DEF 14A of Palo Alto Networks Inc

Filed Oct 29, 2024 · FY20240001308179-24-000770

Open on EDGAR

Directors
Directors
Nominee Directors
Nominee Directors
Nominee Directors
| | Right Honorable Sir John Key | 62 INDEPENDENT | | Skills and Experience: | | | Director Since: 2019 Committee Membership: Audit Committee, Compensation and People Committee (Chair), Security Committee | Other Current Public Company Boards: None | | | BACKGROUND Right Honorable Sir John Key has served as a member of our Board since April 2019. Sir John was a Member of Parliament for Helensville in New Zealand until April 2017. Sir John served as Prime Minister of New Zealand from November 2008 to December 2016 having commenced his political career as a Member of Parliament for Helensville in July 2002. Prior to his political career, he had a nearly twenty-year career in international finance, primarily for Bankers Trust of New Zealand and Merrill Lynch in Singapore, London and Sydney. Sir John serves on the board of directors of several privately held companies. He previously served on the board of directors of Air New Zealand Limited, a public airline, from 2017 to 2020 and ANZ Bank New Zealand Ltd and was also a member of the board of directors of the parent Australia & New Zealand Banking Group Ltd, a public bank that provides various banking and financial products and services, from 2018 to 2024. Sir John has a Bachelor of Commerce in Accounting from the University of Canterbury. | | | QUALIFICATIONS AND EXPERIENCE Sir John was selected to serve on our Board due to his global business leadership and extensive financial, capital markets, and management expertise as former Prime Minister of New Zealand, his extensive background in foreign affairs, and his career in investment banking and finance. He brings extensive experience in policy-making and a global business perspective from his experience and service on other boards, which is especially valuable to us as we grow internationally. |
Nominee Directors
| | Industry and IT/Technical | | Senior Leadership | | Financial | | Diverse Backgrounds and Experiences | | Cybersecurity | | Sales, Marketing and Brand Management |
Nominee Directors
| | Global/International | | Governance, Risk Oversight and Compliance | | Emerging Technologies and Business Models | | Human Capital Management | | Public Company Board Experience |
Nominee Directors
| 2024 Proxy Statement | | 55 |
Nominee Directors
| | Mary Pat McCarthy | 69 INDEPENDENT | | Skills and Experience: | | | Director Since: 2016 Committee Membership: Audit Committee (Chair), Security Committee, Corporate Development Committee | Other Current Public Company Boards: Micron Technology | | | BACKGROUND Mary Pat McCarthy has served as a member of our Board since October 2016. Ms. McCarthy, now retired, served as Vice Chair of KPMG LLP, the U.S. member firm of the global audit, tax and advisory services firm, until 2011 after attaining such position in 1998. She joined KPMG LLP in 1977 and became a partner in 1987. She held numerous senior leadership positions in the firm, including Executive Director of the KPMG Audit Committee Institute from 2008 to 2011, Leader of the KPMG Client Care program from 2007 to 2008, U.S. Leader, Industries and Markets from 2005 to 2006, and Global Leader, Information, Communication and Entertainment Practice from 1998 to 2004. Ms. McCarthy also served on KPMG’s Management and Operations Committees. Ms. McCarthy earned a Bachelor of Science degree in Business Administration from Creighton University and completed the University of Pennsylvania Wharton School’s KPMG International Development Program. Ms. McCarthy serves as a director of Micron Technology, Inc., a producer of semiconductor devices and previously served on the board of directors of Mutual of Omaha, an insurance company, from 2012 to 2018 and Andeavor Corporation (formerly Tesoro Corporation), a global energy corporation from 2012 to 2018. | | | QUALIFICATIONS AND EXPERIENCE Ms. McCarthy was selected to serve on our Board because of her deep technical expertise in financial and accounting matters from her experience as the Vice Chair of KPMG LLP, advising numerous companies on financial and accounting matters, as well as her leadership experience as a member of management at KPMG. She is an “audit committee financial expert” with over 40 years of experience in finance, operations and risk management oversight of technology companies, particularly publicly traded companies with knowledge of complex global financial and business matters. In addition, she brings a global business perspective and contributes valuable insights and perspectives to our business and operations from her service on other boards. |
Nominee Directors
| | Nir Zuk | 53 | | Skills and Experience: | | | Director Since: 2005 Committee Membership: None | Other Current Public Company Boards: None | | | BACKGROUND Nir Zuk is one of our founders and has served as our Chief Technology Officer and as a member of our Board since March 2005. From April 2004 to March 2005, Mr. Zuk was Chief Security Technologist at Juniper Networks, Inc., a supplier of network infrastructure products and services. From September 2002 until its acquisition by Juniper in April 2004, Mr. Zuk was Chief Technology Officer at NetScreen Technologies, Inc., a provider of ASIC-based Internet security systems. In December 1999, Mr. Zuk co-founded OneSecure, Inc., a provider of prevention and detection appliances, and was Chief Technical Officer until its acquisition by NetScreen in September 2002. From 1994 to 1999, Mr. Zuk served in several technical roles, including Principal Engineer at Check Point Software Technologies Ltd., an enterprise software security company. Mr. Zuk attended Tel Aviv University where he studied Mathematics. | | | QUALIFICATIONS AND EXPERIENCE Mr. Zuk is a co-founder of Palo Alto Networks, a network security expert and brings a wealth of network security knowledge and industry experience to Palo Alto Networks. He brings business leadership, operational experience, risk management oversight experience, and experience developing technology. He has an in-depth knowledge of the technology and cybersecurity industries. |
Nominee Directors
| | Industry and IT/Technical | | Senior Leadership | | Financial | | Diverse Backgrounds and Experiences | | Cybersecurity | | Sales, Marketing and Brand Management |
Nominee Directors
| | Global/International | | Governance, Risk Oversight and Compliance | | Emerging Technologies and Business Models | | Human Capital Management | | Public Company Board Experience |
Nominee Directors
| 56 | | 2024 Proxy Statement |
Continuing Directors
Continuing Directors
Continuing Directors
| | Nikesh Arora | 56 | | Skills and Experience: | | | Director Since: 2018 Committee Membership: Corporate Development Committee | Other Current Public Company Boards: Compagnie Financière Richemont | | | BACKGROUND Nikesh Arora has served as the Chair of our Board and Chief Executive Officer since June 2018. Prior to joining us, from 2016 through 2018 Mr. Arora was an angel investor and from June 2016 through December 2017, Mr. Arora served as an advisor to SoftBank Group Corp., a multinational conglomerate company (“SoftBank”). From July 2015 through June 2016, Mr. Arora served as president and chief operating officer of SoftBank and from July 2014 through June 2015, Mr. Arora served as vice chair and chief executive officer of SoftBank Internet and Media, a subsidiary of SoftBank. Prior to SoftBank, from December 2004 through July 2014, Mr. Arora held multiple senior leadership operating roles at Google, Inc., including serving as senior vice president and chief business officer, from January 2011 to June 2014. Mr. Arora also serves on the board of Compagnie Financiere Richemont S.A., a public Switzerland-based luxury goods holding company. Mr. Arora previously served on the boards of Sprint Corp., a communications services company, from November 2014 to June 2016, Colgate-Palmolive Company, a worldwide consumer products company focused on the production, distribution and provision of household, health care and personal care products, from March 2012 to September 2014, SoftBank from 2014 to 2016, and Yahoo! Japan, an internet company, from 2015 to 2016. Mr. Arora holds an M.S. in Business Administration from Northeastern University, an M.S. in Finance from Boston College, and a B.Tech in electrical engineering from the Institute of Technology at Banaras Hindu University. | | | QUALIFICATIONS AND EXPERIENCE Mr. Arora was chosen to serve on our Board due to his leadership skills and experience as the chief architect of the Company’s strategic vision, as well as his thorough knowledge of all aspects of our business. Through his extensive career in executive leadership, he brings expertise in leading and scaling technology businesses, risk management oversight, and in-depth knowledge of the cybersecurity and technology sectors. |
Continuing Directors
| | Industry and IT/Technical | | Senior Leadership | | Financial | | Diverse Backgrounds and Experiences | | Cybersecurity | | Sales, Marketing and Brand Management |
Continuing Directors
| | Global/International | | Governance, Risk Oversight and Compliance | | Emerging Technologies and Business Models | | Human Capital Management | | Public Company Board Experience |
Continuing Directors
| 2024 Proxy Statement | | 57 |
Continuing Directors
| | Aparna Bawa | 46 INDEPENDENT | | Skills and Experience: | | | Director Since: 2021 Committee Membership: Audit Committee, Compensation and People Committee, Security Committee, Corporate Development Committee | Other Current Public Company Boards: None | | | BACKGROUND Aparna Bawa has served as a member of our Board since May 2021. Ms. Bawa has served as the Chief Operating Officer of Zoom Video Communications, Inc., a video communications company, since May 2020 and its Secretary since February 2024. Ms. Bawa served as Zoom’s Chief Legal Officer from August 2019 to May 2020, its General Counsel from September 2018 to May 2020 and its Secretary from December 2018 to November 2020. Prior to Zoom Video Communications, Ms. Bawa served as Senior Vice President and General Counsel of Magento, Inc., an e-commerce platform company, from June 2017 until its acquisition by Adobe Inc. in June 2018. From November 2012 to May 2017, Ms. Bawa served as Vice President, General Counsel and Secretary of Nimble Storage, Inc., an enterprise flash storage company, which was acquired by Hewlett Packard Enterprise in April 2017. Ms. Bawa holds a B.Sc. in Accounting from Marquette University and a J.D. from Harvard Law School. | | | QUALIFICATIONS AND EXPERIENCE Ms. Bawa was selected to serve on our Board due to her senior leadership and management experience at public technology companies, risk management oversight expertise, and legal and business operations expertise. She has extensive experience in technology companies. |
Continuing Directors
| | John M. Donovan | 63 LEAD INDEPENDENT DIRECTOR | | Skills and Experience: | | | Director Since: 2012 Committee Membership: Compensation and People Committee, Governance and Sustainability Committee (Co-Chair), Security Committee (Chair), Corporate Development Committee (Chair) | Other Current Public Company Boards: Lockheed Martin Corporation | | | BACKGROUND John M. Donovan has served as a member of our Board since September 2012. Since May 2019, Mr. Donovan has served as Chair of The President’s National Security Telecommunications Advisory Committee. Mr. Donovan worked at AT&T Inc., a provider of telecommunication services, since April 2008, first as Chief Technology Officer and subsequently as Chief Executive Officer—AT&T Communications until his resignation, effective October 1, 2019. From November 2006 to April 2008, Mr. Donovan was Executive Vice President of Product, Sales, Marketing and Operations at Verisign. From November 2000 to November 2006, Mr. Donovan served as Chair and CEO of inCode Telecom Group Inc., a provider of strategy and consulting services to the telecommunications industry. Prior to joining inCode, Mr. Donovan was a Partner with Deloitte Consulting where he was the Americas industry practice director for telecommunications. Mr. Donovan serves on the board of directors of Lockheed Martin Corporation, an aerospace, defense and technology company. Mr. Donovan holds a B.S. in Electrical Engineering from the University of Notre Dame and an M.B.A. from the University of Minnesota. | | | QUALIFICATIONS AND EXPERIENCE Mr. Donovan was selected to serve on our Board because of his technical knowledge and extensive business leadership, management, operations and risk management oversight experience, as a result of serving as the Chief Technology Officer and later the Chief Executive Officer of AT&T Communications. He is skilled in overseeing global information, software development, supply chain, network operations and big data organizations and has expertise in cybersecurity, artificial intelligence and machine learning. |
Continuing Directors
| | Industry and IT/Technical | | Senior Leadership | | Financial | | Diverse Backgrounds and Experiences | | Cybersecurity | | Sales, Marketing and Brand Management |
Continuing Directors
| | Global/International | | Governance, Risk Oversight and Compliance | | Emerging Technologies and Business Models | | Human Capital Management | | Public Company Board Experience |
Continuing Directors
| 58 | | 2024 Proxy Statement |
Continuing Directors
| | Carl Eschenbach | 57 INDEPENDENT | | Skills and Experience: | | | Director Since: 2013 Committee Membership: Security Committee | Other Current Public Company Boards: Workday | | | BACKGROUND Carl Eschenbach has served as a member of our Board since May 2013. Mr. Eschenbach is CEO of Workday, Inc., an on-demand financial management and human capital management software vendor, a position he has held since December 2022. Prior to Workday, Mr. Eschenbach was a general partner at Sequoia Capital Operations, LLC, a venture capital firm, since April 2016. Prior to joining Sequoia Capital Operations, LLC, Mr. Eschenbach served as Chief Operating Officer and President of VMware, Inc., a provider of cloud and virtualization software and services, a role he held from December 2012 to February 2016. Mr. Eschenbach previously served as VMware’s President and Chief Operating Officer from April 2012 to December 2012, as VMware’s Co-President, Customer Operations from January 2011 to April 2012 and as VMware’s Executive Vice President of Worldwide Field Operations from May 2005 to January 2011. Prior to joining VMware in 2002, he was Vice President of North America Sales at Inktomi from 2000 to 2002. Mr. Eschenbach also held various sales management positions with 3Com Corporation, Lucent Technologies Inc. and EMC. Mr. Eschenbach currently serves on the board of Workday, Inc. Mr. Eschenbach received an electronics technician diploma from DeVry University. | | | QUALIFICATIONS AND EXPERIENCE Mr. Eschenbach was selected to serve on our Board because of his extensive experience in the technology industry and his previous public company management experience. He brings to our Board over 30 years of operational and sales experience in the technology industry, and has extensive experience in risk management oversight and scaling large organizations, as well as a deep knowledge of high-growth companies. Mr. Eschenbach also has extensive public company board experience. |
Continuing Directors
| | Industry and IT/Technical | | Senior Leadership | | Financial | | Diverse Backgrounds and Experiences | | Cybersecurity | | Sales, Marketing and Brand Management |
Continuing Directors
| | Global/International | | Governance, Risk Oversight and Compliance | | Emerging Technologies and Business Models | | Human Capital Management | | Public Company Board Experience |
Continuing Directors
| 2024 Proxy Statement | | 59 |
Continuing Directors
| | Dr. Helene D. Gayle | 68 INDEPENDENT | | Skills and Experience: | | | Director Since: 2021 Committee Membership: Governance and Sustainability Committee, Security Committee | Other Current Public Company Boards: Organon, The Coca-Cola Company | | | BACKGROUND Dr. Helene D. Gayle has served as a member of our Board since May 2021. Dr. Gayle has been President of Spelman College since July 2022. Prior to this position, Dr. Gayle served as President and Chief Executive Officer of The Chicago Community Trust, a community foundation dedicated to improving the Chicago region through strategic grant making, civic engagement and inspiring philanthropy, from 2017 to 2022. Dr. Gayle previously served as Chief Executive Officer of McKinsey Social Initiative, an independent non-profit organization, from 2015 to 2017 and as President and Chief Executive Officer of CARE USA, a leading international humanitarian organization, from 2006 to 2015. From 2001 to 2006, she was an executive in the Global Health program at the Bill & Melinda Gates Foundation. Dr. Gayle began her career in public health at the U.S. Centers for Disease Control in 1984, and held positions of increasing responsibility over her 20-year tenure there, ultimately becoming the director of the National Center for HIV, STD and TB Prevention and achieving the rank of Assistant Surgeon General and Rear Admiral in the United States Public Health Service. Dr. Gayle earned a Bachelor of Arts degree in Psychology from Barnard College of Columbia University, an M.D. from University of Pennsylvania and a Masters in Public Health from Johns Hopkins University. She currently serves as a member of the board of directors of The Coca-Cola Company, a beverage company, and Organon & Co., a pharmaceutical company. Dr. Gayle previously served as a member of the board of directors of Colgate-Palmolive Company, a global consumer products company, from 2010 to 2021. | | | QUALIFICATIONS AND EXPERIENCE Dr. Gayle was selected to serve on our Board because of her senior leadership and chief executive officer experience and broad international exposure and emerging market experience, as well as her governmental and non-profit expertise, risk management expertise and corporate governance experience as a director of private and public companies. |
Continuing Directors
| | Industry and IT/Technical | | Senior Leadership | | Financial | | Diverse Backgrounds and Experiences | | Cybersecurity | | Sales, Marketing and Brand Management |
Continuing Directors
| | Global/International | | Governance, Risk Oversight and Compliance | | Emerging Technologies and Business Models | | Human Capital Management | | Public Company Board Experience |
Continuing Directors
| 60 | | 2024 Proxy Statement |
Continuing Directors
| | James J. Goetz | 58 INDEPENDENT | | Skills and Experience: | | | Director Since: 2005 Committee Membership: Audit Committee, Corporate Development Committee, Security Committee | Other Current Public Company Boards: Intel | | | BACKGROUND James J. Goetz has served as a member of our Board since April 2005. Mr. Goetz has been a managing member of Sequoia Capital Operations, LLC, a venture capital firm, since June 2004, where he focuses on cloud, mobile, and enterprise companies. Mr. Goetz currently serves on the board of directors of Intel Corporation and several privately held companies. Mr. Goetz has previously served on the boards of directors of Barracuda Networks, Inc., a data security and storage company from 2009 to 2017, Nimble Storage, Inc., a data storage company, from 2007 to 2017, Jive Software, Inc., a provider of social business software, from 2007 until 2015, and Ruckus Wireless, Inc., a manufacturer of wireless (Wi-Fi) networking equipment, from 2012 until 2015. Mr. Goetz holds an M.S. in Electrical Engineering with a concentration in Computer Networking from Stanford University and a B.S. in Electrical Engineering with a concentration in Computer Engineering from the University of Cincinnati. | | | QUALIFICATIONS AND EXPERIENCE Mr. Goetz was selected to serve on our Board because of his senior leadership, technology, information technology (IT), business development and cybersecurity experience, and knowledge of emerging technologies, arising from his experience as a partner of a venture capital firm, where he focuses on cloud mobile, and enterprise technology investments, as well as providing guidance and counsel to a wide variety of internet and technology companies. He also brings his experience as a senior management leader in network, data security and storage, software, and manufacturing companies, through various senior roles and other board experiences. Mr. Goetz also has extensive public company board experience. |
Continuing Directors
| | Lorraine Twohill | 53 INDEPENDENT | | Skills and Experience: | | | Director Since: 2019 Committee Membership: Governance and Sustainability Committee (Co-Chair), Security Committee | Other Current Public Company Boards: None | | | BACKGROUND Lorraine Twohill has served as a member of our Board of directors since April 2019. Ms. Twohill currently serves as Google LLC’s (formerly Google, Inc.) Chief Marketing Officer, a position she has held since June 2009. From July 2003 until June 2009, Ms. Twohill served as Google’s Head of Marketing Europe, Middle East and Africa. Ms. Twohill previously served on the board of directors of Williams-Sonoma, Inc., a consumer retail company that sells kitchenwares and home furnishings, from January 2012 until May 2017. Ms. Twohill holds joint honours degrees in International Marketing and Languages from Dublin City University. | | | QUALIFICATIONS AND EXPERIENCE Ms. Twohill was selected to serve on our Board due to her leadership skills and extensive marketing knowledge, with over 25 years of experience. She has deep management and business operations experience, as well as risk management oversight experience. She provides the Board with valuable insights into brand management and the global issues facing technology companies today. |
Continuing Directors
| | Industry and IT/Technical | | Senior Leadership | | Financial | | Diverse Backgrounds and Experiences | | Cybersecurity | | Sales, Marketing and Brand Management |
Continuing Directors
| | Global/International | | Governance, Risk Oversight and Compliance | | Emerging Technologies and Business Models | | Human Capital Management | | Public Company Board Experience |
Continuing Directors
| 2024 Proxy Statement | | 61 |
Continuing Directors
The demographic information presented below for our directors is based on voluntary self-identification by each director. Each of the categories listed in the below table has the meaning as it is used in Nasdaq Listing Rule 5605(f). Additional biographical information of our directors and executive officers as of July 31, 2024 is set forth above.
BOARD DIVERSITY MATRIX (AS OF OCTOBER 29, 2024)
BOARD DIVERSITY MATRIX (AS OF OCTOBER 29, 2024)
BOARD DIVERSITY MATRIX (AS OF OCTOBER 29, 2024)
| Total Number of Directors | 10 | | | | | | Female | Male | Non-Binary | Did Not Disclose Gender | | Part I: Gender Identity | | | | | | Directors | 4 | 6 | 0 | 0 | | Part II: Demographic Background | | | | | | African American or Black | 1 | 0 | 0 | 0 | | Alaskan Native or Native American | 0 | 0 | 0 | 0 | | Asian | 1 | 1 | 0 | 0 | | Hispanic or Latinx | 0 | 0 | 0 | 0 | | Native Hawaiian or Pacific Islander | 0 | 0 | 0 | 0 | | White | 2 | 5 | 0 | 0 | | Two or More Races or Ethnicities | 0 | 0 | 0 | 0 | | LGBTQ+ | 0 | | | | | Did Not Disclose Demographic Background | 0 | | | |
Identification and Evaluation of Director Nominees
Identification and Evaluation of Director Nominees Our Governance and Sustainability Committee uses a variety of methods for identifying and evaluating director nominees. The Governance and Sustainability Committee regularly assesses the appropriate size, composition and needs of our Board and its respective committees, and the qualification of candidates considering these needs. Some of the qualifications that our Governance and Sustainability Committee considers include issues of character, integrity, judgment, diversity (including gender and race), experience of relevance to us and the Board, independence, age, area of expertise, potential conflicts of interest and other commitments. These factors may be weighted differently depending on the individual being considered or the needs of the Board at the time. Nominees must also be able to offer advice and guidance to our Chief Executive Officer based on past experience in positions with a high degree of responsibility and be leaders in the companies or institutions with which they are affiliated. Director candidates must have sufficient time available, in the judgment of our Governance and Sustainability Committee, to perform all Board and committee responsibilities. Members of our Board are expected to prepare for, attend, and actively participate in all Board and applicable committee meetings. Other than the foregoing, there are no stated minimum criteria for director nominees, although our Governance and Sustainability Committee maintains a documented candidate selection process, which contains certain guidelines for selection criteria, and provides that they may also consider such other factors as it may deem, from time to time, are in Palo Alto Networks and our shareholders’ best interests. In furtherance of this, our Governance and Sustainability Committee seeks to balance the background and experience of the members of the Board by ensuring that the following categories of criteria, among others, are collectively represented by our Board members: relevant industry and technical expertise; senior leadership experience; financial knowledge and expertise; relevant cybersecurity and information security knowledge; sales, marketing and brand management experience; global business experience; risk management experience; experience with emerging technologies; human capital management experience; and public company board and corporate governance. Our Governance and Sustainability Committee will also seek appropriate input from our Chief Executive Officer, from time to time, in assessing the needs of our Board for relevant background, experience, diversity and skills of its members.
Identification and Evaluation of Director Nominees
| 62 | | 2024 Proxy Statement |
Identification and Evaluation of Director Nominees
Our Governance and Sustainability Committee considers diversity (whether based on broader principles such as diversity of perspective, experiences, and expertise, as well as factors commonly associated with diversity such as gender, race or national origin) in connection with its evaluation of director candidates, including the evaluation and determination of whether to re-nominate incumbent directors. The committee also considers these and other factors as it oversees the annual Board and committee evaluations. The committee seeks qualified and diverse director candidates, including women and individuals from minority groups, to include in the pool from which director candidates are chosen. Any search firm retained by the committee to find director candidates would be instructed to account for these considerations, including diversity.
Director Compensation
Director Compensation Our Governance and Sustainability Committee has approved a policy for the compensation of the non-employee members of our Board (the “Director Compensation Policy”) to attract, retain and reward these individuals and align their financial interests with those of our shareholders. There is no cash compensation paid under the Director Compensation Policy. Initial Award. Under the Director Compensation Policy, when an eligible director initially joins our Board, the eligible director receives an initial award of restricted stock units for shares of our common stock (“RSUs”) having a value of $1 million (as determined based on the average closing price of our common stock on Nasdaq during the month prior to the month in which the grant is made). This initial award will vest as to one third of the shares covered by the RSU award on the first anniversary of the date the eligible director joined our board of directors, and the remaining shares covered by the RSU will vest quarterly over the following two years, subject to the director’s continued service as of each such date. Annual Award. Under the Director Compensation Policy, at each annual meeting of shareholders, each eligible director receives an annual RSU award having a value equal to $300,000 (as determined based on the average closing price of our common stock on Nasdaq during the 30 calendar days ending on the business day prior to the annual meeting). In addition, at each annual meeting of shareholders, our Lead Independent Director receives an additional annual RSU award having a value equal to $50,000 (as determined based on the average closing price of our common stock on Nasdaq during the 30 calendar days ending on the business day prior to the annual meeting). All annual awards, including the annual awards to the Lead Independent Director, will vest quarterly over a period of one year, subject to the director’s continued service as of each such date. Committee Awards. At each annual meeting of shareholders, the chairpersons and members of the five standing committees of our Board will receive additional annual RSU awards for committee service having the following values (as determined based on the average closing price of our common stock on Nasdaq during the 30 calendar days ending on the business day prior to the annual meeting). The amounts of the annual awards and the Lead Independent Director and Committee awards are illustrated below. Any eligible director who serves as chairperson of a committee is not entitled to a member retainer for the same committee. The committee RSU awards will vest quarterly over a period of one year, subject to the director’s continued service as of each such date. The annual RSU award and retainer is illustrated in the charts below.
Director Compensation
| (1) No additional compensation is paid for serving on the Corporate Development Committee. |
Director Compensation
| 64 | | 2024 Proxy Statement |
Fiscal 2024 Director Compensation Table
Fiscal 2024 Director Compensation Table The following table presents summary information regarding the compensation paid to our non-employee directors for our fiscal year ended July 31, 2024.
Fiscal 2024 Director Compensation Table
| Director | Stock Awards(1) | Total | | Aparna Bawa(2) | $427,506 | $427,506 | | John M. Donovan(2) | $477,622 | $477,622 | | Carl Eschenbach(2) | $388,698 | $388,698 | | Dr. Helene D. Gayle(2) | $399,699 | $399,699 | | James J. Goetz(3) | – | – | | Rt Hon Sir John Key(2) | $438,507 | $438,507 | | Mary Pat McCarthy(2) | $427,506 | $427,506 | | Lorraine Twohill(2) | $405,199 | $405,199 |
Fiscal 2024 Director Compensation Table
| (1) The amounts reported in this column represent the aggregate grant date fair value of each RSU award during our fiscal 2024 as computed in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718, Compensation—Stock Compensation, or ASC Topic 718. The assumptions used in the valuation of these awards are set forth in the notes to our consolidated financial statements, which are included in our Annual Report on Form 10-K for our fiscal year ended July 31, 2024. These amounts do not necessarily correspond to the actual value that may be recognized by the director upon the vesting of such awards. | | (2) As of July 31, 2024, Ms. Bawa held 700 RSUs, Mr. Donovan held 782 RSUs, Mr. Eschenbach held 636 RSUs, Dr. Gayle held 654 RSUs, Rt Hon Sir John Key held 718 RSUs, Ms. McCarthy held 700 RSUs and Ms. Twohill held 663 RSUs. | | (3) Mr. Goetz receives no compensation. |
Philosophy and Objectives
| | Drive the development of a successful and profitable business through our next phase of growth | | | Create sustainable long-term value for our shareholders by aligning the interests of our executive officers with those of our shareholders | | | Reward our executive officers for the successful achievement of our financial and strategic growth objectives | | | Attract, motivate and retain highly qualified executives who possess the skills and leadership necessary to continue to grow our business, and provide compensation packages that are comparable to our peers and the overall competitive market and that are heavily weighted to be based on our performance |
Shareholder Engagement in Fiscal 2024
| WHAT THEY SAID | | WHAT WE DID | | Awards of the quantum of our CEO’s five-year performance-based restricted stock unit retention grant should not be used regularly | | Our Compensation and People Committee committed not to grant Mr. Arora additional one-time equity awards of any variety with vesting or performance metrics that would overlap with the one-time performance-based restricted stock unit retention award granted to him in June 2023 For further information about the rationale for, and shareholder feedback that our Board received prior to, awarding our CEO’s five-year retention grant, see the section titled: “–Our Approach to One-Time Awards to NEOs–Fiscal 2023 CEO Retention Award” | | CEO compensation has components that are too high, when considering the annual performance grant and five-year retention grant | | For Fiscal 2025, decreased the maximum payout of long-term incentive equity award for our CEO by 33%, from 600% to 400% of target payout, and aligned our CEO’s fiscal 2023 and fiscal 2024 long-term incentive equity awards to the reduced maximum target payout | | CEO aircraft and security-related perquisites are too high and examine whether the costs are warranted | | For Fiscal 2024, carefully reviewed the aircraft and security related expenses to ensure alignment with security needs and business requirements, and consolidated security providers to capture efficiencies, which helped contribute to the total amount of aircraft and security-related perquisites and benefits for our CEO decreasing by approximately 55% from $3,768,893 in fiscal 2023 to $1,684,666 in fiscal 2024 | | Performance-based equity maximum payout for other NEOs is too high and should be reduced | | For Fiscal 2025, also decreased the maximum payout of long-term incentive equity awards for our other NEOs by 33%, from 600% to 400% of target payout, and aligned their fiscal 2023 and fiscal 2024 long-term incentive equity awards to the reduced maximum target payout | | Performance measure targets do not clearly indicate pay versus performance connection | | Fiscal 2024 portion of fiscal 2023 and fiscal 2024 equity awards resulted in 0% payout attributable to fiscal 2024 performance, demonstrating our commitment to a pay-for-performance philosophy In addition, even though the Company shifted strategy early in fiscal year 2024, we did not reset the fiscal 2024 performance targets | | Disclosure of annual incentive plan structure is not clear | | For Fiscal 2025 annual cash incentive plan design, we clearly identified threshold performance levels for each metric so that performance more than 10% below either target financial performance measure results in no payment |
We Followed Through on Our Commitments
| | OUR COMMITMENTS FOR FISCAL 2024 | | OUR FOLLOW THROUGH | | Maintain a robust shareholder outreach program | | | | | Provide more transparency in our executive compensation disclosures, as well as more robust CD&A disclosures | | | | | Disclose the target value of equity grants to our NEOs for the completed fiscal year in the CD&A | | | | | Maintain robust stock ownership guidelines | | | | | Make any one-time awards to NEOs outside of the normal grant cycle (other than new hire awards) a majority performance-based, and only make such grants in exceptional circumstances | | | | | Make annual equity grants to our NEOs at least 75% performance-based | | | | | Require a one-year minimum vesting period for all grants to our Chief Executive Officer and other NEOs going forward, and implement a policy to require our Chief Executive Officer and other NEOs to hold all net shares for one year after vesting subject to certain exceptions | | | | | Use a performance-based restricted stock unit (“PSU”) award design that requires sustained performance over multiple years for any payout | | | | | Include a relative TSR modifier to our executive PSU awards | | | | | Ensure that ongoing incentive goals are considered challenging with targets set at or above management guidance | | | | | For completed performance periods, disclose performance targets compared to actual results and corresponding payout scale | | | | | Avoid duplicate performance metrics in our cash incentive plan and PSU awards | | | | | Do not make upward discretionary adjustments except for extraordinary circumstances | | | | | Include an ESG metric in fiscal 2024 cash incentive plan to ensure linkage between compensation and our ESG goals | | | |
Responsible Use of Equity Compensation
Responsible Use of Equity Compensation In response to the feedback that we have received from our shareholders over the past several years, the Compensation and People Committee has undertaken a concerted program of reducing our annual stock-based compensation expense as a percentage of revenue. The graph below illustrates our stock-based compensation expense for fiscal years 2021, 2022, 2023 and 2024, including as a percentage of revenue.
Responsible Use of Equity Compensation
| 78 | | 2024 Proxy Statement |
Compensation Timeline and Process
| ● | Our past business performance and future expectations; | | ● | Our long-term goals and strategies; | | ● | The performance and experience of each executive officer; | | ● | The scope and strategic impact of the executive officer’s responsibilities; | | ● | The performance of our executive team as a whole; | | ● | An analysis of competitive market conditions, with the assistance of its external compensation consultant; | | ● | The incentives provided to our executives to remain with the Company and drive the Company’s continued growth; | | ● | The value of each executive’s unvested equity holdings; | | ● | For each executive officer, other than our CEO, the recommendation of our CEO based on an evaluation of their performance; | | ● | The challenge and cost of replacing high-performing leaders with in-demand skills; and | | ● | The internal parity of compensation among our executive officers. |
Roles and Responsibilities
| PARTICIPANT | ROLE IN COMPENSATION DETERMINATION PROCESS | | Independent Compensation Consultant For fiscal 2024 advice, the Compensation and People Committee engaged Meridian Compensation Partners, a national compensation consulting firm | ●Assist the Compensation and People Committee in executing the executive compensation strategy and guiding principles, assessing the current target total direct compensation opportunities of our executive officers, including comparing them against competitive market practices, developing a compensation peer group and advising on executive compensation decisions ●Meridian Compensation Partners did not provide any services to the Company other than the services provided to our Compensation and People Committee ●Our Compensation and People Committee assessed the independence of Meridian Compensation Partners taking into account, among other things, the factors set forth in Exchange Act Rule 10C-1 and the listing standards of Nasdaq and has concluded that no conflict of interest exists with respect to the work that Meridian Compensation Partners performs for our Compensation and People Committee |
Use of Competitive Data
Use of Competitive Data To assess the competitiveness of our executive compensation program and to assist in setting compensation levels, at the Compensation and People Committee’s request, Meridian Compensation Partners, the committee’s independent compensation consultant, compiled market data from a compensation peer group approved by our Compensation and People Committee and industry surveys, including the Radford Global Technology Executive Compensation Survey. The Compensation and People Committee, with the assistance of Meridian Compensation Partners, then analyzed the market and survey data when making fiscal 2024 compensation decisions.
Competitive Positioning
Competitive Positioning For fiscal 2024, our Compensation and People Committee continued to compare and analyze our executive compensation program and each component of executive compensation against data from a formal compensation peer group of companies. In the context of our annual executive compensation review, with assistance from Meridian Compensation Partners and input from management, in February 2023, our Compensation and People Committee reviewed the peer group of publicly-traded technology companies used to provide information regarding compensation practices for fiscal 2023 to determine if any changes were appropriate for use in considering fiscal 2024 pay decisions. In determining which companies to include in the peer group, our Compensation and People Committee considered companies that met some or all of the following updated criteria:
Competitive Positioning
| ● | had (i) revenue between 0.33 to 3.0 times our revenue, (ii) a market capitalization between 0.33 to 3.0 times our market capitalization, (iii) a market capitalization to revenue ratio greater than 2.0, and (iv) a number of employees between 0.5 to 2.0 times the number of our employees; | | ● | had revenue growth greater than 10% in at least two of the last three years and TSR growth greater than 10% in at least two of the last three years; | | ● | was headquartered on the west coast of the United States, operated in the software industry, provided some cybersecurity services, and was selected by Institutional Shareholder Services as one of our peer companies; and | | ● | whether we were included in the company’s peer group, whether the company’s chief executive officer was a founder with an atypical compensation structure, and the company’s relevant acquisition activity. |
Competitive Positioning
Based on this review, Twitter, Inc. was removed from our compensation peer group for fiscal 2024, and the Company was at the 69th percentile of the peer group in terms of revenue and 61st percentile in terms of market capitalization as of December 31, 2022.
Competitive Positioning
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Competitive Positioning
The following publicly-traded companies made up our compensation peer group for fiscal 2024:
Competitive Positioning
| Akamai Technologies, Inc. Autodesk, Inc. Cadence Design Systems, Inc. CrowdStrike Holdings, Inc. Gen Digital Inc. | Fortinet, Inc. Intuit Inc. Juniper Networks, Inc. Keysight Technologies, Inc. NetApp, Inc. | Paychex, Inc. Roper Technologies, Inc. ServiceNow, Inc. Snowflake Inc. Splunk Inc. | SS&C Technologies Holdings, Inc. VMWare, Inc. Workday, Inc. |
How We Compensate Our Named Executive Officers
| Delivered Strong Financial Performance and Shareholder Return | | | Accelerating Next-Gen Security ARR Growth ($ in billions) | Delivering Total Shareholder Return 1-Year TSR Palo Alto Networks vs. Percentiles of Peer Group | | | | | Accelerating Revenue Growth ($ in billions) | 3-Year TSR Palo Alto Networks vs. Percentiles of Peer Group | | | | | Accelerating Earnings Per Diluted Share ($)(1) | | | | |
Market Competitive Pay Levels and Evolving Compensation
Market Competitive Pay Levels and Evolving Compensation In designing the compensation packages of our NEOs, our Board and Compensation and People Committee sought to deliver market-competitive compensation commensurate with their capabilities and experience, and reflective of the considerable challenge of leading the Company’s transformation from a provider of hardware delivered security to a provider of security delivered through the cloud, and taking advantage of AI, with three platforms of products to protect our customers’ enterprise, cloud, endpoints, security operation centers and more. When determining the compensation of our NEOs, our Board and Compensation and People Committee listened carefully to shareholder feedback and modified compensation structures in response to that feedback. The tables below summarize the target compensation of our NEOs over the past three years.
Nikesh Arora - Chief Executive Officer
| | FY23 Target(1) | FY24 Target | Percentage Change FY23 to FY24 (%) | | Annual Salary | $1.0M(2) | $1.0M | no change | | Target Bonus | $1.0M | $1.0M | no change | | Time-Based RSUs | n/a | n/a | n/a | | Performance Stock Units | $38M in PSUs vesting at the end of 3 years based on achievement of billings growth and relative TSR metric | $40M in PSUs vesting at the end of 3 years based on achievement of billings growth and relative TSR metric | 5% | | Total Target | $40M | $42M | 5% | | Performance-Based (total compensation)(3) | 97.5% | 97.6% | +0.1% | | Percentile versus peer group - target compensation | 92nd | 91st | -1 percentile points |
Nikesh Arora - Chief Executive Officer
| (1) Does not include the one-time long-term performance and retention award granted to Mr. Arora in June of our fiscal 2023. | | (2) Mr. Arora forwent a portion of his annual salary in fiscal 2023 in connection with our funding efforts to support colleagues and communities impacted by the COVID-19 pandemic. He opted to receive only approximately $0.75 million of his salary in fiscal 2023. | | (3) These percentages do not take into account the amount of salary Mr. Arora forwent. |
Nikesh Arora - Chief Executive Officer
Mr. Arora’s equity compensation was incrementally increased in fiscal 2024, due to Mr. Arora’s strong performance response to difficult business conditions. Mr. Arora has led the Company by developing and executing on multiple impactful programs - in innovation, by launching Precision AI™, and in go-to-market and business initiatives, by being the architect of our Platformization strategy and developing new partnerships with industry leaders, such as with IBM and Accenture. Accordingly, his level of compensation was increased incrementally so that he can continue to perform to the level needed to execute the Company’s long-term strategy. The Compensation and People Committee also determined that Mr. Arora should be compensated appropriately in line with the Company’s performance, as demonstrated by our one-year TSR at the 99th percentile of our compensation peer group for fiscal 2023. Accordingly, the Compensation and People Committee determined that an increase in Mr. Arora’s compensation was warranted to reflect his and the Company’s strong performance relative to our compensation peer group. In fiscal 2024, our one-year TSR was at the 66th percentile of our compensation peer group, and our three-year TSR was at the 100th percentile of our compensation peer group, further demonstrating Mr. Arora’s high level of performance as our Chief Executive Officer.
Dipak Golechha - Chief Financial Officer
| | FY23 Target | FY24 Target | Percentage Change FY23 to FY24 (%) | | Annual Salary | $0.6M | $0.6M | no change | | Target Bonus | $0.6M | $0.6M | no change | | Time-Based RSUs | n/a | n/a | n/a | | Performance Stock Units | $9M in PSUs vesting at the end of 3 years based on achievement of billings growth and relative TSR metric | $10M in PSUs vesting at the end of 3 years based on achievement of billings growth and relative TSR metric | 11% | | Total Target | $10.2M | $11.2M | 10% | | Performance-Based (total compensation) | 94.1% | 94.6% | +0.5% |
Dipak Golechha - Chief Financial Officer
The incremental year-over-year increase in Mr. Golechha’s equity compensation was to compensate him for leading the Company’s profitable growth strategy, which significantly contributed to our strong financial performance in fiscal 2023, where our EPS increased to $1.28, compared to $(0.90) in fiscal 2022, non-GAAP operating margin increased to 24%, compared to 19% in fiscal 2022, and non-GAAP adjusted free cash flow margin increased to 39%, compared to 33% in fiscal 2022. The calculations for non-GAAP operating margin and non-GAAP free cash flow margin are included on Appendix A. In setting Mr. Golechha's fiscal 2024 compensation, the Compensation and People Committee also considered our performance relative to our compensation peer group in fiscal 2023 — a one-year TSR at the 99th percentile of our compensation peer group.
William "BJ" Jenkins - President
| | FY23 Target | FY24 Target | Percentage Change FY23 to FY24 (%) | | Annual Salary | $0.75M | $0.75M | no change | | Target Bonus | $0.75M | $0.75M | no change | | Time-Based RSUs | n/a | n/a | n/a | | Performance Stock Units | $10M in PSUs vesting at the end of 3 years based on achievement of billings growth and relative TSR metric | $10M in PSUs vesting at the end of 3 years based on achievement of billings growth and relative TSR metric | no change | | Total Target | $11.5M | $11.5M | no change | | Performance-Based (total compensation) | 93.5% | 93.5% | no change |
William "BJ" Jenkins - President
We maintained target compensation for Mr. Jenkins to compensate him for his leadership in the Company’s go-to-market efforts which significantly contributed to our strong financial performance in fiscal 2023, where total revenue increased to $6.9 billion, or approximately 25% compared to fiscal 2022, total billings increased to $9.2 billion, or by 23% compared to fiscal 2022, and NGS ARR increased to $2.95 billion, or by approximately 56% compared to fiscal 2022. Mr. Jenkins was instrumental in further developing and intensifying the Company’s global reach and the implementation of our Platformization strategy. The Compensation and People Committee determined that this level of compensation was warranted to reflect his and the Company’s strong performance relative to our compensation peer group, as demonstrated by our one-year TSR at the 99th percentile of our compensation peer group at the end of fiscal 2023.
Lee Klarich - Chief Product Officer
| | FY23 Target | FY24 Target | Percentage Change FY23 to FY24 (%) | | Annual Salary | $0.55M | $0.55M | no change | | Target Bonus | $0.55M | $0.55M | no change | | Time-Based RSUs | n/a | n/a | n/a | | Performance Stock Units | $15M in PSUs vesting at the end of 3 years based on achievement of billings growth and relative TSR metric | $7.5M in PSUs vesting at the end of 3 years based on achievement of billings growth and relative TSR metric | -50% | | Total Target | $16.1M | $8.6M | -47% | | Performance-Based (total compensation) | 96.6% | 93.6% | -3% |
Lee Klarich - Chief Product Officer
Mr. Klarich’s target compensation decreased in fiscal 2024 because, based on his existing unvested equity awards, our Compensation and People Committee determined that a more modestly sized performance-based equity award was appropriate. Mr. Klarich leads our product development efforts, and played a critical role in the success and acceleration of our product innovation, which for fiscal 2023 included 74 product releases across our three platforms, including Cortex XSIAM, Prisma Access 4.0, and PAN-OS 11.0. Mr. Klarich also oversaw the introduction of our Secure AI by Design product offerings which we introduced in fiscal 2024.
Nir Zuk - Chief Technology Officer(1)
| | FY23 Target | FY24 Target | Percentage Change FY23 to FY24 (%) | | Annual Salary | $0.45M | $0.45M | no change | | Target Bonus | $0.45M | $0.45M | no change | | Time-Based RSUs | n/a | n/a | n/a | | Performance Stock Units | $8M in PSUs vesting at the end of 3 years based on achievement of billings growth and relative TSR metric | $8M in PSUs vesting at the end of 3 years based on achievement of billings growth and relative TSR metric | no change | | Total Target | $8.9M | $8.9M | no change | | Performance-Based (total compensation) | 94.9% | 94.9% | no change |
Nir Zuk - Chief Technology Officer(1)
| (1) The dollar amounts listed in the table for Mr. Zuk reflect the conversion of his base salary and target annual cash incentive compensation opportunity from Israeli new shekels to U.S. dollars. Since Mr. Zuk did not receive any increase to his base salary and target annual cash incentive compensation opportunity in fiscal 2023 or fiscal 2024, in this table, the same exchange rate of approximately 0.30 U.S. dollars for one Israeli new shekel was used to convert these elements of his compensation for fiscal 2023, and fiscal 2024, in order to avoid including any difference in the target value of his total compensation resulting from currency fluctuations. Please note the average exchange rate for fiscal 2024 was approximately 0.27 U.S. dollars for one Israel new shekel. |
Fiscal 2024 Executive Compensation Program
| FISCAL 2024 PROGRAM HIGHLIGHTS ●No base salary or target annual incentive opportunity increases in fiscal 2024 for our NEOs ●Equity compensation granted in fiscal 2024 was 100% performance-based PSUs ●Performance measures aligned with business strategy ●Company performance resulted in: (i) 120% achievement for our NEOs under the cash incentive plan; (ii) with respect to the second tranche of the PSUs granted to our NEOs (other than Mr. Jenkins) in fiscal 2022 and the final tranche of the PSUs granted to Mr. Jenkins in fiscal 2022, an overall achievement percentage of 154% based on our revenue growth during fiscal 2022 through fiscal 2024 and after applying the relative TSR modifier for the three-year performance period that ended in fiscal 2024, and (iii) with respect to the PSUs granted to our NEOs in fiscal 2023 and fiscal 2024, a 0% achievement for fiscal 2024 based on annual billings growth during fiscal 2024 ●Adopted an SEC and Nasdaq-compliant compensation recovery policy, and continued a number of compensation best practices, including NEO stock ownership guidelines, a minimum one year post-vesting holding period for all grants to NEOs, the elimination of duplicative performance measures between our annual and long-term incentive plans, and an ESG modifier to our NEOs’ cash incentive plan to ensure linkage between compensation and our ESG goals |
Elements of Compensation
| | Pay Element | Purpose | Performance Period | Performance Metric | | | Base Salary | Designed to be market-competitive and attract and retain talent | n/a | n/a | | | Annual Cash Incentive Opportunity | Incentivize achievement of near-term financial and operational objectives, consistent with longer-term goals | Annual | Annual revenue for fiscal 2024 Annual organic operating margin for fiscal 2024 | | | Billings/TSR Performance Stock Units (PSU)(1) | Reward long-term profitability and long-term performance relative to peers Create alignment with shareholders Facilitate executive retention | Three years | Year-over-year billings growth for fiscal 2024, 2025, and 2026 and TSR of the Company relative to the S&P 500 (the “relative TSR” or “rTSR”) for fiscal 2024 through 2026 |
Elements of Compensation
| (1) The financial performance measures for the remaining performance periods under the fiscal 2024 PSUs and fiscal 2023 PSUs were subsequently aligned to the new design for fiscal 2025 PSUs. See “—Fiscal 2025 Compensation Decisions" for more information. |
Annual Cash Incentive Compensation
Annual Cash Incentive Compensation We use annual cash incentive compensation to motivate our NEOs to achieve our annual financial and operational objectives, while making progress towards our longer-term strategic and growth goals. Generally, we establish the target annual cash incentive compensation opportunities of our executive officers through arm’s-length negotiation at the time of hire taking into account his or her position, qualifications, experience, prior target annual cash incentive compensation opportunity, and the target annual cash incentive compensation opportunities of our other executive officers. Thereafter, our Compensation and People Committee reviews the target annual cash incentive compensation opportunities of each NEO annually and makes adjustments as it determines to be reasonable and necessary in line with the factors described under “—Compensation-Setting Process—Compensation Timeline and Process” above.
Fiscal 2024 Cash Incentive Plan
Fiscal 2024 Cash Incentive Plan In August 2023, our Compensation and People Committee adopted a cash incentive plan for all employees not paid commissions (including our NEOs) and approved the target levels for the annual financial objectives that were challenging and required substantial skill and effort on the part of senior management to achieve. As illustrated in the graphic below, payouts under the cash incentive plan for our NEOs are based on a target award multiplied by a factor based on the achievement of two corporate performance metrics, annual revenue and annual organic operating margin, which are defined further below. The payout can further be increased or decreased by ten percent, based on measured progress toward certain ESG goals that are set by the Compensation and People Committee at the beginning of the fiscal year. Depending on achievement of the factors, annual cash incentive payouts can range from 0% to 165% of target.
Fiscal 2024 Cash Incentive Plan
| Target Awardx | Achievement of Corporate Performance Metricsx | ESG Modifier | = | Payment Amount | | | | | | |
Fiscal 2024 Cash Incentive Plan
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Corporate Performance Measures
Corporate Performance Measures For fiscal 2024, our Compensation and People Committee selected annual revenue and annual organic operating margin as the corporate performance measures.
Corporate Performance Measures
| | | What It Is | Why It’s Important | | | | Fiscal 2024 revenue as reported in our Annual Report on Form 10-K | Revenue is an important growth metric that is directly tied to shareholder value creation | | | | Fiscal 2024 non-GAAP operating margin, excluding the effects of acquisitions and dispositions in fiscal 2024 and bonus payout in excess of 100% of the target cash incentive under our cash incentive plan | This profitability measure is tied to management performance and profit we generate for shareholders |
Corporate Performance Measures
Potential payouts under the incentive cash compensation plan were based on a set of curves representing different levels of organic operating margin and revenue performance.
Corporate Performance Measures
| ● | Design. To provide an incentive to management to make appropriate trade off decisions between balancing investments in growth and profitability. | | ● | Pay and Performance Relationship. The curves were designed to require significant performance above each curve to move to the next curve level so that performance slightly above target would not result in an above target payout. Performance below the threshold performance goal for either performance metric results in 0% of target payout, and performance above the maximum curve results in a formulaic payment maximum of 150% regardless of the level of overperformance. The threshold performance goals were $7,525 million of revenue and 23.69% of organic operating margin. | | ● | Target Setting. Our fiscal 2024 operating plan approved in August 2023, which was used to set the incentive plan targets, provided revenue and organic operating margin targets. Performance above the high end of the targets was required for an above 100% payout. | | ● | Difficulty of Achieving Targets. Fiscal 2024 target for revenue represented growth of approximately 19% above the prior year revenue. When we set the targets in August 2023, we decided that these targets were set at an appropriate level of stretch performance based on our internal financial projections and the macroeconomic environment. |
Corporate Performance Measures
The fiscal 2024 target for revenue growth was set at the high-end of the guidance we provided in our August 18, 2023 earnings release.
Corporate Performance Measures
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Corporate Performance Measures
The graph below contains the curves used to determine payouts in the fiscal 2024 cash incentive plan.
Fiscal 2024 Cash Incentive Plan Measures And Curves
Fiscal 2024 Cash Incentive Plan Measures And Curves
Fiscal 2024 Cash Incentive Plan Measures And Curves
| * Represents revenue of $8,200 million and non-GAAP operating margin of 26.1% for fiscal 2024. | | ** Represents actual achievement for fiscal 2024 of $8,028M revenue (or 98% of target) and non-GAAP operating margin of 28.3% (or 220 basis points above target), resulting in 120% of target funding. |
Fiscal 2024 Cash Incentive Plan Measures And Curves
| | FY24 Targets | FY24 Actual | FY24 Payout | | Revenue | $8,200M | $8,028M | 120% of Target | | Organic Operating Margin | 26.1% | 28.3% | |
Fiscal 2024 Cash Incentive Plan Measures And Curves
The calculation of organic operating margin is provided in Appendix A to this Proxy Statement.
Target Annual Incentive Compensation Opportunities
Target Annual Incentive Compensation Opportunities As in prior years, the target annual cash incentive compensation opportunities for our NEOs were expressed as a percentage of their respective base salaries.
Target Annual Incentive Compensation Opportunities
| NO INCREASE IN TARGET ANNUAL CASH INCENTIVE COMPENSATION FOR ANY NEO IN FISCAL 2024 |
Target Annual Incentive Compensation Opportunities
The table below shows the target annual cash incentive compensation percentage for fiscal 2024 and the corresponding target and maximum dollar values:
Target Annual Incentive Compensation Opportunities
| Name | Target Annual Incentive Compensation Opportunity (as a % of base salary) at end of Fiscal 2024 | Fiscal 2024 Target Annual Incentive Compensation Opportunity | | Fiscal 2024 Maximum Annual Incentive Compensation Opportunity | | | Mr. Arora | 100% | | 1,000,000 | | 1,650,000 | | Mr. Golechha | 100% | | 600,000 | | 990,000 | | Mr. Jenkins | 100% | | 750,000 | | 1,237,500 | | Mr. Klarich | 100% | | 550,000 | | 907,500 | | Mr. Zuk(1) | 100% | ₪ | 1,482,000 | ₪ | 2,445,300 |
Target Annual Incentive Compensation Opportunities
| (1) Mr. Zuk is employed by our Israel subsidiary and his target annual cash incentive compensation opportunity is expressed in Israeli currency. |
LONG-TERM EQUITY COMPENSATION
LONG-TERM EQUITY COMPENSATION Our long-term equity compensation is designed to encourage executives to achieve stretch goals in key performance metrics selected to drive long-term performance of our Company and value creation for shareholders.
LONG-TERM EQUITY COMPENSATION
| Over the past four years, 100% of the long-term equity compensation granted to our NEOs was performance-based (aside from Mr. Jenkins's new hire RSU award). | |
FISCAL 2024 EQUITY COMPENSATION
FISCAL 2024 EQUITY COMPENSATION
FISCAL 2024 EQUITY COMPENSATION
| 100% OF ANNUAL EQUITY GRANTED TO NEOs IN FISCAL 2024 WAS PERFORMANCE-BASED |
FISCAL 2024 EQUITY COMPENSATION
In fiscal 2024, 100% of the annual equity awards granted to our NEOs continued to be in the form of PSUs, resulting in the entirety of such equity awards being at risk and performance-based. The Compensation and People Committee determined the size of the awards based on the strong performance, leadership skills and valuable contributions to the Company of our NEOs, especially in the context of the significant transition in our business to expand to a more cloud-centric platform. To determine the size of the fiscal 2024 PSU awards, the Compensation and People Committee utilized the framework developed in partnership with Meridian Compensation Partners, its independent compensation consultant, to identify objective factors - financial performance, shareholder returns and achievement of strategic objectives - that should be considered in determining the size of any compensation. In addition to this assessment, the Compensation and People Committee also considered the individual performance of each NEO to determine the appropriate fiscal 2024 target compensation levels.
FISCAL 2024 EQUITY COMPENSATION
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FISCAL 2024 EQUITY COMPENSATION
The table below shows the targeted value of PSU grants made to our NEOs in fiscal 2023 and fiscal 2024, with the actual target number of shares subject to the fiscal 2024 PSUs determined based on the trailing 14-day average closing price as of the date of grant, rounded down to the nearest whole share.
FISCAL 2024 EQUITY COMPENSATION
| Name | Targeted Value for PSUs Granted for fiscal 2023 ($) | Targeted Value for PSUs Granted in fiscal 2024 ($) | Percentage change (%) | | Mr. Arora | 38,000,000 | 40,000,000 | 5 | | Mr. Golechha | 9,000,000 | 10,000,000 | 11 | | Mr. Jenkins | 10,000,000 | 10,000,000 | 0 | | Mr. Klarich | 15,000,000 | 7,500,000 | -50 | | Mr. Zuk | 8,000,000 | 8,000,000 | 0 |
FISCAL 2024 EQUITY COMPENSATION
Similar to the fiscal 2023 PSUs, the Compensation and People Committee set a three-year performance period for the fiscal 2024 PSUs and determined that such PSUs will vest based on the achievement of the performance goals for each of the Company’s 2024, 2025, and 2026 fiscal years as modified by the Company’s relative total shareholder return during the entirety of the three fiscal years. The Compensation and People Committee determined that continuing our design of a three-year measurement period for relative TSR and three one-year measurement periods for the financial metric(s) aligns with our pay-for-performance philosophy and provides an appropriate balance of requiring sustained performance while providing the Compensation and People Committee the ability to set annual targets aligned to the Company's financial plan. The number of fiscal 2024 PSUs that become eligible to vest (“Eligible PSUs”) will be equal to the product of (i) the target number of PSUs and (ii) the average of the achievement percentages for the financial metrics each fiscal year in the performance period. For each fiscal year, performance will be measured over the entire fiscal year. On the first day of the month after our Board or Compensation and People Committee certifies the level of achievement of the billings growth, annual NGS ARR and annual Non-GAAP EPS(1) and rTSR performance measures, the number of fiscal 2024 PSUs that vest (up to a maximum of 400%(2) of the target number) will be equal to the product of (x) the number of Eligible PSUs and (y) the rTSR modifier, subject to the applicable NEO’s continued service through the vesting date. A tentative rTSR modifier will be determined based on the TSR of the Company during the performance period relative to the TSRs of the indexed companies (which are the companies that are a component of the S&P 500 Index or any successor index on the last day of the performance period and were also a component of such index on the first day of the performance period) during the performance period, as follows: (i) if the relative TSR is at the 90th percentile or above, the tentative rTSR modifier will be 2.0, (ii) if the relative TSR is at the 75th percentile, the tentative rTSR modifier will be 1.50, (iii) if the relative TSR is at the 50th percentile, the tentative rTSR modifier will be 1.0, and (iv) if the relative TSR is at the 25th percentile or below, the tentative rTSR modifier will be 0.75. If the relative TSR is between any of these thresholds, the tentative rTSR modifier will be determined based on linear interpolation between the corresponding numbers for those thresholds. The rTSR modifier will be equal to the tentative rTSR modifier if the Company’s TSR is 0% or greater, but if the Company’s TSR is less than 0%, then the rTSR modifier will be the lower of the tentative TSR modifier or 1.0. For purposes of the PSU awards granted by the Company that include a rTSR modifier, the beginning stock price and ending stock price with respect to the Company and each indexed company for purposes of determining our and each indexed company's TSR over the relevant performance period is determined based on the average of the closing trading prices of the relevant company for the thirty consecutive trading days ending with the last trading day before the beginning of the performance period (for the beginning price) and the last trading day of the performance period (for the ending price).(3) Any fiscal 2024 PSUs that do not become Eligible PSUs due to the minimum performance metrics threshold not being achieved are forfeited without consideration.
FISCAL 2024 EQUITY COMPENSATION
| (1) The financial performance measure for the fiscal 2024 PSUs was initially billings growth for all performance periods. However, the financial performance measures for the remaining performance periods under the fiscal 2024 PSUs were aligned to the new design for fiscal 2025 PSUs. See “—Fiscal 2025 Compensation Decisions" and "—Alignment of Remaining Performance Periods to Fiscal 2025 PSU Design" below for more information. | | (2) The total maximum payout percentage was initially set at 600%. However, the total maximum payout percentage was reduced by 33.3%, from 600% to 400% of target payout, for the fiscal 2024 PSUs. | | (3) This calculation method for determining the starting and ending trading prices for the performance period that contribute to a company's TSR applies to each of the fiscal 2024, fiscal 2023, and fiscal 2022 PSU awards. |
FISCAL 2024 EQUITY COMPENSATION
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FISCAL 2024 EQUITY COMPENSATION
FISCAL 2024 PERFORMANCE PERIOD The achievement percentage for the fiscal 2024 performance period of the fiscal 2024 PSUs was determined based on whether year-over-year billings growth for that period was below, at or exceeds the target year-over-year billings growth for that period, as follows: (i) if the year-over-year billings growth is less than the threshold level (which is 400 basis points (“bps”) below the target year-over-year billings growth), the achievement percentage will be 0%, (ii) if the year-over-year billings growth is equal to the target year-over-year billings growth, the achievement percentage will be 100%, (iii) if the year-over-year billings growth is 600 bps above the target year-over-year billings growth, the achievement percentage will be 280%, and (iv) if the year-over-year billings growth is at least 700 bps above the target year-over-year billings growth, the achievement percentage will be 300%. If the year-over-year billings growth is both above the threshold level and between any of the levels described above, the achievement percentage will be determined based on linear interpolation between the corresponding achievement percentages for those levels. Year-over-year billings growth is the percentage increase in billings in a portion of a fiscal year over the billings in the corresponding portion of the immediately preceding fiscal year. For these purposes, billings is the amount of billings reported on our annual report on Form 10-K or quarterly report on Form 10-Q, which is defined as the total revenue plus the change in total deferred revenue, net of acquired deferred revenue, during the relevant period. The calculation of billings is provided in Appendix A to this Proxy Statement. Based on our actual billings growth of 11.0% in fiscal 2024 (compared to a target of 17.9%), our Compensation and People Committee determined an achievement percentage of 0% for the fiscal 2024 performance period of the fiscal 2024 PSUs. The Compensation and People Committee believes that the achievement percentage for fiscal 2024 demonstrates the intensity and rigor of our annual performance targets and our commitment to a pay-for-performance philosophy. The Compensation and People Committee confirmed no adjustments were warranted or appropriate to the fiscal 2024 financial performance target for outstanding equity awards, even though the Company shifted strategy to focus even more intentionally on Platformization during fiscal 2024. ALIGNMENT OF REMAINING PERFORMANCE PERIODS TO FISCAL 2025 PSU DESIGN Although the fiscal 2024 PSUs originally used year-over-year billings growth as the financial performance metric for each fiscal year of the fiscal 2024 PSU’s three-year performance period, our Compensation and People Committee determined to make changes to our executive equity compensation programs beginning in fiscal 2025 as a result of the shift in Company strategy to accelerate Platformization. In particular, and as further described under the section titled “–Fiscal 2025 Compensation Decisions,” the maximum target payout for the fiscal 2024 PSUs was reduced consistent with the design for the fiscal 2025 awards, and the financial performance metrics for the remaining performance periods under the fiscal 2024 PSUs were aligned to the design for the fiscal 2025 PSU awards. Accordingly, the maximum payout for the fiscal 2024 PSUs has been lowered by 33.3%, from 600% to 400% of target payout, and the financial metrics for the fiscal 2025 and fiscal 2026 performance periods will be based on achievement of annual NGS ARR and annual Non-GAAP EPS targets (in lieu of billings growth rate targets), with each financial metric given equal weighting. The achievement percentage (the “Payout Percentage”) used to determine Eligible PSUs for the remaining performance periods of the fiscal 2024 PSUs will be determined based on the average of the annual NGS ARR achievement percentage and the annual Non-GAAP EPS achievement for such fiscal period:
FISCAL 2024 EQUITY COMPENSATION
| ● | The annual NGS ARR achievement portion of the Payout Percentage is determined based on whether our annual NGS ARR for the relevant fiscal period is below, at or exceeds the target annual NGS ARR for that period, as follows: (i) if the annual NGS ARR is equal to or less than the threshold level, which is $300 million below the target NGS ARR for the period, the achievement percentage will be 0%, (ii) if the annual NGS ARR is equal to the target annual NGS ARR for the period, then the achievement percentage will be 100%, and (iii) if the annual NGS ARR is at least $300 million above the target annual NGS ARR for the period, then the achievement percentage will be 300%. | | ● | The annual Non-GAAP EPS achievement portion of the Payout Percentage is determined based on whether our annual Non-GAAP EPS for the fiscal period is below, at or exceeds the target annual Non-GAAP EPS for that period, as follows: (a) if the annual Non-GAAP EPS is equal to or less than the threshold level, which is 90% of the target Non-GAAP EPS for the period, the achievement percentage will be 0%, (b) if the annual Non-GAAP EPS is equal to the target annual Non-GAAP EPS for the period, then the achievement percentage will be 100%, (c) if the annual Non-GAAP EPS is at least 110% (or greater) of the target annual Non-GAAP EPS for the period, then the achievement percentage will be 300%. |
FISCAL 2024 EQUITY COMPENSATION
| 96 | | 2024 Proxy Statement |
FISCAL 2024 EQUITY COMPENSATION
If either financial metric is both above its respective threshold level and between any of the levels described above, the achievement percentage for the relevant financial metric will be determined based on linear interpolation between the corresponding achievement percentages for those levels. The targets for such measures are determined by our Compensation and People Committee by the end of the first month of each fiscal year of the relevant performance period. The calculation for the rTSR modifier remains unchanged and is determined in the manner described in the section above titled "—Fiscal 2024 Equity Compensation." However, the ultimate payout under the fiscal 2024 PSUs is now capped at 400% of the target number of PSUs (reduced from 600% of target), even if the product of the number of Eligible PSUs that result from the Payout Percentage on the financial performance metrics and the rTSR modifier would otherwise exceed 400%. The following chart illustrates how the new financial performance metrics and rTSR modifier contribute to the PSU achievement level for the remaining performance periods – fiscal 2025 and fiscal 2026 – of the fiscal 2024 PSUs.
FISCAL 2024 EQUITY COMPENSATION
| | Annual NGS ARR | Achievement Percentage | Average of achievement percentages | Annual Non- GAAP EPS | Achievement PercentageX | rTSR percentile rank within S&P 500 TSRs over the three-year performance period | rTSR modifier | = | PSU Achievement Level | PSU Achievement Level (as a Percentage of Target Award) | | X | ≥ $300 million above target | 300% | | ≥110% of target | 300% | = or >90th percentile | 2.0x | | Maximum | 400% | | | = $150 million above target | 200% | | =105% of target | 200% | = or >75th percentile | 1.5x | | High | 300% | | | = target | 100% | | = target | 100% | equal to 50th percentile | 1.0x | | Target | 100% | | | = $150 million below target | 50% | | = 95% of target | 50% | = or <25th percentile | 0.75x | | Threshold | 37.5% | | | ≤$300 million below target | 0% | | ≤ 90% of target | 0% | | | | <Threshold | 0% |
FISCAL 2024 EQUITY COMPENSATION
| ● | Annual NGS ARR is the Company’s annual recurring revenue for its Next-Generation Security business, as of the last day of the relevant fiscal year. Palo Alto Networks defines ARR associated with Next-Generation Security as the annualized allocated revenue of all active contracts as of the final day of the reporting period for Prisma and Cortex offerings inclusive of the VM-Series and related services, and certain cloud-delivered security services. | | ● | Annual Non-GAAP EPS is the Company’s non-GAAP net income per diluted share, calculated in a manner consistent with the calculation of the target non-GAAP EPS for such fiscal year, as adjusted to exclude the impact of merger and acquisition transactions consummated in the relevant fiscal year (except to the extent such a transaction is taken into account by the Compensation and People Committee when establishing the target Non-GAAP EPS for the relevant fiscal year). | | ● | For purposes of the rTSR modifier, the beginning stock price and ending stock price with respect to the Company and each indexed company for purposes of determining our and each indexed company's TSR over the relevant performance period is determined based on the average of the closing trading prices of the relevant company for the thirty consecutive trading days ending with the last trading day before the beginning of the performance period (for the beginning price) and the last trading day of the performance period (for the ending price). |
FISCAL 2024 EQUITY COMPENSATION
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FISCAL 2024 EQUITY COMPENSATION
The following table shows both the achievement percentage of 0% for the fiscal 2024 performance period of the fiscal 2024 PSUs based on our actual billings growth in fiscal 2024 and the alignment to the new financial performance metrics for the remaining performance periods.
FISCAL 2024 EQUITY COMPENSATION
| Grant | % of Total PSU Grant | Measure Type | FY24 | FY25 | FY26 | | Executive PSU Program | Fiscal 2024 PSU Award | | | | | | | FY24 Grant (Made August 2023) | 100% | Financial Metrics | Billings Growth FY24 Target: 17.9% FY24 Actual: 11.0% FY24 Achievement: 0% | Average of Annual NGS ARR* vs. Target and Non-GAAP EPS* vs. Target | Average of Annual NGS ARR* vs. Target and Non-GAAP EPS* vs. Target | | | | Relative TSR | 3 Year Relative TSR vs S&P 500 | | | | | | | *In August 2024, financial metrics were aligned with those adopted for the fiscal 2025 awards to further align NEO compensation to the success of our Platformization strategy and our focus on profitability. Final Payout = Average of Annual Financial Metric Payouts X Relative TSR Modifier (with final payout capped at a maximum of 400% of target PSUs) | | | | | | | Start and End of Performance Period | | |
FISCAL 2024 ACHIEVEMENT WITH RESPECT TO FISCAL 2023 PSUS
FISCAL 2024 ACHIEVEMENT WITH RESPECT TO FISCAL 2023 PSUS The fiscal 2023 PSUs vest based on the achievement of the performance goals for the Company’s 2023, 2024, and 2025 fiscal years. The number of PSUs that become Eligible PSUs will be equal to the product of (i) the target number of PSUs and (ii) the average of the achievement percentages for the financial metric for each fiscal year in the performance period.
FISCAL 2024 ACHIEVEMENT WITH RESPECT TO FISCAL 2023 PSUS
| Target Number of PSUs GRANTEDX | Average of Three-Year Performance Achievements based on Year-over-Year Billings Growth for fiscal 2023, 2024 and 2025X | rTSR Modifier | = | Number of PSUs VESTED |
FISCAL 2024 ACHIEVEMENT WITH RESPECT TO FISCAL 2023 PSUS
Based on our actual year-over-year billings growth of 11.0% in fiscal 2024 (compared to a target of 17.9%), our Compensation and People Committee determined an achievement percentage of 0% for fiscal 2024. The Compensation and People Committee believes that the achievement percentage for fiscal 2024 demonstrates the intensity and rigor of our annual performance targets and our commitment to a pay-for-performance philosophy.
FISCAL 2024 ACHIEVEMENT WITH RESPECT TO FISCAL 2023 PSUS
| 98 | | 2024 Proxy Statement |
FISCAL 2024 ACHIEVEMENT WITH RESPECT TO FISCAL 2023 PSUS
| Grant | % of Total PSU Grant | Measure Type | FY23 | FY24 | FY25 | | Executive PSU Program | Fiscal 2023 PSU Award | | | | | | | FY23 Grant (Made August 2022) | 100% | Financial Metrics | Billings Growth FY23 Target: 20% FY23 Actual: 23.1% FY23 Achievement: 193% | Billings Growth FY24 Target: 17.9% FY24 Actual: 11.0% FY24 Achievement: 0% | Average of Annual NGS ARR* vs. Target and Non-GAAP EPS* vs. Target | | | | Relative TSR | 3 Year Relative TSR vs S&P 500 | | | | | | | *In August 2024, financial metrics were aligned with those adopted for the fiscal 2025 awards to further align NEO compensation to the success of our Platformization strategy and our focus on profitability. Final Payout = Average of Annual Financial Metric Payouts X Relative TSR Modifier (with final payout capped at a maximum of 400% of target PSUs) | | | | | | | Start and End of Performance Period | | |
FISCAL 2024 ACHIEVEMENT WITH RESPECT TO FISCAL 2023 PSUS
As further described under the section titled “–Fiscal 2025 Compensation Decisions,” the maximum target payout for the fiscal 2023 PSUs was reduced consistent with the design for the fiscal 2025 awards, and the financial performance metrics for the last remaining performance period under the fiscal 2023 PSUs was aligned to the fiscal 2025 PSU awards. Accordingly, the maximum payout for the fiscal 2023 PSUs has been lowered by 33.3%, from 600% to 400% of target payout, and the financial metrics for the fiscal 2025 performance period will be based on achievement of annual NGS ARR and annual Non-GAAP EPS, with each financial metric given equal weighting. The calculation for the rTSR modifier for the fiscal 2023 PSUs remains unchanged and is determined in the same manner as the rTSR modified for the fiscal 2024 PSUs, as described in the section above titled "—Fiscal 2024 Equity Compensation." However, the ultimate payout under the fiscal 2023 PSUs is now capped at 400% of the target number of PSUs (reduced from 600% of target), even if the product of the number of Eligible PSUs that result from the Payout Percentage on the financial performance metrics and the rTSR modifier would otherwise exceed 400%. For a more detailed discussion of these new performance metrics see the section below titled "–Fiscal 2025 Compensation Decisions" and section above titled “—Fiscal 2024 Equity Compensation—Alignment of Remaining Performance Periods to Fiscal 2025 PSU Design.”
FISCAL 2024 ACHIEVEMENT WITH RESPECT TO FISCAL 2022 PSUS
FISCAL 2024 ACHIEVEMENT WITH RESPECT TO FISCAL 2022 PSUS 34% of the fiscal 2022 PSUs granted to Mr. Jenkins and 50% of the fiscal 2022 PSUs granted to each of our other NEOs vest based on the achievement of the performance goals for the Company’s 2022, 2023, and 2024 fiscal years. For each of these tranches of the fiscal 2022 PSUs, the number of PSUs that become Eligible PSUs will be equal to the product of (i) the target number of PSUs, and (ii) the average of the achievement percentages for the financial metric for each fiscal year in the performance period. The payout of the second tranche of the Fiscal 2022 PSUs was determined as follows:
FISCAL 2024 ACHIEVEMENT WITH RESPECT TO FISCAL 2022 PSUS
| Target Number of PSUs GRANTEDX | Average of the Three-Year Performance Achievements based on Year-over-Year Revenue Growth for fiscal 2022, 2023 and 2024X | rTSR Modifier | = | Number of PSUs VESTED |
FISCAL 2024 ACHIEVEMENT WITH RESPECT TO FISCAL 2022 PSUS
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FISCAL 2024 ACHIEVEMENT WITH RESPECT TO FISCAL 2022 PSUS
The following charts show three-year results for the final tranche of the fiscal 2022 PSU awards granted to our NEOs. Our 16.5% year-over-year annual revenue growth in fiscal 2024 (compared to a target of 18.9%), resulted in an achievement percentage of 76% for fiscal 2024. Our revenue growth during the fiscal 2022 performance period resulted in an achievement percentage of 136% for fiscal 2022, and our revenue growth during the fiscal 2023 performance period resulted in an achievement percentage of 96% for fiscal 2023. This results in an average achievement percentage for the fiscal 2022 PSU award financial measure of 102.7%. The number of PSUs that vested (up to a maximum of 300% of the target number of PSUs) was equal to the product of (x) the number of Eligible PSUs and (y) the rTSR modifier, subject to the applicable NEO’s continued service through the certification date. The rTSR modifier was determined based on rTSR during the 3-year performance period ending on July 31, 2024, which, as reflected in the graph below, was at the 98th percentile.(1) Based on this rTSR, the rTSR modifier was 1.5x, and the number of PSUs that vested was 154% of target.
FISCAL 2024 ACHIEVEMENT WITH RESPECT TO FISCAL 2022 PSUS
| Average of the Three-Year Performance Achievements based on Year-over-Year Revenue Growth for fiscal 2022, 2023 and 2024 | rTSR Modifier | | | |
OUR APPROACH TO ONE-TIME AWARDS TO NEOs
| (1) As described above in the section “—Fiscal 2024 Equity Compensation,” the beginning stock price and ending stock price with respect to the Company and each indexed company for purposes of determining our and each indexed company's TSR over the relevant performance period is determined based on the average of the closing trading prices of the relevant company for the thirty consecutive trading days ending with the last trading day before the beginning of the performance period (for the beginning price) and the last trading day of the performance period (for the ending price). |
FISCAL 2023 CEO RETENTION AWARD
FISCAL 2023 CEO RETENTION AWARD During fiscal 2023, our Compensation and People Committee granted Mr. Arora, our Chief Executive Officer, a significant performance-based restricted stock unit retention award. The decision was reached following a rigorous and data-driven assessment by our Compensation and People Committee, concluding that Mr. Arora had typified our leadership ethos—one that values high integrity and high performance for the benefit of our shareholders and all company stakeholders. The committee also recognized that he led our transformation from a market leader in next generation firewalls into the world’s cybersecurity leader, with best-of-breed products across network security, cloud security and security operations. During Mr. Arora's tenure, our financial performance and product innovation has accelerated, and our market capitalization increased from $19.1 billion (as of May 31, 2018, the last trading day prior to announcing Mr. Arora as our Chief Executive Officer) to $76.5 billion (as of July 31, 2023, the last day of fiscal 2023), and it continued to increase substantially throughout fiscal 2024. With Nikesh at the helm, Palo Alto Networks has delivered extraordinary value creation for our shareholders and has become the largest pure-play cybersecurity company in the world. We firmly believe that Mr. Arora is one of only a few executive leaders who can deliver the caliber of performance critical to our successful attainment of our next phase of growth. Accordingly, in making the performance-based grant to Mr. Arora in fiscal 2023, we sought to retain and engage a provide, successful and industry-leading Chief Executive Officer for the long term so that our shareholder can continue to experience the financial results that we expect to result from Mr. Arora's vision, strategic acumen and operational excellence. Prior to making the performance-based grant to Mr. Arora, during fiscal 2022 and 2023, John Donovan, our Lead Independent Director, held 30 and 21 meetings with shareholders, representing 39% and 31% of our outstanding shares (as of June 30, 2022 and June 30, 2023), respectively. When doing so, he personally took on the responsibility of soliciting input and guidance from our shareholders as it relates to Mr. Arora’s compensation. Sir John Key, the Chair of our Compensation and People Committee, often joined Mr. Donovan in these meetings. During these meetings, we sought shareholder input regarding the form and quantum of compensation paid to Mr. Arora, and in particular, our shareholders’ views as to whether the Board should seek to retain Mr. Arora for the long term, including through a significant equity award. As a result of these meetings, it became apparent to the Board, as well as the Compensation and People Committee, that our shareholders were very pleased with Mr. Arora’s performance as our Chief Executive Officer. Our shareholders also consistently expressed a desire for the Company to retain Mr. Arora for the long term, and recognized that doing so would represent a significant financial commitment on behalf of the Company. Our shareholders also expressed a strong recommendation that Mr. Arora’s compensation, including any retention compensation, should be consistent with the Company’s pay-for-performance philosophy, with vesting events aligning with performance levels that deliver significant value creation for the Company’s shareholders. In addition, shareholders expressed the view that Mr. Arora’s retention compensation should also be subject to reduction or risk if the Company failed to deliver expected financial performance. Following their meetings with our shareholders, Mr. Donovan and Sir John Key informed the Compensation and People Committee and the independent members of our Board of their engagement with shareholders, including the feedback received from them. The Compensation and People Committee sought to align Mr. Arora’s long-term performance and retention award with the guidance and input provided by our shareholders. In this respect, the Committee included the following features, which it believed aligned with the feedback received by numerous of our shareholders:
FISCAL 2023 CEO RETENTION AWARD
During fiscal 2023, the Board’s primary responsibility was to oversee the Company’s efforts to deliver meaningful and sustainable value to our shareholders. Our Board continues to believe that retaining Mr. Arora as our Chief Executive Officer for the long-term is critical to fulfilling that responsibility. Our Compensation and People Committee has committed not to grant Mr. Arora, our Chief Executive Officer, additional one-time equity awards of any variety with vesting or performance metrics that would overlap with the one-time performance-based restricted stock unit retention award granted to him in June 2023.
Fiscal 2025 Compensation Decisions
| ● | Reduced Total Potential Payout. For fiscal 2025, we have redesigned the PSU awards to lower the maximum payout by 33.3%, from 600% to 400% of the target payout. | | ● | Updated PSU Financial Metric Design to Align with our Strategy. The Compensation and People Committee believes that NEO compensation should be aligned with (i) the strategic plan and initiatives approved by the Board, (ii) the key financial metrics approved by the Board and communicated to investors, and (iii) the strategies that will fuel our long-term growth. During fiscal 2024, the Board approved an ambitious plan to accelerate Platformization – our strategy to accelerate customer adoption of our platforms across our portfolio – which the Board believes will be a driving force toward our long-term financial goal of $15 billion in NGS ARR by 2030, and meaningfully increase long-term shareholder value. Accordingly, for fiscal 2025, the Compensation and People Committee changed the financial measures of our PSUs to better align with this long-term strategy by linking executive compensation to an equal weighting of NGS ARR and Non-GAAP EPS. NGS ARR has become one of the Company’s key metrics, and our key top-line guidance metric in addition to revenue. We believe NGS ARR represents the return on the investments we make in next-generation security that will disproportionality drive our growth and profitability. The Compensation and People Committee introduced Non-GAAP EPS to ensure our growth is balanced, not overly weighted towards the top-line, and is profitable. By aligning NEO compensation to NGS ARR and Non-GAAP EPS, the Compensation and People Committee believes that we are fulfilling our pay-for-performance philosophy commitment to our shareholders by linking our executive’s long-term equity compensation with our long-term goals. | | ● | Aligned Prior Awards to New Design. For our fiscal 2023 and fiscal 2024 PSU awards for NEOs, we reduced the maximum target payout consistent with the design for the fiscal 2025 awards, and we aligned the financial performance metrics for the remaining performance periods with the financial performance metrics adopted for the fiscal 2025 PSU awards. Accordingly, the maximum payout for these prior PSUs has been lowered by 33.3%, from 600% to 400% of target number of PSUs, and the financial performance metrics – annual NGS ARR and Non-GAAP EPS – will further align NEO equity compensation to the success of our Platformization strategy and our focus on profitability. We believe that adopting the fiscal 2025 award financial metrics for all remaining performance periods in the fiscal 2023 and fiscal 2024 PSU awards will ensure our NEOs are focused on the metrics we believe will be most useful to evaluate the success of current business strategy. In addition, beginning in the first fiscal quarter of 2025, billings will no longer be a key financial metric of the Company and will no longer be reported by the Company. For a more detailed discussion of these new financial performance metrics, particularly as they apply to the remaining performance periods for the fiscal 2024 PSUs, see the section above titled “—Fiscal 2024 Equity Compensation—Alignment of Remaining Performance Periods to Fiscal 2025 PSU Design.” | | ● | Clearly Defined Cash Incentive Plan Performance Thresholds. For our fiscal 2025 annual cash incentive plan design, we clearly identified the threshold performance levels for each metric required for the funding and payout of the cash incentive plan. If the performance of either metric in the fiscal 2025 cash incentive plan (revenue and organic operating margin) is more than 10% below its respective target for fiscal 2025, then there will be no funding or payout of the cash incentive plan. |
Employment Agreements
Employment Agreements Each of our NEOs is a party to an employment arrangement setting forth the material terms of his employment. For a summary of the material terms and conditions of these arrangements, see the section titled “—Executive Employment Agreements.”
Risk Assessment and Compensation Practices
| ● | our cash incentive plan reflects a “pay for performance philosophy” that rewards our NEOs and other eligible employees for achievement of performance targets; | | ● | discretionary bonuses are reserved for extraordinary performance and achievement; | | ● | total compensation features a balance of short- and long-term incentives (LTI), with the majority of pay delivered in LTI for senior executives; | | ● | our equity awards include multi-year vesting schedules requiring long-term employee commitment; | | ● | our performance expectations reward long-term value creation, profitability and excellence; | | ● | our use of multiple performance measures in incentive plans; | | ● | our regular monitoring of short-term and long-term compensation practices to determine whether management’s objectives are satisfied; | | ● | performance goals require sufficient “stretch,” yet are achievable; | | ● | both the short-term and long-term incentive programs have caps for significant upside performance; and | | ● | our independent compensation consultant evaluated and assessed our compensation policies and practices and confirmed that our practices do not encourage excessive risk taking. |
Hedging and Pledging Policies
Hedging and Pledging Policies Our insider trading policy prohibits our executive officers and members of our board of directors from engaging in derivative securities transactions, including hedging or other transactions that offset, or are designed to hedge or offset, any decrease in the market value of our equity securities and from pledging Company securities as collateral or holding Company securities in a margin account, except, in the case of pledging, with the prior approval of the Governance and Sustainability Committee. This policy does not restrict ownership of, or transactions related to, Company-granted awards, such as PSUs, RSUs, employee stock options, and other securities issued by the Company or the deferral of equity awards pursuant to our non-qualified deferred compensation plan. Our executive officers have significant holdings of our stock to align their interests to those of our shareholders. Establishing a conservative pledging policy enables our executive officers to continue to hold those shares, while providing them flexibility in financial planning and allowing them to achieve financial diversification. By enabling our executives to maintain their stock ownership in the Company, our conservative pledging program helps ensure that they continue to have a meaningful financial interest in the success of the Company under their leadership. For these reasons, in fiscal 2022, the Board adopted a conservative policy that allows limited pledging of our stock by our executive officers.
Hedging and Pledging Policies
| ● | any proposed pledge of shares must be approved in advance by the Governance and Sustainability Committee; | | ● | the loan amount against which shares are pledged must not exceed 30% of the aggregate fair market value of the individual’s total stock ownership at the time the arrangement is executed; | | ● | only outstanding shares held by an individual may be pledged (i.e., no shares subject to options or unvested RSUs, PSUs or other unvested equity awards may be pledged); | | ● | no shares may be pledged that would cause the total value of all pledged shares of our executive officers in the aggregate (as a group) to exceed $100 million; | | ● | pledged shares cannot consist of any shares that remain subject to the Company’s One Year Hold Policy; and | | ● | the stock ownership requirements applicable to our executives are in addition to, and cannot include, pledged shares. |
Tax and Accounting Considerations
Tax and Accounting Considerations Deductibility of Executive Compensation. Section 162(m) of the Code generally disallows public companies a tax deduction for federal income tax purposes of remuneration in excess of $1 million paid to the chief executive officer and certain other highly compensated executive officers in any taxable year. While our Compensation and People Committee is mindful of the benefit of being able to fully deduct the compensation paid to our NEOs, our Compensation and People Committee believes that we should retain the flexibility to provide compensation to our NEOs that is not fully tax deductible when it believes that such payments are appropriate to attract and retain executive talent or meet other business objectives. Our Compensation and People Committee intends to continue to compensate our NEOs in a manner consistent with the best interests of our Company and our shareholders even if any portion of such compensation is non-deductible. Taxation of “Parachute” Payments. Sections 280G and 4999 of the Code provide that executive officers and directors who hold significant equity interests and certain other service providers may be subject to significant additional taxes if they receive payments or benefits in connection with a change in control that exceeds certain prescribed limits and that we (or a successor) may forfeit a deduction on the amounts subject to this additional tax. We did not provide any of our NEOs with a “gross-up” or other reimbursement payment for any tax liability that the NEO might owe as a result of the application of Sections 280G or 4999 during fiscal 2023, and we have not agreed and are not otherwise obligated to provide any NEO with such a “gross-up” or other reimbursement in the future. Accounting for Share-Based Compensation. We follow ASC Topic 718 for our share-based compensation awards. ASC Topic 718 requires companies to measure the compensation expense for all share-based compensation awards made to employees and directors, including stock options and other stock-based awards, based on the grant date “fair value” of these awards. This calculation is performed for accounting purposes and reported in the compensation tables below, even though our NEOs may never realize any value from their awards. ASC Topic 718 also requires companies to recognize the compensation cost of their share-based compensation awards in their income statements over the period that an executive officer is required to render service in exchange for the option or other award.
Fiscal 2024 Summary Compensation Table
Fiscal 2024 Summary Compensation Table The following table presents summary information regarding the compensation paid to, or earned by, our NEOs for our fiscal year ended July 31, 2024.
Fiscal 2024 Summary Compensation Table
| Name and Principal Position | Year | Salary ($) | Stock Awards ($)(1) | Non-Equity Incentive Plan Compensation ($) | All Other Compensation ($) | Total ($) | | Nikesh Arora Chief Executive Officer | 2024 | 1,000,000 | 54,150,353 | 1,200,000 | 1,686,522(2) | 58,036,875 | | | 2023 | 750,000(3) | 145,374,318 | 1,500,000 | 3,800,885 | 151,425,203 | | | 2022 | 250,000(3) | 7,007,348 | 1,500,000 | 1,653,129 | 10,410,477 | | Dipak Golechha Chief Financial Officer | 2024 | 600,000 | 13,301,233 | 720,000 | 2,924(4) | 14,624,157 | | | 2023 | 600,000 | 7,879,645 | 900,000 | 2,023 | 9,381,668 | | | 2022 | 600,000 | 1,868,557 | 900,000 | 251,946 | 3,620,503 | | William “BJ” Jenkins President | 2024 | 750,000 | 16,365,230 | 900,000 | 15,285(5) | 18,030,515 | | | 2023 | 750,000 | 12,116,568 | 1,125,000 | 31,836 | 14,023,404 | | | 2022 | 734,375 | 17,835,150 | 1,125,000 | 1,996 | 19,696,521 | | Lee Klarich Chief Product Officer | 2024 | 550,000 | 19,126,156 | 660,000 | 2,162(6) | 20,338,318 | | | 2023 | 550,000 | 15,685,347 | 825,000 | 32,023 | 17,092,370 | | | 2022 | 550,000 | 4,671,565 | 825,000 | 1,996 | 6,048,561 | | Nir Zuk(7) Founder and Chief Technology Officer | 2024 | 400,140 | 11,349,785 | 480,168 | 72,086(8) | 12,302,179 | | | 2023 | 419,515 | 6,961,334 | 629,272 | 76,091 | 8,086,212 | | | 2022 | 459,420 | 1,635,031 | 689,130 | 83,576 | 2,867,157 |
Fiscal 2024 Summary Compensation Table
| (1) The amounts reported in the Stock Awards column represent the grant date fair value of the RSUs (including time-based RSUs and PSUs) that were considered, under ASC Topic 718, to have been granted to our NEOs in each reported fiscal year, as computed in accordance with ASC Topic 718. The disclosure rules for stock awards in the summary compensation table are based on when there is a measurement date under financial accounting rules, because that is when it is possible to determine grant date fair value. As a result, performance-based stock awards are not always disclosed in the summary compensation table during the year that they were legally granted if performance metrics for a portion of the awards are set in a subsequent year. In the table above: |
Fiscal 2024 Summary Compensation Table
| (i.) | The amounts included for fiscal 2022 includes the grant date fair value of approximately 42% (or in Mr. Jenkins’ case, 61%) of the PSUs legally granted in fiscal 2022 because the performance metrics for those PSUs were set in fiscal 2022. | | (ii.) | The amounts included for fiscal 2023 includes the grant date fair value of approximately 42% (or in Mr. Jenkins’ case, 28%) of the PSUs legally granted in fiscal 2022, the grant date fair value of 1/3rd of the PSUs legally granted in August 2022 and the grant date fair value of all of the PSUs legally granted to Mr. Arora in June 2023 because the performance metrics for those PSUs were set in fiscal 2023. | | (iii.) | The amounts included for fiscal 2024 includes the grant date fair value of approximately 16% (or in Mr. Jenkins’ case, 11%) of the PSUs legally granted in fiscal 2022, the grant date fair value of ⅓ of the PSUs legally granted in fiscal 2023 and the grant date fair value of 1/3 of the PSUs legally granted in fiscal 2024 because the performance metrics for those PSUs were set in fiscal 2024. The result of this disclosure regime is that the increase in our stock price year over year results in larger grant date fair values reported in years subsequent to the year awards were legally granted because the higher stock price is used to establish the grant date fair value of the portion of an award that is set in those subsequent years. The grant date value of the awards that were considered to have been granted in fiscal 2024 under ASC Topic 718, assuming that the highest level of performance conditions will be achieved, is $155,378,068 for Mr. Arora, $38,017,080 for Mr. Golechha, $44,854,202 for Mr. Jenkins, $52,663,491 for Mr. Klarich, and $32,398,432 for Mr. Zuk. The portions of any awards that vest based on the achievement of performance goals (other than relative TSR) for fiscal years after fiscal 2024 do not have a reportable grant date fair value under ASC Topic 718 and are not included in this table. The assumptions used in calculating the grant date fair value of the awards reported in this column are set forth in the notes to our audited consolidated financial statements included in our Annual Report on Form 10-K for our fiscal year ended July 31, 2024. For more information, see footnote 3 to the Fiscal 2024 Grants of Plan-Based Awards Table. Note that the amounts reported in this column do not correspond to the actual economic value that may be received by our NEOs from their equity awards. |
Fiscal 2024 Summary Compensation Table
| (2) Includes life insurance premiums of $770, personal security costs of $1,115,315 based on invoices provided by a third-party security company, approximately $375,839 for costs attributed to personal usage of private aircraft and a Company-leased automobile provided as part of the overall security program, $193,513 of taxes associated with personal usage of the private aircraft and other travel expenses from the Company-leased automobile provided under Mr. Arora’s overall security program that may be deemed to be in the nature of commuting, and $392 of taxes associated with gifts provided in connection with Company events (on the same basis as the Company provides to other employees who receive gifts). For purposes of reporting the value of personal usage of private aircraft in this table, |
Fiscal 2024 Summary Compensation Table
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Fiscal 2024 Summary Compensation Table
| we use costs provided by the applicable charter company, which include contracted hourly charges and fuel charges. For purposes of reporting the value of personal usage of the Company automobile provided under Mr. Arora’s overall security program in this table, we use the hourly rate of the member of his security detail driving Mr. Arora applied to the approximate hours the security detail drives Mr. Arora in the automobile for personal use, plus an estimated percentage of personal use by Mr. Arora applied to the cost of leasing, insuring, maintaining the automobile. On occasion, guests of Mr. Arora also may accompany him, at a de minimis incremental cost to the Company. For more information regarding Mr. Arora’s overall security program and personal usage of private aircraft, see the section entitled “Compensation Discussion and Analysis—Perquisites and Other Personal Benefits” above. | | (3) From November 1, 2021 to October 31, 2022, Mr. Arora elected to forego his salary. | | (4) Includes life insurance premiums of $770, 401(k) plan matching contributions by our Company of $1,000, and $1,154 of taxes associated with gifts provided in connection with Company events (on the same basis as the Company provides to other employees who receive gifts). | | (5) Includes life insurance premiums of $770, 401(k) plan matching contributions of $1,000, $12,139 of taxes associated with the reimbursement of taxable expenses associated with participation at Company events (on the same terms as provided to other participants in such events), and $1,376 of taxes associated with gifts provided in connection with Company events (on the same basis as the Company provides to other employees who receive gifts). | | (6) Includes life insurance premiums of $770, 401(k) plan matching contributions by our Company of $1,000, and $392 of taxes associated with gifts provided in connection with Company events (on the same basis as the Company provides to other employees who receive gifts). | | (7) For fiscal 2024, Mr. Zuk’s base salary, non-equity incentive compensation and all other compensation was paid in Israeli currency. The amounts set forth in the table for fiscal 2024 reflect the conversion from Israeli currency to U.S. dollars using an average exchange rate of approximately 0.27 U.S. dollars for one Israeli new shekel for fiscal 2024. This table preserves the Israel new shekel to U.S. dollar exchange rates used in prior fiscal years for consistency with disclosures in this table from prior fiscal years. | | (8) Includes $425 of taxes associated with gifts provided in connection with Company events (on the same basis as the Company provides to other employees who receive gifts), $395 of taxes associated with health insurance contributions by the Company, $37,114 contributed for social security and pension benefits under Israeli government schemes (on the same basis as the Company provides to other Israel-based employees), and $33,332 contributed for severance benefits under Israeli government schemes (on the same basis as the Company provides to other Israel-based employees). |
CEO Pay Ratio
CEO Pay Ratio Under SEC rules, we are required to provide information regarding the relationship between the annual total compensation of our Chief Executive Officer and the annual total compensation of our median employee. As permitted by SEC rules, we used the same median employee for fiscal 2024 that we identified for fiscal 2023 because there have been no significant changes to our workforce or pay design for fiscal 2024 that we believe would significantly change our Chief Executive Officer pay ratio results. For our last completed fiscal year, which ended July 31, 2024:
CEO Pay Ratio
| ● | The median of the annual total compensation of all employees (other than Mr. Arora) of our Company and our consolidated subsidiaries in fiscal 2024 was approximately $215,882. This annual total compensation was calculated in accordance with Item 402(c)(2)(x) of Regulation S-K, and reflects, among other things, salary, all bonuses earned, other cash payments (such as from our cash incentive plan), 401(k) contribution matches, life and disability insurance premiums paid by the Company, and the aggregate “grant date fair value” of equity awards granted during fiscal 2024. | | ● | Mr. Arora’s annual total compensation, as reported in the Fiscal 2024 Summary Compensation Table included in this Proxy Statement, was $58,036,875. | | ● | Based on the above, for fiscal 2024, the ratio of Mr. Arora’s annual total compensation to the median of the annual total compensation of all employees was approximately 269 to 1. |
CEO Pay Ratio
This pay ratio is a reasonable estimate calculated in a manner consistent with Item 402(u) of Regulation S-K under the Securities Act of 1933, as amended (the “Securities Act”), and based upon our reasonable judgment and assumptions. The SEC rules do not specify a single methodology for identification of the median employee or calculation of the pay ratio, and other companies may use assumptions and methodologies that are different from those used by us in calculating their pay ratio. Accordingly, the pay ratio disclosed by other companies may not be comparable to our pay ratio as disclosed above.
CEO Pay Ratio
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Fiscal 2024 Grants of Plan-Based Awards
Fiscal 2024 Grants of Plan-Based Awards The following table presents information regarding the amount of equity awards granted to our NEOs during our fiscal year ended July 31, 2024.
Fiscal 2024 Grants of Plan-Based Awards
| Name | Grant Date | Date of Board or Committee Action to Grant the Award | Estimated Future Payouts Under Non-Equity Incentive Plan Awards(1) | | | Estimated Future Payouts Under Equity Incentive Plan Awards(2) | | | All Other Stock Awards: Number of Shares of Stock or Units (#) | Grant Date Fair Value of Stock Awards ($)(3) | | | | | Threshold ($) | Target ($) | Maximum ($) | Threshold (#) | Target (#) | Maximum (#) | | | | Mr. Arora | — | — | 450,000 | 1,000,000 | 1,650,000 | — | — | — | — | — | | | 8/20/21 | 8/17/21 | — | — | — | 7,596 | 20,256 | 60,768 | — | 7,072,990 | | | 8/23/22 | 8/18/22 | — | — | — | 1 | 72,504 | 435,024 | — | 26,946,837 | | | 8/21/23 | 8/17/23 | — | — | — | 1 | 61,614 | 369,684 | — | 20,130,526 | | Mr. Golechha | — | — | 270,000 | 600,000 | 990,000 | — | — | — | — | — | | | 8/20/21 | 8/17/21 | — | — | — | 2,026 | 5,403 | 16,209 | — | 1,886,620 | | | 8/23/22 | 8/18/22 | — | — | — | 1 | 17,172 | 103,032 | — | 6,382,146 | | | 8/21/23 | 8/17/23 | — | — | — | 1 | 15,403 | 92,418 | | 5,032,468 | | Mr. Jenkins | — | — | 337,500 | 750,000 | 1,237,500 | — | — | — | — | — | | | 8/20/21 | 8/17/21 | — | — | — | 4,555 | 12,147 | 36,441 | — | 4,241,489 | | | 8/23/22 | 8/18/22 | — | — | — | 1 | 19,080 | 114,480 | — | 7,091,273 | | | 8/21/23 | 8/17/23 | — | — | — | 1 | 15,403 | 92,418 | — | 5,032,468 | | Mr. Klarich | — | — | 247,500 | 550,000 | 907,500 | — | — | — | — | — | | | 8/20/21 | 8/17/21 | — | — | — | 5,063 | 13,503 | 40,509 | — | 4,714,978 | | | 8/23/22 | 8/18/22 | — | — | — | 1 | 28,620 | 171,720 | — | 10,636,909 | | | 8/21/23 | 8/17/23 | — | — | — | 1 | 11,552 | 69,312 | — | 3,774,269 | | Mr. Zuk(4) | — | — | 180,063 | 400,140 | 660,231 | — | — | — | — | — | | | 8/20/21 | 8/17/21 | — | — | — | 1,773 | 4,728 | 14,184 | — | 1,650,923 | | | 8/23/22 | 8/18/22 | — | — | — | 1 | 15,264 | 91,584 | — | 5,673,018 | | | 8/21/23 | 8/17/23 | — | — | — | 1 | 12,322 | 73,932 | — | 4,025,844 |
Fiscal 2024 Grants of Plan-Based Awards
| (1) Amounts in the “Estimated Future Payouts Under Non-Equity Incentive Plan Awards” columns relate to target incentive compensation opportunities under the fiscal 2024 cash incentive plan and assumes achievement at target levels for our corporate performance measures. For achievement in excess of target, overperformance could be rewarded with a payout of up to 165% of each NEO’s target. The actual amounts paid to our NEOs are set forth in the “Fiscal 2024 Summary Compensation Table” above and the calculation of the actual amounts paid is discussed more fully in the section titled “ Compensation Discussion and Analysis—Fiscal 2024 Executive Compensation Program—Fiscal 2024 Executive Compensation Program Components—Annual Cash Incentive Compensation.” | | (2) Represents PSUs that were considered, under ASC Topic 718, to have been granted in fiscal 2024. The threshold is calculated as if the threshold of Company performance measure was reached and/or the lowest TSR modifier was reached. The maximum is calculated assuming all maximum Company performance targets were met and/or the relative TSR modifier was also at the maximum value. For more information, see the section titled “Compensation Discussion and Analysis—Fiscal 2024 Executive Compensation Program—Fiscal 2024 Executive Compensation Program Components—Fiscal 2024 Equity Compensation.” The numbers included in the “Maximum” column for the PSUs granted in our fiscal 2023 (which have a grant date of August 23, 2022) and our fiscal 2024 (which have a grant date of August 21, 2023) reflect the terms of those PSUs as in effect on July 31, 2024. As discussed in the section titled “Compensation Discussion and Analysis--Fiscal 2025 Compensation Decisions,” following the end of our fiscal 2024, the maximum payout for the fiscal 2023 PSUs and fiscal 2024 PSUs was lowered from 600% to 400% of the target number of shares subject to the PSUs. Taking into account the reduced maximum payout, the numbers for the “Maximum” column for the PSUs granted in our fiscal 2023 (which have a grant date of August 23, 2022) and our fiscal 2024 (which have a grant date of August 21, 2023) would be as follows: (i) for Mr. Arora, 290,016 for the fiscal 2023 PSUs and 246,456 for the fiscal 2024 PSUs, (ii) for Mr. Golechha, 68,688 for the fiscal 2023 PSUs and 61,612 for the fiscal 2024 PSUs, (iii) for Mr. Jenkins, 76,320 for the fiscal 2023 PSUs and 61,612 for the fiscal 2024 PSUs, (iv) for Mr. Klarich, 114,480 for the fiscal 2023 PSUs and 46,208 for the fiscal 2024 PSUs, and (v) for Mr. Zuk, 61,056 for the fiscal 2023 PSUs and 49,288 for the fiscal 2024 PSUs. |
Fiscal 2024 Grants of Plan-Based Awards
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Fiscal 2024 Grants of Plan-Based Awards
| (3) The amounts reported in the Grant Date Fair Value of Stock Awards column represent the grant date fair value of the portions of the PSU awards that were considered, under ASC Topic 718, to have been granted in fiscal 2024. The assumptions used in calculating the grant date fair value of the PSUs reported in this column are set forth in the notes to our audited consolidated financial statements included in our Annual Report on Form 10-K for our fiscal year ended July 31, 2024. The value of the PSUs is calculated using a Monte-Carlo simulation valuation performed as of the date of grant by an independent third party. Because the grant date for a PSU under ASC Topic 718 occurs when performance targets are approved, and we approved performance targets only with respect to fiscal year 2024, PSU values in this column include |
Fiscal 2024 Grants of Plan-Based Awards
| i. | with respect to PSUs granted in August 2021, 16% of the PSUs granted to Mr. Arora, Mr. Golechha, Mr. Klarich, and Mr. Zuk, and 11% of the PSUs granted to Mr. Jenkins; and | | ii. | with respect to PSUs granted in August 2022 and in August 2023, ⅓ of the PSUs granted. Note that the amounts reported in this column do not correspond to the actual economic value that may be received by our NEOs from their PSU awards. |
Fiscal 2024 Grants of Plan-Based Awards
| (4) The amounts set forth in the table for Mr. Zuk for estimated future payouts under Non-Equity Incentive Plan Awards reflect the conversion from Israeli currency to U.S. dollars using an average exchange rate of approximately 0.27 U.S. dollars for one Israeli new shekel for fiscal 2024. |
Fiscal 2024 Grants of Plan-Based Awards
Fiscal 2024 Outstanding Equity Awards at Fiscal Year-End The following table presents information regarding outstanding stock options and other equity awards held by our NEOs as of July 31, 2024.
Fiscal 2024 Grants of Plan-Based Awards
| Named Executive Officer | Grant Date | Option Awards— Number of Securities Underlying Unexercised Options (#) Exercisable | Option Awards— Number of Securities Underlying Unexercised Options (#) Unexercisable | Option Awards— Option Exercise Price ($) | Option Awards— Option Expiration Date | Stock Awards— Number of Shares or Units of Stock That Have Not Vested (#) | Stock Awards— Market Value of Shares or Units of Stock That Have Not Vested ($)(1) | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($) | | Mr. Arora | 8/21/2023(2) | — | — | — | — | — | — | 1 | 325 | | | 6/2/2023(3) | — | — | — | — | — | — | 750,000 | 243,547,500 | | | 8/20/2022(4) | — | — | — | — | — | — | 1,305,090 | 423,801,876 | | | 8/20/2021(5) | — | — | — | — | 93,578 | 30,387,584 | — | — | | | 10/20/2020(6) | — | — | — | — | 54,233 | 17,611,082 | — | — | | | 6/7/2018(7) | — | — | — | — | 85,116 | 27,639,719 | — | — | | | 6/7/2018(8) | 2,378,092 | — | 66.17 | 12/6/25 | — | — | — | — | | Mr. Golechha | 8/21/2023(2) | — | — | — | — | — | — | 1 | 325 | | | 8/20/2022(4) | — | — | — | — | — | — | 309,096 | 100,372,744 | | | 8/20/2021(5) | — | — | — | — | 24,953 | 8,102,988 | — | — | | | 3/20/2021(9) | — | — | — | — | 12,468 | 4,048,734 | — | — | | | 12/20/2020(10) | — | — | — | — | 5,043 | 1,637,613 | — | — | | Mr. Jenkins | 8/21/2023(2) | — | — | — | — | — | — | 1 | 325 | | | 8/20/2022(4) | — | — | — | — | — | — | 343,400 | 111,525,271 | | | 8/20/2021(5) | — | — | — | — | 56,110 | 18,220,600 | — | — | | | 8/20/2021(11) | — | — | — | — | 11,481 | 3,728,225 | — | — | | Mr. Klarich | 8/21/2023(2) | — | — | — | — | — | — | 1 | 325 | | | 8/20/2022(4) | — | — | — | — | — | — | 515,160 | 167,287,907 | | | 8/20/2021(5) | — | — | — | — | 62,384 | 20,257,956 | — | — | | | 10/20/2020(12) | — | — | — | — | 15,192 | 4,933,298 | — | — | | | 10/20/2018(8) | 912,079 | — | 64.50 | 4/19/26 | — | — | — | — |
Fiscal 2024 Grants of Plan-Based Awards
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Fiscal 2024 Grants of Plan-Based Awards
| Named Executive Officer | Grant Date | Option Awards— Number of Securities Underlying Unexercised Options (#) Exercisable | Option Awards— Number of Securities Underlying Unexercised Options (#) Unexercisable | Option Awards— Option Exercise Price ($) | Option Awards— Option Expiration Date | Stock Awards— Number of Shares or Units of Stock That Have Not Vested (#) | Stock Awards— Market Value of Shares or Units of Stock That Have Not Vested ($)(1) | 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 ($) | | Mr. Zuk | 8/21/2023(2) | — | — | — | — | — | — | 1 | 325 | | | 8/20/2022(4) | — | — | — | — | — | — | 274,752 | 89,220,217 | | | 8/20/2021(5) | — | — | — | — | 21,834 | 7,090,155 | — | — | | | 10/20/2020(13) | — | — | — | — | 7,296 | 2,369,230 | — | — | | | 10/20/2018(8) | 1,509,057 | — | 64.50 | 4/19/26 | — | — | — | — |
Fiscal 2024 Grants of Plan-Based Awards
| (1) The market value of unvested or unearned shares is calculated by multiplying the number of unvested or unearned shares held by the applicable NEO by the closing market price of our common stock on Nasdaq on July 31, 2024 (the last trading day of our 2024 fiscal year), which was $324.73 per share. | | (2) Represents PSUs that were granted under our 2021 Equity Incentive Plan (“2021 Plan”). PSUs have a three-year performance period and will vest at the end of the performance period based on the achievement of performance goals for the Company’s 2024, 2025 and 2026 fiscal years. Values included in the Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested and Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested columns include the threshold values for number of shares and market value. For more information, see the section titled “Fiscal 2024 Executive Compensation Program—Fiscal 2024 Executive Compensation Program Components—Fiscal 2024 Equity Compensation.” | | (3) Represents PSUs that were granted under our 2021 Plan. Following the completion of a five-year performance period, the Compensation and People Committee will make the final determination of performance in connection with the award, after which the shares will fully vest. Values included in the Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested and Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested columns include the maximum values for number of shares and market value (i.e., calculated assuming the highest relative TSR target was met). | | (4) Represents PSUs that were granted under our 2021 Plan. PSUs have a three-year performance period and will vest at the end of the performance period based on the achievement of the performance goals for the Company’s 2023, 2024 and 2025 fiscal years. Values included in the “Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested” and “Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested” columns include the maximum values for number of shares and market value (i.e., calculated assuming all maximum performance targets were met and the relative TSR modifier was also at the maximum value), based on the terms of such PSUs as in effect on July 31, 2024. As discussed in the section titled “Compensation Discussion and Analysis--Fiscal 2025 Compensation Decisions,” following the end of our fiscal 2024, the maximum payout for the PSUs granted in our fiscal 2023 (which have a grant date of August 23, 2022) was lowered from 600% to 400% of the target number of shares subject to the PSUs. Taking into account the reduced maximum payout, the maximum values for number of shares and market value that would have been reported for these PSUs would have been: (i) for Mr. Arora, 870,060 PSUs with a value of $282,534,584, (ii) for Mr. Golechha, 206,064 PSUs with a value of $66,915,163, (iii) for Mr. Jenkins, 228,960 PSUs with a value of $74,350,181, (iv) for Mr. Klarich, 343,440 PSUs with a value of $111,525,271, and (v) for Mr. Zuk, 183,168 PSUs with a value of $59,480,145. | | (5) Represents PSUs that were granted under our 2012 Equity Incentive Plan (the “2012 Plan”). Specified performance metrics having been achieved, the PSUs that became eligible to vest will vest upon the Compensation and People Committee’s final determination of performance in connection with the award. Values included in the “Stock Awards—Number of Shares or Units of Stock That Have Not Vested” and “Stock Awards—Market Value of Shares or Units of Stock That Have Not Vested” columns reflect the PSUs that were eligible to vest, as of July 31, 2024, based upon achievement of the specified performance metric. | | (6) Represents PSUs that were granted under our 2012 Plan. A specified performance metric having been achieved, the PSUs that became eligible to vest will vest over a four-year period, with 15% of such PSUs having vested in equal quarterly increments during year two with the first vesting on January 20, 2022; 42.5% of such PSUs having vested in equal quarterly increments during year three; and 42.5% of such PSUs vesting in equal quarterly increments during year four, in each case subject to the executive’s continued service through the applicable vesting date. | | (7) Vested as to 1/7th of the restricted stock units on June 7, 2019 and the remaining restricted stock units vest in equal increments each quarter thereafter with full vesting occurring on June 7, 2025, in each case subject to the executive’s continued service through the applicable vesting date. | | (8) All shares subject to this PSO have vested due to the achievement of certain stock price targets and continued service. Under the terms of Mr. Arora’s PSO, 1/4th of the PSOs have an option expiration date of December 6, 2025 as reflected in the table, while the remaining 3/4ths of the PSOs have an option expiration date of June 6, 2025. | | (9) A specified performance metric having been achieved, the PSUs that became eligible to vest will vest over a four-year period with one fourth (1/4th) of such PSUs having vested on the one-year anniversary of the grant date; and one-sixteenth (1/16th) of such PSUs vesting quarterly thereafter, in each case subject to the executive’s continued service through the applicable vesting date. |
Fiscal 2024 Grants of Plan-Based Awards
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Fiscal 2024 Grants of Plan-Based Awards
| (10) Vests over a four-year period, with one fourth (1/4th) of the restricted stock units having vested on the one-year anniversary of the grant date; and one-sixteenth (1/16th) of the restricted stock units vesting quarterly thereafter, in each case subject to the executive’s continued service through the applicable vesting date. | | (11) Vests over a four-year period, with forty percent (40%) of the restricted stock units having vested on the one-year anniversary of the grant date; thirty percent (30%) of the restricted stock units vesting in equal quarterly increments during the second year; twenty percent (20%) of the restricted stock units vesting in equal quarterly increments during the third year; and ten percent (10%) of the restricted stock units vesting in equal quarterly increments during the fourth year, in each case subject to the executive’s continued service through the applicable vesting date. | | (12) A specified performance metric having been achieved, the PSUs that became eligible to vest will vest over a four-year period, with 25% of such PSUs having vested on October 20, 2021; 25% of such PSUs having vested in equal quarterly increments during year two; 25% of such PSUs vesting in equal quarterly increments during year three; and 25% of such PSUs vesting in equal quarterly increments during year four, in each case subject to the executive’s continued service through the applicable vesting date. | | (13) A specified performance metric having been achieved, the PSUs that became eligible to vest will vest over a four-year period, with 20% of such PSUs having vested during year two with the first vest on January 20, 2022; 40% of such PSUs vesting in equal quarterly increments during year three; and 40% of such PSUs vesting in equal quarterly increments during year four, in each case subject to the executive’s continued service through the applicable vesting date. |
Fiscal 2024 Option Exercises and Stock Vested
Fiscal 2024 Option Exercises and Stock Vested The following table presents information regarding the exercise of stock options and the vesting of stock awards by our NEOs during our fiscal year ended July 31, 2024.
Fiscal 2024 Option Exercises and Stock Vested
| Named Executive Officer | Option Awards— Number of Shares Acquired on Exercise (#) | Option Awards—Value Realized on Exercise ($) | Stock Awards— Number of Shares Acquired on Vesting (#) | Stock Awards— Value Realized on Vesting ($)(1) | | Mr. Arora | 621,908 | 141,536,802 | 407,771(2) | 114,198,499 | | Mr. Golechha | — | — | 54,895 | 14,762,227 | | Mr. Jenkins | — | — | 78,753(2) | 19,799,205 | | Mr. Klarich | 830,000 | 186,674,807 | 131,246 | 36,061,937 | | Mr. Zuk | — | — | 53,835 | 14,990,119 |
Fiscal 2024 Option Exercises and Stock Vested
| (1) Based on the market price of our Company’s common stock on the vesting date, multiplied by the number of shares vested. | | (2) Settlement of these shares, issuable pursuant to RSUs that vested during fiscal 2024, have been deferred under the Company’s deferred compensation plan, as described in the Nonqualified Deferred Compensation section below. |
Fiscal 2024 Option Exercises and Stock Vested
We did not sponsor any defined benefit pension or other actuarial plan for our NEOs during our fiscal year ended July 31, 2024.
Nonqualified Deferred Compensation
Nonqualified Deferred Compensation In May 2022, our Compensation and People Committee adopted a deferred compensation plan, which is a non-qualified deferred compensation plan established in compliance with Section 409A of the Code. Participation in the deferred compensation plan is voluntary and limited to U.S. employees of the Company and affiliates that are at the Vice President level or above, as determined by the administrator of the deferred compensation plan, and includes the Company’s executive officers, except Mr. Zuk who is not a U.S. employee. The plan allows eligible participants to defer salary, annual bonuses, commissions, other cash compensation approved by the administrator, and certain RSUs and PSUs, excluding any compensation that has already been deferred and cash compensation that is not paid through U.S. payroll. The administrator may permit different deferral amounts for each component of compensation and may establish a minimum or maximum deferral amount for each component. Unless otherwise specified by the administrator, participants may defer (i) a minimum of 5% and a maximum of 50% of their annual base salary, (ii) a minimum of 5% and a maximum of 100% of their annual cash bonuses and commission, and (iii) a minimum of 5% and a maximum of 100% of any equity award or, to the extent a participant is permitted to defer the unvested tranche(s) of an equity award, the applicable unvested
Nonqualified Deferred Compensation
| 114 | | 2024 Proxy Statement |
Nonqualified Deferred Compensation
tranche(s). Participants’ deferrals will be credited to their accounts on the date that deferred compensation would have been paid. Participants will be 100% vested at all times in their deferred cash compensation. Each participant may allocate his or her deferrals to accounts under the deferred compensation plan that provide for payment of deferred amounts upon specified events, such as the participant’s separation from service or a date specified by the participant. Participants may elect to receive payment of their account balances in a single lump-sum distribution or in annual installments (as elected by the participant in accordance with the deferred compensation plan), except in certain limited circumstances and provided that payments upon a participant’s death will be provided in a single lump sum. The Company may make discretionary matching, profit sharing, or other contributions to any participant account under the deferred compensation plan, and these contributions will vest according to the schedule specified by the administrator on or before the time the contributions are made. The Company has the discretion to accelerate the vesting of any of these contributions at any time. Each account under the deferred compensation plan will be credited with earnings on each business day (unless another period is specified by the administrator with respect to a particular investment option), based upon the participant’s investment allocation, with respect to each deferral, among a menu of investment options selected in advance by the administrator. If a participant fails to make an investment allocation with respect to a deferral of an equity award, the deferral will be invested in notional shares of the Company’s common stock. If a participant fails to make an investment allocation with respect to a deferral of any other compensation, the deferral will be invested in a notional mutual fund specified by the administrator. Upon a participant’s death, the balances under all of the participant’s accounts will be paid in a single lump sum no later than the end of the following year. In addition, the administrator has the discretion to accelerate or delay the payment of account balances, as long as such changes are permitted under applicable tax rules and requirements. All accounts will be paid in fully vested RSUs settled in shares of the Company’s common stock issued under the Company’s equity plan, except that an account will be paid in cash to the extent there are not enough shares available under the Company’s equity plan to make such payment in shares. The following table summarizes the activity under the deferred compensation plan in fiscal 2024.
Nonqualified Deferred Compensation
| Named Executive Officer | Executive contributions in last fiscal year ($)(1) | Aggregate earnings or loss in last fiscal year ($)(2) | Aggregate balance at last fiscal year end ($)(3) | | Mr. Arora | 114,198,499 | 36,585,948 | 212,192,870 | | Mr. Golechha | — | — | — | | Mr. Jenkins | 19,799,205 | 10,657,709 | 46,782,552 | | Mr. Klarich | — | — | — |
Nonqualified Deferred Compensation
| (1) Represents the value of the RSUs that vested and were earned and deferred by our NEOs in fiscal 2024. The value of each vested deferred RSU is based on the closing price of the Company’s common stock on the applicable vesting date. No portion of the amount for any NEO is included as compensation for fiscal 2024 in the Fiscal 2024 Summary Compensation Table. For Mr. Arora, (i) $23,990,689 of this amount represents the value of 85,116 RSUs granted to him in fiscal 2018, which were included in the amount reported in the Stock Award column of the Summary Compensation Table for fiscal 2018, (ii) $64,506,063 of this amount represents the value of 216,930 PSUs granted to him in fiscal 2021, which were included in the amount reported in the Stock Award column of the Summary Compensation Table for fiscal 2021 and (iii) $25,701,748 of this amount represents the value of 105,725 PSUs granted to him in fiscal 2022, which were included in the amounts reported in the Stock Award column of the Summary Compensation Table for fiscal 2022 and fiscal 2023. For Mr. Jenkins, (i) $4,840,533 of this amount represents the value of 17,220 RSUs granted to him in fiscal 2022, which were included in the amount reported in the Stock Award column of the Summary Compensation Table for fiscal 2022, and (ii) $14,958,672 of this amount represents the value of 61,533 PSUs granted to him in fiscal 2022, which were included in the amounts reported in the Stock Award column of the Summary Compensation Table for fiscal 2022 and fiscal 2023. | | (2) Represents the net increase in the value of the shares underlying our NEOs’ vested deferred RSUs from the vesting date to July 31, 2024. No portion of the amount for any NEO is included as compensation for fiscal 2024 in the Fiscal 2024 Summary Compensation Table. | | (3) Represents the aggregate value of the vested deferred RSUs held by our NEOs as of July 31, 2024. The value of each vested deferred RSU is based on the closing market price of our common stock on Nasdaq on July 31, 2024 (which was $324.73). |
Nonqualified Deferred Compensation
| 2024 Proxy Statement | | 115 |
Termination of Employment and Potential Payments Unrelated to a Change in Control
Termination of Employment and Potential Payments Unrelated to a Change in Control
POTENTIAL PAYMENTS UPON TERMINATION OF EMPLOYMENT UNRELATED TO A CHANGE IN CONTROL
POTENTIAL PAYMENTS UPON TERMINATION OF EMPLOYMENT UNRELATED TO A CHANGE IN CONTROL The following table summarizes the potential payments to Mr. Arora upon a termination of employment unrelated to a change in control.
POTENTIAL PAYMENTS UPON TERMINATION OF EMPLOYMENT UNRELATED TO A CHANGE IN CONTROL
| Named Executive Officer | Salary Continuation ($) | Target Annual Cash Bonus ($) | Value of Accelerated Equity Awards ($) | | Value of Continued Health Care Coverage Premiums ($) | Total ($) | | | | | Restricted Stock and Restricted Stock Units(1) | Options | | | | Mr. Arora | 1,000,000 | — | 75,638,709 | — | 32,662 | 76,671,371 |
POTENTIAL PAYMENTS UPON TERMINATION OF EMPLOYMENT UNRELATED TO A CHANGE IN CONTROL
| (1) The amounts reported in the table reflect the aggregate market value of the unvested shares of our common stock underlying outstanding RSUs and PSUs which remain subject to time-based vesting only. The aggregate market value is computed by multiplying (i) the number of unvested shares of our common stock, subject to outstanding RSUs and PSUs which remain subject to time-based vesting only on July 31, 2024, that would become vested by (ii) $324.73 (the closing market price of our common stock on Nasdaq on July 31, 2024). |
POTENTIAL PAYMENTS IN CONNECTION WITH TERMINATION OF EMPLOYMENT DUE TO DEATH
POTENTIAL PAYMENTS IN CONNECTION WITH TERMINATION OF EMPLOYMENT DUE TO DEATH In August 2023, we adopted the Survivor Benefit Policy, which provides that if an individual’s death occurs while the individual is providing services as an employee to the Company or any subsidiary of the Company, all of the equity awards (other than equity awards issued in accordance with or subject to the provisions of the Israel Income Tax Ordinance and its applicable rules, regulations, orders or procedures (the “ITO”)) that the individual holds as of the date of death will be accelerated in accordance with the terms of the Survivor Benefit Policy. With respect to performance-based vesting terms that accelerate under the terms of the policy (unless otherwise specified in an award agreement, a Company policy that applies to the employee, a determination made by the Company, our Board, or our Compensation and People Committee before the employee’s death, or a written agreement with the employee), all performance goals or other vesting criteria are assumed achieved at 100% of target levels and any TSR modifier (or similar modifiers) are deemed not to impact the relevant award. The terms of the Survivor Benefit Policy were extended to our Israel-based employees beginning for new equity awards made to such employees (in accordance with or subject to the ITO) from and after April 2024. Accordingly, the Survivor Benefit Policy now applies to all our employees, including our NEOs. The cash incentive plan adopted by our Compensation and People Committee for all employees not paid commissions, including NEOs (collectively, “eligible employees”), in August 2023 also provides that, if an employee (i) did not elect to defer any portion of their cash incentive plan payouts under our non-qualified deferred compensation plan and (ii) at the time of the employee’s death, was an eligible employee, then the eligible employee’s estate would be entitled to receive a prorated portion of the cash incentive plan payout. The amount payable is the amount that the eligible employee would have otherwise been entitled to receive for the fiscal half in which the eligible employee’s death occurred, assuming the employee’s individual performance results in a cash incentive plan payout at target levels and, to the extent the funding of the cash incentive plan for that fiscal half had not yet been determined at the time of the employee’s death, assuming the cash incentive plan was funded at 100% of the target funding amount for that fiscal half. The amount payable is prorated based on the number of days the relevant employee was alive and an eligible employee during the semi-annual period. For more information regarding our cash incentive plan, please see the section above titled “Executive Compensation—Fiscal 2024 Executive Compensation Program Components—Fiscal 2024 Cash Incentive Plan.”
POTENTIAL PAYMENTS IN CONNECTION WITH TERMINATION OF EMPLOYMENT DUE TO DEATH
| 2024 Proxy Statement | | 117 |
POTENTIAL PAYMENTS IN CONNECTION WITH TERMINATION OF EMPLOYMENT DUE TO DEATH
The following table summarizes the potential value of accelerated equity awards for our NEOs upon their death.
POTENTIAL PAYMENTS IN CONNECTION WITH TERMINATION OF EMPLOYMENT DUE TO DEATH
| | Bonus ($)(1) | Value of Accelerated Equity Awards ($) | | Total ($) | | Named Executive Officer | | Restricted Stock and Restricted Stock Units(2) | Options | | | Mr. Arora | 500,000 | 368,661,098 | — | 369,161,098 | | Mr. Golechha | 300,000 | 45,523,899 | — | 45,823,899 | | Mr. Jenkins | 375,000 | 55,542,144 | — | 55,917,144 | | Mr. Klarich | 275,000 | 64,327,065 | — | 64,602,065 | | Mr. Zuk | 200,070 | — | — | 200,070 |
POTENTIAL PAYMENTS IN CONNECTION WITH TERMINATION OF EMPLOYMENT DUE TO DEATH
| (1) The amounts reported in this column assume the relevant NEO’s date of death is the last day of our fiscal 2024. Mr. Zuk’s cash bonus would be paid in Israeli currency. The amounts set forth for Mr. Zuk in the table for fiscal 2024 reflect the conversion from Israeli currency to U.S. dollars using an average exchange rate of approximately 0.27 U.S. dollars for one Israeli new shekel for fiscal 2024. | | (2) The amounts reported in this column reflect the aggregate market value of the unvested shares of our common stock underlying eligible outstanding RSUs and PSUs (in the case of PSUs, with all performance goals or other vesting criteria deemed achieved at 100% of target levels but any multipliers based on total shareholder return or otherwise deemed to not impact the PSUs). The aggregate market value is computed by multiplying (i) the number of unvested shares of our common stock subject to outstanding RSUs and PSUs that would become vested by (ii) $324.73 (the closing market price of our common stock on Nasdaq on July 31, 2024). The terms of the Survivor Benefit Policy were only extended to our Israel-based employees beginning for equity awards granted from and after April 2024; therefore, Mr. Zuk had no awards eligible under the Survivor Benefit Policy as of the end of our fiscal 2024. |
Termination of Employment and Potential Payments in Connection with a Change in Control
Termination of Employment and Potential Payments in Connection with a Change in Control
APPLICABLE DEFINITIONS
| | | | Value of Accelerated Equity Awards ($) | | Value of Continued Health Care Coverage Premiums ($) | | | Named Executive Officer | Salary Continuation ($) | Target Annual Cash Bonus ($) | Restricted Stock and Restricted Stock Units(1) | Options | | Total ($) | | Mr. Arora | 1,000,000 | 1,000,000 | 75,638,709 | — | 32,662 | 77,671,371 | | Mr. Golechha | 600,000 | 600,000 | 13,789,335 | — | 32,662 | 15,021,996 | | Mr. Jenkins | 750,000 | 750,000 | 21,327,292 | — | 32,919 | 22,860,211 | | Mr. Klarich | 550,000 | 550,000 | 25,191,254 | — | 32,662 | 26,323,916 | | Mr. Zuk(2) | 400,140 | 400,140 | 9,459,385 | — | — | 10,259,665 |
Pay vs. Performance
Pay vs. Performance As required by Section 953(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 402(v) of Regulation S-K, we are providing the following information about the relationship between executive compensation and certain financial performance measures of the Company. For further information concerning the Company’s pay-for-performance philosophy and how executive compensation aligns with the Company’s performance, please see the “Executive Compensation — Compensation Discussion and Analysis” section of this proxy statement.
Pay vs. Performance Table
Pay vs. Performance Table
Pay vs. Performance Table
| | Summary Comp Table Total for PEO(2) | Compensation Actually Paid to PEO(3) | Average Summary Comp Table Total for Non- PEO NEOs(2) | Average Compensation Actually Paid to Non- PEO NEOs(4) | Value of $100 initial investment based on | | PANW Net Income (Loss) (in millions)(7) | | Annual Billings Growth(8) | | Year(1) | | | | | PANW TSR(5) | Peer Group TSR(6) | | | | | 2024 | $58,036,875 | $105,275,811 | $16,323,792 | $14,485,907 | $380.66 | $226.91 | | 2,577.6 | 11.0% | | 2023 | $151,425,203 | $266,368,755 | $12,145,914 | $31,768,696 | $293.01 | $167.84 | | 439.7 | 23.1% | | 2022 | $10,410,477 | $208,514,831 | $8,058,186 | $56,805,285 | $195.02 | $132.31 | -$ | 267.0 | 37.0% | | 2021 | $23,283,858 | $219,731,970 | $10,279,163 | $54,811,159 | $155.93 | $140.03 | -$ | 498.9 | 26.7% |
Pay vs. Performance Table
| (1) During each of the years presented, our PEO was Nikesh Arora. During fiscal 2024, fiscal 2023 and fiscal 2022, our non-PEO NEOs were Dipak Golechha, William “BJ” Jenkins, Lee Klarich and Nir Zuk. During fiscal 2021, our non-PEO NEOs were Dipak Golechha, Lee Klarich, Amit Singh, Luis Felipe Visoso and Nir Zuk. |
Pay vs. Performance Table
| (2) Amounts reported in this column represent (i) the total compensation, as reported in the Summary Compensation Table in our annual proxy statement (“SCT”), for the applicable year for Mr. Arora and (ii) the average of the total compensation, as reported in the SCT in our annual proxy statement, for the applicable year for our non-PEO NEOs. | | (3) “Compensation actually paid” is calculated in accordance with Item 402(v) of Regulation S-K. The table below sets forth the adjustments made during our fiscal 2024 presented in the table to calculate the “Compensation Actually Paid” to our PEO (Mr. Arora) for fiscal 2024. |
Pay vs. Performance Table
| 120 | | 2024 Proxy Statement |
PEO
| (4) “Compensation actually paid” is calculated in accordance with Item 402(v) of Regulation S-K. The table below sets forth the adjustments made during our fiscal 2024 presented in the table to calculate the “Average Compensation Actually Paid” to our non-PEO NEOs for fiscal 2024. |
Relationship Between “Compensation Actually Paid” and Performance Measures
Relationship Between “Compensation Actually Paid” and Performance Measures In accordance with SEC rules, the charts below illustrate how “compensation actually paid” (CAP) to our NEOs aligns with our Company’s financial performance as measured by our total shareholder return, our peer group total shareholder return, our net income, and annual billings growth rate.

DEF 14A of Palo Alto Networks Inc

Directors

Nominee Directors

Nominee Directors

Nominee Directors

Nominee Directors

Nominee Directors

Nominee Directors

Nominee Directors

Nominee Directors

Nominee Directors

Nominee Directors

Continuing Directors

Continuing Directors

Continuing Directors

Continuing Directors

Continuing Directors

Continuing Directors

Continuing Directors

Continuing Directors

Continuing Directors

Continuing Directors

Continuing Directors

Continuing Directors

Continuing Directors

Continuing Directors

Continuing Directors

Continuing Directors

Continuing Directors

Continuing Directors

Continuing Directors

Continuing Directors

Continuing Directors

Continuing Directors

Continuing Directors

Continuing Directors

BOARD DIVERSITY MATRIX (AS OF OCTOBER 29, 2024)

BOARD DIVERSITY MATRIX (AS OF OCTOBER 29, 2024)

Identification and Evaluation of Director Nominees

Identification and Evaluation of Director Nominees

Identification and Evaluation of Director Nominees

Director Compensation

Director Compensation

Director Compensation

Fiscal 2024 Director Compensation Table

Fiscal 2024 Director Compensation Table

Fiscal 2024 Director Compensation Table

Philosophy and Objectives

Shareholder Engagement in Fiscal 2024

We Followed Through on Our Commitments

Responsible Use of Equity Compensation

Responsible Use of Equity Compensation

Compensation Timeline and Process

Roles and Responsibilities

Use of Competitive Data

Competitive Positioning

Competitive Positioning

Competitive Positioning

Competitive Positioning

Competitive Positioning

Competitive Positioning

How We Compensate Our Named Executive Officers

Market Competitive Pay Levels and Evolving Compensation

Nikesh Arora - Chief Executive Officer

Nikesh Arora - Chief Executive Officer

Nikesh Arora - Chief Executive Officer

Dipak Golechha - Chief Financial Officer

Dipak Golechha - Chief Financial Officer

William "BJ" Jenkins - President

William "BJ" Jenkins - President

Lee Klarich - Chief Product Officer

Lee Klarich - Chief Product Officer

Nir Zuk - Chief Technology Officer(1)

Nir Zuk - Chief Technology Officer(1)

Fiscal 2024 Executive Compensation Program

Elements of Compensation

Elements of Compensation

Annual Cash Incentive Compensation

Fiscal 2024 Cash Incentive Plan

Fiscal 2024 Cash Incentive Plan