings per share (“EPS”) for the fiscal year. The EPS metric is computed by dividing non-GAAP net income by the weighted average number of shares of Common Stock and dilutive Common Stock equivalents outstanding during the fiscal year. Non-GAAP net income excludes, as applicable, stock-based compensation, amortization and impairment of purchased intangible assets, facility-exit costs, acquisition-related charges, net of taxes, restructuring charges, and certain non-recurring tax expenses and benefits and is adjusted by the amount of additional taxes or tax benefit that the Company would accrue if it used this non-GAAP net income instead of GAAP net income to calculate the Company’s tax liability; and |
Performance Metrics
| • | 25% of the 2023 Performance Award goal was based on one-year relative TSR benchmarked against the S&P 500 Index, 25% of the 2022 Performance Award was based on a two-year relative TSR, and 25% of the 2021 Performance Award was based on a three-year relative TSR as established by the Committee in fiscal year 2023, 2022, and 2021, respectively. |
Performance Metrics
The threshold, target, and maximum goals and payout levels for these metrics are set forth below:
Performance Metrics
| Level | Total Revenue Metric | % Payout | EPS Metric | % Payout | Relative TSR Percentile Rank Metric | % Payout(1) | | Threshold | $2,400B | 80% | $10.35 | 90% | 25th | 50% | | Target | $3,000B | 100% | $11.50 | 100% | 50th | 100% | | Maximum | $6,000B | 200% | $12.65 | 110% | >75th | 200% | | 2023 Actual | $2,813.2B | 93.8% | $11.70 | 117.4% | 48th | 95.4% |
Performance Metrics
| 1. | Rounded to nearest tenth of a percent. |
Performance Metrics
Vesting and payment with respect to each 2023, 2022, and 2021 Performance Award goal is subject to meeting the threshold level and is measured linearly above the threshold of the applicable goal. Each goal is capped at achievement of 200% payout.
Performance Metrics
| 46 | Fiscal Year 2023 Proxy Statement |
Performance Metrics
| | Executive Compensation |
Performance Metrics
For the fiscal years 2021, 2022, and 2023 Performance Awards, the executive officers achieved the following:
Performance Metrics
| Metric | 2021 (3yr TSR) | 2022 (2yr TSR) | 2023 (1yr TSR) | | TSR | 24.86% | (21.30)% | 10.19% | | Percentile | 48th | 24th | 48th | | TSR Payout(1) | 95.5% | 0% | 95.4% |
Performance Metrics
| 1. | Rounded to nearest tenth of a percent. |
Performance Metrics
| • | Based on the relative weighting of each goal, the total achievement was 100.1% for the 2023 Performance Award, 76.3% for the 2022 Performance Award, and 100.1% for the 2021 Performance Award as illustrated below. |
Performance Metrics
As noted in the section above on “Compensation Philosophy,” the Committee believes this performance formula has contributed to the Company’s financial performance and is of crucial importance in maintaining and growing shareholder value and furthering the shared interests of the Company’s executive officers and shareholders. The performance-based equity incentive compensation is paid out on a linear basis above threshold, setting up the executive officers’ total direct compensation to be reduced significantly if the Company has poor operating results. Since the performance formula does not include any multipliers or other accelerators and each goal is capped at achievement of 200% payout, the performance formula limits to a reasonable and foreseeable level the amount of performance-based equity incentive compensation paid in the case of strong operating results exceeding the targets.
Performance Metrics
| Fiscal Year 2023 Proxy Statement | 47 |
Performance Metrics
| | Executive Compensation |
Performance Metrics
The performance formula and targets represent key metrics by which the Company is evaluated and provide an appropriate and effective balance of performance incentives to focus and motivate executive officers to maximize value for the Company’s shareholders without excessive risk-taking. Equity awards not earned for any performance period are forfeited. Generally, an NEO must be employed by the Company or its affiliates on each vesting date to receive the shares of Common Stock issuable on that date. The grant date fair value of equity incentive awards reported in the Grants of Plan-Based Awards in Fiscal 2023 Table is based on the closing price of the Common Stock on the accounting grant date, which, in the case of portions of the later tranches of portions of the performance-based equity awards, is later than the date the Committee determines the number of shares underlying the annual awards to executives. Therefore, the Table includes the cumulative value of a portion of performance-based equity awards issued in fiscal years 2021, and 2022, as reflected in footnotes (3) and (5) in the Table. Footnotes (4) and (5) of the Grants of Plan-Based Awards Table in Fiscal Year 2023 include additional information regarding the performance-based equity compensation program in fiscal year 2023.
Performance Metrics
| Factors Considered by The Committee in Establishing Executive Compensation | Market Analysis The Committee conducts an annual review of the executive compensation program and uses peer and survey group data to help set proper compensation levels. The Committee retained an outside independent compensation consultant to assist it in this review and to conduct a competitive review of the total direct compensation (cash and equity compensation) for the Company’s executive officers for fiscal year 2023. The Committee instructed the independent compensation consultant to collect base salary, total cash, long-term incentive, and total direct compensation data and to analyze and compare on a pay rank and position basis our executive officers’ compensation with the compensation paid to comparable executives. The consultant used Proxy Statement data from the companies in the peer group it developed that the Committee approved, as well as survey data. |
Performance Metrics
To assess the competitive market pay levels for the Company’s NEOs, the Committee asked its independent compensation consultant to review and update the Company’s peer group for fiscal year 2023 to:
Performance Metrics
| • | ensure it consisted of organizations that are comparable to the Company in terms of complexity of operations and size; |
Performance Metrics
| • | compare each of the executive positions to positions in the peer group as well as positions in a survey prepared for the Company by Radford; and |
Performance Metrics
| • | gather and analyze compensation data from the peer group proxies and published survey sources, and provide an analysis of realized pay trends for the Company’s executive officers. |
Performance Metrics
The Committee reviewed this data and the recommendations of the independent compensation consultant and evaluated these inputs in the context of its compensation philosophy and historical pay practices. Based on this review, the Committee established the fiscal year 2023 compensation program for the NEOs. In reviewing the peer group, the Committee focused on companies that the Company competes with in the marketplace and for talent, as well as other factors identified by the independent compensation consultant. In addition, the Company’s continued growth, expanding business model, and software and security focus led the Committee to conclude that a broad range of peer companies was appropriate and included a mix of larger and smaller companies. Company size both in terms of revenue and market capitalization were factors that were considered in choosing
Performance Metrics
| 48 | Fiscal Year 2023 Proxy Statement |
Performance Metrics
| | Executive Compensation |
Performance Metrics
the peer group companies. The Committee also believed that other factors such as similar industry and operational focus, comparable business models, growth rates, competition for executive talent, and availability and quality of pay data were also relevant in evaluating the Peer Group Companies. Based on this information and input from management, Mercer recommended that the Committee modify the set of peers for fiscal year 2023 by adding CrowdStrike Holdings, Inc. and Datadog, Inc. due to their alignment on revenue size, talent market and combined match to other industry peer group lists. Mercer also recommended removing Mandiant, Inc. and NetApp, Inc. due to their revenue size, and for NetApp, the lack of business alignment. The remaining peer set continued to be suitable for the Company in evaluating executive compensation practices. Accordingly, the Committee chose the following list of peer companies to analyze the Company’s executive compensation program for fiscal year 2023:
Performance Metrics
| Akamai Technologies, Inc. Arista Networks, Inc. Autodesk, Inc. Cadence Design Systems, Inc. CheckPoint Software Technologies Ltd. Citrix Systems, Inc. | CrowdStrike Holdings, Inc. Datadog, Inc. Fortinet, Inc. Juniper Networks, Inc. Gen Digital, Inc. (formerly NortonLifeLock Inc.) Nutanix, Inc. Palo Alto Networks, Inc. | ServiceNow, Inc. Splunk Inc. Synopsys, Inc. Teradata Corporation VeriSign, Inc. VMWare, Inc. Workday, Inc. |
Performance Metrics
As of the date of the market analysis conducted by Mercer, the Company was positioned within the Peer Group Companies at the 37th percentile in revenues, 14th percentile in market capitalization, and 25th percentile in market capitalization to revenues. For fiscal year 2023, Mercer also reviewed with the Committee compensation data published in the Radford Survey for companies in the Company’s peer group. This data was used by the Company primarily as a competitive reference for positions below the executive officer level and as supplemental data where no proxy data was available.
Hedging Policy
| Employment Contracts and Double-Trigger Change-of-Control Arrangements | After an extensive review process and in consultation with Willis Towers Watson and outside legal counsel, the Company entered into change-of-control agreements with each of the executive officers (the “Change of Control Agreement”) (See “Potential Payments Upon Termination or Change of Control”). The Committee recognizes that the threat or possibility of an acquisition by another company or some other change of control event can be a distraction and believes that it is in the best interests of the Company and its shareholders to ensure that the Company will have the continued full attention and dedication of the NEOs notwithstanding the possibility, threat, or occurrence of such an event. See the “2023 Potential Payments Upon Termination or Change of Control Table” for additional information regarding the potential payments and benefits that each NEO could receive under the change-of-control agreements. The change-of-control agreements feature a “double trigger” in that the executive officer will not receive the severance amount unless their employment is terminated under certain circumstance within two years after the change of control event. The RSU grant agreements issued to our NEOs provide that upon certain changes of control of the Company the vesting of outstanding and unvested RSUs will accelerate and the RSUs will become fully vested. We believe that the change-of-control provisions provide an additional tool for attracting and retaining key executive officers. |
Hedging Policy
In addition to the foregoing, the Company provided Mr. Locoh-Donou with a written agreement providing that should the Company terminate Mr. Locoh-Donou without “Cause” as that term is defined in the Company’s standard form Change-of-Control agreement, or for “Good Reason” as described in his offer letter and further described in the section entitled “Potential Payments Upon Termination or Change of Control” below, it would pay him a severance amount equal to his first year salary and executive incentive compensation at target as well as the vesting of equity set to vest within the next six months following his termination or payment in lieu of such vest at the discretion of the Committee. Such payments are subject to Mr. Locoh-Donou’s resignation from the Board of Directors and compliance with a one-year non-competition agreement. There are currently no other written employment contracts providing severance to any of the NEOs. Each such officer is an “at-will” employee, and his or her employment may be terminated anytime with or without cause. In recognition of an executive officer’s service and contributions to the Company’s success, the Company may enter into a separation agreement with an executive officer. These agreements also include other customary terms and conditions, such as releases, and may also require the former executive to provide certain transition services or covenants not to compete at the request of the Company.
Hedging Policy
| Summary Compensation Table | The following table sets forth information concerning compensation for services rendered to us by (a) our Chief Executive Officer in fiscal year 2023, (b) our Chief Financial Officer (the “CFO”) and (c) our three other most highly compensated executive officers who were serving as our executive officers at the end of fiscal year 2023. These executive officers are collectively hereinafter referred to as the “Named Executive Officers” or “NEOs.” |
Summary Compensation Table for Fiscal Year 2023
Summary Compensation Table for Fiscal Year 2023
Summary Compensation Table for Fiscal Year 2023
| Name and Principal Position | Year | Salary ($) | Bonus ($) | Stock Awards ($)(1) | Non-Equity Incentive Plan Compensation ($)(2) | All Other Compensation ($)(3) | Total ($)(4) | | François Locoh-Donou President and Chief Executive Officer | 2023 | 962,000 | — | 9,853,662 | — | 41,104 | 10,856,766 | | | 2022 | 925,000 | — | 10,824,280 | 1,069,162 | 5,420 | 12,823,862 | | | 2021 | 875,000 | — | 9,406,895 | 1,183,431 | 4,400 | 11,469,726 | | Frank Pelzer Executive VP and Chief Financial Officer | 2023 | 562,000 | — | 2,661,586 | 151,740 | 6,170 | 3,381,496 | | | 2022 | 540,000 | | 2,988,305 | 432,110 | 6,080 | 3,966,495 | | | 2021 | 510,000 | — | 2,612,746 | 477,534 | 5,420 | 3,605,700 | | Tom Fountain Executive VP of Global Services and Chief Strategy Officer | 2023 | 582,000 | — | 3,405,852 | 174,600 | 1,450 | 4,163,902 | | | 2022 | 560,000 | — | 4,024,016 | 497,905 | 7,745 | 5,089,666 | | | 2021 | 546,000 | — | 3,465,578 | 568,047 | 3,295 | 4,582,921 | | Kara Sprague Executive VP and Chief Product Officer | 2023 | 525,000 | — | 3,491,814 | 141,750 | 16,754 | 4,175,318 | | | 2022 | 500,000 | — | 3,629,135 | 400,102 | 5,420 | 4,534,657 | | | 2021 | 490,000 | — | 2,635,287 | 458,807 | 5,420 | 3,589,514 | | Chad Whalen Executive VP of Worldwide Sales | 2023 | 499,000 | — | 3,404,161 | 149,700 | 42,078 | 4,094,939 | | | 2022 | 480,000 | — | 6,064,942 | 426,776 | 5,420 | 6,977,138 | | | 2021 | 450,000 | — | 2,865,121 | 468,170 | 5,420 | 3, 788,711 |
Summary Compensation Table for Fiscal Year 2023
| 1. | This column represents the aggregate grant date fair value of RSUs treated as granted to Named Executive Officers in the applicable year computed in accordance with Accounting Standards Codification Topic 718, Stock Compensation (ASC Topic 718) and determined as of the grant date under ASC Topic 718. The amounts shown exclude the impact of estimated forfeitures related to service-based vesting conditions. For additional information, please refer to note 1 “Summary of Significant Accounting Policies — Stock-based Compensation” and note 10 “Stock-based Compensation” included in our financial statements in our Annual Report to Shareholders on Form 10-K for the fiscal year ended September 30, 2023. Additional information about the RSUs including maximum opportunity appears in the Compensation Discussion and Analysis and in the Grants of Plan-Based Awards table and related narrative. |
Summary Compensation Table for Fiscal Year 2023
| 2. | This column represents the total cash incentive bonus paid to the Named Executive Officers for fiscal year 2023 under the Incentive Plan. For additional information, see the discussion of the cash incentive bonus set forth in the Compensation Discussion and Analysis and footnote (2) of the Grants of Plan-Based Awards in Fiscal Year 2023 Table. |
Summary Compensation Table for Fiscal Year 2023
| 52 | Fiscal Year 2023 Proxy Statement |
Summary Compensation Table for Fiscal Year 2023
| | Executive Compensation |
Summary Compensation Table for Fiscal Year 2023
| 3. | Items in the “All Other Compensation” column are outlined in the following table: |
Items in All Other Compensation Column for Fiscal Year 2023
| 4. | The Company did not provide any options for the applicable fiscal years and does not have a pension or nonqualified deferred compensation plan. |
Grants of Plan-Based Awards in Fiscal Year 2023
Grants of Plan-Based Awards in Fiscal Year 2023
Grants of Plan-Based Awards in Fiscal Year 2023
| | | | Estimated Possible Payouts Under Non-equity Incentive Plan Awards(2) | | | Estimated Possible Payouts Under Equity Incentive Plan Awards(5) | | | All Other Stock Awards: Number of Shares of Stock or Units (#)(6) | Grant Date Fair Value of Stock Awards ($)(7) | | Name | Grant Date | Approval Date | Threshold ($) | Target ($) | Maximum ($) | Threshold (#) | Target (#) | Maximum (#) | | | | François Locoh-Donou | 11/1/2022(1) | 10/31/2022 | — | — | — | — | — | — | 30,442 | 4,400,087 | | | 10/31/2022(1)(3) | 10/31/2022 | — | — | — | 10,549 | 15,070 | 30,139 | — | 2,153,582 | | | 11/1/2022(1)(4) | 10/31/2022 | — | — | — | 13,699 | 22,831 | 45,662 | — | 3,299,993 | | | | | 900,432 | 1,250,600 | 2,501,200 | — | — | — | — | — | | Frank Pelzer | 11/1/2022(1) | 10/31/2022 | — | — | — | — | — | — | 9,686 | 1,400,014 | | | 10/31/2022(1)(3) | 10/31/2022 | — | — | — | 2,751 | 3,930 | 7,859 | — | 561,565 | | | 11/1/2022(1)(4) | 10/31/2022 | — | — | — | 2,906 | 4,843 | 9,686 | — | 700,007 | | | | | 364,176 | 505,800 | 1,011,600 | — | — | — | — | — | | Tom Fountain | 11/1/2022(1) | 10/31/2022 | — | — | — | — | — | — | 12,108 | 1,750,090 | | | 10/31/2022(1)(3) | 10/31/2022 | — | — | — | 3,824 | 5,463 | 10,926 | — | 780,717 | | | 11/1/2022(1)(4) | 10/31/2022 | — | — | — | 3,632 | 6,054 | 12,108 | — | 875,045 | | | | | 419,040 | 582,000 | 1,164,000 | — | — | — | — | — | | Kara Sprague | 11/1/2022(1) | 10/31/2022 | — | — | — | — | — | — | 13,146 | 1,900,123 | | | 10/31/2022(1)(3) | 10/31/2022 | — | — | — | 3,143 | 4,490 | 8,980 | — | 641,630 | | | 11/1/2022(1)(4) | 10/31/2022 | — | — | — | 3,944 | 6,573 | 13,146 | — | 950,061 | | | | | 340,200 | 472,500 | 945,000 | — | — | — | — | — | | Chad Whalen | 11/1/2022(1) | 10/31/2022 | — | — | — | — | — | — | 11,416 | 1,650,069 | | | 10/31/2022(1)(3) | 10/31/2022 | — | — | — | 4,551 | 6,501 | 13,002 | — | 929,058 | | | 11/1/2022(1)(4) | 10/31/2022 | — | — | — | 3,425 | 5,708 | 11,416 | — | 825,034 | | | | | 359,280 | 499,000 | 998,000 | — | — | — | — | — |
Grants of Plan-Based Awards in Fiscal Year 2023
| 1. | RSUs granted under the F5, Inc. Incentive Plan. No options were granted to the NEOs in fiscal year 2023. |
Grants of Plan-Based Awards in Fiscal Year 2023
| 2. | Represents the cash incentive bonus opportunity for fiscal year 2023 under the Incentive Plan. The cash incentive bonus opportunity is a percentage of base salary for the fiscal year, |
Grants of Plan-Based Awards in Fiscal Year 2023
60% of the cash incentive bonus is based on the Company achieving target revenue for the fiscal year, 30% is based on the Company achieving target EBITDA for the fiscal year and 10% is based on the Company achieving target growth in D&I. No cash incentive bonus with respect to the revenue and EBITDA performance goals will be paid for results less than 80% of an applicable target. Payment with respect to the revenue and EBITDA performance goals are linear above 80% of the applicable target goal and subject to a 200% cap. Payment with respect to the Diversity Goals is straight-line for growth over the baseline subject to the 200% cap and the Inclusion Goal is subject to a 70% achievement threshold and paid linear above the applicable target and subject to the 200% cap at a 90% achievement level. The actual cash incentive bonus earned for fiscal year 2023 is set forth above in the “Non-Equity Incentive Plan Compensation” column of the Summary Compensation Table for Fiscal Year 2023 and reflects the decision of the Compensation Committee to cap the NEO cash incentive bonuses at 30% of target for the NEOs other than Mr. Locoh-Donou and 0% for Mr. Locoh-Donou. More details regarding the cash incentive bonus is set forth in the Compensation Discussion and Analysis.
Grants of Plan-Based Awards in Fiscal Year 2023
| 3. | Represents (i) the second year performance portion of the revenue metric and transformation metric of the annual equity awards issued to all NEOs in fiscal year 2022 (12.5% of the total annual equity awards issued in fiscal year 2022)(the “2022 Performance Award”), the (ii) third year performance portion of the revenue and transformation metric of the annual equity awards issued to all NEOs in fiscal year 2021 (12.5% of the |
Grants of Plan-Based Awards in Fiscal Year 2023
| 54 | Fiscal Year 2023 Proxy Statement |
Grants of Plan-Based Awards in Fiscal Year 2023
| | Executive Compensation |
Grants of Plan-Based Awards in Fiscal Year 2023
total annual equity awards issued in fiscal year 2021)(the “2021 Performance Award”) and the second year performance portion of the revenue metric and transformation metric of the performance-based equity award issued to Mr. Whalen in fiscal year 2022 (12.5% of the total equity award issued to Mr. Whalen in February 2022) (the “Whalen Performance Award”). Under ASC Topic 718, these performance awards are treated as grants in fiscal year 2023 as the applicable performance targets were set in fiscal year 2023. The closing price of the Common Stock on the grant date of October 31, 2022 was $142.91.
Grants of Plan-Based Awards in Fiscal Year 2023
| 4. | The performance-based annual equity awards issued to each NEO in fiscal year 2023 vest annually over three years, until such portion of the grant is fully vested on November 1, 2025. The Estimated Possible Payouts Under Equity Incentive Plan Awards is set forth for the first year performance portion of the revenue metric (8.333% of the total equity awards issued in fiscal year 2023), first year performance portion of the transformation metric (4.166% of the total equity awards issued in fiscal year 2023) and all three years performance portion of the TSR metric (12.5% of the total equity awards issued in fiscal year 2023) for the equity awards issued in fiscal year 2023 (25% of the total equity awards issued in fiscal year 2023) (the “2023 Performance Award”). The closing price of the Common Stock on the grant date of November 1, 2022 was $144.54. |
Grants of Plan-Based Awards in Fiscal Year 2023
| 5. | 60% for Mr. Locoh-Donou and 50% for all other NEOs 2022 and 2023 Performance Award and 50% of the 2021 and 2022 Performance Award goal is based on the Company achieving target GAAP revenue for the 2023 fiscal year and 25% of the goal is based on the Company achieving target Non-GAAP EPS for the fiscal year 2023. Relative TSR to the S&P 500 Index is weighted as 25% of the goal for all fiscal years within the performance period of the 2023 Performance Award. |
Grants of Plan-Based Awards in Fiscal Year 2023
| 6. | Represents the service-based 50% of the annual equity awards issued on November 1, 2022 to each of Messrs. Pelzer, Fountain, and Whalen and Ms. Sprague; and represents the service-based 40% of the annual equity award issued to Mr. Locoh-Donou. The annual equity award vests in equal quarterly increments over three years, until such portion of the grant is fully vested on November 1, 2025. |
Grants of Plan-Based Awards in Fiscal Year 2023
| 7. | This column represents the aggregate grant date fair value of the RSUs treated as granted to NEOs in fiscal year 2023, computed in accordance with ASC Topic 718. The amounts shown exclude the impact of estimated forfeitures related to service-based vesting conditions. For additional information, please refer to note 1 “Summary of Significant Accounting Policies — Stock-based Compensation” and note 10 “Stock-based Compensation” in our financial statements included in our Annual Report to Shareholders on Form 10-K for the fiscal year ended September 30, 2023. |
Grants of Plan-Based Awards in Fiscal Year 2023
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Grants of Plan-Based Awards in Fiscal Year 2023
| | Executive Compensation |
Outstanding Equity Awards at September 30, 2023
Outstanding Equity Awards at September 30, 2023
Outstanding Equity Awards at September 30, 2023
| | Stock Awards(1) | | | | | Name | Number of Shares or Units of Stock That Have Not Vested (#) | Market Value of Shares or Units of Stock That Have Not Vested ($)(7) | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)(7) | | François Locoh-Donou | 33,279(2) | 5,362,578 | 75,053(8) | 12,094,040 | | Frank Pelzer | 10,513(3) | 1,694,065 | 16,863(9) | 2,717,304 | | Tom Fountain | 13,615(4) | 2,193,921 | 22,104(10) | 3,561,839 | | Kara Sprague | 13,915(5) | 2,242,263 | 21,690(11) | 3,495,127 | | Chad Whalen | 17,536(6) | 2,825,751 | 25,069(12) | 4,039,619 |
Outstanding Equity Awards at September 30, 2023
| 1. | No NEO had options outstanding at September 30, 2023. |
Outstanding Equity Awards at September 30, 2023
| 2. | Composed of the following equity awards: (i) 2,699 RSUs which vest in equal quarterly increments through November 1, 2023; (ii) 7,748 RSUs which vest in equal quarter increments through November 1, 2024; and (iii) 22,832 RSUs from the annual equity award issued in fiscal year 2023 as set forth in footnote (6) to the Grants of Plan-Based Awards in Fiscal Year 2023 Table which vest in equal quarterly increments through November 1, 2025. |
Outstanding Equity Awards at September 30, 2023
| 3. | Composed of the following equity awards: (i) 826 RSUs which vest in equal quarterly increments through November 1, 2023; (ii) 2,422 RSUs which vest in equal quarterly increments through November 1, 2024; and (iii) 7,265 RSUs from the annual equity award issued in fiscal year 2023 as set forth in footnote (6) to the Grants of Plan-Based Awards in Fiscal Year 2023 Table which vest in equal quarterly increments through November 1, 2025. |
Outstanding Equity Awards at September 30, 2023
| 4. | Composed of the following equity awards: (i) 1,144 RSUs which vest in equal quarterly increments through November 1, 2023; (ii) 3,390 RSUs which vest in equal quarterly increments through November 1, 2024; and (iii) 9,081 RSUs from the annual equity award issued in fiscal year 2023 as set forth in footnote (6) to the Grants of Plan-Based Awards in Fiscal Year 2023 Table which vest in equal quarterly increments through November 1, 2025. |
Outstanding Equity Awards at September 30, 2023
| 5. | Composed of the following equity awards: (i) 858 RSUs which vest in equal quarterly increments through November 1, 2023; (ii) 3,197 RSUs which vest in equal quarterly increments through November 1, 2024; and (iii) 9,860 RSUs from the annual equity award issued in fiscal year 2023 as set forth in footnote (6) to the Grants of Plan-Based Awards in Fiscal Year 2023 Table which vest in equal quarterly increments through November 1, 2025. |
Outstanding Equity Awards at September 30, 2023
| 6. | Composed of the following equity awards: (i) 921 RSUs which vest in equal quarterly increments through November 1, 2023; (ii) 3,197 RSUs which vest in equal quarterly increments through November 1, 2024; (iii) 4,856 RSUs from Mr. Whalen’s February 1, 2022 equity award issued in fiscal 2022 which vests in equal annual increments through February 1, 2025; and (iv) 8,562 RSUs from the annual equity award issued in fiscal year 2023 as set forth in footnote (6) to the Grants of Plan-Based Awards in Fiscal Year 2023 Table which vest in equal quarterly increments through November 1, 2025. |
Outstanding Equity Awards at September 30, 2023
| 7. | Calculated by multiplying the number of unvested RSUs held by the NEO by the closing price of the Common Stock ($161.14) on September 29, 2023. |
Outstanding Equity Awards at September 30, 2023
| 8. | Composed of the following equity awards: (i) 10,796 RSUs from the annual equity award issued in fiscal year 2021 which vest in equal annual installments through November 1, 2023; (ii) 18,595 RSUs from the annual equity award issued in fiscal year 2022 which vest in equal annual installments through November 1, 2024; and (iii) 45,662 RSUs from the annual equity award issued in fiscal year 2023 which vest in equal annual installments through November 1, 2025, subject to the Company achieving performance criteria and assuming target payout. The RSUs from the annual equity awards issued in fiscal years 2021, 2022, and 2023 for which the performance criteria have not been established as of September 30, 2023 have been treated as outstanding at target for purposes of this table but are not yet treated as granted under ASC Topic 718. |
Outstanding Equity Awards at September 30, 2023
| 56 | Fiscal Year 2023 Proxy Statement |
Outstanding Equity Awards at September 30, 2023
| | Executive Compensation |
Outstanding Equity Awards at September 30, 2023
| 9. | Composed of the following equity awards: (i) 3,303 RSUs from the annual equity award issued in fiscal year 2021 which vest in equal annual installments through November 1, 2023; (ii) 3,874 RSUs from the annual equity award issued in fiscal year 2022 which vest in equal annual installments through November 1, 2024; and (iii) 9,686 RSUs from the annual equity award issued in fiscal year 2023 which vest in equal annual installments through November 1, 2025, subject to the Company achieving performance criteria and assuming target payout. The RSUs from the annual equity awards issued in fiscal years 2021, 2022, and 2023 for which the performance criteria have not been established as of September 30, 2023 have been treated as outstanding at target for purposes of this table but are not yet treated as granted under ASC Topic 718. |
Outstanding Equity Awards at September 30, 2023
| 10. | Composed of the following equity awards: (i) 4,573 RSUs from the annual equity award issued in fiscal year 2021 which vest in equal annual installments through November 1, 2023; (ii) 5,423 RSUs from the annual equity award issued in fiscal year 2022 which vest in equal annual installments through November 1, 2024; and (iii) 12,108 RSUs from the annual equity award issued in fiscal year 2023 which vest in equal annual installments through November 1, 2025, subject to the Company achieving performance criteria and assuming target payout. The RSUs from the annual equity awards issued in fiscal years 2021, 2022, and 2023 for which the performance criteria have not been established as of September 30, 2023 have been treated as outstanding at target for purposes of this table but are not yet treated as granted under ASC Topic 718. |
Outstanding Equity Awards at September 30, 2023
| 11. | Composed of the following equity awards: (i) 3,430 RSUs from the annual equity award issued in fiscal year 2021 which vest in equal annual installments through November 1, 2023; (ii) 5,114 RSUs from the annual equity award issued in fiscal year 2022 which vest in equal annual installments through November 1, 2024; and (iii) 13,146 RSUs from the annual equity award issued in fiscal year 2023 which vest in equal annual installments through November 1, 2025, subject to the Company achieving performance criteria and assuming target payout. The RSUs from the annual equity awards issued in fiscal years 2021, 2022, and 2023 for which the performance criteria have not been established as of September 30, 2023 have been treated as outstanding at target for purposes of this table but are not yet treated as granted under ASC Topic 718. |
Outstanding Equity Awards at September 30, 2023
| 12. | Composed of the following equity awards: (i) 3,684 RSUs from the annual equity award issued in fiscal year 2021 which vest in equal annual installments through November 1, 2023; (ii) 5,114 RSUs from the annual equity award issued in fiscal year 2022 which vest in equal annual installments through November 1, 2024; (iii) 4,855 RSUs from Mr. Whalen’s February 1, 2022 equity award issued in fiscal year 2022 which vest in equal annual installments through February 1, 2025; and (iv) 11,416 RSUs from the annual equity award issued in fiscal year 2023 which vest in equal annual installments through November 1, 2025, subject to the Company achieving performance criteria and assuming target payout. The RSUs from the annual equity awards issued in fiscal years 2021, 2022, and 2023 for which the performance criteria have not been established as of September 30, 2023 have been treated as outstanding at target for purposes of this table but are not yet treated as granted under ASC Topic 718. |
Option Exercises and Stock Vested in Fiscal Year 2023
Option Exercises and Stock Vested in Fiscal Year 2023
Option Exercises and Stock Vested in Fiscal Year 2023
| | Stock Awards(1) | | | Name | Number of Shares Acquired on Vesting (#) | Value Realized on Vesting ($)(2) | | François Locoh-Donou | 53,829 | $7,854,181 | | Frank Pelzer | 15,909 | $2,322,509 | | Tom Fountain | 20,696 | $3,022,162 | | Kara Sprague | 17,987 | $2,628,001 | | Chad Whalen | 22,610 | $3,320,214 |
Option Exercises and Stock Vested in Fiscal Year 2023
| 1. | There were no option exercises in fiscal year 2023. |
Option Exercises and Stock Vested in Fiscal Year 2023
| 2. | Amounts reflect the closing price of the Common Stock on the day the stock award vested, multiplied by the number of shares. |
Option Exercises and Stock Vested in Fiscal Year 2023
| Fiscal Year 2023 Proxy Statement | 57 |
Option Exercises and Stock Vested in Fiscal Year 2023
| | Executive Compensation |
Option Exercises and Stock Vested in Fiscal Year 2023
| Potential Payments Upon Termination or Change of Control | Each of our Named Executive Officers is an “at-will” employee, and his or her employment may be terminated at any time with or without cause. | | | The Company has entered into change of control agreements with Messrs. Locoh-Donou, Pelzer, Fountain and Whalen and Ms. Sprague. These change of control agreements are “double trigger” agreements which provide a protection period of two years after a change of control during which the Named Executive Officer’s annual base salary and annual target incentive bonus cannot be reduced. In addition, each change of control agreement entitles the executive officer to severance benefits if his or her employment with the Company is terminated within two years after a change of control of the Company, unless such termination is (i) due to death or total disability, (ii) by the Company for cause, or (iii) by the executive officer without good reason. The amount of severance payable to Mr. Locoh-Donou will be equal to two times, and in the case of the other Named Executive Officers one time the sum of the executive officer’s (a) annual salary at the highest rate in effect in the 12 months preceding the change of control date and (b) highest annual target incentive bonus in effect in the 12 months preceding the change of control date. In addition, each Named Executive Officer will be entitled to a pro-rata annual bonus for the year in which his or her termination of employment occurs, and payment by the Company of premiums for health insurance benefit continuation for one year after termination of the Named Executive Officer’s employment, outplacement services for a period of up to 12 months with a cost to the Company of up to $25,000, and vesting of equity awards. The change of control agreements do not include a tax gross up payment provision. If payments under the change of control agreements or otherwise would subject a Named Executive Officer to the IRS parachute excise tax, the Company would then either (i) reduce the payments to the largest portion of the payments that would result in no portion of the payments being subject to the parachute excise tax or (ii) pay the full amount of such payments, whichever is better on an after-tax basis for the Named Executive Officer. |
Option Exercises and Stock Vested in Fiscal Year 2023
For purposes of the change of control agreements, a “change of control” is generally defined as (i) acquisition of beneficial ownership of at least 30% of our outstanding shares; (ii) the incumbent directors or those they approve cease to constitute a majority of the Board of Directors; (iii) a consummation of a reorganization, merger, or consolidation unless, following such transaction: (A) more than 50% of the shares after the transaction are beneficially owned by persons who owned shares prior to the transaction in substantially the same proportions, (B) the incumbent Board members constitute more than 50% of the members of the Board, and (C) no person newly acquires beneficial ownership of at least 30% of the shares; (iv) the sale or other disposition of all or substantially all of our assets unless the conditions described above in (A), (B) and (C) are satisfied with respect to the entity which acquires such assets; or (v) our liquidation or dissolution. In addition, the RSU grant agreements issued to our Named Executive Officers provide that upon certain changes in control of the Company the vesting of outstanding and unvested RSUs will accelerate and such RSUs will become fully vested. Named Executive Officers held no outstanding options as of September 30, 2023.
Option Exercises and Stock Vested in Fiscal Year 2023
| 58 | Fiscal Year 2023 Proxy Statement |
Option Exercises and Stock Vested in Fiscal Year 2023
| | Executive Compensation |
Option Exercises and Stock Vested in Fiscal Year 2023
The following table sets forth an estimate of the payments and benefits that each Named Executive Officer would have received if a change of control of the Company occurred on September 30, 2023 and termination of employment occurred immediately thereafter.
2023 Potential Payments Upon Termination After a Change of Control Table(1)
2023 Potential Payments Upon Termination After a Change of Control Table(1)
2023 Potential Payments Upon Termination After a Change of Control Table(1)
| Name | Benefit | Termination After Change of Control ($)(4) | | François Locoh-Donou | Severance amount(2) | 4,425,200 | | | Accelerated vesting of RSUs(3) | 17,456,618 | | | Benefit coverage continuation | 32,717 | | | Outplacement services | 25,000 | | | Total | 21,939,535 | | Frank Pelzer | Severance amount(2) | 1,067,800 | | | Accelerated vesting of RSUs(3) | 4,411,369 | | | Benefit coverage continuation | 32,717 | | | Outplacement services | 25,000 | | | Total | 5,536,886 | | Tom Fountain | Severance amount(2) | 1,164,000 | | | Accelerated vesting of RSUs(3) | 5,755,760 | | | Benefit coverage continuation | 32,717 | | | Outplacement services | 25,000 | | | Total | 6,977,477 | | Kara Sprague | Severance amount(2) | 997,500 | | | Accelerated vesting of RSUs(3) | 5,737,390 | | | Benefit coverage continuation | 10,859 | | | Outplacement services | 25,000 | | | Total | 6,770,749 | | Chad Whalen | Severance amount(2) | 998,000 | | | Accelerated vesting of RSUs(3) | 6,865,370 | | | Benefit coverage continuation | 32,717 | | | Outplacement services | 25,000 | | | Total | 7,921,087 |
2023 Potential Payments Upon Termination After a Change of Control Table(1)
| 1. | Assumes termination and change in control occurred on September 30, 2023. Because termination of employment is assumed to have occurred on September 30, 2023 (the end of the fiscal year), the prorated bonus otherwise payable upon a termination without cause or for good reason is not reflected in the table above. Payments and benefits provided on a nondiscriminatory basis to employees upon termination of employment are also not set forth in the table including accrued salary, accrued but unused paid time off and distributions of plan balances under our 401(k) plan. |
2023 Potential Payments Upon Termination After a Change of Control Table(1)
| 2. | The severance amount is the product of (a) annual salary and annual target incentive bonus, times (b) two for Mr. Locoh-Donou and one for the other Named Executive Officers. |
2023 Potential Payments Upon Termination After a Change of Control Table(1)
| 3. | Calculated by multiplying the number of unvested RSUs (assuming performance-based RSUs at target) held by the NEO by the closing price of the Common Stock ($161.14) on September 29, 2023. |
2023 Potential Payments Upon Termination After a Change of Control Table(1)
| 4. | Amounts in the column “Termination after Change in Control” reflect amounts payable to the NEOs if terminated within two years after a change of control. Note that the acceleration of RSUs occurs upon a Change of Control regardless of whether employment is terminated. |
2023 Potential Payments Upon Termination After a Change of Control Table(1)
| Fiscal Year 2023 Proxy Statement | 59 |
2023 Potential Payments Upon Termination After a Change of Control Table(1)
| | Executive Compensation |
2023 Potential Payments Upon Termination After a Change of Control Table(1)
Mr. Locoh-Donou’s employment is at-will and if the Company terminates Mr. Locoh-Donou’s employment without cause or he terminates his employment for good reason as defined in his employment offer letter, the Company will provide to Mr. Locoh-Donou: (1) an amount equal to his first year base salary and his executive cash incentive compensation calculated at target and (2) at the Company’s discretion, either (a) vesting of Mr. Locoh-Donou’s equity scheduled to vest in the six months following the termination date or (b) the payment of cash equal to the value of such equity as of the termination date. If on September 30, 2023 Mr. Locoh-Donou’s employment had been terminated without cause or he terminated his employment for good reason, he would have been paid severance of $1,794,567 and the RSUs scheduled to vest from October 1, 2023 through March 31, 2024 would at the Company’s discretion either vest or the Company would pay Mr. Locoh-Donou the cash value of such RSUs. 10,872 service-based RSUs and 33,128 performance-based RSUs would have vested in the six-month period following September 30, 2023 with such aggregate 44,000 RSUs valued at $7,090,160 based on the closing price of Common Stock as of September 29, 2023 ($161.14). Such payments are all contingent on Mr. Locoh-Donou’s compliance with certain non-competition restrictions for a period of 12 months following termination of employment described in his offer letter and his execution and the effectiveness of an appropriate general release of claims. The term “cause” shall have the meaning as defined in the change of control agreement referenced above and “good reason” shall have the meaning as defined in his offer letter. In no case shall Mr. Locoh-Donou be entitled to termination payments under both the offer letter and the change of control agreement.
2023 Potential Payments Upon Termination After a Change of Control Table(1)
| Pay Ratio | As provided for by the Dodd-Frank Wall Street Reform and Consumer Protection Act, the SEC adopted a rule requiring companies to disclose the ratio of the median employee’s annual total compensation relative to the annual total compensation of the CEO. As disclosed in the “Summary Compensation Table” above, the fiscal year 2023 annual total compensation for our CEO was $10,856,766. We estimate that the fiscal year 2023 annual total compensation for the median of all employees, excluding our CEO, was $142,691. The resulting ratio of our CEO’s annual total compensation to that of the median of all employees, excluding our CEO, for fiscal year 2023 is 76 to 1. |
2023 Potential Payments Upon Termination After a Change of Control Table(1)
We identified the median employee by (i) aggregating for each employee employed on September 30, 2023 (A) annual base salary for salaried employees or hourly rate multiplied by estimated work schedule for hourly and seasonal employees, in each case annualized for newly-hired employees, (B) target incentive compensation and (C) grant date fair market value of equity compensation, (ii) converting amounts from local currency to U.S. dollars and (iii) ranking this compensation measure for our employees other than our CEO from lowest to highest. We identified the employee with the median target compensation calculated as described in the preceding sentence. We calculated annual total compensation for the median employee using the same methodology used to calculate the “Total” column of the “Summary Compensation Table.” The pay ratio reported above is a reasonable estimate calculated in a manner consistent with SEC rules based on our internal records and the methodology described above. The SEC rules for identifying the median compensated employee and calculating the pay ratio based on that employee’s annual total compensation allow companies to adopt a variety of methodologies, to apply certain exclusions, and to make reasonable estimates and assumptions that reflect their employee populations and compensation practices. Therefore, the pay ratio reported by other companies may not be comparable to the pay ratio reported above, as other companies have different employee populations and compensation practices and may use different methodologies, exclusions, estimates, and assumptions in calculating their own pay ratios.
2023 Potential Payments Upon Termination After a Change of Control Table(1)
| 60 | Fiscal Year 2023 Proxy Statement |
2023 Potential Payments Upon Termination After a Change of Control Table(1)
| PAY VERSUS PERFORMANCE | In accordance with Item 402(v) of Regulation S-K, we provide the following disclosure regarding executive compensation for Mr. Locoh-Donou, our President and CEO (referred to in the tables below and related information as our principal executive officer (“PEO”)) and Non-PEO NEOs and Company performance for the fiscal years listed below. For information regarding the Company’s pay for performance philosophy and how the Company aligns executive compensation with the Company’s performance, refer to our “Compensation Discussion and Analysis.” |
2023 Potential Payments Upon Termination After a Change of Control Table(1)
Pay-Versus Performance Table
2023 Potential Payments Upon Termination After a Change of Control Table(1)
| Fiscal Year | Summary Compensation Table Total for François Locoh-Donou(1) ($) | Compensation Actually Paid to François Locoh- Donou(1)(2)(3) ($) | Average Summary Compensation Table Total for Non-PEO NEOs(1) ($) | Average Compensation Actually Paid to Non-PEO NEOs(1)(2)(3) ($) | Value of Initial Fixed $100 Investment based on:(4) | | Net Income ($ Millions) | Revenue ($ Millions)(5) | | | | | | | TSR ($) | Peer Group TSR ($) | | | | (a) | (b) | (b) | (d) | (e) | (f) | (g) | (h) | (i) | | 2023 | 10,856,765 | 13,807,880 | 3,953,914 | 4,619,933 | 131.25 | 145.50 | 394.9 | 2,813.2 | | 2022 | 12,823,862 | 5,483,202 | 5,141,989 | 2,440,083 | 117.89 | 103.12 | 322.2 | 2,695.8 | | 2021 | 11,469,726 | 21,786,280 | 4,137,411 | 7,165,279 | 161.91 | 128.90 | 331.2 | 2,603.4 |
2023 Potential Payments Upon Termination After a Change of Control Table(1)
| 1. | Mr. Locoh-Donou was our PEO for each fiscal year presented. The individuals comprising the Non-PEO NEOs for each fiscal year are listed below. |
2023 Potential Payments Upon Termination After a Change of Control Table(1)
| 2021 | 2022 | 2023 | | Frank Pelzer | Frank Pelzer | Frank Pelzer | | Tom Fountain | Tom Fountain | Tom Fountain | | Chad Whalen | Kara Sprague | Kara Sprague | | Haiyan Song | Chad Whalen | Chad Whalen |
2023 Potential Payments Upon Termination After a Change of Control Table(1)
| 2. | The amounts shown for Compensation Actually Paid have been calculated in accordance with Item 402(v) of Regulation S-K and do not reflect compensation actually earned, realized, or received by the Company’s NEOs. These amounts reflect the Summary Compensation Table Total with certain adjustments as described in footnote 3 below. |
2023 Potential Payments Upon Termination After a Change of Control Table(1)
| 3. | Compensation Actually Paid reflects the exclusions and inclusions of certain amounts for the PEO and the Non-PEO NEOs as set forth below. Equity award values are calculated in accordance with FASB ASC Topic 718. Amounts in the “Exclusion of Stock Awards” column are the amounts from the “Stock Awards” column set forth in the Summary Compensation Table for each applicable fiscal year. |
2023 Potential Payments Upon Termination After a Change of Control Table(1)
| Fiscal Year | Summary Compensation Table Total for François Locoh- Donou ($) | Exclusion of Stock Awards for François Locoh- Donou ($) | Inclusion of Equity Award Values for François Locoh- Donou ($) | Compensation Actually Paid to François Locoh- Donou ($) | | 2023 | 10,856,765 | (9,853,662) | 12,804,777 | 13,807,880 | | 2022 | 12,823,862 | (10,824,280) | 3,483,620 | 5,483,202 | | 2021 | 11,469,726 | (9,406,895) | 19,723,449 | 21,786,280 |
2023 Potential Payments Upon Termination After a Change of Control Table(1)
| Fiscal Year 2023 Proxy Statement | 61 |
2023 Potential Payments Upon Termination After a Change of Control Table(1)
| Fiscal Year | Average Summary Compensation Table Total for Non- PEO NEOs ($) | Average Exclusion of Stock Awards for Non- PEO NEOs ($) | Average Inclusion of Equity Award Values for Non- PEO NEOs ($) | Average Compensation Actually Paid to Non-PEO NEOs ($) | | 2023 | 3,953,914 | (3,240,854) | 3,906,873 | 4,619,933 | | 2022 | 5,141,989 | (4,176,600) | 1,474,694 | 2,440,083 | | 2021 | 4,137,411 | (3,110,895) | 6,138,763 | 7,165,279 |
2023 Potential Payments Upon Termination After a Change of Control Table(1)
The amounts in the “Inclusion of Equity Award Values” column in the tables above are derived from the amounts set forth in the following tables:
2023 Potential Payments Upon Termination After a Change of Control Table(1)
| Fiscal Year | Year-End Fair Value of Equity Awards Granted During Covered Fiscal Year That Remained Outstanding and Unvested as of Last Day of Covered Fiscal Year for François Locoh-Donou ($) | Change in Fair Value from Last Day of Prior Fiscal Year to Last Day of Covered Fiscal Year of Outstanding and Unvested Equity Awards Granted During Prior Fiscal Year for François Locoh- Donou ($) | Vesting-Date Fair Value of Equity Awards Granted During Covered Fiscal Year that Vested During Such Fiscal Year for François Locoh-Donou ($) | Change in Fair Value from Last Day of Prior Fiscal Year to Vesting Date of Outstanding and Unvested Equity Awards Granted During Prior Fiscal Year that Vested During Covered Fiscal Year for François Locoh- Donou ($) | Total Inclusion of Equity Award Values for François Locoh-Donou ($) | | 2023 | 11,552,949 | 87,091 | 1,127,521 | 37,216 | 12,804,777 | | 2022 | 5,735,941 | (3,479,315) | 834,954 | 392,040 | 3,483,620 | | 2021 | 12,257,628 | 3,880,825 | 1,591,188 | 1,993,808 | 19,723,449 |
2023 Potential Payments Upon Termination After a Change of Control Table(1)
| Fiscal Year | Average Year-End Fair Value of Equity Awards Granted During Covered Fiscal Year That Remained Outstanding and Unvested as of Last Day of Covered Fiscal Year for Non-PEO NEOs ($) | Average Change in Fair Value from Last Day of Prior Fiscal Year to Last Day of Covered Fiscal Year of Outstanding and Unvested Equity Awards Granted During Prior Fiscal Year for Non-PEO NEOs ($) | Average Vesting- Date Fair Value of Equity Awards Granted During Covered Fiscal Year that Vested During Such Fiscal Year for Non-PEO NEOs ($) | Average Change in Fair Value from Last Day of Prior Fiscal Year to Vesting Date of Outstanding and Unvested Equity Awards Granted During Prior Fiscal Year that Vested During Covered Fiscal Year for Non-PEO NEOs ($) | Total Average Inclusion of Equity Award Values for Non-PEO NEOs ($) | | 2023 | 3,398,975 | 58,807 | 429,229 | 19,862 | 3,906,873 | | 2022 | 2,276,992 | (1,207,583) | 328,690 | 76,595 | 1,474,694 | | 2021 | 4,166,776 | 1,050,416 | 425,851 | 495,720 | 6,138,763 |
2023 Potential Payments Upon Termination After a Change of Control Table(1)
| 4. | The Peer Group TSR set forth in this table utilizes the S&P 500 Information Technology Index, which we also utilize in the stock performance graph required by Item 201(e) of Regulation S-K included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2023. The comparison assumes $100 was invested for the period starting September 30, 2020, through the end of the listed fiscal year in the Company and in the S&P 500 Information Technology Index, respectively. Historical stock price performance is not necessarily indicative of future stock price performance. |
2023 Potential Payments Upon Termination After a Change of Control Table(1)
| 5. | We determined Revenue to be the most important financial performance measure used to link Company performance to Compensation Actually Paid to our PEO and Non-PEO NEOs in fiscal 2023. This financial performance measure may not have been the most important financial performance measure for fiscal 2022 and 2021 and we may determine a different financial performance measure to be the most important financial performance measure in future years. |
2023 Potential Payments Upon Termination After a Change of Control Table(1)
| 62 | Fiscal Year 2023 Proxy Statement |
2023 Potential Payments Upon Termination After a Change of Control Table(1)
Relationship Between “Compensation Actually Paid” and Financial Performance Measures In accordance with Item 402(v) of Regulation S-K, the following charts set forth the relationship between Compensation Actually Paid (see footnote 2 above) to our PEO and the average of Compensation Actually Paid to our Non-PEO NEOs and the Company’s financial performance as measured by our TSR, our peer group TSR, our Net Income, and our Revenue.
2023 Potential Payments Upon Termination After a Change of Control Table(1)
| Relationship Between Pay and Performance | In addition to the tabular disclosure above, the PVP Rules require us to describe the relationship between “Compensation Actually Paid” and the performance measures shown in the main table above. |
2023 Potential Payments Upon Termination After a Change of Control Table(1)
Below are graphs showing the relationship of “Compensation Actually Paid” to our PEO and other NEOs in fiscal years 2021, 2022 and 2023 to (1) our TSR and the Standard & Poor’s 500 Information & Technology Index TSR, (2) our net income, and (3) our revenue. Relationship Between PEO and Non-PEO NEO Compensation Actually Paid and Company TSR and Peer Group TSR
2023 Potential Payments Upon Termination After a Change of Control Table(1)
| Fiscal Year 2023 Proxy Statement | 63 |
2023 Potential Payments Upon Termination After a Change of Control Table(1)
Relationship Between PEO and Non-PEO NEO Compensation Actually Paid and Net Income Relationship Between PEO and Non-PEO NEO Compensation Actually Paid and Revenue We believe the “compensation actually paid” in each of the years reported above are primarily reflective of the annual changes in our stock price performance and the performance of our PSUs. For further information concerning our pay-for-performance philosophy and how we align executive compensation with our performance, as well as the details on the terms of our short-term incentive program and our performance-vesting equity awards refer to our “Compensation Discussion and Analysis” (or “CD&A”).
2023 Potential Payments Upon Termination After a Change of Control Table(1)
| 64 | Fiscal Year 2023 Proxy Statement |
2023 Potential Payments Upon Termination After a Change of Control Table(1)
Tabular List of Most Important Financial Performance Measures The following table presents the financial and non-financial performance measures that the Company considers to have been the most important financial and non-financial performance measures in linking Compensation Actually Paid to our PEOs and our Non-PEO NEOs for fiscal 2023 to Company performance. The measures in this table are not ranked and are described in our Compensation Discussion and Analysis. Revenue EBITDA Diversity and Inclusion Non-GAAP EPS Relative TSR
2023 Potential Payments Upon Termination After a Change of Control Table(1)
| Fiscal Year 2023 Proxy Statement | 65 |
2023 Potential Payments Upon Termination After a Change of Control Table(1)
| Report of the Audit & risk oversight Committee | The Audit & Risk Oversight Committee (the Audit Committee) consists of directors, each of whom, in the judgment of the Board of Directors, is an “independent director” as defined in the Nasdaq Listing Rules. The Audit Committee acts pursuant to a written charter that has been adopted by the Board of Directors. The Audit Committee charter is available on the “Company — Investor Relations — ESG — Governance Documents” section of the Company’s website, located at https://investors.f5.com/esg/. |
2023 Potential Payments Upon Termination After a Change of Control Table(1)
On behalf of the Board of Directors, the Audit Committee oversees the Company’s financial reporting process and its internal controls over financial reporting, areas for which management has the primary responsibility. PricewaterhouseCoopers LLP, the independent registered public accounting firm (the “Auditors”), is responsible for expressing an opinion as to the conformity of the audited financial statements with accounting principles generally accepted in the United States of America and for issuing the Auditors’ opinion on the effectiveness of the Company’s internal controls over financial reporting. The Audit Committee oversees procedures for the receipt, retention, and treatment of complaints received by us regarding accounting, internal accounting controls, or auditing matters and the confidential, anonymous submission by employees of concerns regarding questionable accounting or auditing matters. In conjunction with its oversight of major risks to the Company, the Audit Committee receives periodic updates on risk topics from Company leaders, including the Company’s Chief Information Security Officer and Chief Information Officer on technology risks and the status of the Company’s cybersecurity posture and risk mitigation efforts. In fulfilling its oversight responsibilities, the Audit Committee has reviewed and discussed with management and the Auditors the audited financial statements and the quarterly unaudited financial statements of the Company for the fiscal year ended September 30, 2023, matters relating to the Company’s internal controls over financial reporting, and the processes that support certifications of the financial statements by the Company’s Chief Executive Officer and Chief Financial Officer. The Audit Committee discussed with the Auditors the overall scope and plans for the annual audit. The Audit Committee meets with the Auditors, with and without management present, to discuss the results of their examinations, their consideration of the Company’s internal controls in connection with their audit, and the overall quality of the Company’s financial reporting. The Audit Committee reviewed with the Auditors their judgments as to the quality and acceptability of the Company’s accounting principles and such other matters as are required to be discussed with the Audit Committee under generally accepted auditing standards. The Audit Committee has discussed and reviewed with the Auditors all matters required to be discussed by Public Company Accounting Oversight Board (PCAOB) and the Securities and Exchange Commission (the “SEC”). The Audit Committee has received the written disclosures and the letter from the Auditors required by applicable requirements of the PCAOB regarding the Auditors’ communications with the Audit Committee concerning independence and has discussed with the Auditors the Auditors’ independence.
2023 Potential Payments Upon Termination After a Change of Control Table(1)
| 66 | Fiscal Year 2023 Proxy Statement |
2023 Potential Payments Upon Termination After a Change of Control Table(1)
Based on the review and discussions referred to above, the Audit Committee recommended to the Board that the audited financial statements for the fiscal year ended September 30, 2023 be included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2023 for filing with the SEC. The Audit Committee has also selected PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for the fiscal year ending September 30, 2024. The Board of Directors is recommending that shareholders ratify this selection at the Annual Meeting. Respectfully submitted, Marianne N. Budnik Elizabeth L. Buse Michael L. Dreyer Tami Erwin Peter S. Klein, Chair Michael F. Montoya Sripada Shivananda
2023 Potential Payments Upon Termination After a Change of Control Table(1)
| Fees Paid to Pricewater- houseCoopers LLP | The following is a summary of the fees billed to the Company by PricewaterhouseCoopers LLP for professional services rendered for the fiscal years ended September 30, 2023 and 2022: |
2023 Potential Payments Upon Termination After a Change of Control Table(1)
| | Years Ended September 30, | | | Fee Category | 2023 | 2022 | | Audit Fees | $4,179,923 | $3,950,336 | | Audit-Related Fees | $290,000 | $275,000 | | Tax Fees | $184,820 | $314,915 | | All Other Fees | $992 | $992 | | Total Fees | $4,655,735 | $4,541,243 |
2023 Potential Payments Upon Termination After a Change of Control Table(1)
Audit Fees. Consists of fees billed for professional services rendered for the audit of the Company’s consolidated financial statements, review of the interim consolidated financial statements included in quarterly reports and services that are normally provided by PricewaterhouseCoopers LLP in connection with statutory and regulatory filings. Audit-Related Fees. Consists of fees billed for assurance and related services that are reasonably related to the performance of the audit or review of the Company’s consolidated financial statements and are not reported under “Audit Fees.” These services include accounting consultations in connection with financial accounting and reporting standards, due diligence services in connection with acquisitions, and other services related to registration statements and public offerings. Tax Fees. Consists of fees billed for professional services for tax compliance, tax advice, and tax planning. These services include assistance regarding federal, state, and international tax compliance, tax audit defense, customs and duties, mergers and acquisitions, and international tax planning. All Other Fees. Consists of software licensing fees for accounting research tools.
2023 Potential Payments Upon Termination After a Change of Control Table(1)
| Fiscal Year 2023 Proxy Statement | 67 |
2023 Potential Payments Upon Termination After a Change of Control Table(1)
| Audit & Risk Oversight Committee Pre-Approval Procedures | The Audit Committee meets with our independent registered public accounting firm to approve the annual scope of accounting services to be performed and the related fee estimates. The Audit Committee also meets with our independent registered public accounting firm, on a quarterly basis, following completion of its quarterly reviews and annual audit and prior to our earnings announcements, to review the results of its work. During the course of the year, the Chair of the Audit Committee has the authority to pre-approve requests for services that were not approved in the annual pre-approval process. The Chair of the Audit Committee reports any interim pre-approvals at the following quarterly meeting. At each of the meetings, management and our independent registered public accounting firm update the Audit Committee with material changes to any service engagement and related fee estimates as compared to amounts previously approved. During fiscal years 2022 and 2023, all services performed by PricewaterhouseCoopers LLP for the Company were pre-approved by the Audit Committee in accordance with the foregoing procedures. |
2023 Potential Payments Upon Termination After a Change of Control Table(1)
| Annual Independence Determination | The Audit Committee considered whether the provision of non-audit services is compatible with the principal accountants’ independence and concluded that the provision of non-audit services is and has been compatible with maintaining the independence of the Company’s external auditors. |
2023 Potential Payments Upon Termination After a Change of Control Table(1)
| 68 | Fiscal Year 2023 Proxy Statement |