DEF 14A of Zscaler, Inc.
Filed Nov 22, 2024 · FY20240001713683-24-000139
(Name of Registrant as Specified In Its Charter)
(Name of Registrant as Specified In Its Charter) Payment of Filing Fee (Check all boxes that apply): ☒ No fee required. ☐ Fee paid previously with preliminary materials. ☐ Fee computed on table in exhibit required by Item 25(b) per Exchange Act Rules 14a-6(i)(1) and 0-11. 120 Holger Way, San Jose, CA 95134 Dear Stockholder: I am pleased to invite you to attend the 2024 Annual Meeting of Stockholders, or the Annual Meeting, of Zscaler, Inc., or Zscaler or the Company, to be held on Friday, January 10, 2025 at 1:00 p.m. Pacific Time. The Annual Meeting will be conducted virtually via live webcast. You will be able to vote and submit your questions during the meeting by visiting www.virtualshareholdermeeting.com/ZS2024 (please have your notice or proxy card in hand when you visit the website). The attached Notice of Annual Meeting of Stockholders and Proxy Statement contain details of the business to be conducted at the Annual Meeting. Whether or not you attend the virtual Annual Meeting, it is important that your shares be represented and voted at the meeting. Therefore, I urge you to promptly vote and submit your proxy via the internet, by phone or by mail. On behalf of the Board of Directors, I would like to express our appreciation for your support of, and interest in, Zscaler. Sincerely, Jay Chaudhry Chief Executive Officer and Chairman of the Board Notice of Annual Meeting of Stockholders
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| Date and Time | | Record Date and Who Can Vote | | January 10, 2025 1:00 p.m. Pacific Time | | November 13, 2024, or the Record Date. Only stockholders of record at the close of business on the Record Date are entitled to receive notice of, and to vote at, the Annual Meeting. | | Virtual Meeting Site | | | | The Annual Meeting will be a completely virtual meeting of stockholders, to be conducted via live audio webcast. You will be able to attend the virtual Annual Meeting and submit your questions during the meeting by visiting www.virtualshareholdermeeting.com/ZS2024. | | | | Items of Business | | | | 1 | To elect three Class I directors from the nominees described in this Proxy Statement to hold office until the 2027 annual meeting of stockholders or until their successors are elected and qualified, subject to their earlier death, resignation or removal. | | | 2 | To ratify the selection of PricewaterhouseCoopers LLP as our independent registered public accounting firm for our fiscal year ending July 31, 2025. | | | 3 | To approve, on a non-binding advisory basis, the compensation of our Named Executive Officers. | | | 4 | To approve the amendment and restatement of the Zscaler, Inc. FY2018 Equity Incentive Plan. | | | 5 | To transact other business that may properly come before the Annual Meeting. | |
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| Your vote is important. To vote your shares, please follow the instructions in the Notice of Internet Availability of Proxy Materials, which is being mailed to you on or about November 22, 2024. | Your vote is important. Whether or not you plan to attend the virtual Annual Meeting, we urge you to submit your vote via the internet, telephone or mail as soon as possible to ensure your shares are represented. For additional instructions for each of these voting options, please refer to the proxy card. Returning the proxy does not deprive you of your right to attend the virtual Annual Meeting and to vote your shares at the virtual Annual Meeting. The Proxy Statement explains proxy voting and the matters to be voted on in more detail. Important Notice Regarding the Availability of Proxy Materials for the Virtual Annual Meeting to be Held on January 10, 2025. Our proxy materials, including the Proxy Statement and Annual Report to Stockholders, are being made available on or about November 22, 2024 at the following website: www.proxyvote.com, as well as on our website at http://ir.zscaler.com in the Financials section of our Investor Relations webpage. We are providing access to our proxy materials over the internet under the rules adopted by the U.S. Securities and Exchange Commission. By Order of the Board of Directors, Robert Schlossman Chief Legal Officer and Secretary San Jose, CA November 22, 2024 |
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Table of Contents
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| PROXY SUMMARY | 1 | | QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING | 6 | | BOARD OF DIRECTORS AND CORPORATE GOVERNANCE | 14 | | Our Directors | 15 | | Board Meetings and Committees | 21 | | Communications with the Board of Directors | 26 | | Corporate Governance Guidelines and Code of Conduct | 28 | | Role of the Board of Directors in Risk Oversight | 28 | | Director Compensation | 28 | | Corporate Responsibility | 31 | | PROPOSAL ONE – ELECTION OF DIRECTORS | 34 | | PROPOSAL TWO – RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM | 35 | | PROPOSAL THREE – ADVISORY VOTE ON THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS | 38 | | PROPOSAL FOUR – AMENDMENT AND RESTATEMENT OF THE ZSCALER, INC. FY2018 EQUITY INCENTIVE PLAN | 40 | | EXECUTIVE OFFICERS | 47 | | EXECUTIVE COMPENSATION | 48 | | Compensation Discussion and Analysis | 48 | | Summary Compensation Table | 70 | | CEO PAY RATIO DISCLOSURE | 77 | | PAY VERSUS PERFORMANCE | 78 | | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT | 83 | | RELATED PERSON TRANSACTIONS | 85 | | OTHER MATTERS | 87 | | Section 16(a) Beneficial Ownership Reporting Compliance | 87 | | PROPOSALS OF STOCKHOLDERS FOR FISCAL 2025 ANNUAL MEETING | 88 | | APPENDIX A | A-1 | | APPENDIX B | B-1 |
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This Proxy Statement and form of proxy are furnished in connection with the solicitation of proxies by our board of directors for use at our 2024 Annual Meeting of Stockholders, or the Annual Meeting, and any postponements, adjournments or continuations thereof. The Annual Meeting will be held on January 10, 2025 at 1:00 p.m. Pacific Time, via live audio webcast at www.virtualshareholdermeeting.com/ZS2024. The Notice of Internet Availability of Proxy Materials, or the Notice, containing instructions on how to access this Proxy Statement and our Annual Report on Form 10-K for the fiscal year ended July 31, 2024 is first being mailed on or about November 22, 2024 to all stockholders entitled to vote at the Annual Meeting. If you receive a Notice by mail, you will not receive a printed copy of the proxy materials in the mail unless you specifically request these materials. Ways to Vote
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| Via the Internet | By Telephone | By Mail | At the Annual Meeting | | | | | |
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| Voting Matters | | Voting Recommendations | | | 1 | To elect three Class I directors from the nominees described in this Proxy Statement to hold office until the 2027 annual meeting of stockholders or until their successors are elected and qualified, subject to their earlier death, resignation or removal. | Proposal 1 "FOR" | The board of directors recommends a vote "FOR" the election of each of the three directors nominated by our board of directors and named in this Proxy Statement as the Class I directors to serve for a three-year term. | | 2 | To ratify the selection of PricewaterhouseCoopers LLP as our independent registered public accounting firm for our fiscal year ending July 31, 2025. | Proposal 2 "FOR" | The board of directors recommends a vote "FOR" the ratification of the appointment of PwC as our independent registered public accounting firm for our fiscal year ending July 31, 2025. | | 3 | To approve, on a non-binding advisory basis, the compensation of our Named Executive Officers. | Proposal 3 "FOR" | The board of directors recommends a vote "FOR" the approval, on an advisory non-binding basis, of the compensation of our Named Executive Officers, as disclosed in this Proxy Statement. | | 4 | To approve the amendment and restatement of the Zscaler, Inc. FY2018 Equity Incentive Plan. | Proposal 4 "FOR" | The board of directors recommends a vote "FOR" the amendment and restatement of the Zscaler, Inc. FY2018 Equity Incentive Plan. | | 5 | To transact other business that may properly come before the Annual Meeting. | | |
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| | 2024 Proxy Statement | 1 |
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| n | PROXY SUMMARY |
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Board of Directors
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| Director Nominees | Class | Age | Position | Director Since | Current Term Expires | Expiration of Term for Which Nominated | | Karen Blasing | I | 68 | Director | 2017 | 2024 | 2027 | | Charles Giancarlo | I | 66 | Director | 2016 | 2024 | 2027 | | Eileen Naughton | I | 66 | Director | 2021 | 2024 | 2027 | | Continuing Directors | Class | Age | Position | Director Since | Current Term Expires | Expiration of Term for Which Nominated | | Andrew Brown | II | 61 | Director | 2015 | 2025 | — | | Scott Darling | II | 68 | Director | 2016 | 2025 | — | | David Schneider | II | 56 | Director | 2019 | 2025 | — | | James Beer | III | 63 | Director | 2024 | 2026 | — | | Jay Chaudhry | III | 66 | Chief Executive Officer and Chairman of the Board | 2007 | 2026 | — |
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Board Diversity
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| Independence | Tenure | Age | Gender |
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Director Skills Matrix The following table summarizes the key qualifications, skills and attributes of our director nominees and the continuing members of our board of directors. A mark indicates a specific area or focus of expertise on which our board of directors particularly relies. Not having a mark does not mean the director does not possess that qualification or skill. Our directors' biographies describe each director's background and relevant experience in greater detail.
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| Director Skills | Chaudhry | Beer | Blasing | Brown | Darling | Giancarlo | Naughton | Schneider | | Senior Leadership | n | n | n | n | n | n | n | n | | Industry Expertise | n | n | n | n | n | n | n | n | | Financial Knowledge and Expertise | n | n | n | n | n | n | | n | | Public Company Board Experience | n | n | n | n | n | n | n | n | | Cybersecurity/Information Security | n | | | n | | n | | | | Global/International Experience and Knowledge | n | n | n | n | n | n | n | n | | Governance, Risk Oversight and Compliance | n | n | n | n | n | n | n | n | | Sales, Marketing and Brand Management | n | n | | | n | n | n | n | | Human Capital Management | n | n | n | n | n | n | n | n | | SaaS Scale | n | n | n | | n | n | | n | | Emerging Technologies and Business Models | n | n | n | n | n | n | n | n | | Corporate Responsibility | | | | n | n | n | n | n |
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Senior Leadership — Experience in senior leadership positions to analyze, advise and oversee management in decision making, operations and policies Industry Expertise — Insight into the cloud, cybersecurity and software industries to oversee our business and the risks we face related to those industries Financial Knowledge and Expertise — Knowledge of financial markets, financing and accounting and financial reporting processes Public Company Board Experience — Experience to understand the dynamics and operation of a public company Cybersecurity/Information Security — Leadership or significant experience overseeing and managing risks related to the protection and confidentiality of digital systems or data Global/International Experience and Knowledge — Experience and knowledge of global operations, business conditions and culture to advise and oversee our global business Governance, Risk Oversight, and Compliance — Experience in public company corporate governance risk oversight and management, compliance, investor relations and creating long term sustainable value Sales, Marketing and Brand Management — Sales, marketing and brand management experience to provide expertise to grow sales and enhance our brand Human Capital Management — Experience attracting and retaining top talent to advise and oversee our people and compensation policies SaaS Scale — Experience building or growing successful SaaS companies, reaching scale and maturity Emerging Technologies and Business Models — Experience identifying and developing emerging technologies and business models to advise, analyze and strategize regarding emerging technologies, business models and potential acquisitions disrupting our industry, business and company Corporate Responsibility — Experience addressing governance, people and environmental issues, including climate change
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Executive Compensation Highlights Our pay practices align with our pay-for-performance philosophy and underscore our commitment to sound compensation and governance practices. We believe that as organizations continue to embrace cloud-based business solutions, they are still in the early stages of adopting the security and networking solutions, including our platform, that are necessary to secure and manage cloud-based operations. To be successful in this emerging market, we believe that delivering growth and capturing market share are paramount. Since we strongly believe that establishing and meeting aggressive growth targets in both the short term and the long term is the best way to deliver sustained stockholder value in a highly competitive and emerging market, we focus our performance metrics for our annual executive cash bonuses on achieving growth in each fiscal year but, for our long-term incentive equity compensation, we focus our performance metrics on multi-year annual recurring revenue, or ARR, growth targets. In addition, in fiscal 2024, in response to feedback from stockholders, the compensation committee introduced performance metrics focused on annual operating profitability into our compensation programs. Fiscal 2024 Financial Performance Fiscal 2024 was a strong year for us marked by significant achievement and growth across all of our key metrics. Fiscal 2024 highlights were as follows:
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| Revenue Growth | Calculated Billings Growth* | Free Cash Flow Margins† | Growth in Large Customers | | 34% Y/Y | 29% Y/Y | 75% | 27% Y/Y | | $2.17B Revenue | $2.62B Billings | $585M Cash Flow | +565 Enterprises (>$1M ARR) | | | | | |
(Name of Registrant as Specified In Its Charter)
*Calculated billings is a non-GAAP financial measure that we believe is a key metric to measure our periodic performance. Calculated billings represents our total revenue plus the change in deferred revenue in a period. See Appendix A for the calculation of calculated billings. †Free Cash Flow and Free Cash Flow Margins are non-GAAP financial measures that we believe are useful indicators of liquidity and provide information to management and investors about the amount of cash generated from our operations that, after the investments in property, equipment and other assets and capitalized internal-use software, can be used for strategic initiatives, including investing in our business, and strengthening our financial position. Free cash flow is calculated as net cash provided by operating activities less purchases of property, equipment and other assets and capitalized internal-use software. Free cash flow margin is calculated as free cash flow divided by revenue. See Appendix A for the calculation of free cash flow margins.
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Corporate Responsibility Approach From Zscaler’s inception, we have recognized the importance of values, ethics and doing the right thing. Our Corporate Responsibility program, with oversight provided by the nominating and corporate governance committee, works to help strengthen practices across the Company so that we can better meet the needs of our customers, investors, employees and communities. We believe thoughtful, robust and deliberate governance, people and environmental initiatives will drive sustained value creation for these stakeholders. While our program continues to evolve and grow, our current priorities include: ▪Respecting privacy and protecting our customers' sensitive data; ▪Maintaining robust and effective governance and risk oversight practices; ▪Reducing environmental impact and lowering greenhouse gas emissions; and ▪Hiring and retaining diverse talent to support innovation and growth.
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AVAILABILITY OF BYLAWS A copy of our bylaws may be obtained by accessing our public filings on the SEC’s website at www.sec.gov. You may also contact our Secretary at our principal executive office for a copy of the relevant bylaw provisions regarding the requirements for making stockholder proposals and nominating director candidates.
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Board of Directors and Corporate Governance Our business affairs are managed under the direction of our board of directors, which is currently comprised of eight members. Seven of our eight directors are independent within the meaning of the independent director requirements of the Nasdaq Stock Market LLC, or Nasdaq. Our board of directors is divided into three classes with staggered three-year terms. At each annual meeting of stockholders, a class of directors will be elected for a three-year term to succeed the same class whose term is then expiring. Upon the recommendation of our nominating and corporate governance committee, we are nominating Karen Blasing, Charles Giancarlo and Eileen Naughton as Class I directors at the Annual Meeting. If elected, Ms. Blasing, Mr. Giancarlo and Ms. Naughton will each hold office for a three-year term until the 2027 annual meeting of stockholders or until their successors are elected and qualified. The following table sets forth the names, ages as of November 1, 2024 and certain other information for each of the directors with terms expiring at the Annual Meeting (who are also nominees for election as a director at the Annual Meeting) and for each of the continuing directors:
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| Director Nominees | Class | Age | Position | Director Since | Current Term Expires | Expiration of Term for Which Nominated | | Karen Blasing(1) | I | 68 | Director | 2017 | 2024 | — | | Charles Giancarlo(2)(3) | I | 66 | Director | 2016 | 2024 | — | | Eileen Naughton(2) | I | 66 | Director | 2021 | 2024 | — | | Continuing Directors | Class | Age | Position | Director Since | Current Term Expires | Expiration of Term for Which Nominated | | Andrew Brown(1)(2) | II | 61 | Director | 2015 | 2025 | — | | Scott Darling(1)(3) | II | 68 | Director | 2016 | 2025 | — | | David Schneider(3) | II | 56 | Director | 2019 | 2025 | — | | James Beer(1) | III | 63 | Director | 2024 | 2026 | — | | Jay Chaudhry | III | 66 | Chief Executive Officer and Chairman of the Board | 2007 | 2026 | — |
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(1)Member of our audit committee (2)Member of our compensation committee (3)Member of our nominating and corporate governance committee
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Director Nominees
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| Karen Blasing Age | 68 Class I Director Since | 2017 | Karen Blasing served as the chief financial officer of Guidewire from July 2009 to March 2015. Prior to 2009, Ms. Blasing served as the chief financial officer for Force10 Networks, Inc. and as the senior vice president of finance for Salesforce.com, Inc. She has also served as chief financial officer for Nuance Communications, Inc. and Counterpane Internet Security, Inc. and held senior finance roles for Informix Corporation (now IBM Informix) and Oracle Corporation. She currently serves as a director of Autodesk, Inc., a multinational software corporation, where she serves as a member of the audit committee, and GitLab Inc., a DevSecOps platform company, where she serves as a chair of the audit committee. Ms. Blasing previously served as a director of Ellie Mae, Inc. Ms. Blasing holds a B.A. in economics and business administration from the University of Montana and an M.B.A. from the University of Washington. | | | We believe Ms. Blasing is qualified to serve as a member of our board of directors based on her extensive financial leadership and management experience at numerous SaaS and enterprise software companies. |
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| Charles Giancarlo Age | 66 Class I Director Since | 2016 | Charles Giancarlo has served as chief executive officer of Pure Storage since August 2017. From January 2008 until October 2015, Mr. Giancarlo was a managing director and then strategic advisor of Silver Lake Partners, a private investment firm that focuses on technology-enabled and related growth industries. From May 1993 to December 2007, Mr. Giancarlo served in numerous senior executive roles at Cisco Systems, Inc., a provider of communications and networking products and services, ultimately as the executive vice president and chief development officer from May 2004 to December 2007. Mr. Giancarlo currently serves on the boards of directors of Arista Networks, Inc., a manufacturer of networking products, where he serves as a member of the compensation committee and the nominating and corporate governance committee, and Pure Storage. He previously served on the boards of directors of Accenture plc, Avaya, Inc., Imperva, Inc., ServiceNow, Inc., Netflix, Inc. and Tintri, Inc. Mr. Giancarlo holds a B.S. in electrical engineering from Brown University, an M.S. in electrical engineering from the University of California, Berkeley and an M.B.A. from Harvard Business School. | | | We believe Mr. Giancarlo is qualified to serve as a member of our board of directors based on his extensive business expertise, including his current and prior executive level leadership, and his experience on the boards of publicly traded technology companies. |
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| Eileen Naughton Age | 66 Class I Director Since | 2021 | Eileen Naughton served as the Chief People Officer and Vice President of People Operations at Google, Inc. from September 2016 to January 2021. Prior to September 2016, Ms. Naughton served in a variety of senior roles at Google dating back to 2006, including as Vice President and Managing Director for Google UK & Ireland and Vice President of Global Sales. Prior to joining Google in 2006, Ms. Naughton held a number of executive positions at Time Warner, including president of TIME Magazine. Ms. Naughton currently serves on the board of directors of Music, Inc., Canada’s leading book and lifestyle retailer, and Ares Management Corporation, an alternative investment manager operating in the credit, private equity and real estate markets. She previously served on the boards of directors of L’Oreal S.A. and The XO Group. Ms. Naughton holds a B.A. in international relations from the University of Pennsylvania, a Master of Arts from the Lauder Institute and a M.B.A. from the University of Pennsylvania. | | | We believe Ms. Naughton is qualified to serve on our board of directors because of her extensive director experience and her knowledge and experience in operations and management at multiple sophisticated companies. |
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Continuing Directors
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| Andrew Brown Age | 61 Class II Director Since | 2015 | Andrew Brown has served as chief executive officer of Sand Hill East LLC, a strategic management, investment and marketing services firm, since February 2014. Since 2006, he has also been the chief executive officer and co-owner of Biz Tectonics LLC, a privately held consulting company. From September 2010 to October 2013, Mr. Brown served as group chief technology officer of UBS Securities LLC, an investment bank. From 2008 to 2010, he served as head of strategy, architecture and optimization at Bank of America Merrill Lynch, the corporate and investment banking division of Bank of America. From 2006 to 2008, Mr. Brown served as chief technology officer of infrastructure at Credit Suisse Securities (USA) LLC, an investment bank. He currently sits on the board of directors of Pure Storage, Inc., a data storage and management company, where he serves as the chair of the compensation committee and chair of the risk committee. Mr. Brown previously served on the board of directors of Guidewire Software, Inc., a provider of software products for property and casualty insurers. Mr. Brown holds a B.S. (Honors) in chemical physics from University College London. Mr. Brown also, recently, co-authored the book "Cybersecurity: 7 Steps for Boards of Directors". | | | We believe Mr. Brown is qualified to serve as a member of our board of directors based on his extensive experience as chief technology officer of multiple Fortune 500 companies, as well as his service on the board of directors of other publicly traded companies. |
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| Scott Darling Age | 68 Class II Director Since | 2016 | Scott Darling has served as president of Dell Technologies Capital, the corporate development and venture capital arm of Dell Technologies Inc., since September 2016. Prior to joining Dell Technologies upon its acquisition of EMC Corp., Mr. Darling was president of EMC Corporate Development and Ventures from March 2012 to September 2016, and in this role he was responsible for EMC’s business development and venture capital investment activity. Prior to joining EMC, Mr. Darling was a general partner at Frazier Technology Ventures II, L.P., which he joined in 2007, and was vice president and managing director at Intel Capital Corp., the venture capital arm of Intel Corporation, from 2000 to 2007. Mr. Darling previously served on the board of directors of DocuSign Inc., a provider of electronic signature technology and digital transaction management services. Mr. Darling holds a B.A. in economics from the University of California at Santa Cruz and an M.B.A. from the Stanford University Graduate School of Business. | | | We believe Mr. Darling is qualified to serve as a member of our board of directors based on his experience as a director of and as an investor in multiple technology companies. |
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| David Schneider Age | 56 Class II Director Since | 2019 | David Schneider has served as a General Partner of Coatue Management, an investment firm focusing on technology companies, since February 2021. Mr. Schneider previously served as president, emeritus of ServiceNow, Inc., a cloud computing company, from July 2020 to December 2021, as president, global customer operations from January 2019 to July 2020, as chief revenue officer from June 2014 to January 2019 and as senior vice president of worldwide sales and services from June 2011 to May 2014. From July 2009 to March 2011, Mr. Schneider served as senior vice president of worldwide sales of the backup recovery systems division of EMC Corporation, a computer storage company acquired by Dell Technologies Inc. From January 2004 to July 2009, Mr. Schneider held senior positions at Data Domain, Inc., a data archiving and deduplication company acquired by EMC, most recently as Senior Vice President of Worldwide Sales. Mr. Schneider holds a B.A. in political science from the University of California, Irvine. | | | We believe Mr. Schneider is qualified to serve on our board of directors because of his knowledge and experience in operations and management at various technology companies. |
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| Jay Chaudhry Age | 66 Class III Director Since | 2007 | Jay Chaudhry is our co-founder and has served as our Chief Executive Officer and as Chairman of our board of directors since September 2007. Mr. Chaudhry holds an M.B.A. and an M.S. in electrical engineering and industrial engineering from the University of Cincinnati and a B. Tech in electronics engineering from the Indian Institute of Technology (Banaras Hindu University) Varanasi. | | | We believe Mr. Chaudhry is qualified to serve as a member of our board of directors because he is a security industry pioneer and an accomplished entrepreneur, having founded and built several companies, and based on the perspective, operational insight and expertise he has accumulated as our co-founder and our Chief Executive Officer. |
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| James Beer Age | 63 Class III Director Since | 2024 | James Beer served as chief financial officer of Atlassian Corporation Plc, an enterprise software company, from February 2018 to June 2022. From September 2013 to December 2017, Mr. Beer served as executive vice president and chief financial officer of McKesson Corporation, a healthcare services and information technology company. Prior to McKesson Corporation, Mr. Beer served as executive vice president and chief financial officer of Symantec Corporation, now known as Gen Digital, a cybersecurity company, where he managed the worldwide finance organization. Prior to his work at Symantec, Mr. Beer served as chief financial officer or AMR Corp. and American Airlines Group Inc., AMR's principal subsidiary. Mr. Beer currently serves on the board of directors of Alaska Air Group, parent company of Alaska Airlines, and DocuSign Inc. Mr. Beer previously served on the board of directors of ForeScout Technologies, Inc., a network security software company. Mr. Beer holds a B.S. in Aeronautical Engineering from Imperial College, London University, and an M.B.A. from Harvard University. | | | We believe Mr. Beer is qualified to serve as a member of our board of directors because of his substantial experience in corporate finance with public technology companies as well as his service on the board of directors of publicly traded companies. |
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Diversity Board Matrix (as of November 1, 2024)
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| Total Number of Directors | 8 | | | | | Gender Identity | Male | Female | Non-Binary | Not Disclosed | | Number of Directors based on Gender Identity | 6 | 2 | 0 | 0 | | Number of Directors who identify in any categories below: | | | | | | African American or Black | — | — | — | — | | Alaskan Native or American Indian | — | — | — | — | | Asian | 1 | — | — | — | | Hispanic of Latinx | — | — | — | — | | Native Hawaiian or Pacific Islander | — | — | — | — | | White | 5 | 2 | — | — | | Two or More Races or Ethnicities | — | — | — | — | | LGBTQ+ | — | | | | | Not Disclosed | — | | | |
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Director Independence Our common stock is listed on the Nasdaq Global Select Market. Under the rules of Nasdaq, independent directors must comprise a majority of a listed company’s board of directors within a specified period after the completion of our initial public offering. In addition, the rules of Nasdaq require that, subject to specified exceptions, each member of a listed company’s audit, compensation and nominating and governance committees be independent. Audit committee members and compensation committee members must also satisfy the independence criteria set forth in Rule 10A-3 and Rule 10C-1, respectively, under the Exchange Act. Under the rules of Nasdaq, a director will only qualify as an “independent director” if, in the opinion of that company’s board of directors, that person does not have a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. To be considered independent for purposes of Rule 10A-3 and under the rules of Nasdaq, a member of an audit committee of a listed company may not, other than in his or her capacity as a member of our audit committee, our board of directors, or any other board committee: (1) accept, directly or indirectly, any consulting, advisory or other compensatory fee from the listed company or any of its subsidiaries; or (2) be an affiliated person of the listed company or any of its subsidiaries. To be considered independent for purposes of Rule 10C-1 and under the rules of Nasdaq, the board of directors must affirmatively determine that the member of the compensation committee is independent, including a consideration of all factors specifically relevant to determining whether the director has a relationship to the company which is material to that director’s ability to be independent from management in connection with the duties of a compensation committee member, including, but not limited to: (i) the source of compensation of such director, including any consulting, advisory or other compensatory fee paid by the company to such director; and (ii) whether such director is affiliated with the company, a subsidiary of the company or an affiliate of a subsidiary of the company. Our board of directors has undertaken a review of its composition, the composition of its committees and the independence of our directors and considered whether any director has a material relationship with us that could compromise his or her ability to exercise independent judgment in carrying out his or her responsibilities. Based upon information requested from and provided by each director concerning his or her background, employment and affiliations, including family relationships, our board of directors has determined that (i) none of Mses. Blasing and Naughton and Messrs. Beer, Brown, Darling, Giancarlo and Schneider, representing seven of our eight directors has a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director and (ii) that each of these directors is “independent” as that term is defined under the rules of Nasdaq. Mr. Chaudhry is not independent under Nasdaq’s independence standards. Our board of directors also determined that Ms. Blasing (chair) and Messrs. Beer, Brown and Darling, who comprise our audit committee, and Messrs. Brown (chair) and Giancarlo and Ms. Naughton, who comprise our compensation committee, satisfy the independence standards for committee members established by applicable SEC rules and the listing standards of Nasdaq. In making these determinations, our board of directors considered the current and prior relationships that each non-employee director has with the Company and all other facts and circumstances our board of directors deemed relevant in determining their independence, including the beneficial ownership of our capital stock by each non-employee director, and any transactions involving them described in the section titled “Related Person Transactions.” There are no family relationships among any of our directors or executive officers.
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Board Leadership Structure Mr. Chaudhry currently serves as our Chief Executive Officer and Chairman of the Board. Our board of directors believes that the current board leadership structure, coupled with a strong emphasis on board independence, provides effective independent oversight of management while allowing the board and management to benefit from Mr. Chaudhry’s leadership, Company-specific experience and years of experience as an executive in the network security industry. Serving on our board of directors and as Chief Executive Officer since our founding in 2007, Mr. Chaudhry is best positioned to identify strategic priorities, lead critical discussion and execute our growth strategy and business plans. Mr. Chaudhry possesses detailed in-depth knowledge of the issues, opportunities and challenges facing us. The board of directors believes that Mr. Chaudhry’s combined role enables strong leadership, creates clear accountability and enhances our ability to communicate our message and strategy clearly and consistently to stockholders. The board of directors has not appointed a “lead independent director.” We believe that our board leadership structure is appropriate for our Company, particularly where we have a majority of independent directors who are all actively involved in board meetings. Executive Sessions of Independent Directors In order to encourage and enhance communication among independent directors, and as required under the applicable rules of Nasdaq, our corporate governance guidelines provide that the independent directors of our board of directors will meet in executive sessions without management directors or Company management present on a periodic basis, but no less than twice a year. Board Meetings and Committees During the fiscal year ended July 31, 2024, our board of directors held five meetings (including regularly scheduled and special meetings), and each director attended at least 75% of the aggregate of (i) the total number of meetings of our board of directors held during the period for which he or she served as a director and (ii) the total number of meetings held by all committees of our board of directors on which he or she served during the periods that he or she served. Although we do not have a formal policy regarding attendance by members of our board of directors at annual meetings of stockholders, we encourage, but do not require, our directors to attend. All of our then current serving directors attended our last year's annual meeting of stockholders. We have established an audit committee, a compensation committee and a nominating and corporate governance committee with the composition and responsibilities described below. We believe that the composition and the operation of these committees comply with the requirements of the Sarbanes-Oxley Act of 2002, the rules of Nasdaq and SEC rules and regulations.
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Audit Committee
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| Members | Responsibilities | | Ms. Blasing (Chair) Mr. Beer Mr. Brown Mr. Darling | | | | ▪selecting and hiring our registered public accounting firm; ▪evaluating the performance and independence of our registered public accounting firm; ▪approving the audit and pre-approving any non-audit services to be performed by our registered public accounting firm; ▪reviewing our financial statements and related disclosures and reviewing our critical accounting policies and practices; ▪reviewing the adequacy and effectiveness of our internal control policies and procedures and our disclosure controls and procedures; ▪overseeing procedures for the treatment of complaints on accounting, internal accounting controls or audit matters; ▪reviewing and discussing with management and the independent registered public accounting firm the results of our annual audit, our quarterly financial statements and our publicly filed reports; ▪cybersecurity risk assessment and management, ▪privacy risk assessment and management; ▪reviewing and approving any proposed related-person transactions; and ▪preparing the audit committee report that the SEC will require in our annual proxy statement. | | Our board of directors has determined that all members of our audit committee meet the requirements for independence and financial literacy of audit committee members under current Nasdaq listing standards and SEC rules and regulations. Our audit committee chairperson, Ms. Blasing, and Mr. Beer, is each an audit committee financial expert, as that term is defined under the SEC rules implementing Section 407 of the Sarbanes-Oxley Act of 2002, and possesses financial sophistication, as defined under Nasdaq listing standards. | |
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Our audit committee operates under a written charter that satisfies the applicable rules and regulations of the SEC and the listing requirements of Nasdaq. A copy of the charter of our audit committee is available on our website at http://ir.zscaler.com in the Governance Documents section of our Investor Relations webpage. During the fiscal year ended July 31, 2024, our audit committee held eight meetings.
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Compensation Committee
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| Members | Responsibilities | | Mr. Brown (Chair) Mr. Giancarlo Ms. Naughton Ms. Blasing (thru March 2024) | | | | ▪reviewing and approving our chief executive officer’s and other executive officers’ annual base salaries, incentive compensation plans, including the specific goals and amounts, equity compensation, employment agreements, severance arrangements and change in control agreements and any other benefits, compensation or arrangements; ▪administering our equity compensation plans; ▪overseeing our overall compensation philosophy, compensation plans and benefits programs; and ▪preparing the compensation committee report in our annual proxy statement. | | Our board of directors has determined that each member of our compensation committee meets the requirements for independence under the rules of Nasdaq and the SEC and is a “non-employee director” within the meaning of Rule 16b-3 under the Exchange Act. | |
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Our compensation committee operates under a written charter that satisfies the listing standards of Nasdaq. A copy of the charter of our compensation committee is available on our website at http://ir.zscaler.com in the Governance Documents section of our Investor Relations webpage. During the fiscal year ended July 31, 2024, our compensation committee held five meetings. Nominating and Corporate Governance Committee
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| Members | Responsibilities | | Mr. Giancarlo (Chair) Mr. Darling Mr. Schneider | | | | ▪evaluating and making recommendations regarding the composition, organization and governance of our board of directors and its committees; ▪evaluating and making recommendations regarding the creation of additional committees or the change in mandate or dissolution of committees; ▪reviewing and making recommendations with regard to our Corporate Governance Guidelines and compliance with laws and regulations, including corporate responsibility issues and disclosures; and ▪reviewing and approving conflicts of interest of our directors and corporate officers, other than related person transactions reviewed by the audit committee. | | Our board of directors has determined that all members of our nominating and corporate governance committee meet the requirements for independence under the rules of Nasdaq. | |
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Our nominating and corporate governance committee operates under a written charter that satisfies the listing standards of Nasdaq. A copy of the charter of our nominating and corporate governance committee is available on our website at http://ir.zscaler.com in the Governance Documents section of our Investor Relations webpage. During the fiscal year ended July 31, 2024, our nominating and corporate governance committee held four meetings.
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Compensation Committee Interlocks and Insider Participation None of the members of our compensation committee is or has been an officer or employee of the Company. None of our executive officers currently serves, or in the past year has served, as a member of the compensation committee or director (or other board committee performing equivalent functions or, in the absence of any such committee, the entire board of directors) of any entity that has one or more executive officers serving on our compensation committee or our board of directors. Considerations in Evaluating Director Nominees It is the policy of the nominating and corporate governance committee of our board of directors to consider recommendations for candidates to our board of directors from stockholders holding no less than one percent (1%) of the outstanding shares of the Company’s common stock continuously for at least 12 months prior to the date of the submission of the recommendation or nomination. The nominating and corporate governance committee will use the following procedures to identify and evaluate any individual recommended or offered for nomination to our board of directors: ▪The nominating and corporate governance committee will consider candidates recommended by stockholders in the same manner as candidates recommended to the nominating and corporate governance committee from other sources. ▪In its evaluation of director candidates, including the members of our board of directors eligible for re-election, the nominating and corporate governance committee will consider factors such as: ◦business expertise; ◦diversity, including differences in professional background, gender, race, ethnicity, education, skill and other individual qualities and attributes that contribute to the total mix of viewpoints and experience represented on the board of directors; ◦past attendance at meetings, and participation in, and contributions to, the activities of our board of directors; and ◦other factors that the nominating and corporate governance committee deems appropriate. ▪The nominating and corporate governance committee requires the following minimum qualifications to be satisfied by any nominee for a position on our board of directors: ◦the highest personal and professional ethics and integrity; ◦proven achievement and competence in the nominee’s field and the ability to exercise sound business judgment; ◦skills that are complementary to those of the existing board of directors; ◦the ability to assist and support management and make significant contributions to the Company’s success; and ◦an understanding of the fiduciary responsibilities that is required of a member of our board of directors and the commitment of time and energy necessary to diligently carry out those responsibilities.
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If the nominating and corporate governance committee determines that an additional or replacement director is required, the nominating and corporate governance committee may take such measures that it considers appropriate in connection with its evaluation of a director candidate, including candidate interviews, inquiry of the person or persons making the recommendation or nomination, engagement of an outside search firm to gather additional information, or reliance on the knowledge of the members of the nominating and corporate governance committee, our board directors or management. The nominating and corporate governance committee may propose to our board of directors a candidate recommended or offered for nomination by a stockholder as a nominee for election to our board of directors. The nominating and corporate governance committee has in the past and may in the future pay fees to third parties to assist in identifying or evaluating director candidates. Stockholder Recommendations for Nominations to the Board of Directors A stockholder that wants to recommend a candidate for election to our board of directors should direct the recommendation in writing by letter to the Company, attention of the Secretary, at Zscaler, Inc., 120 Holger Way, San Jose, California 95134. The recommendation must include the candidate’s name, home and business contact information, detailed biographical data, relevant qualifications, a signed letter from the candidate confirming willingness to serve, information regarding any relationships between the candidate and the Company and evidence of the recommending stockholder’s ownership of Company stock. Such recommendations must also include a statement from the recommending stockholder in support of the candidate, particularly within the context of the criteria for board membership, including issues of character, integrity, judgment, diversity of experience, independence, area of expertise, corporate experience, length of service, potential conflicts of interest, other commitments and the like and personal references. A stockholder that instead desires to nominate a person directly for election to our board of directors at an annual meeting of the stockholders must meet the deadlines and other requirements set forth in Section 2.4 of the Company’s bylaws and the rules and regulations of the Securities and Exchange Commission. Section 2.4 of the Company’s bylaws requires that a stockholder who seeks to nominate a candidate for director must provide a written notice to the Secretary of the Company not later than the close of business on the 45th day nor earlier than the close of business on the 75th day before the one-year anniversary of the date on which the corporation first mailed its proxy materials or a notice of availability of proxy materials (whichever is earlier) for the preceding year’s annual meeting; provided, however, that in the event that no annual meeting was held in the previous year or if the date of the annual meeting is changed by more than 30 days from the one-year anniversary of the date of the previous year’s annual meeting, then, for notice by the stockholder to be timely, it must be so received by the secretary not earlier than the close of business on the 120th day prior to such annual meeting and not later than the close of business on the later of (i) the 90th day prior to such annual meeting, or (ii) the 10th day following the day on which Public Announcement (as defined below) of the date of such annual meeting is first made. In no event shall any adjournment or postponement of an annual meeting or the announcement thereof commence a new time period for the giving of a stockholder’s notice. “Public Announcement” shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or a comparable national news service or in a document publicly filed by the corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act, or by such other means as is reasonably designed to inform the public or stockholders of the corporation in general of such information, including, without limitation, posting on the Company's investor relations website. In addition to satisfying the foregoing requirements under our bylaws, to comply with the universal proxy rules, stockholders who intend to solicit proxies in support of director nominees other than the Company’s nominees must also comply with the additional requirements of Rule 14a-19 under the Exchange Act.
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Communications with the Board of Directors Our board of directors believes that management speaks for Zscaler, Inc. However, individual board members may, from time to time, communicate with various constituencies that are involved with the Company, but it is expected that board members would do this with knowledge of management and, in most instances, only at the request of management. In cases where stockholders and other interested parties wish to communicate directly with our non-management directors, messages can be sent to our Secretary, at Zscaler, Inc., 120 Holger Way, San Jose, California 95134. Our Secretary monitors these communications and will provide a summary of all received messages to the board of directors, or an appropriate committee of the board of directors, at each regularly scheduled quarterly meeting of the board. Where the nature of a communication warrants, our Secretary may determine, in his or her judgment, to obtain the more immediate attention of the board of directors, independent directors, appropriate committees, or members of committees of the board, independent advisors to the Company or Company management, as our Secretary considers appropriate. Our Secretary may decide in the exercise of his or her judgment whether a response to any stockholder or interested party communication is necessary. This procedure for stockholder and other interested party communications with the non-management directors is overseen by the Company’s nominating and corporate governance committee. This procedure does not apply to (a) communications to non-management directors from officers or directors of the Company who are stockholders, (b) stockholder proposals submitted pursuant to Rule 14a-8 under the Exchange Act or (c) communications to the audit committee pursuant to the Complaint Procedures for Accounting and Auditing Matters. Stockholder Engagement As part of our year-round stockholder engagement program and a vital component of our overall corporate governance program, Zscaler meets with, and constantly strives to incorporate feedback from, our stockholders. Our Investor Relations team regularly meets with investors, prospective investors, and investment analysts to discuss Company performance, technology initiatives, and company strategy. Meetings can include participation by our Chief Executive Officer, Chief Financial Officer, Chief Legal Officer, other members of management and members of our board of directors. In addition, our Investor Relations team regularly engages with the governance departments of our stockholders and seeks feedback on topics of interest to them, including on our corporate governance, executive and director compensation, and corporate responsibility practices. Our Investor Relations team, Chief Executive Officer, Chief Financial Officer and Chief Legal Officer regularly communicate topics discussed and feedback from stockholders with our senior management and board of directors for consideration.
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In fiscal 2024, our management team held 99 meetings with current and prospective stockholders, including meetings with over 60% of our top 25 largest stockholders. We continuously communicate with stockholders and other stakeholders through various media, including our annual report and SEC filings, proxy statement, news releases, quarterly earnings calls, our website and our Annual Meeting. Below is a summary of some of the key feedback on certain governance topics that we received since we filed our fiscal 2023 Proxy Statement:
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| Common Discussion Points | Our Viewpoint | | No lead independent director for Zscaler's board of directors | Stockholders have asked why our board does not have a lead independent director to work with our Chairman and CEO. We believe that, while a lead independent director might be valuable in some companies, such a role would undermine our highly effective board culture where all independent directors work directly with our Chairman and CEO on matters within their areas of interest and expertise. Our board consists of a majority of independent directors and regularly meets in executive session as appropriate. Additionally, all three of our board committees are composed entirely of independent directors. We believe all independent board members are empowered to guide the Company and this fosters a collaborative dynamic which could be impaired by the presence of a single lead independent director. While in the future we may find it beneficial or necessary to appoint a lead independent director, currently, we feel our board structure provides an appropriate check against undue management influence while preserving the board culture that has driven our success. | | Payment of annual cash bonuses | Stockholders have asked about the application of discretion by our CEO in determining the bonuses of our Senior Executives. As described in the "Executive Compensation" section, the entire cash bonus pool allocated to our Senior Executives is funded based on attainment of revenue, billings and non-GAAP income from operations performance metrics determined by our compensation committee. However, the actual payment to our Named Executive Officers is subject to downward adjustment by our CEO. Specifically, our CEO considers non-public corporate and individual performance metrics in exercising discretion only to reduce bonus payments below what is allowed by the funded amount of the bonus pool. For example in the first half performance period of fiscal 2024, our CEO exercised his downward discretion such that the actual full year payout to Named Executive Officers was at 108.7% of their target bonuses, which was below the full year total funded pool of 118.3%. We believe this gives our CEO latitude to ensure executive pay reflects the best interests of our stockholders and aligns with performance against a wide variety of strategic and performance objectives. | | Charles Giancarlo "Overboarding" | Stockholders have expressed concerns about Mr. Giancarlo sitting on the boards of directors of three public companies including Zscaler while also serving as the chief executive officer to one company. We feel that Mr. Giancarlo provides a unique combination of invaluable experience, skills and perspectives that are relevant for Zscaler's market, technology and stage of growth as a result of his past and, especially, his current roles. During the last five fiscal years, Mr. Giancarlo has missed only one board or committee meeting. In addition, Mr. Giancarlo regularly makes himself available for informal meetings with our CEO and other members of management. During these formal and informal meetings, we believe that Mr. Giancarlo provides critical advice and insights which benefit our stockholders. | | Anti-takeover provisions | Stockholders have asked about our anti-takeover provisions including our classified board and our board's ability to issue preferred shares of stock without a stockholder vote. With Cybersecurity taking center-stage for many companies, Zscaler is filling a critical need for our customers. Part of that need centers around long-term stability of our products and our Company as a whole. We feel that the anti-takeover measures, that have been deemed reasonable and appropriate by both our management and board of directors, support this long-term stability which is increasingly seen as vital by our customers, partners and employees. As a result, we believe that our anti-takeover provisions are reasonable for our Company’s size, growth rate and industry and support long-term value creation for our stockholders. |
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Corporate Governance Guidelines and Code of Conduct Our board of directors has adopted Corporate Governance Guidelines. These guidelines address items such as the qualifications and responsibilities of our directors and director candidates and corporate governance policies and standards applicable to us in general. In addition, our board of directors has adopted a Code of Conduct that applies to all of our employees, officers and directors, including our chief executive officer, chief financial officer and other executive and senior financial officers. The full text of our Corporate Governance Guidelines and our Code of Conduct is posted on our website at http://ir.zscaler.com in the Governance Documents section of our Investor Relations webpage. We will post any amendments to our Code of Conduct, and any waivers of our Code of Conduct for directors and executive officers, on the same website. Role of the Board of Directors in Risk Oversight One of the key functions of our board of directors is informed oversight of our risk management process which risks include, among others, strategic, financial, business and operational, cybersecurity, legal and regulatory compliance and reputational risks. Our board of directors does not have a standing risk management committee, but rather administers this oversight function directly through the board of directors as a whole, as well as through its standing committees that address risks inherent in their respective areas of oversight. In particular, our board of directors is responsible for monitoring and assessing strategic risk exposure. Our audit committee is responsible for reviewing and discussing our major financial risk exposures and the steps our management has taken to monitor and control these exposures, including guidelines and policies with respect to risk assessment and risk management, including oversight of the performance of our internal audit function. In addition to oversight of the performance of our external and internal audit functions, our audit committee also monitors compliance with legal and regulatory requirements and reviews related party transactions. Our audit committee responsibilities also include oversight of cybersecurity risk management, and, to that end, members of the audit committee meet frequently with management and Company leadership responsible for cybersecurity risk management and receives periodic reports from management, as well as incremental reports as matters arise. Our nominating and corporate governance committee monitors the effectiveness of our corporate governance guidelines and oversees our Corporate Responsibility program. Our compensation committee assesses and monitors whether any of our compensation policies and programs has the potential to encourage excessive risk-taking. Director Compensation Each non-employee director is eligible to receive compensation for his or her service consisting of annual cash retainers and equity awards under our outside director compensation policy. Our outside director compensation policy was crafted in consultation with Compensia, Inc., or Compensia, an independent compensation consulting firm engaged by our compensation committee. Compensia provided us with competitive data, analysis and recommendations regarding non-employee director compensation, which includes a mix of cash and equity-based compensation. After careful consideration of this information and the scope of the duties and responsibilities of our non-employee directors, our board of directors approved our outside director compensation policy. We believe this policy provides reasonable compensation to our non-employee directors that is commensurate with their contributions and appropriately aligned with our peers. We also reimburse our directors for expenses associated with attending meetings of our board of directors and board committees.
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For fiscal 2024, there were no changes in the director compensation policy, and non-employee directors were entitled to receive the following cash compensation for service in the following positions:
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| Position | Annual Retainer ($) | | Board Member | 30,000 | | Audit Committee Chair | 20,000 | | Audit Committee Member | 8,000 | | Compensation Committee Chair | 12,000 | | Compensation Committee Member | 5,000 | | Nominating and Corporate Governance Committee Chair | 7,500 | | Nominating and Corporate Governance Committee Member | 4,000 |
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In addition, non-employee directors were eligible to receive the following equity awards for board service: (1)Annual restricted stock unit, or RSU, grant with target value of $200,000 (automatically granted at the Annual Meeting). These RSU awards vest in four equal quarterly installments over a one-year period; and (2)Initial RSU grant with a target value equal to two-and one-half times the value of the then effective annual RSU grant, pursuant to which one-third of the RSU awards will vest on the one-year anniversary of the effective date of appointment and the remaining RSU awards will vest in eight equal quarterly installments thereafter. Any director elected at the Annual Meeting for a given year will receive both the initial RSU grant and the annual RSU grant. The number of RSU awards for each of the initial and annual RSU grant will be determined by dividing the annual equity value by the average closing price of Zscaler common stock on the Nasdaq Global Select Market for the 30 trading days ending on the date that is five days prior to the grant date, rounded up to the nearest share. All cash payments to non-employee directors who served in the relevant capacity at any point during the immediately preceding prior fiscal quarter will be paid quarterly in arrears on a prorated basis. A non-employee director who served in the relevant capacity during only a portion of the prior fiscal quarter will receive a pro-rated payment of the quarterly payment of the applicable cash retainer.
DIRECTOR STOCK OWNERSHIP GUIDELINES
| Name | Fees Earned or Paid in Cash ($) | Stock Awards ($)(1) | Total ($) | | James Beer | 6,909 | 464,409 | 471,318 | | Karen Blasing | 52,969 | 204,775 | 257,744 | | Andrew Brown | 50,000 | 204,775 | 254,775 | | Scott Darling | 42,000 | 204,775 | 246,775 | | Charles Giancarlo | 42,500 | 204,775 | 247,275 | | Eileen Naughton | 35,000 | 204,775 | 239,775 | | David Schneider | 34,000 | 204,775 | 238,775 |
Pay-for-Performance
Pay-for-Performance We believe our executive compensation program is reasonable, competitive and appropriately balances the goals of attracting, motivating, rewarding and retaining our Named Executive Officers, with the goal of aligning their interests with those of our stockholders. To ensure this alignment and to motivate and reward individual initiative and effort, a substantial portion of our Named Executive Officers’ target annual compensation opportunity is both variable in nature and “at-risk.” We emphasize variable compensation that appropriately rewards our Named Executive Officers through two separate compensation elements: ▪First, we provide our Named Executive Officers (other than our CEO) the opportunity to participate in our cash bonus plan which provides cash payments if they produce results that meet or exceed the financial, operational and strategic objectives for the fiscal year, as established by our compensation committee. ▪In addition, we grant RSU and PSU awards that will reward recipients over a multi-year period, with the PSU awards being earned only for achieving long-term aggressive performance objectives established by the compensation committee. The RSU awards and, if earned, PSU awards comprise a majority of our Named Executive Officers’ target total direct compensation opportunities. The future value of these awards depends significantly on our performance and the value of our common stock, thereby incentivizing them to build sustainable long-term value for the benefit of our stockholders. These variable pay elements ensure that, each year, a substantial portion of our Named Executive Officers’ target total direct compensation is contingent (rather than fixed) in nature, with the amounts ultimately payable subject to variability above or below target levels commensurate with our actual performance.
Setting Target Total Compensation
▪the scope of each Named Executive Officer’s role and responsibilities compared to other similarly-situated executives at the companies in our compensation peer group and/or Compensia’s proprietary compensation database; ▪the prior performance of each individual Named Executive Officer, based on a subjective assessment of his or her contributions to our overall performance, ability to lead his or her business unit or function and work as part of a team, all of which reflect our core values; ▪the potential of each individual Named Executive Officer to contribute to our long-term financial, operational and strategic objectives; ▪our financial performance relative to our compensation and performance peers; ▪the compensation practices of our compensation peer group and/or the companies in Compensia’s proprietary compensation database and the positioning of each Named Executive Officer’s compensation in a ranking of peer company compensation levels based on an analysis of competitive market data; and ▪the recommendations of our CEO with respect to the compensation of our Named Executive Officers (except with respect to his own compensation). These factors provide the framework for compensation decision-making and final decisions regarding the compensation opportunity for each Named Executive Officer.
Role of Compensation Consultant
Role of Compensation Consultant The compensation committee engaged Compensia as its external compensation consultant to assist it by providing information, analysis and other advice relating to our executive compensation program. The compensation consultant reports directly to the compensation committee and its chair and serves at the discretion of the compensation committee, which reviews the engagement annually.
Role of Compensation Consultant
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| EXECUTIVE COMPENSATION | n |
Role of Compensation Consultant
During fiscal 2024, Compensia attended the meetings of the compensation committee (both with and without management present) as requested and provided the following services: ▪consultation with the compensation committee chair and other members between compensation committee meetings; ▪review, research and updating of our compensation peer group; ▪an analysis of competitive market data based on the compensation peer group and Compensia's proprietary compensation database for our Named Executive Officers’ positions and an evaluation of how the compensation we pay our Named Executive Officers compares both to our performance and to how the companies in our compensation peer group compensate their executives; ▪review and analysis of the base salary levels, target annual cash bonus opportunities and long-term incentive compensation opportunities of our Named Executive Officers; ▪review and analysis of the metrics used by the companies in our compensation peer group in their short-term incentive compensation plans; ▪assessment of executive compensation trends within our industry, and updating on corporate governance and regulatory issues and developments; ▪review and analysis of director compensation levels; and ▪support on other ad hoc matters throughout the year. The terms of Compensia’s engagement includes reporting directly to the compensation committee chair. Compensia also coordinated with management for data collection and job matching for our Named Executive Officers. Additionally, Compensia provided analysis and produced certain charts and figures, which after having been reviewed and assessed by the Company, were included in the "Pay-for-Performance" section of this Proxy Statement. In fiscal 2024, Compensia did not provide any other services to us. The compensation committee has evaluated its relationship with Compensia to ensure that it believes that such firm is independent from management. This review process included a review of the services that Compensia provided, the quality of those services and the fees associated with the services provided during fiscal 2024. Based on this review, as well as consideration of the factors affecting independence set forth in Exchange Act Rule 10C-1(b)(4), Rule 5605(d)(3)(D) of the Nasdaq Marketplace Rules, and such other factors as were deemed relevant under the circumstances, the compensation committee has determined that no conflict of interest was raised as a result of the work performed by Compensia and that Compensia is independent.
Competitive Positioning
Competitive Positioning For purposes of assessing our executive compensation against the competitive market, the compensation committee reviews and considers the compensation levels and practices of a select group of peer companies. This compensation peer group consists of technology companies that are similar to us in terms of revenue, market capitalization and industry focus. The competitive data drawn from this compensation peer group is only one of several factors that the compensation committee considers in making its decisions with respect to the compensation of our Named Executive Officers.
Competitive Positioning
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Competitive Positioning
| n | EXECUTIVE COMPENSATION |
Competitive Positioning
The compensation peer group for fiscal 2024 compensation decisions was determined in February 2023 and was comprised of publicly-traded technology companies against which we compete for executive talent, as well as, in some instances, business opportunities. In evaluating the companies comprising the compensation peer group, we worked with Compensia to establish the following criteria: ▪publicly-traded companies headquartered in the United States and traded on a major United States stock exchange with a preference for California-based companies; ▪companies in the application software and systems software industries; ▪similar revenues – within a range of ~0.5x to ~2.0x our then-current trailing four quarters revenue of approximately $1.2 billion (approximately $608 million to approximately $2.4 billion); and ▪similar market capitalization – within a range of ~0.33x to 3.0x our then-current 30-day average market capitalization of approximately $16.2 billion (approximately $5.4 billion to approximately $48.5 billion). Our fiscal 2024 peer group consisted of the following companies:
Competitive Positioning
| ANSYS | Dynatrace | Paycom Software | | Arista Networks | Fortinet | Snowflake | | Bill.com Holdings | HubSpot | The Trade Desk | | Cloudflare | MongoDB | Twilio | | CrowdStrike Holdings | Okta | Unity Software | | Datadog | Palantir Technologies | Veeva Systems | | DocuSign | Palo Alto Networks | Zoominfo Technologies |
Competitive Positioning
The compensation committee reviews our compensation peer group at least annually and makes adjustments to its composition if warranted, taking into account changes in both our business and the businesses of the companies in the peer group.
COMPENSATION ELEMENTS
| Element | Type of Element | Compensation Element | Objective | | Base Salary | Fixed | Cash | Designed to attract and retain highly talented executives by providing fixed compensation amounts that are competitive in the market | | Annual Cash Bonuses | Variable | Cash | Designed to provide financial incentives to motivate our executives to achieve semi-annual financial objectives | | Long-Term Incentive Compensation | Variable | Equity awards in the form of PSU awards and RSU awards and occasionally option awards | Designed to align the interests of our executives and our stockholders by motivating them to create sustained long-term stockholder value |
ANNUAL CASH BONUSES
ANNUAL CASH BONUSES We use our Employee Incentive Compensation Plan, a cash bonus plan, to motivate employees selected by the compensation committee, including our Named Executive Officers (other than our CEO), to achieve our annual business goals. Pursuant to the Employee Incentive Compensation Plan, our compensation committee, in its sole discretion, establishes a target award for each executive and a bonus pool for our executives as a group, with actual awards payable from the bonus pool, with respect to the applicable performance period. For each period, our CEO may exercise discretion by evaluating multiple individual and corporate performance metrics, which may include sales performance and results, financial results, corporate objectives, customer satisfaction, product development performance, cloud reliability, bonus pool funding for non-executive employees, people management and development, governance and ethics, environmental objectives, social and individual executive goals, among other factors. For fiscal 2024, the Employee Incentive Compensation Plan included semi-annual performance periods with semi-annual award payouts after the end of the first six-month period (for the period from August 1, 2023 through January 31, 2024), and, then again, after the end of the fiscal year (for the period from February 1, 2024 through July 31, 2024).
ANNUAL CASH BONUSES
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ANNUAL CASH BONUSES
| n | EXECUTIVE COMPENSATION |
Fiscal 2024 Target Annual Cash Bonus Award Opportunities
Fiscal 2024 Target Annual Cash Bonus Award Opportunities For purposes of the Employee Incentive Compensation Plan, cash bonus awards were based upon target annual cash bonus award opportunities as determined by the compensation committee. In September 2023, the compensation committee reviewed the target annual cash bonus award opportunities of our Named Executive Officers and determined to adjust the target annual cash bonus opportunities for each of our eligible Named Executive Officers to set their total target annual cash opportunity for fiscal 2024 at a level that was comparable to those of similarly-situated executives in the competitive marketplace. As in prior fiscal years, our CEO did not participate in the Employee Incentive Compensation Plan. The target annual cash bonus award opportunities of our Named Executive Officers for fiscal 2024 were as follows:
Fiscal 2024 Target Annual Cash Bonus Award Opportunities
| Named Executive Officer | Fiscal 2024 Target Annual Cash Bonus Award Opportunity ($) | Fiscal 2023 Target Annual Cash Bonus Award Opportunity ($) | Percentage Adjustment (%) | | Mr. Chaudhry | — | — | — | | Mr. Canessa | 450,000 | 325,000 | 38.5 | | Mr. Nair | 450,000 | 430,000 | 4.6 | | Mr. Rich(1) | 450,000 | — | — | | Mr. Schlossman | 303,750 | 250,000 | 21.5 |
Fiscal 2024 Target Annual Cash Bonus Award Opportunities
(1)In connection with his appointment as our CRO in November 2023, Mr. Rich's initial base salary was set at $450,000. Mr. Rich's target annual cash bonus award opportunity was pro-rated during fiscal 2024 to reflect his nine month's employment with us. Potential annual cash bonus awards for our Named Executive Officers under the Employee Incentive Compensation Plan could range from zero to 150% of their target annual cash bonus award opportunity. For the full year, eligible Named Executive Officers earned an aggregate of 108.7% of their target performance amounts. The cash bonuses actually paid to our Named Executive Officers for fiscal 2024 are set forth in the “Fiscal 2024 Summary Compensation Table” below.
Incentive Plan Performance Metrics
Incentive Plan Performance Metrics Under the Employee Incentive Compensation Plan, the compensation committee determined the performance metrics and related target levels for the fiscal 2024 annual cash bonus awards. The compensation committee selected revenue, calculated billings and non-GAAP income from operations as the appropriate corporate performance metrics for the Named Executive Officers because, in its view, these metrics were key indicators of our periodic performance and our progress in executing on our business strategy of focusing on growth and gaining market share, while also prioritizing increased profitability as a maturing company. For purposes of the Named Executive Officers’ cash bonus awards: ▪“Revenue” is total revenue calculated in accordance with generally accepted accounting principles, or GAAP, as reported in our audited financial statements. This metric was chosen because it incentivizes revenue growth. ▪“Calculated billings” is our total revenue plus the change in deferred revenue in a given fiscal period. Calculated billings in any particular fiscal period aims to reflect amounts invoiced for subscriptions to access our cloud platform, together with related support services for our new and existing customers. This metric was chosen because it incentivizes calculated billings growth.
Incentive Plan Performance Metrics
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Incentive Plan Performance Metrics
| EXECUTIVE COMPENSATION | n |
Incentive Plan Performance Metrics
▪“Non-GAAP income from operations” is our GAAP loss from operations adjusted to exclude stock-based compensation expense and related employer payroll taxes, amortization expense of acquired intangible assets and restructuring and other charges. This metric was chosen because it incentivizes fiscal discipline and profitability. As reflected in our annual operating plan presented to and approved by our board of directors, the target levels established for revenue, calculated billings and non-GAAP income from operations for the full year of fiscal 2024 by the compensation committee were as follows:
Incentive Plan Performance Metrics
| Performance Metric | Weighting Target | Full Year Fiscal 2024 ($ million) | | Revenue | 30% | 2,167,300 | | Calculated billings | 30% | 2,730,000 | | Non-GAAP income from operations | 40% | 373,800 |
Incentive Plan Performance Metrics
For fiscal 2024, the targets for each of these financial metrics chosen for the Employee Incentive Compensation Plan represented increases ranging from approximately 25% to 30% over the prior year, reflecting very aggressive targets for fiscal 2024. The compensation committee determined that the bonus pool would fund, and our Named Executive Officers were eligible to earn, up to 150% of their target cash bonus awards, to the extent that the maximum achievement for each of revenue, calculated billings and non-GAAP income from operations for each performance period in fiscal 2024 was met. The following tables detail the metrics used to fund the cash bonuses paid to our Named Executive Officers, and their bonus attainment results:
Incentive Plan Performance Metrics
| Bonus Pool Funding Metrics | | | | Metric Achievement | Funded Amount | Bonus Attainment | | Less than 80% | 0% | No payout below 80% achievement | | 80% – 95% | 50% to 90% linear | 80% attainment pays 50% and 95% pays 90% | | 95% – 100% | 90% to 100% linear | 95% attainment pays 90% and 100% pays 100% | | 100% – 110% | 100% to 150% linear | 100% attainment pays 100% and 110% pays 150% |
Incentive Plan Performance Metrics
| Fiscal 24 Bonus Pool Achievement Results | | | | | Period/Metric | % Achievement | % Funded | Weighted Funded Attainment (% of Target) | | First Fiscal Half | | | 118.3 | | Revenue | 100.3 | 101.5 | 30.5 | | Calculated billings | 96.4 | 92.8 | 27.8 | | Non-GAAP income from operations | 115.1 | 150.0 | 60.0 | | Second Fiscal Half | | | 117.4 | | Revenue | 99.8 | 99.6 | 29.8 | | Calculated billings | 95.9 | 91.8 | 27.5 | | Non-GAAP income from operations | 120.9 | 150.0 | 60.0 |
Incentive Plan Performance Metrics
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Incentive Plan Performance Metrics
| n | EXECUTIVE COMPENSATION |
Cash Bonus Payments
Cash Bonus Payments In March 2024, for first half results, the compensation committee determined that as a result of the performance as displayed in the table above, the cash bonus payments to our eligible Named Executive Officers were funded at 118.3% of their target semi-annual cash bonus for the first half of the year, with actual payouts adjusted to 100% resulting from our CEO exercising his downward discretion based upon his review of certain of the performance criteria set forth above in "Annual Cash Bonuses". In September 2024, for second half results, the compensation committee determined that as a result of the performance displayed in the table above, the cash bonus payments to our eligible Named Executive Officers were funded and paid at 117.4% of their target semi-annual cash bonus for the second half of the year. No discretionary adjustments were made by the CEO for this period. For fiscal 2024, this resulted in a full year bonus payment equal to 108.7% of each eligible Named Executive Officers' annual bonus target. Final disbursement of awards was subject to discretionary downward adjustment determined by our CEO, as set forth in the following schedule:
Cash Bonus Payments
| Named Executive Officer | Period | Target Bonus Opportunity ($) | Bonus Payment ($) | | Mr. Canessa | First Half | 225,000 | 225,000 | | | Second Half | 225,000 | 264,195 | | | Total | 450,000 | 489,195 | | Mr. Nair | First Half | 225,000 | 225,000 | | | Second Half | 225,000 | 264,195 | | | Total | 450,000 | 489,195 | | Mr. Rich | First Half(1) | 110,054 | 110,054 | | | Second Half | 225,000 | 264,195 | | | Total | 335,054 | 374,249 | | Mr. Schlossman | First Half | 151,875 | 151,875 | | | Second Half | 151,875 | 178,332 | | | Total | 303,750 | 330,207 |
Cash Bonus Payments
(1)Mr. Rich's target cash bonus award opportunity was pro-rated during the first half of fiscal 2024 to reflect his November 1, 2023 hire date.
Mike Rich Pre-Hire Consulting Fee and Sign-on Bonus
Mike Rich Pre-Hire Consulting Fee and Sign-on Bonus On September 17, 2023, the Company entered into a consulting agreement with Mr. Rich, or the Rich Consulting Agreement. Pursuant to the Rich Consulting Agreement, Mr. Rich received $550,000 for services rendered to the Company. After completion of services under the Rich Consulting Agreement, and in connection with Mr. Rich's appointment as CRO in November 2023, we entered into an employment offer letter dated November 1, 2023 with Mr. Rich, or the Rich Offer Letter. Pursuant to the Rich Offer Letter, Mr. Rich received a $550,000 sign-on bonus. Our compensation committee approved the consulting fee and sign-on bonus paid to Mr. Rich in fiscal 2024.
Mike Rich Pre-Hire Consulting Fee and Sign-on Bonus
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Mike Rich Pre-Hire Consulting Fee and Sign-on Bonus
| EXECUTIVE COMPENSATION | n |
LONG-TERM INCENTIVE COMPENSATION
LONG-TERM INCENTIVE COMPENSATION We view long-term incentive compensation in the form of equity awards as a critical element of our executive compensation program. We use equity awards to incentivize and reward our Named Executive Officers for long-term corporate performance based on the value of our common stock and, thereby, to align the interests of our Named Executive Officers with those of our stockholders. In fiscal 2024, equity awards were granted to the Named Executive Officers included both time-based and performance-based stock awards. The compensation committee determined the amount of long-term incentive compensation for our Named Executive Officers as part of its annual compensation review. In making these awards and recommendation, the compensation committee took the following factors into consideration: ▪a competitive market analysis performed by Compensia; ▪the amount of equity compensation held by the Named Executive Officer (including the current economic value of his or her unvested equity and the ability of these unvested holdings to satisfy our retention objectives); ▪the recommendations of our CEO (except with respect to his own equity awards); ▪the projected impact of the proposed awards on our earnings and stock-based compensation as a percentage of revenue; ▪the proportion of our total shares outstanding used for annual employee long-term incentive compensation awards, or our burn rate, in relation to the companies in our compensation peer group; and ▪the potential dilution to our shareholders, or our overhang, in relation to the companies in our compensation peer group.
Performance Equity Award Philosophy
Performance Equity Award Philosophy After considering analysis performed by Compensia, feedback from our stockholders and the compensation committee’s desire to establish long-term performance metrics, the compensation committee determined that PSU performance metrics were to be based on achievement of long-term, multi-year ARR metrics. Since we believe staggered ARR targets incentivize our executives to drive continued ARR growth, the compensation committee has approved performance metrics that create a ladder with multiple ARR targets over time. We use aggressive multiples of the preceding fiscal year’s ARR to determine our PSU award ARR targets, with such multiples determined based on target growth rates. The PSU awards are also designed to incentivize the executives to achieve rigorous timelines for meeting the ARR targets by providing for over-achievement based on meeting early or exceeding the PSU award ARR targets. To balance the aggressive nature of such targets, these awards provide for extended attainment timelines. We believe that this feature of the PSU awards will provide continued incentive to keep working towards the next milestone. Later achievement of the ARR targets will naturally decrease the value of the PSU awards because they will be earned over a longer than intended time period and the Company’s growth rate will be lower than if the ARR target was achieved sooner. The compensation committee believes this philosophy underscores our commitment to aggressively pursue and incentivize long-term future growth and to establish material stockholder value alignment.
Fiscal 2024 Annual Equity Awards
Fiscal 2024 Annual Equity Awards In fiscal 2024, we issued annual long-term incentive compensation awards to our Named Executive Officers, except for Mr. Chaudhry and Mr. Rich, in the form of PSU awards and time-based RSU awards as set forth in the table below. For fiscal 2024, Mr. Rich received the new hire package described below, and Mr. Chaudhry did not receive new equity awards because, in fiscal 2023, he was awarded a long-term equity incentive package intended to cover a four year period at the time it was granted. The total equity awards approved for our Named Executive Officers, other than our CEO and Mr. Rich, in fiscal 2024 were as follows:
Fiscal 2024 Annual Equity Awards
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Fiscal 2024 Annual Equity Awards
| n | EXECUTIVE COMPENSATION |
Fiscal 2024 Annual Equity Awards
| Named Executive Officers | Restricted Stock Unit Award (Number of shares) (#) | Performance Stock Unit Award (Number of shares) (#) | | Mr. Canessa | 17,303 | 17,303 | | Mr. Nair(1) | — | 15,719 | | Mr. Schlossman | 23,256 | 12,112 |
Fiscal 2024 Annual Equity Awards
(1)Mr. Nair received a PSU grant in fiscal 2024 to satisfy the remaining obligations under his fiscal 2023 new hire package.
Fiscal 2024 Time-Based Equity Awards
Fiscal 2024 Time-Based Equity Awards In November 2023, Mr. Canessa and Mr. Schlossman were issued RSUs for shares of our common stock that vest over a four-year period in 16 equal quarterly installments beginning on December 15, 2024. In June 2024, following a review of executive and senior management compensation, our CEO determined to grant key Company personnel, including Mr. Schlossman, RSU awards. This second fiscal RSU award to Mr. Schlossman vests over a two-year period in eight quarterly installments beginning on September 15, 2024. All RSU awards are subject to each recipient's continued service to the Company.
Fiscal 2024 PSU Awards
Fiscal 2024 PSU Awards As described above, ARR targets for PSU awards are based upon the achievement of aggressive long-term multi-year metrics. For PSU awards granted in fiscal 2024 to continuing executives, the compensation committee set the ARR target at $4 billion. The fiscal 2024 awards have the potential to earn up to 200% of the target award amounts for over achievement, based on performance ranging between 100% to 125% of target with such performance determined as of a specific measurement date. If not achieved by the measurement date, the awards will be earned at 100% of the target award amounts upon certification by the compensation committee after completion of the quarter in which the Company meets or exceeds the required PSU award ARR target, as indicated by the financial records of the Company. All PSU awards will fully vest upon certification, subject to each recipient's continued service to the Company.
Fiscal 2024 New Hire Equity Awards
Fiscal 2024 New Hire Equity Awards On November 1, 2023, Mr. Rich was hired as our CRO. Pursuant to his new hire agreement, Mr. Rich received equity stock awards on December 1, 2023, consisting of time-based RSUs with a value of $21,200,000, performance-based awards with a value of $7,800,000 and options to purchase 50,000 shares of common stock. The $21,200,000 RSU grant consists of two awards: (i) $18,200,000 of RSUs vesting over four years in equal quarterly installments, and (ii) the remaining $3,000,000 of RSUs vesting over two years, with 18.75% vesting each quarter for the first four quarters and thereafter at 6.25% each quarter for the next four quarters. The options vest 25% after the first year and monthly thereafter over a total of four years. The performance-based awards were divided into three groups with separate PSU award ARR targets of $3 billion, $4 billion and $5 billion. The performance-based awards can be attained and vest in accordance with the attainment and vesting criteria for the annual executive performance-based awards, as described above.
Legacy CEO Equity Awards
Legacy CEO Equity Awards No equity awards were granted to our CEO in fiscal 2024, and no grants are anticipated to be made in fiscal 2025 or fiscal 2026, because in fiscal 2023, the CEO’s performance award was sized to cover a multi-year period. The ARR performance target for the fiscal 2023 CEO performance award exceeded the ARR targets for the fiscal 2024 performance awards granted to continuing executives and represented an aggressive long-term ARR target.
Legacy CEO Equity Awards
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Legacy CEO Equity Awards
| EXECUTIVE COMPENSATION | n |
Employment Offer Letter with Mr. Canessa
Employment Offer Letter with Mr. Canessa Under Mr. Canessa’s employment offer letter, if we terminate Mr. Canessa’s employment with us other than for “cause,” death or “disability” outside of the period beginning on a “change of control” (as such terms are defined in the Change of Control and Severance Policy, or the Severance Policy) and ending 12 months following the change of control, he will be entitled to receive (i) accelerated vesting as to the number of unvested shares subject to equity awards that otherwise would have vested during the six months following the date his employment with us terminates had he remained employed with us through such time; (ii) an extension of the period of time in which he has to exercise his vested options until the date that is 12 months following his termination date, subject to earlier termination on a change in control (or similar transaction) pursuant to the terms of the equity plan under which the options are granted; and (iii) severance pay at a rate equal to 100% of his annual base salary, as then in effect, for a period of six months following the date of such termination, payable in accordance with our normal payroll practices. To receive the severance benefits upon a qualifying termination, Mr. Canessa must sign and not revoke a release of claims within the time specified in his employment offer letter.
Employment Offer Letter with Mr. Nair
Employment Offer Letter with Mr. Nair Under Mr. Nair's employment offer letter, if we terminate Mr. Nair's employment with us other than for “cause” or he resigns for “good reason”, outside of the “change of control period" (as such terms are defined in the employment offer letter), he will be entitled to receive (i) severance pay at a rate equal to 100% of his annual base salary, as then in effect (less applicable withholding) for a period of six months following the date of such termination; and (ii) an extension of the period of time in which he will have to exercise his vested options to purchase our common stock subject to the options until the date that is 12 months following his termination date, subject to earlier termination on a change in control (or similar transaction) pursuant to the terms of the equity plan under which the options were granted. Further, If Mr. Nair is subject to a "qualified termination" (as defined in our Change of Control and Severance Policy in connection with a change in employment), he will be entitled to an extension of the period of time in which he will have to exercise his vested options to purchase our common stock subject to the Option until the date that is 12 months following his termination date, subject to earlier termination on a change in control (or similar transaction) pursuant to the terms of the equity plan under which the options were granted. To receive the severance benefits upon a qualifying termination, Mr. Nair must sign and not revoke a release of claims within the time specified in his employment offer letter.
Employment Offer Letter with Mr. Schlossman
Employment Offer Letter with Mr. Schlossman Under Mr. Schlossman’s employment offer letter, if we terminate Mr. Schlossman’s employment with us other than for “cause” or he resigns for “good reason”, without a “change of control” (as such terms are defined in the employment offer letter), he will be entitled to receive continuing severance pay at a rate equal to 100% of his annual base salary, as then in effect, for a period of three months from the date of such termination, to be paid periodically in accordance with our normal payroll practices. To receive the severance benefits upon a qualifying termination, Mr. Schlossman must sign and not revoke a release of claims within the time specified in his employment offer letter.
POST-EMPLOYMENT COMPENSATION
POST-EMPLOYMENT COMPENSATION The employment offer letters and equity award agreements with our Named Executive Officers provide them with certain protection in the event of their termination of employment other than for “cause,” death or “disability” (as such terms are defined in the employment offer letters). In addition, our Named Executive Officers are participants in our Severance Policy, which provides for certain protections in the event of a termination of employment in connection with a change in control of the Company. We believe that these protections were necessary to induce these individuals to leave their former employment for the uncertainty of a demanding position in a new and unfamiliar organization and help from a retention standpoint and to retain their services on an ongoing basis. We also believe that these arrangements provided by the Severance Policy help maintain the continued focus and dedication of our Named Executive Officers to their assigned duties to maximize stockholder value if there is a potential transaction that could involve a change in control of the Company. These arrangements provide reasonable compensation to a Named Executive Officer if he or she leaves our employ under certain circumstances to facilitate his or her transition to new employment. Further, in some instances we seek to mitigate any potential
POST-EMPLOYMENT COMPENSATION
employer liability and avoid future disputes or litigation by conditioning post-employment compensation and benefits on a departing Named Executive Officer signing a separation and release agreement acceptable to us. Under the Severance Policy, all payments and benefits in the event of a change in control of the Company are payable only if there is a subsequent loss of employment by a Named Executive Officer (a so-called “double-trigger” arrangement). In the case of the acceleration of vesting of outstanding equity awards, we use this double-trigger arrangement to protect against the loss of retention value following a change in control of the Company and to avoid windfalls, both of which could occur if vesting of either equity or cash-based awards accelerated automatically as a result of the transaction. In the event of a change in control of the Company, to the extent Section 280G or 4999 of the Internal Revenue Code is applicable to a Named Executive Officer, such individual is entitled to receive either: ▪payment of the full amounts specified in the policy to which he or she is entitled; or ▪payment of such lesser amount that does not trigger the excise tax imposed by Section 4999, whichever results in him or her receiving a higher amount after taking into account all federal, state, and local income, excise and employment taxes. We do not use excise tax payments (or “gross-ups”) relating to a change in control of the Company and have no such obligations in place with respect to any of our Named Executive Officers. We believe that having in place reasonable and competitive post-employment compensation arrangements, including in the event of a change in control of the Company, are essential to attracting and retaining highly-qualified executive officers. The compensation committee does not consider the specific amounts payable under the post-employment compensation arrangements when determining the annual compensation for our Named Executive Officers. We do believe, however, that these arrangements are necessary to offer compensation packages that are competitive. For detailed descriptions of the post-employment compensation arrangements with our Named Executive Officers, as well as an estimate of the potential payments and benefits payable under these arrangements, see “Potential Payments upon Termination or Change in Control” below.
Policies and Practices Related to the Timing of Option Awards
Policies and Practices Related to the Timing of Option Awards While we do not have a formal written policy in place with regard to the timing of awards of options in relation to the disclosure of material nonpublic information, the compensation committee does not seek to time equity grants to take advantage of information, either positive or negative, about our company that has not been publicly disclosed. It has been our recent practice to grant most of our equity awards in the form of RSUs.
Taxation of “Parachute” Payments
Taxation of “Parachute” Payments Sections 280G and 4999 of the Internal Revenue 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 of the Company that exceeds certain prescribed limits, and that the Company (or a successor) may forfeit a deduction on the amounts subject to this additional tax. We have not agreed to provide any executive officer, including any Named Executive Officer, with a “gross-up” or other reimbursement payment for any tax liability that the executive officer might owe as a result of the application of Sections 280G or 4999 of the Internal Revenue Code.
Accounting for Stock-Based Compensation
Accounting for Stock-Based Compensation The compensation committee takes accounting considerations into account in designing compensation plans and arrangements for our executive officers and other employees. Chief among these is Financial Accounting Standards Board Accounting Standards Codification Topic 718, or ASC Topic 718, the standard which governs the accounting treatment of certain stock-based compensation. Among other things, ASC Topic 718 requires us to record a compensation expense in our income statement for all equity awards granted to our executive officers and other employees. This compensation expense is based on the grant date “fair value” of the equity award and, in most cases, will be recognized ratably over the award’s requisite service period (which, generally, will correspond to the award’s vesting schedule). This compensation expense is also reported in the compensation tables below, even though recipients may never realize any value from their equity awards. Change of Control and Severance Policy Our board of directors adopted a Change of Control and Severance Policy, or the Severance Policy. Each of our current executive officers is a participant in the Severance Policy. Under the Severance Policy, if we terminate a participant other than for “cause,” death or “disability” or the Named Executive Officer resigns for “good reason” during the period beginning on a “change of control” (as such terms are defined in the Severance Policy) and ending 12 months following the change of control (which we refer to as the change of control period), such Named Executive Officer will be eligible to receive the following severance benefits: ▪100% of the then-unvested shares subject to his then-outstanding equity awards will become vested and exercisable, and in the case of equity awards with performance-based vesting, all performance goals and other vesting criteria will be deemed achieved at the specified percentage of target levels; ▪a lump-sum payment equal to 100% of the greatest of (i) a participant's annual base salary as in effect immediately prior to his termination, (ii) if the termination is a resignation for good reason based on a material reduction in base salary, a participant's annual base salary as in effect immediately prior to such reduction or (iii) a participant's annual base salary as in effect immediately prior to the change of control; ▪a lump-sum payment equal to (i) 100% of a participant's target annual bonus award opportunity for the fiscal year in which the termination occurs plus (ii) a pro-rated portion of such target annual bonus award opportunity reduced by any bonus payments made during such fiscal year; and ▪a lump-sum health benefit severance payment of $36,000. To receive the severance benefits upon a qualifying termination, a Named Executive Officer must sign and not revoke a release of claims within the time specified in the Severance Policy. If we discover, after a Named Executive Officer receives severance payments or benefits, that grounds for terminating him for cause existed, such Named Executive Officer will not receive any further severance payments or benefits under the Severance Policy, and to the extent permitted by law, the Named Executive Officer will be required to repay to us any severance payments or benefits (or gain derived from such payments or benefits) he received under the Severance Policy. In addition to any benefits available to Named Executive Officers under the Severance Policy, in October 2022, the compensation committee approved acceleration of attainment of any outstanding PSUs in the event of a change of control of the Company (as defined in the Severance Policy). In the event of a change of control, outstanding PSUs will be deemed to be achieved at 100% of target, subject, in certain circumstances, to continued time-based vesting.
Accounting for Stock-Based Compensation
| Name and Principal Position | Year | Salary ($) | Bonus ($) | Stock Awards ($)(1) | Option Awards ($) | Non-Equity Incentive Plan Compensation ($) | All Other Compensation ($) | Total ($) | | Jay Chaudhry Chief Executive Officer | 2024 | 23,660 | — | — | — | — | 1,502(2) | 25,162 | | | 2023 | 23,660 | — | 57,751,823(3) | — | — | — | 57,775,483 | | | 2022 | 23,660 | — | 41,506,500(4) | — | — | — | 41,530,160 | | Remo Canessa Chief Financial Officer | 2024 | 450,000 | — | 6,165,751(5) | — | 489,195 | 27,909(2) | 7,132,855 | | | 2023 | 430,000 | — | 5,383,820(3) | — | 268,548 | — | 6,082,368 | | | 2022 | 400,000 | — | 10,704,526(4) | — | 347,588 | — | 11,452,114 | | Syam Nair Chief Technology Officer | 2024 | 450,000 | — | 3,112,834(5) | — | 489,195 | 9,238(2) | 4,061,267 | | | 2023 | 80,625 | — | 29,658,794(3) | 4,448,380(6) | 66,507 | — | 34,254,306 | | Mike Rich(7) Chief Revenue Officer | 2024 | 337,500 | 550,000(8) | 31,670,542(5) | 5,870,305(6) | 374,249 | 550,000(9) | 39,352,596 | | Robert Schlossman Chief Legal Officer | 2024 | 405,000 | — | 6,365,483(5) | — | 330,207 | 25,702(2) | 7,126,392 | | | 2023 | 375,000 | — | 3,426,192(3) | — | 206,575 | — | 4,007,767 | | | 2022 | 325,000 | — | 8,028,464(4) | — | 260,690 | — | 8,614,154 |
Potential Payments Upon Termination Not in Connection with a Change in Control
Potential Payments Upon Termination Not in Connection with a Change in Control
Potential Payments Upon Termination Not in Connection with a Change in Control
| | | Value of Accelerated Equity Awards | | | Named Executive Officer | Salary Severance ($) | Restricted Stock Units ($)(1) | Total ($) | | Mr. Canessa | 225,000 | 2,853,459 | 3,078,459 | | Mr. Rich | 225,000 | — | 225,000 | | Mr. Schlossman | 101,250 | — | 101,250 |
Potential Payments Upon Termination Not in Connection with a Change in Control
(1)Reflects the aggregate market value of the unvested shares of our common stock underlying outstanding RSU awards. The aggregate market value is equal to the product obtained by multiplying (i) the number of unvested shares of our common stock subject to outstanding RSU awards and eligible for accelerated vesting as of July 31, 2024, by (ii) $179.35 per share (the closing market price of our common stock on Nasdaq on July 31, 2024, the last trading day in the fiscal year ended July 31, 2024).
Potential Payments Upon Termination Not in Connection with a Change in Control
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Potential Payments Upon Termination Not in Connection with a Change in Control
| EXECUTIVE COMPENSATION | n |
Potential Payments Upon Termination in Connection with a Change in Control
Potential Payments Upon Termination in Connection with a Change in Control
Potential Payments Upon Termination in Connection with a Change in Control
| | | | Value of Accelerated Equity Awards | | | | | Named Executive Officer | Salary Severance ($) | Bonus Severance ($) | Restricted Stock Units ($)(1) | Options ($)(2) | Health Benefit Severance Payments ($) | Total ($) | | Mr. Chaudhry | 23,660 | — | 82,998,158 | — | 36,000 | 83,057,818 | | Mr. Canessa | 450,000 | 675,000 | 19,010,024 | — | 36,000 | 20,171,024 | | Mr. Nair | 450,000 | 675,000 | 31,010,153 | 933,592 | 36,000 | 33,104,745 | | Mr. Rich | 450,000 | 502,581 | 23,636,178 | 6,492,500 | 36,000 | 31,117,259 | | Mr. Schlossman | 405,000 | 455,625 | 15,408,855 | — | 36,000 | 16,305,480 |
Potential Payments Upon Termination in Connection with a Change in Control
(1)These amounts reflect the aggregate market value of the unvested shares of our common stock underlying outstanding RSU awards. The aggregate market value is equal to the product obtained by multiplying (i) the number of unvested shares of our common stock subject to outstanding RSU awards as of July 31, 2024, by (ii) $179.35 per share (the closing market price of our common stock on the Nasdaq Global Select Market on July 31, 2024, the last trading day in the fiscal year ended July 31, 2024). For performance-based restricted stock unit awards, the assumed number of unvested shares is equal to the target number of shares subject to such award. (2)These amounts reflect the aggregate market value of the unvested shares of our common stock underlying outstanding options. The aggregate market value is equal to (i) the product obtained by multiplying (x) the number of unvested shares of our common stock subject to outstanding options as of July 31, 2024, by (y) $179.35 per share (the closing market price of our common stock on the Nasdaq Global Select Market on July 31, 2024), minus (ii) the aggregate exercise price for such unvested shares.
Potential Payments Solely in Connection with a Change in Control
Potential Payments Solely in Connection with a Change in Control The number of performance-based RSUs in the table below for each of our Named Executive Officers reflects the aggregate market value of the unvested shares of our common stock underlying outstanding performance-based RSU awards at target. The aggregate market value is equal to the product obtained by multiplying (i) the number of unvested shares of our common stock subject to outstanding performance-based RSU awards as of July 31, 2024, by (ii) $179.35 per share (the closing market price of our common stock on the Nasdaq Global Select Market on July 31, 2024, the last trading day in the fiscal year ended July 31, 2024). The unvested shares are equal to the target number of shares subject to such award. A portion of such shares will become 100% vested upon the closing of the change in control event, calculated by multiplying the target number of RSUs by the quotient attained by dividing (i) our ARR as calculated on the date of the closing by (ii) the target ARR. Any remaining RSUs will be subject to time based vesting depending on the progress toward completion of performance metrics as assessed above at the time of the change in control event, such that any remaining RSUs will vest quarterly following the change in control in equal installments, so that all remaining RSUs will be vested four years from the grant date.
Potential Payments Solely in Connection with a Change in Control
| | Value of Accelerated Equity Awards | | Named Executive Officer | Performance-based Restricted Stock Units ($) | | Mr. Chaudhry | 72,765,344 | | Mr. Canessa | 5,223,210 | | Mr. Nair | 11,276,631 | | Mr. Rich | 7,713,844 | | Mr. Schlossman | 3,521,358 |
Potential Payments Solely in Connection with a Change in Control
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Potential Payments Solely in Connection with a Change in Control
| n | EXECUTIVE COMPENSATION |
Potential Payments Solely in Connection with a Change in Control
Equity Compensation Plan Information The following table provides information as of July 31, 2024 with respect to shares of our common stock that may be issued under our existing equity compensation plans.
Potential Payments Solely in Connection with a Change in Control
| Plan Category | Number of Securities to be Issued upon Exercise of Outstanding Options, Restricted Stock Units and Rights (#) | Weighted Average Exercise Price of Outstanding Options and Rights ($) | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in the First Column) (#) | | Equity compensation plans approved by security holders | — | — | — | | 2007 Stock Plan(1) | 352,312 | 10.20 | — | | Fiscal Year 2018 Equity Incentive Plan(2)(3) | 10,520,332 | 175.51 | 30,887,594 | | Fiscal Year 2018 Employee Stock Purchase Plan(4) | — | — | 6,832,549 | | Equity compensation plans not approved by security holders | — | — | — | | Total | 10,872,644 | 46.75 | 37,720,143 |
Potential Payments Solely in Connection with a Change in Control
(1)As a result of the adoption of the 2018 Plan, we no longer grant awards under the 2007 Plan; however, all outstanding options issued pursuant to the 2007 Plan continue to be governed by their existing terms. To the extent that any such awards are forfeited or lapse unexercised or are repurchased, the shares of common stock subject to such awards will become available for issuance under the 2018 Plan. (2)Our 2018 Plan provides that the number of shares available for issuance under the 2018 Plan will be increased on the first day of each fiscal year, in an amount equal to the least of (i) 12,700,000 shares, (ii) five percent (5%) of the outstanding shares of common stock on the last day of the immediately preceding fiscal year or (iii) such other amount as our board of directors may determine. (3)Includes all outstanding PSU awards as of July 31, 2024 (a) at maximum payout if performance metrics have been determined and (b) at target if no performance metrics have been determined as of the end of fiscal 2024. (4)Our Fiscal Year 2018 Employee Stock Purchase Plan, or the ESPP, provides that the number of shares available for issuance under the ESPP will be increased on the first day of each fiscal year, in an amount equal to the least of (i) 2,200,000 shares, (ii) one percent (1%) of the outstanding shares of common stock on the last day of the immediately preceding fiscal year or (iii) such other amount as may be determined by the administrator of the ESPP. Compensation Committee Report The compensation committee has reviewed and discussed the section titled “Executive Compensation” with management, which includes the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K. Based on such review and discussion, the compensation committee has recommended to the board of directors that the section titled “Executive Compensation” be included in this Proxy Statement. Respectfully submitted by the members of the compensation committee of the board of directors:
PAY VERSUS PERFORMANCE
PAY VERSUS PERFORMANCE
PAY VERSUS PERFORMANCE
| | | | | | Value of Initial Fixed $100 Investment Based on: | | | | | Year | Summary Compensation Table Total for PEO (1) | Compensation Actually Paid for PEO (2) | Average Summary Compensation Table Total for Non-PEO NEOs (3) | Average Compensation Actually Paid for Non-PEO NEOs (4) | Total Shareholder Return (5) | Peer Group Total Shareholder Return (6) | Net Income | Company-Selected Measure: Revenue (7) | | 2024 | $25,162 | $9,529,728 | $14,418,278 | $16,077,033 | $138 | $227 | $(57,706,000) | $2,167,800,000 | | 2023 | $57,775,483 | $85,838,523 | $15,060,085 | $17,984,450 | $124 | $168 | $(202,335,000) | $1,616,952,000 | | 2022 | $41,530,160 | $40,909,340 | $26,408,035 | $6,614,390 | $119 | $132 | $(390,278,000) | $1,090,946,000 | | 2021 | $19,999,160 | $36,864,645 | $5,446,150 | $29,838,915 | $182 | $140 | $(262,029,000) | $673,100,000 |
PAY VERSUS PERFORMANCE
(1)Amounts reported in this column represent the total compensation reported in the Summary Compensation Table for the indicated fiscal year for our PEO. For all years reported, our PEO was Mr. Jay Chaudhry (2)Amounts reported in this column represent the compensation actually paid to our PEO, based on his total compensation reported in the Summary Compensation Table for each of the indicated fiscal years and adjusted as shown in the table below:
PAY VERSUS PERFORMANCE
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PAY VERSUS PERFORMANCE
| PAY VERSUS PERFORMANCE | n |
PEO (Jay Chaudhry)
| n | PAY VERSUS PERFORMANCE |
NEO
| PAY VERSUS PERFORMANCE | n |
NEO
| n | PAY VERSUS PERFORMANCE |