ABOUT THE ANNUAL MEETING

You will be voting on:

 

1.

The election of Marc Benioff, Keith Block, Craig Conway, Alan Hassenfeld, Neelie Kroes, Colin Powell, Sanford Robertson, John V. Roos, Lawrence Tomlinson, Robin Washington, Maynard Webb and Susan Wojcicki to serve as directors until the next Annual Meeting of Stockholders and until their successors are duly elected and qualified, subject to earlier resignation or removal;

 

2.	The amendment and restatement of the Company’s Amended and Restated Certificate of Incorporation to clarify certain provisions related to the removal of directors;

 

3.	The ratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm for the fiscal year ending January 31, 2017;

4.	An advisory vote to approve the fiscal 2016 compensation of our named executive officers;

 

5.	A stockholder proposal to adopt a policy limiting the Company’s ability to provide change in control benefits to senior executives;

 

6.	A stockholder proposal regarding a share retention policy for senior executives; and

 

7.	Any other business as may properly come before the Annual Meeting.

An agenda and rules of procedure will be distributed at the Annual Meeting.

 

The Board recommends that you vote your shares:

 

•

FOR each of Marc Benioff, Keith Block, Craig Conway, Alan Hassenfeld, Neelie Kroes, Colin Powell, Sanford Robertson, John V. Roos, Lawrence Tomlinson, Robin Washington, Maynard Webb and Susan Wojcicki;

•

FOR the amendment and restatement of the Company’s Amended and Restated Certificate of Incorporation to clarify certain provisions related to the removal of directors;

 

•

FOR ratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm for the fiscal year ending January 31, 2017;

 

•

FOR the advisory vote to approve the fiscal 2016 compensation of our named executive officers;

 

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AGAINST the stockholder proposal to adopt a policy limiting the Company’s ability to provide change in control benefits to senior executives; and

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AGAINST the stockholder proposal regarding a share retention policy for senior executives.

 

Internet

Visit www.envisionreports.com/CRM as described on your Internet Notice or Proxy Card.

 

Phone

Call 1-800-652-VOTE (8683) and follow the instructions provided in the recorded message.

Mail

Return your completed and signed Proxy Card in the enclosed postage-prepaid envelope.

In Person

See below regarding attendance at the Annual Meeting.

 

								DIRECTORS AND CORPORATE GOVERNANCE

Salesforce has a Board of highly-experienced directors who have helped, advised, and established many of the premier companies of Silicon Valley and other leading global organizations. Our Board has taken a thoughtful approach to board composition to ensure that our directors have backgrounds that collectively add significant value to the strategic decisions made by the Company and that enable them to provide oversight of management to ensure accountability to our stockholders. Our directors have

extensive backgrounds as entrepreneurs, technologists, operational and financial experts, investors, advisors, and government leaders. In addition, we have worked hard to strike the right balance between long-term understanding of our business and fresh external perspectives, as well as to ensure diversity within the boardroom. We discuss the qualitative elements of our Board in the “Board Members” section below, and a summary of key quantitative metrics is as follows:

 

In addition to a strong, independent Board, we are committed to a corporate governance structure that promotes long-term stockholder value creation by providing the right leadership structure and composition of the Board and providing our

stockholders with both the opportunity to provide direct feedback and key substantive rights to ensure accountability. Key highlights of our Board and corporate governance profile are set forth below:

 

The names and certain information about members of our Board as of March 31, 2016 are set forth below. There are no family relationships among any of our directors or executive officers.

Our directors serve until the next Annual Meeting of Stockholders and until their successors are elected and qualified, subject to earlier resignation or removal. Please see Proposal 1 in this Proxy Statement for more information about the election of our directors.

 

		Marc Benioff Chairman of the Board and Chief Executive Officer Age: 51   Director Since: 1999

Marc Benioff co-founded Salesforce in February 1999 and has served as our Chairman of the Board since inception. He has served as Chief Executive Officer since 2001. From 1986 to 1999, Mr. Benioff was employed at Oracle Corporation, an enterprise software company, where he held a number of positions in sales, marketing and product development, lastly as a Senior Vice President. Mr. Benioff also serves as Chairman of the Board of Salesforce.org, a non-profit public benefit corporation, The Salesforce.com Foundation, a philanthropic private foundation, and as a member of the board of trustees of the World Economic Forum. In the past five years, Mr. Benioff served as a director of Cisco Systems, Inc. Mr. Benioff received a B.S. in Business Administration from the University of Southern California, where he is also on the Board of Trustees.

Qualifications

Mr. Benioff’s vision and status as one of our founders, as well as his tenure as our Chief Executive Officer and Chairman of the Board, bring unique and invaluable experience to the Board. Further, his experience in sales, marketing and product development in the technology industry supports our conclusion that Mr. Benioff has the necessary and desired skills, experience and perspective to serve on our Board.

		Keith Block Vice Chairman, President and Chief Operating Officer Age: 55   Director Since: 2013

Keith Block has served as our Vice Chairman, President and as a Director since joining Salesforce in June 2013, and has additionally served as our Chief Operating Officer since February 2016. Prior to that, Mr. Block was employed at Oracle Corporation from 1986 to June 2012 where he held a number of positions, most recently Executive Vice President, North America. Mr. Block currently serves on the World Economic Forum’s Information Technology Community as a Governor, the Board of Trustees for Carnegie-Mellon University, the Advisory Board at Carnegie-Mellon University Heinz Graduate School and the Board of Trustees at the Concord Museum. Mr. Block received both a B.S. in Information Systems and an M.S. in Management & Policy Analysis from Carnegie-Mellon University.

Qualifications

Mr. Block’s extensive background in the technology sector, global sales and business management, including his experience as an executive officer of another public technology company, supports our conclusion that Mr. Block has the necessary and desired skills, experience and perspective to serve on our Board.

 

								DIRECTORS AND CORPORATE GOVERNANCE (CONTINUED)

		Craig Conway Age: 61   Director Since: 2005   Committees: Compensation                       Real Estate (Chair)                       Mergers &  Acquisitions

Craig Conway has served as a Director since October 2005. Mr. Conway served as President and Chief Executive Officer of PeopleSoft, Inc., an enterprise application software company, from 1999 to 2004. Mr. Conway also served as President and Chief Executive Officer of One Touch Systems from 1996 to 1999 and TGV Software from 1993 to 1996. Prior to that, Mr. Conway held executive management positions at a variety of leading technology companies, including Executive Vice President at Oracle Corporation. Mr. Conway currently serves as a director of Guidewire Software, Inc. During the past five years, Mr. Conway also served as a director of Advanced Micro Devices, Inc. and Pegasystems Inc. Mr. Conway received a B.S. in computer science and mathematics from the State University of New York at Brockport.

Qualifications

Mr. Conway’s extensive and broad background in business management, including his experience as president and chief executive officer of three technology companies, as well as his service on the boards of other publicly-held companies, supports our conclusion that Mr. Conway has the necessary and desired skills, experience and perspective to serve on our Board.

		Alan Hassenfeld Age: 67   Director Since: 2003   Committees: Audit & Finance                       Nominating &  Corporate                       Governance

Alan Hassenfeld has served as a Director since December 2003. Mr. Hassenfeld has been a Director of Hasbro, Inc., a provider of children’s and family entertainment products, since 1978. He served as its Chairman from 1989 to 2008, and also served as its Chairman and Chief Executive Officer from 1989 to 2003. Mr. Hassenfeld is a trustee of the Hasbro Charitable Trust and Hasbro Children’s Foundation. During the past five years, Mr. Hassenfeld also served as a director of Global Cornerstone Holdings Limited. He also serves as a director of Salesforce.org, a non-profit public benefit corporation. Mr. Hassenfeld received a B.A. from the University of Pennsylvania.

Qualifications

Mr. Hassenfeld has an extensive and broad background in business management, including his experience as a chief executive officer of a publicly traded company. This deep business knowledge, combined with the leadership roles he plays within many philanthropic organizations, supports our conclusion that Mr. Hassenfeld has the necessary and desired skills, experience and perspective to serve on our Board.

 

		Neelie Kroes Age: 74   Director Since: 2016 (appointment effective May 1, 2016)

Neelie Kroes was appointed to the Board in March 2016 effective as of May 1, 2016. Ms. Kroes is the former Vice President of the European Commission, European Commissioner for Competition, and European Commission for Digital Agenda. Ms. Kroes served as Commissioner for Competition from 2004 to 2010 and as Vice President and Commissioner for Digital Economy and Society from 2010 to 2014. Prior to joining the European Commission, Ms. Kroes served in the Dutch House of Representatives and as State Secretary and Cabinet Minister. She is currently Special Envoy of StartupDelta, a public/private partnership to establish a thriving ecosystem of startup companies in the Netherlands. Ms. Kroes previously served on the boards of Lucent Netherlands, AB Volvo, and McDonald’s Netherlands and was chairperson of Nyenrode University. Ms. Kroes received her Masters of Science in Economics from Erasmus University.

Qualifications

Ms. Kroes brings valuable international and leadership expertise to our Board, and possesses an extensive background in cross-border technology, competition, and data security. This extensive experience, combined with her leadership positions in governmental organizations, supports our conclusion that Ms. Kroes has the necessary and desired skills, experience, and perspective to serve on our Board.

		General Colin Powell Age: 79   Director Since: 2014   Committees: Nominating &                         Corporate Governance

General Colin Powell has served as a Director since March 2014. General Powell is a retired four star general and served for 35 years in the United States Army. He has served as U.S. National Security Advisor, Commander of the U.S. Army Forces Command, Chairman of the Joint Chiefs of Staff and was the 65th Secretary of State of the United States. General Powell is a member of the Board of Directors of the Council on Foreign Relations, the Chair of the Board of Visitors of the Colin Powell School for Civic and Global Leadership at the City College of New York and the Founder and Chairman Emeritus of the America’s Promise Alliance. Since 2005, General Powell has served as a strategic limited partner at Kleiner Perkins Caufield & Byers, a venture capital firm. General Powell received a B.S. from the City College of New York and an M.B.A. from The George Washington University.

Qualifications

General Powell has an extensive background in management and leadership, including at the highest levels of the U.S. government. This extensive experience, in addition to his leadership positions in various philanthropic organizations, supports our conclusion that General Powell has the necessary and desired skills, experience and perspective to serve on our Board.

 

								DIRECTORS AND CORPORATE GOVERNANCE (CONTINUED)

		Sanford Robertson Lead Independent Director Age: 84   Director Since: 2003   Committees: Audit & Finance                         Nominating &                         Corporate Governance                         (Chair)                         Real Estate                         Mergers & Acquisitions

Sanford Robertson has served as a Director since October 2003. Mr. Robertson has been an active technology investor and advisor to several technology companies. He is a principal of Francisco Partners, a technology buyout fund. Prior to founding Francisco Partners in 1999, Mr. Robertson was the founder and chairman of Robertson, Stephens & Company, a technology investment bank. Mr. Robertson was also the founder of Robertson, Colman, Siebel & Weisel, later renamed Montgomery Securities, another prominent technology investment bank. Mr. Robertson currently serves as a director of Pain Therapeutics, Inc. and RPX Corporation, and in the past five years, served as a director of Dolby Laboratories, Inc. Mr. Robertson received a B.B.A. and an M.B.A. from the University of Michigan.

Qualifications

Mr. Robertson brings valuable financial expertise to our Board of Directors. His extensive experience in investment banking, private equity and capital markets transactions, as well as his service on the boards of other publicly held companies, supports our conclusion that Mr. Robertson has the necessary and desired skills, experience and perspective to serve on our Board.

		John V. Roos Age: 61   Director Since: 2013   Committees: Compensation (Chair)

John V. Roos has served as a Director since September 2013. He served as the U.S. Ambassador to Japan from 2009 to 2013. Ambassador Roos currently serves as General Partner of Geodesic Capital, a later stage venture capital firm, and as CEO of The Roos Group, a strategic consulting firm facilitating relationships between businesses in the U.S. and Japan. Since April 2014, Ambassador Roos has also served as Senior Advisor to Centerview Partners, an international investment banking advisory firm, and since October 2013 he has served on the global advisory board of Mitsubishi UFJ Financial Group, a Japanese banking and financial network. From 1985 to 2009, Ambassador Roos practiced corporate and securities law at Wilson Sonsini Goodrich & Rosati, P.C., where he most recently served as Chief Executive Officer. Ambassador Roos also serves on the Board of Sony Corporation. Ambassador Roos received an A.B. in Political Science and a J.D. from Stanford University.

Qualifications

Ambassador Roos brings valuable international and strategic expertise to our Board of Directors, and possesses an extensive and broad background in management, leadership and law. This extensive experience supports our conclusion that Ambassador Roos has the necessary and desired skills, experience and perspective to serve on our Board.

 

		Lawrence Tomlinson Age: 75   Director Since: 2003   Committees: Audit & Finance (Chair)                       Nominating &                       Corporate Finance                       Real Estate

Lawrence Tomlinson has served as a Director since May 2003. Mr. Tomlinson served as Treasurer of the Hewlett-Packard Company, a global provider of technology products, from 1993 to 2003, as well as Senior Vice President from 2002 to 2003 and Vice President from 1996 to 2002. During the past five years, Mr. Tomlinson has served as a director of Coherent, Inc. Mr. Tomlinson received a B.S. from Rutgers University and an M.B.A. from Santa Clara University.

Qualifications

Mr. Tomlinson brings extensive financial and leadership skills to our Board of Directors. He has a deep understanding of accounting principles and financial reporting rules and regulations, including how internal controls are effectively managed within organizations. Additionally, our Board’s determination that Mr. Tomlinson is the Audit Committee’s “financial expert,” as well as Mr. Tomlinson’s previous service on the boards and audit committees of other public companies, supports our conclusion that Mr. Tomlinson has the necessary and desired skills, experience and perspective to serve on our Board.

		Robin Washington Age: 53   Director Since: 2013   Committees: Audit & Finance

Robin Washington has served as a Director since September 2013. Ms. Washington has served as Executive Vice President and Chief Financial Officer of Gilead Sciences, Inc., a biopharmaceutical company, since February 2014. She joined Gilead as Senior Vice President and Chief Financial Officer in 2008. From 2006 to 2007, Ms. Washington served as Chief Financial Officer of Hyperion Solutions, an enterprise software company. Prior to Hyperion, Ms. Washington served in a number of executive positions with PeopleSoft, Inc., a provider of enterprise application software. Ms. Washington currently serves as a director of Honeywell International, Inc. During the past five years, Ms. Washington has served as a director of MIPS Technology, Inc. Ms. Washington is a certified public accountant and received a B.A. in Business Administration from the University of Michigan and an M.B.A. from Pepperdine University.

Qualifications

Ms. Washington brings extensive experience in management, operations and accounting in the technology sector to our Board of Directors. Her financial expertise in tax, financial reporting, accounting and controls, corporate finance, mergers and acquisitions and capital markets, along with her service on the boards of other public companies, supports our conclusion that Ms. Washington has the necessary and desired skills, experience and perspective to serve on our Board.

 

								DIRECTORS AND CORPORATE GOVERNANCE (CONTINUED)

		Maynard Webb Age: 60   Director Since: 2006   Committees: Audit & Finance Compensation Merger & Acquisitions (Chair)

Maynard Webb has served as a Director since September 2006. Mr. Webb is the founder of Webb Investment Network, an early stage venture capital firm he started in 2010. From 2006 to 2011, Mr. Webb served as Chief Executive Officer of LiveOps, Inc., a provider of on-demand call center solutions. From 2002 to 2006, Mr. Webb served as Chief Operating Officer of eBay Inc., an online global marketplace. From 1999 to 2002, Mr. Webb served as President of eBay Technologies. Prior to that, Mr. Webb served as Senior Vice President and Chief Information Officer at Gateway, Inc., a computer manufacturer, and Vice President and Chief Information Officer at Bay Networks, Inc., a manufacturer of computer networking products. Mr. Webb currently serves as Chairman of the Board of Yahoo! Inc. and as a director of Visa Inc. Mr. Webb received a B.A.A. from Florida Atlantic University.

Qualifications

Mr. Webb brings extensive experience in management, engineering and technical operations to our Board of Directors. Additionally, his tenure in management positions at various technology companies, along with his service on the boards of other public companies, supports our conclusion that Mr. Webb has the necessary and desired skills, experience and perspective to serve on our Board.

		Susan Wojcicki Age: 47   Director Since: 2014   Committees: Mergers & Acquisitions

Susan Wojcicki has served as a Director since December 2014. Ms. Wojcicki has served as Chief Executive Officer of YouTube, a digital video platform and subsidiary of Alphabet Inc. (previously Google Inc.), since February 2014. She joined Google as its marketing manager in 1999, and after serving in various positions in marketing, from April 2011 to January 2014, Ms. Wojcicki served as Google’s Senior Vice President of Advertising & Commerce. Prior to joining Google, she worked at Intel, and served as a management consultant at both Bain & Company and R.B. Webber & Company. During the past five years, Ms. Wojcicki has also served as a director of HomeAway, Inc. Ms. Wojcicki received an A.B. in History and Literature from Harvard University, an M.S. in Economics from the University of California, Santa Cruz and an M.B.A. from the University of California, Los Angeles.

Qualifications

Ms. Wojcicki brings extensive experience in management, operations and marketing in the technology sector to our Board of Directors. Additionally, her expertise in technology, brand building and product development supports our conclusion that Ms. Wojcicki has the necessary and desired skills, experience and perspective to serve on our Board.

 

The Board believes that it should consist of a substantial majority of independent directors. The Board has determined that, except for Mr. Benioff and Mr. Block, each of our directors has no material relationship with Salesforce and is independent within the meaning of the standards established by the New York Stock Exchange, or NYSE, as currently in effect. In making that determination, the Board considered all relevant facts and circumstances, including the director’s commercial, industrial, banking, consulting, legal, accounting, charitable and familial relationships, and applied the following standards under NYSE rules, which provide that a director will not be considered independent if he or she:

 

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is currently an employee of Salesforce or has an immediate family member who is an executive officer of Salesforce;

 

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has been an employee of Salesforce within the past three years or has an immediate family member who has been an executive officer of Salesforce within the past three years;

 

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has, or has an immediate family member who has, received within the past three years more than $120,000 during any twelve month period in direct compensation from Salesforce, other than director and committee fees and pension or other forms of deferred compensation for prior service (provided such compensation is not contingent in any way on continued

service), and other than a family member’s compensation for service as a non-executive employee;

 

•

is a current partner or employee of a firm that is Salesforce’s internal or external auditor; has an immediate family member who is a current partner of such a firm; has an immediate family member who is a current employee of such firm and personally works on Salesforce’s audit; or was, or has an immediate family member who was within the last three years, a partner or employee of such a firm and personally worked on Salesforce’s audit within that time;

 

•

has, or has an immediate family member who has, been employed as an executive officer of another company where any of Salesforce’s present executives have served on the other company’s compensation committee during the past three years; or

 

•

is currently employed as an executive officer or employee, or has an immediate family member who is currently employed as an executive officer, of another company that makes payments to, or receives payments from, Salesforce for property or services in an amount which, in any single fiscal year, exceeds the greater of (a) $1 million or (b) 2% of such other company’s consolidated gross revenues.

 

Currently, the Company’s Chief Executive Officer, Marc Benioff, also serves as Chairman of the Board. The Board believes that its current leadership structure, coupled with a strong emphasis on Board independence, provides effective independent oversight of management while allowing both the Board and management to benefit from Mr. Benioff’s leadership and years of experience in the Company’s business and the technology industry. Serving as both Chairman of the Board and Chief Executive Officer since 2001, Mr. Benioff has been the director most capable of effectively identifying strategic priorities, coordinating the board agenda to focus on discussions critical to the success of the Company and executing the Company’s strategy and business plans. Mr. Benioff possesses detailed and in-depth knowledge of the issues, opportunities, and challenges facing the Company and its business. We believe this extensive Company-specific experience and expertise of our CEO, together with the outside experience, oversight and expertise of our independent directors, allows for differing perspectives and roles regarding strategy development that benefit our stockholders. Further, the Board

believes that Mr. Benioff’s combined role enables decisive leadership, ensures clear accountability and enhances the Company’s ability to communicate its message and strategy clearly and consistently to its stockholders, employees and customers. Given our strong business, operational and financial performance, the Board believes that stockholders are best served by continuing this leadership structure.

Importantly, the Board also has a strong and empowered Lead Independent Director who provides an effective independent voice in our leadership structure. The Lead Independent Director presides over the meetings of the independent directors, serves as a liaison between the independent directors and the Chairman of the Board and Chief Executive Officer, and has the authority generally held by a lead independent director and as the independent directors may determine from time to time. Sanford Robertson has served as the Lead Independent Director since June 2007, and his current two-year term will expire in June 2017.

 

During the fiscal year ended January 31, 2016, or fiscal 2016, the Board held five meetings and each director attended at least 75% of the aggregate of the total number of meetings of the Board and the total number of meetings held by any of the committees of the Board on which such director served. Directors are also expected to attend our annual meeting of stockholders absent an unavoidable and irreconcilable conflict. In fiscal 2016, all but one director attended the annual meeting of stockholders.

The non-management members of the Board also meet in executive sessions without management present. At these sessions, the Lead Independent Director acts as Presiding Director. In the absence of the Lead Independent Director at any

such executive session, the chair of the Audit and Finance Committee serves as Presiding Director.

Stockholders and other interested parties may communicate with the Lead Independent Director, or with any and all other members of the Board, by mail addressed to the intended recipient and care of our Corporate Secretary at salesforce.com, inc. The Landmark @ One Market, Suite 300, San Francisco, California 94105 (our “principal executive offices”) or by email to corporatesecretary@salesforce.com. The Corporate Secretary will periodically forward such communications or a summary thereof to the Board or the applicable director or directors.

 

								DIRECTORS AND CORPORATE GOVERNANCE (CONTINUED)

The Company and the Board regularly review and evaluate the Company’s corporate governance practices. The Board has adopted corporate governance principles that address the composition of, and policies applicable to, the Board, as well as a Code of Conduct applicable to all directors, officers and employees of the Company, including our Chief Executive Officer and Chief Financial Officer.

The Company’s corporate governance principles, set forth as Corporate Governance Guidelines, and its Code of Conduct are available in the Corporate Governance section of the Company’s website at www.salesforce.com/company/investor/governance/ or in print by contacting Investor Relations at our principal executive offices. Any substantive amendments to or waivers of

the Code of Conduct relating to the executive officers or directors of the Company will be disclosed promptly on our website. The Company’s philosophy related to executive compensation is described in the “Compensation Discussion and Analysis” section of this Proxy Statement.

The Board has also adopted a written charter for the Audit and Finance Committee (the “Audit Committee”), the Compensation Committee and the Nominating and Corporate Governance Committee. Each committee charter is available in the Corporate Governance section of the Company’s website at www.salesforce.com/company/investor/governance/ or in print by contacting Investor Relations at our principal executive offices.

 

Audit Committee.    The Audit Committee oversees our corporate accounting and financial reporting process. Among other matters, the Audit Committee: evaluates the independent registered public accountants’ qualifications, independence and performance; determines the engagement of the independent registered public accounting firm; approves the retention of the independent registered public accounting firm to perform any proposed permissible non-audit services; considers the rotation of partners of the independent registered public accounting firm on the Salesforce engagement team; reviews our consolidated financial statements; reviews our critical accounting policies and estimates; oversees our internal audit function; reviews with management and the Company’s independent auditors and internal auditors the adequacy of internal financial controls; oversees the Company’s financial and treasury policies, strategies and capital structure; annually reviews its charter and its performance; reviews and approves the scope of the annual audit and the audit fee; oversees management’s assessment and mitigation of enterprise risks, including cybersecurity risk; and discusses with management and the independent registered public accounting firm the results of the annual audit and the review of our quarterly financial statements. The Audit Committee held nine meetings in fiscal 2016. The report of the Audit Committee is included in this Proxy Statement.

The current members of the Audit Committee are Messrs. Tomlinson, who is the committee chair, Hassenfeld, Robertson and Webb, and Ms. Washington. The Board has determined that all members of our Audit Committee meet the applicable tests for independence and the requirements for financial literacy under applicable rules and regulations of the NYSE and the SEC. The Board has further determined that Mr. Tomlinson is the Company’s audit committee financial expert as defined by the SEC.

Compensation Committee.    The Compensation Committee reviews and recommends policies relating to compensation and

benefits of our executive officers, including: reviewing and approving corporate goals and objectives relevant to compensation of the Chief Executive Officer and other executive officers; evaluating the performance of these officers in light of those goals and objectives; and setting compensation of these officers taking into account such evaluations. The Compensation Committee may delegate its authority to one or more subcommittees or to one member of the Compensation Committee. The Compensation Committee also oversees our equity and incentive-based plans and administers the issuance of stock options, restricted stock units and other awards under these plans. Although the Compensation Committee does not currently do so, it may delegate its authority to members of management to determine awards under the Company’s equity-based compensation plans for non-executive officer employees of the Company. The Compensation Committee has delegated authority to management to determine cash awards under our cash incentive plans for non-executive officers. The Compensation Committee also reviews and evaluates its performance including compliance with its charter, and prepares any report required under SEC rules. The Compensation Committee held fourteen meetings in fiscal 2016. The report of the Compensation Committee is included in this Proxy Statement.

The Compensation Committee has the authority to engage independent advisors, such as compensation consultants, to assist it in carrying out its responsibilities. The Compensation Committee periodically engages an outside consultant to advise on compensation-related matters.

The current members of the Compensation Committee are Messrs. Roos, who is the committee chair, Conway and Webb. The Board has determined that all members of the Compensation Committee meet the applicable tests for independence under the applicable rules and regulations of the SEC and the NYSE.

Nominating and Corporate Governance Committee.    The Nominating and Corporate Governance Committee is responsible

 

								DIRECTORS AND CORPORATE GOVERNANCE (CONTINUED)

for: identifying individuals qualified to become members of the Board; recommending to the Board director nominees for each election of directors; developing and recommending to the Board criteria for selecting qualified director candidates; considering committee member qualifications, appointment and removal; recommending corporate governance principles applicable to the Company; and providing oversight in the evaluation of the Board and each committee. The Nominating and Corporate Governance Committee held four meetings in fiscal 2016.

The current members of the Nominating and Corporate Governance Committee are Messrs. Robertson, who is the committee chair, Hassenfeld, Powell and Tomlinson. The Board has determined that all members of the Nominating and Corporate Governance Committee meet the applicable tests for independence under the applicable rules and regulations of the NYSE.

The Nominating and Corporate Governance Committee uses a variety of methods for identifying and evaluating director nominees. The Nominating and Corporate Governance Committee regularly assesses the appropriate size, composition and needs of the Board and its respective committees and the qualifications of candidates in light of these needs. Candidates may come to the attention of the Nominating and Corporate Governance Committee through directors or management. If the Nominating and Corporate Governance Committee believes that the Board requires additional candidates for nomination, the Nominating and Corporate Governance Committee may engage, as appropriate, a third party search firm to assist in identifying qualified candidates. The evaluation of these candidates may be based solely upon information provided to the Nominating and Corporate Governance Committee or may also include discussions with persons familiar with the candidate, an interview of the candidate or other actions the Nominating and Corporate Governance Committee deems appropriate, including the use of third parties to review candidates. In March 2016, Ms. Kroes was appointed to the Board effective May 1, 2016. She was initially identified and recommended by Mr. Benioff, our CEO, Chairman of the Board and a significant stockholder. She was then considered by the Nominating and Corporate Governance Committee, which recommended her appointment to the full Board for approval.

The Nominating and Corporate Governance Committee will evaluate and recommend candidates for membership on the Board consistent with criteria established by the committee. Directors should possess the highest personal and professional ethics, integrity and values, and be committed to representing the long-term interests of our stockholders. They must have an inquisitive and objective perspective and mature judgment. They must also have experience in positions with a high degree of responsibility and be leaders in the companies or institutions with which they are affiliated. The Nominating and Corporate Governance Committee also focuses on diversity, such as diversity of gender, race and national origin, education, professional experience and differences in viewpoints and skills. The Nominating and Corporate Governance Committee does not have a formal policy with respect to diversity; however, the Board and the Nominating and Corporate Governance Committee

believe that it is essential that the Board members represent diverse viewpoints. Director candidates also must have sufficient time available in the judgment of the Nominating and Corporate Governance Committee to perform all Board and committee responsibilities. Members of the Board are expected to prepare for, attend and participate in all Board and applicable committee meetings. Other than the foregoing, there are no stated minimum criteria for director nominees, although the Nominating and Corporate Governance Committee may also consider such other factors as it may deem, from time to time, are in the best interests of the Company and its stockholders. The Nominating and Corporate Governance Committee will also seek appropriate input from the Chief Executive Officer from time to time in assessing the needs of the Board for relevant background, experience, diversity and skills of its members.

Stockholders may propose director candidates for general consideration by the Nominating and Corporate Governance Committee by submitting the individual’s name, qualifications, and the other information set forth in our bylaws applicable to director nominees by stockholders to the Secretary of the Company. The Nominating and Corporate Governance Committee will evaluate any candidates recommended by stockholders against the same criteria and pursuant to the same policies and procedures applicable to the evaluation of candidates proposed by directors or management.

Other Committees.    Pursuant to the Company’s Bylaws, the Board may designate other standing or ad hoc committees to serve at the pleasure of the Board from time to time. For example, the Board has delegated certain authority to both a Real Estate Committee (comprised of Craig Conway (chair), Sanford Robertson and Lawrence Tomlinson) and a Mergers and Acquisitions Committee (comprised of Maynard Webb (chair), Craig Conway, Sanford Robertson and Susan Wojcicki). The Real Estate Committee met five times in fiscal 2016 and the Mergers and Acquisitions Committee met ten times in fiscal 2016.

Board’s Role in Risk Oversight.    The Board as a whole has responsibility for risk oversight. This oversight is conducted primarily through committees of the Board, as disclosed in the descriptions of each of the committees above and in the charters of each of the committees. The Audit Committee primarily oversees enterprise risks, including those associated with our financial statements, financial reporting, internal controls, accounting policies and cybersecurity. The Compensation Committee considers the risks associated with our compensation policies and practices, with respect to both executive compensation and employee compensation generally. All committees receive regular reports from officers responsible for oversight of particular risks within the Company. The Board periodically receives reports by each committee chair regarding the committee’s considerations and actions.

Adoption of Proxy Access.    The Nominating and Corporate Governance Committee, after considering input received from stockholders, including during the Company’s stockholder engagement meetings, and other factors, recommended that the Board amend the Company’s Bylaws to implement procedures that allow a stockholder or a group of up to 20 stockholders that

 

has continuously owned for at least three years 3% or more of the Company’s common stock to nominate and include in the Company’s proxy materials for an annual meeting of stockholders up to the greater of two directors or 20% of the total number of directors serving on the Board, provided the stockholder(s) and the nominee(s) satisfy the requirements specified in the Bylaws. The Board amended the Bylaws to adopt this stockholder right of proxy access in March 2016.

Procedure for Nominating Directors for Election at an Annual Meeting or a Special Meeting.

Stockholders may nominate directors for election at an annual meeting or at a special meeting at which directors are to be elected, provided that the advance notice requirements for director nominations set forth in the Company’s Bylaws have been met. As summarized below, this advance notice provision requires a stockholder to give timely notice of a director nomination in proper written form to the Secretary of the Company at salesforce.com, inc., The Landmark @ One Market, Suite 300, San Francisco, California 94105, Attention: Corporate Secretary.

In order for a stockholder to give timely notice of a director nomination for an annual meeting (other than nominees submitted for inclusion in the Company’s proxy materials), the notice must be received by the Secretary of the Company at our principal executive offices not later than the 45th day nor earlier than the 75th day before the one-year anniversary of the date the Company’s proxy statement was released to stockholders in connection with the previous year’s annual meeting. However, if no annual meeting was held in the previous year or if the date of the annual meeting is advanced by more than 30 days prior to, or delayed by more than 60 days after, the one-year anniversary of the date of the previous year’s annual meeting, then notice must be received no 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 the 90th day prior to such annual meeting, or the 10th day following the day on which public announcement of the date of such annual meeting is first made. Director nominations to be made at the next annual meeting of stockholders must be received by the Secretary of the Company at the Company’s principal executive offices no earlier than February 5, 2017 or later than March 7, 2017.

In order for a stockholder to give timely notice of a director nomination for a special meeting at which directors are to be elected, the notice must be received by the Secretary of the Company at our principal executive offices not later than the later of the 90th day prior to such special meeting or the tenth day following the day on which public announcement is first made of the date of the special meeting and of the nominees proposed by the Board to be elected at such meeting.

In addition, our Bylaws provide that under certain circumstances, a stockholder or group of stockholders may include director candidates that they have nominated in our annual meeting proxy statement. These “proxy access” provisions of our Bylaws provide, among other things, that a stockholder or group of up to twenty stockholders seeking to include director candidates in our annual meeting proxy statement must own 3% or more of our common stock continuously for at least the previous three years. The number of stockholder-nominated candidates appearing in any annual meeting proxy statement cannot exceed the greater of (i) two or (ii) 20% of the number of directors in office and subject to election, or if such number is not a whole number, the maximum number of stockholder-nominated candidates would be the closest whole number below 20%. If the number of stockholder-nominated candidates exceeds the maximum number of such candidates required to be included in the proxy materials, each nominating stockholder or group of stockholders may select one nominee for inclusion in our proxy materials until the maximum number is reached. The order of selection would be determined by the amount (largest to smallest) of shares of our common stock held by each nominating stockholder or group of stockholders. The nominating stockholder or group of stockholders also must deliver the information required by our Bylaws, and each nominee must meet the qualifications required by our Bylaws. Requests to include stockholder-nominated candidates in our proxy materials for next year’s annual meeting must be received by the Corporate Secretary not earlier than the close of business on November 22, 2016 and not later than the close of business on December 22, 2016.

The requirements for providing advance notice of a director nomination, and for submitting director candidates to be included in our proxy materials for an annual meeting, as summarized above are qualified in their entirety by our Bylaws, which we recommend you read in order to comply with the requirements for making a director nomination.

 

Under our compensation arrangement for non-employee directors, each non-employee director receives a fee of $12,500 per fiscal quarter. In addition, the chair of the Audit Committee receives an additional $10,000 per quarter, and the chair of each other Board committee receives an additional $5,000 per quarter. The Lead Independent Director also receives an additional $30,000 per year.

During fiscal 2016, each non-employee director received a quarterly grant of fully-vested shares of our common stock for service during the respective preceding quarter with a dollar value intended to approximate $125,000 based on the average recent

trading price over a period of time before the grant date. All equity awards were made pursuant to our 2013 Equity Incentive Plan.

We reimburse our non-employee directors for travel, lodging and other reasonable expenses incurred in connection with attending Board and committee meetings.

The Board periodically evaluates the compensation of our non-employee directors, including considering input from the Compensation Committee’s compensation consultant, and recommendations of the Nominating and Corporate Governance Committee.

 

								DIRECTORS AND CORPORATE GOVERNANCE (CONTINUED)

The following table sets forth information concerning the compensation earned during fiscal 2016 by our Board members. The table excludes Messrs. Benioff and Block who are named

executive officers of the Company and did not receive separate compensation as directors for fiscal 2016.

 

In September 2015, the Board significantly increased the amount of stock ownership required for members of the Board. The Board’s stock ownership policy now provides that each non-employee director is required to attain, by the fifth anniversary of such director’s initial election to the Board, a minimum share

ownership position of the lesser of (i) 7,500 shares of common stock or (ii) such number of shares of common stock having an aggregate value of $400,000 (increased from $200,000). As of April 1, 2016, all non-employee directors were in compliance with this stock ownership policy.

 

The following table sets forth certain information regarding beneficial ownership of our common stock as of March 1, 2016 by: (i) all those known by us to be beneficial owners of more than five percent of the outstanding shares of our common stock; (ii) each of our directors and director nominees; (iii) each Named Executive Officer; and (iv) all current directors and executive officers as a group. This table is based on information provided to us or filed with the SEC by our directors and director nominees, executive officers and principal stockholders. Unless otherwise indicated in the footnotes below, and subject to community property laws where applicable, each of the named persons has

sole voting and investment power with respect to the shares shown as beneficially owned.

Except as set forth below, the address of each stockholder listed in the following table is salesforce.com, inc., The Landmark @ One Market, Suite 300, San Francisco, California 94105. Applicable percentage ownership in the following table is based on 677,692,445 shares of Salesforce common stock outstanding as of March 1, 2016, plus, as applicable, each holder’s options or other equity awards vesting or exercisable within 60 days thereof.

 

								SECURITY OWNERSHIP (CONTINUED)

We currently maintain three equity compensation plans that provide for the issuance of shares of our common stock to our officers and other employees, directors and consultants: the 2004 Employee Stock Purchase Plan (the “ESPP”) and the 2013 Equity Incentive Plan (the “2013 Equity Plan”), which have both been approved by stockholders, and the 2014 Inducement Equity Incentive Plan (the “2014 Inducement Plan”), which has not been approved by stockholders. We previously maintained the 1999 Stock Option Plan, as amended (the “1999 Stock Option Plan”), which expired by its terms in April 2009. The expiration of the 1999 Stock Option Plan did not affect awards outstanding under it, which continue to be governed by the terms and conditions of the 1999 Stock Option Plan. We also previously maintained the 2004 Equity Incentive Plan and the 2004 Outside Directors Stock Plan (collectively, the “Prior Plans”), both of which had been approved by stockholders and both of which we replaced with

the 2013 Equity Plan when that plan was established in June 2013, and the 2006 Inducement Equity Incentive Plan (the “Prior Inducement Plan”), which had not been approved by stockholders and was replaced with the 2014 Inducement Plan when that plan was established in July 2014. We no longer grant new awards out of the Prior Plans or the Prior Inducement Plan, but the Prior Plans and the Prior Inducement Plan continue to govern awards previously granted under such plans. We have also assumed certain plans in connection with acquisitions, which plans have not been approved by Salesforce’s stockholders.

The following table sets forth information regarding outstanding stock options and restricted stock units as well as shares reserved for future issuance under the foregoing plans as of January 31, 2016:

 

The 2014 Inducement Plan was established by the Board in July 2014 with the purpose of attracting, retaining and incentivizing employees in furtherance of Salesforce’s success. In accordance with NYSE rules, this plan is used to offer equity awards as material inducements for new employees to join Salesforce, typically in connection with acquisitions. As of July 2014, 335,000 shares of common stock were reserved solely for the granting of inducement stock options, restricted stock, restricted stock units and other awards. In addition, 319,957 shares that were previously authorized for issuance under the Prior Inducement Plan as of July 9, 2014 were added to the 2014 Inducement Plan and any shares subject to outstanding awards under the Prior Inducement Plan that, after

July 9, 2014, otherwise would have returned to the Prior Inducement Plan under its terms (for example, due to the expiration or forfeiture of an award under the Prior Inducement Plan) will become available for issuance under the 2014 Inducement Plan, provided that the maximum number of such shares will not exceed 2,750,000. The 2014 Inducement Plan provides for the granting of stock options with exercise prices equal to the fair market value of our common stock on the date of grant. The Company has also granted restricted stock unit awards under the 2014 Inducement Plan. As of January 31, 2016, 646,548 shares of Salesforce common stock remained available for issuance under the 2014 Inducement Plan.

 

								COMPENSATION DISCUSSION AND ANALYSIS

								COMPENSATION DISCUSSION AND ANALYSIS (CONTINUED)

The Company has delivered significant long-term TSR, outperforming both the broader market and the technology industry as reflected by the Nasdaq Computer & Data Processing Index. The following chart shows how a $100 investment in Salesforce on January 31, 2011 would have grown to $211 on

January 31, 2016. The chart also compares the TSR on an investment in the Company’s common stock to the same investment in the S&P 500 Index and the Nasdaq Computer & Data Processing Index over the last five fiscal years.

 

Data for the Standard & Poor’s 500 Index and the Nasdaq Computer & Data Processing Index assume reinvestment of dividends. The comparisons in the graph above are based upon historical data and are not indicative of, nor intended to forecast, future performance of our common stock.

Following the 2015 Annual Meeting, we undertook a significant engagement initiative with our larger institutional stockholders to better understand their perspectives on our executive compensation practices and related governance topics. This effort supplemented ongoing communications between our management and stockholders regarding the Company’s financial performance, and expanded upon the outreach to stockholders prior to and in connection with our 2015 Annual Meeting. Our objective was to gain a better understanding of stockholders’ views on our executive compensation practices and on executive compensation best practices generally, as well as related governance topics. We seek to develop a strong foundation for sustained, long-term and robust stockholder engagement on compensation and governance topics.

 

During this outreach, we had discussions with investors representing more than 50% of our outstanding shares and received their feedback on our executive compensation practices and corporate governance policies.

This effort generated important feedback for our Compensation Committee and the full Board, and was taken into account when making decisions after the 2015 Annual Meeting regarding compensation changes for our CEO’s and our other Named Executive Officers’ compensation. It also influenced actions by our Board on other corporate governance matters. A summary of the feedback received and the actions taken is set forth below:

 

We believe that these actions advanced our compensation practices and governance in a manner responsive to the input we received from our stockholders and in a manner appropriate for

our Company. We will continue to review our compensation and governance practices and engage in significant dialogue with investors going forward.

 

								COMPENSATION DISCUSSION AND ANALYSIS (CONTINUED)

We endeavor to maintain strong governance standards in our policies and practices related to executive compensation. Below

is a summary of key executive compensation and corporate governance practices in place during fiscal 2016.

 

Philosophy and Objectives.    Our compensation philosophy is driven by our objective to attract and retain the right talent needed to lead our Company in a dynamic, innovative and extremely competitive environment and to strongly align the interests of our executives with those of our stockholders. To accomplish this, we use compensation structures with strong links to Company performance as reflected in the performance of our common stock and other metrics of Company performance. Our executive compensation is aligned with our overall business strategies, with a focus on driving growth and long-term value for our stockholders.

Our executive compensation program is structured to use a mix of base salary, short-term performance-based cash bonus awards

and long-term equity compensation awards to incentivize and reward those individuals who make the greatest contributions to our Company performance and creation of stockholder value over time. Within this mix, by far the largest portion is in the form of long-term equity grants.

For our CEO, for fiscal 2016 this means that the largest component of compensation was in the form of performance-based restricted stock units, or PRSUs, as discussed in more detail below, with payout tied to our relative TSR over three years. For our other Named Executive Officers, this means that the greatest proportion of fiscal 2016 compensation was in the form of equity and therefore directly tied to increases in stockholder value over the long term.

 

Challenges. We operate in a highly competitive market and industry and we face challenges in hiring and retaining executives due to a number of factors, including:

 

•

Highly Competitive Cloud Computing Industry — We are a pioneer in the innovative and highly competitive enterprise cloud computing market. We are, however, an established, large public company, and some prospective executives may believe there is less opportunity to realize significant appreciation through equity compensation at an established public company of our size, as compared with a privately-held start-up or early stage public company.

 

•

Fiercely Competitive Employee Retention Environment — In the technology industry, there is substantial and continuous competition for executive officers with the experience and aptitude to motivate and lead engineers in designing, developing and managing software and Internet-related services, as well as qualified sales and operations personnel familiar with the technology industry. Our headquarters are located in the San Francisco Bay Area, where competition for executive talent is particularly fierce. Further, our success has made our employees and executives more attractive as

candidates for employment with other companies, and they are subject to significant ongoing recruiting efforts by other companies in the technology industry.

 

•

High Growth — We are a high growth company that continues to experience rapid changes to our technology, personnel and business tactics. We have experienced rapid growth in the geographic breadth and technical scope of our operations, along with the number of personnel we employ. Not all executives desire or are suited to manage in such an environment, making the services of our current executives more valuable and in some cases hindering our efforts to recruit new executives.

 

•

Executive Background — Typically, we hire experienced executives with specific skills in key functional areas who have worked in a high growth environment comparable to ours. The number of executives with the most desirable experience is relatively low and proven executives are difficult to find. We have expanded our recruiting efforts both geographically and into other industries and sectors, which leads to increased complexity in recruiting efforts and has required us to be more flexible with our executive compensation packages.

 

								COMPENSATION DISCUSSION AND ANALYSIS (CONTINUED)

We believe we must offer competitive base salaries to attract, motivate and retain all employees, including our executives. The Compensation Committee has generally set the base salaries for our executives, including the Named Executive Officers other than our CEO, based on three primary factors:

 

•

a comparison to the base salaries paid by the companies in the compensation peer group;

 

•

the overall compensation that each executive may potentially receive during his or her employment with us; and

 

•

generally, internal parity with the base salaries for other executives who are peers in reporting structure and level of responsibility.

The Compensation Committee set executive officers’ base salaries for fiscal 2016 in November 2014, near the end of fiscal 2015. The Committee considered the need to retain executive talent and the highly competitive market for executive talent, and considered analysis and advice of its compensation consultant. The Compensation Committee determined that modest increases to the Named Executive Officers’ base salaries would assist with retention of those officers. The Compensation Committee also considered the importance of internal parity with respect to similarly situated executives, and determined it would be appropriate to continue using a simplified tiered approach for senior executive cash compensation, under which similarly situated executives would generally have similar base salaries and target cash bonus opportunities.

 

Based on this review and discussions with its compensation consultant, the Compensation Committee set the base salaries of the Named Executive Officers to those shown in the table below, effective February 1, 2015:

 

Named Executive Officer		Fiscal 2016 Base Salary
Mr. Benioff		$	1,550,000
Mr. Hawkins		$	700,000
Mr. Block		$	1,077,000
Mr. Dayon		$	700,000
Mr. Harris		$	700,000
Mr. Norton		$	700,000

Fiscal 2016 base salaries represented increases over fiscal 2015 levels of 7.6% for Mr. Benioff and 7.7% for Mr. Block, Mr. Harris, Mr. Dayon, Mr. Hawkins and Mr. Norton. The relative size of these increases reflects a focus on internal parity with respect to similarly situated executives and the increases were determined to be appropriate due to these executives’ paramount role in the Company’s continuing growth and success, the increase in the size and complexity of the Company’s business, and the Company’s overall performance in fiscal 2015, including its significant revenue growth.

In November 2015, the Compensation Committee conducted a review of our executive compensation program for purposes of determining the base salaries and bonus opportunity for our executives for fiscal 2017. The Compensation Committee also considered overall Company and individual performance and the roles and responsibilities of each of our executives as well as considerations of internal parity with respect to similarly situated executives. For fiscal 2017, the Compensation Committee set base salaries for the Named Executive Officers, effective February 1, 2016, as follows:

 

Named Executive Officer		Fiscal 2017 Base Salary				Change from Fiscal 2016
Mr. Benioff		$	1,550,000			No change
Mr. Hawkins		$	750,000			7%
Mr. Block		$	1,150,000			7%
Mr. Dayon		$	900,000			29%
Mr. Harris		$	900,000			29%
Mr. Norton		$	750,000			7%

Performance-Based Cash Bonuses

The Company provides short-term, performance-based cash bonus awards linked to achievement against certain corporate performance goals under the Company’s broad-based cash incentive plan called the Kokua Bonus Plan. While the Compensation Committee considers short-term performance-based cash bonuses to be a less significant compensation tool than equity awards in terms of driving long-term stockholder value, the Committee believes they play an important role in

influencing executive performance and are an appropriate component of our compensation program to help attract, motivate and retain our executives and other employees.

Under the Kokua Bonus Plan, the Compensation Committee establishes three bonus pool targets: one for our executive officers, including the Named Executive Officers, another for non-executive officers at the Vice President level and above, and a third for employees at the level of Senior Director and below. Each pool may be funded based on achievement of certain Company performance goals pre-established by the Committee for each of the three groups. The performance goals applicable to executive officers in fiscal 2016 are discussed in more detail below.

Typically, after the first half of the fiscal year, we pay 25% of the full target bonus amount, and after the end of the fiscal year, we pay the remaining amount, which may be increased or decreased based on the level of achievement against the applicable Company performance goals, and may also take into account individual performance.

The Compensation Committee administers the Kokua Bonus Plan with respect to the Company’s executive officers and determines the amounts of any awards under this plan to the Company’s executive officers. The Committee may increase or decrease awards under this plan in its discretion based on factors the Committee deems appropriate, including an assessment of individual performance and input from the CEO.

Fiscal 2016 Target Cash Bonus Opportunity

To establish executive officers’ individual target cash bonus opportunities, which are expressed as a percentage of base salary, the Compensation Committee considers competitive pay data, input from its compensation consultant, and the level, position, objectives and scope of responsibilities of each executive, as well as considerations of internal parity among similarly situated Company executives.

In November 2014, based on its review of our executive compensation program as described above and peer company data, the Compensation Committee approved the following target bonus opportunities of the Named Executive Officers for fiscal 2016.

 

Named Executive Officer		Fiscal 2016 Target Cash Bonus Opportunity (as a Percentage of Base Salary)				Fiscal 2016 Target Cash Bonus Opportunity
Mr. Benioff			200%			$	3,100,000
Mr. Hawkins			100%			$	700,000
Mr. Block			100%			$	1,077,000
Mr. Dayon			100%			$	700,000
Mr. Harris			100%			$	700,000
Mr. Norton			100%			$	700,000

For fiscal 2016, the target bonus opportunity for our Named Executive Officers, expressed as a percentage of base salary, remained unchanged from fiscal 2015 levels. Since the Named

 

								COMPENSATION DISCUSSION AND ANALYSIS (CONTINUED)

Executive Officers had modest base salaries increases for fiscal 2016, the dollar value of their cash bonus opportunity increased accordingly. The Compensation Committee maintained Mr. Benioff’s target bonus opportunity at 200% of base salary for fiscal 2016 in light of the Company’s continuing growth and success, the increasing size and complexity of the Company’s business and the Company’s overall fiscal 2015 performance, including significant revenue growth.

In addition, for fiscal 2017 the Compensation Committee did not make any increases to the target bonus opportunity of the Named Executive Officers, keeping the CEO’s fiscal 2017 target bonus opportunity at 200% of base salary and each other Named Executive Officer’s target bonus opportunity for fiscal 2017 at 100% of base salary.

Fiscal 2016 Cash Bonus Pool Payout Metrics, Performance and Fiscal 2016 Payouts

For fiscal 2016, the amount of the bonus pool for executive officers was based on the Company’s performance during the fiscal year compared to pre-established target levels for three equally weighted measures. The Compensation Committee believes that these metrics and this weighting are appropriate to influence executive performance in achieving certain annual corporate performance goals that further our strategy and that are used by investors to evaluate our financial performance. The Compensation Committee believes that targets for the cash pool should be rigorous and challenging and therefore set targets that exceeded financial guidance as indicated below:

 

For these purposes, “Revenue” is defined as our GAAP revenues, as may be adjusted for certain acquisitions. “Operating Cash Flow” is defined as our GAAP operating cash flow. “Non-GAAP Income from operations” is defined as our non-GAAP income from operations (revenues less cost of revenues and operating expenses, excluding the impact of stock-based compensation expense and amortization of acquisition-related intangible assets, and in fiscal 2016, excluding a non-cash, one-time net gain associated with the termination of an office lease), as adjusted for certain acquisitions and not including the impact of amounts payable under the Kokua Bonus Plan.

The Compensation Committee believes that basing the executive officer bonus pool under the Kokua Bonus Plan on these measures aligns executive incentives with stockholder interests in accordance with our compensation philosophy.

The Compensation Committee has the discretion to increase or decrease the bonus amounts actually paid to individual

executives. Although the Company’s performance for fiscal 2016 exceeded target for all three measures, the Compensation Committee capped funding of the executive officer bonus pool and the amounts payable to each individual Named Executive Officer with respect to fiscal 2016 at 100% of the target opportunity.

Accordingly, the cash bonuses paid to the Named Executive Officers for fiscal 2016 under the Kokua Bonus Plan were:

 

Named Executive Officer		Fiscal 2016 Bonus Payment
Mr. Benioff		$3,100,000
Mr. Hawkins		$   700,000
Mr. Block		$1,077,000
Mr. Dayon		$   700,000
Mr. Harris		$   700,000
Mr. Norton		$   700,000

 

Equity Compensation

The Compensation Committee periodically reviews our equity compensation program from a market perspective as well as in the context of our overall compensation philosophy. The Compensation Committee also considers the advantages and disadvantages of various equity vehicles, such as stock options, PRSUs, and RSU awards, as well as overall program costs (which include both stockholder dilution and compensation expense), when making equity award decisions. Further, in making equity awards to our executives, including the Named Executive Officers, the Compensation Committee considers peer company data and competitive positioning analysis, each executive’s individual performance, as described below, as well as stockholder input.

Stock Options

We grant stock options to our executives when they join us, and periodically thereafter, to align their interests with those of our stockholders and as an incentive to remain with the Company. The Compensation Committee believes that options to purchase shares of our common stock, with an exercise price equal to the market price of the common stock on the date of grant, are inherently performance-based and are a very effective tool to motivate executives to build stockholder value. With stock options, executives can realize value only to the extent that the market price of our common stock increases during the period that the option is

outstanding, which provides a strong incentive to our executives to increase stockholder value. Further, because these options typically vest over a four-year period, they incentivize our executives to build value that can be sustained over time.

Restricted Stock Units

We also grant restricted stock unit, or RSU, awards to our executives and other employees to help manage the dilutive effect of our equity compensation program. Our RSUs are subject to time-based vesting. Because RSU awards have value to the recipient even in the absence of stock price appreciation, RSUs help us retain and incentivize employees during periods of market volatility, and also result in our granting fewer shares of common stock than through stock options of equivalent grant date fair value. Our RSU awards typically vest over a four-year period and we believe that, like stock options, they help incentivize our executives to build value that can be sustained over time.

Performance-Based Restricted Stock Units (PRSUs)

Our equity plan also permits us to grant equity awards subject to performance-based vesting conditions set by the Compensation Committee, which may be absolute or relative to the performance of other companies. In November 2015, the Compensation Committee awarded PRSUs to our CEO with the actual amount vesting to be based on our TSR relative to the Nasdaq 100 over a three-year period, as described in more detail below.

 

Performance-Based Restricted Stock Units — CEO

For Mr. Benioff, approximately 64% of the value of the fiscal 2016 equity compensation awarded to him was in the form of PRSUs and 36% was in the form of stock options. This represents a significant shift in our approach for the CEO’s compensation, in large part as a result of the feedback received from stockholders in the past year. The PRSU award to Mr. Benioff has the following key terms:

 

•

A single, three-year (cliff) performance period

•

Relative TSR as the performance metric, with the NASDAQ 100 Index group of companies as of the grant date being the comparison group

 

•

Target payout occurs only for performance that is above median, at 60th TSR percentile

 

•

A maximum payout capped at 2x target

 

•

No payout if performance is below 30th TSR percentile

 

								COMPENSATION DISCUSSION AND ANALYSIS (CONTINUED)

•

No payout above target if TSR is negative on an absolute basis

 

•

Each percentile of TSR performance below target reduces payout by 31/3%, whereas performance above target only increases payout by 222/39%

In determining the performance conditions, performance period, comparison group, payout scale and other terms of this PRSU award, the Compensation Committee undertook significant deliberation. It considered input received from institutional stockholders as well as market data and the advice of its independent compensation consultant. In determining the terms of the award, the Compensation Committee considered that the short-term cash bonus plan (the Kokua Bonus Plan) already incentivizes performance on three key Company-specific financial metrics. The Compensation Committee also considered it important that this award not overemphasize an isolated metric to the potential detriment of the Company’s performance as a whole; that it be difficult to achieve a maximum payout; that the performance group be large and objectively determined; and that the payout be clearly and directly aligned with stockholder interests.

 

Specifically, the PRSU award provides that, if Mr. Benioff remains employed through December 15, 2018, he will vest in a percentage of the target number of shares shown above, between zero and 200%, depending on how the Company’s TSR ranks over the three-year period from the grant date (the “Performance Period”), relative to the companies in the NASDAQ-100 Index as of the grant date (the “Index Group”). If the Company’s TSR over the Performance Period is at the 60th percentile when ranked against the TSRs of the companies in the Index Group, 100% of the target number of shares will be eligible to vest. For every percentile by which the Company’s TSR ranking within the Index Group exceeds the 60th percentile, the number of shares eligible to vest will increase by 2^22/39% of target, up to a maximum payout of 200% of target if the Company’s TSR ranking is at the 99th percentile. For every percentile by which the Company’s TSR ranking within the Index Group is below the 60th percentile, the number of shares eligible to vest will decrease by 3^1/3% of target, with no payout if the Company’s TSR ranking is below the 30th percentile. Additionally, if the Company’s absolute TSR over the Performance Period is negative, the number of shares eligible to vest will not exceed 100% of the target amount, even if the Company’s TSR ranks above the 60th percentile within

the Index Group. A table setting forth the potential payouts based on relative TSR percentile performance is set forth below:

 

Percentile		Payout if TSR ³ 0		Payout if TSR < 0
99th		200%		100%
90th		177%		100%
80th		151%		100%
70th		126%		100%
60th		100%		100%
50th		67%		67%
40th		33%		33%
30th		0%		0%

 

Additional vesting rules apply in the event of a change of control. These provide for measurement of TSR at the time of the change of control, if one occurs before the end of the three-year performance period, with a portion of the service-based vesting condition considered satisfied as of the change of control, and the remaining eligible shares vesting quarterly over the balance of the performance period. The award also is subject to certain acceleration of vesting provisions that apply if Mr. Benioff qualifies for severance benefits under his Change of Control and Retention Agreement. These additional vesting rules are described under “CEO Performance-Based Restricted Stock Units” beginning on page 41.

Other Fiscal 2016 Equity Awards

For Mr. Block, the Compensation Committee determined that 100% of the fiscal 2016 equity award would be in the form of stock options. For the other non-CEO Named Executive Officers, fiscal 2016 equity awards were significantly weighted toward stock options, with approximately 80% of the aggregate grant date fair value of each other Named Executive Officer’s equity awards in the form of stock options and approximately 20% in the form of RSUs.

The Committee believes that this approach aligns the Named Executive Officers’ compensation packages with the creation of long-term stockholder value and is an effective way to tie pay to Company performance over time, in particular because no value will be realized from any of the stock option awards except to the extent that the market price of our stock increases above the market price on the grant date.

CEO Security Program

The Company has provided a security program for our CEO since fiscal 2012. The Compensation Committee established this program and continues to believe that ensuring our CEO’s personal safety is prudent and vital to our continued success. The CEO security program provides comprehensive physical and personal security services; accordingly, the program is not limited to providing security services only at business facilities or during business-related travel. The Compensation Committee believes amounts paid by the Company for this security program are reasonable, necessary and for the Company’s benefit.

 

Because the security services provided for our CEO may be viewed as conveying a personal benefit to him, we have reported certain incremental costs to the Company of the program in the “All Other Compensation” column in the Summary Compensation Table that accompanies this Compensation Discussion and Analysis. The Compensation Committee periodically reviews amounts budgeted and spent for the CEO security program.

Other Benefits

Like other employees, our executive officers, including the Named Executive Officers, participate in our employee benefit and welfare plans, including medical and dental care plans, a fitness reimbursement plan and a 401(k) plan. We generally do not provide our executives, including the Named Executive Officers, with additional retirement benefits, pensions, perquisites or other personal benefits, except, in the case of our CEO, providing personal security as described above. We also occasionally provide certain benefits on an ad hoc basis, as noted for our

Named Executive Officers in our Summary Compensation Table, if we believe that doing so is appropriate, reasonable and serves the interests of the Company, typically on the same terms we would provide such benefits for other employees. For example, the Company covered employee and guest costs associated with attending certain motivational and leadership Company events in fiscal 2016, as well as the associated taxes, for Messrs. Hawkins, Block and Dayon, consistent with how we treated this benefit for all other employees who attended these events. The Company also awarded a watch to Mr. Block in recognition of his success leading the Sales organization in the first quarter of fiscal 2016. The Company did not gross up Mr. Block for the taxes associated with this benefit. Additionally, when a member of Mr. Dayon’s immediate family experienced a medical emergency in a developing country, the Company used its corporate aircraft to evacuate him immediately back to San Francisco for medical treatment. The Company did not gross up Mr. Dayon for the taxes associated with this benefit.

 

Role of the Compensation Committee, Tally Sheets and Competitive Data

The Compensation Committee oversees and administers our executive compensation program in accordance with its Charter, which can be viewed in the Corporate Governance section of our Investor Relations website at http://investor.salesforce.com/about-us/investor/corporate-governance/. The Committee’s role includes oversight of our equity and incentive-based plans.

The Compensation Committee meets regularly throughout the year. It met 14 times in fiscal 2016, more frequently than in past years. At least annually, either before or near the beginning of the fiscal year, it reviews the executive compensation program and establishes base salaries and target annual cash bonus opportunities for the next fiscal year. Typically at this time it also considers and makes equity awards to executives and other eligible employees.

In setting the various elements of compensation, including base salaries, target annual cash bonus opportunities, and equity award amounts, the Compensation Committee reviews the total target compensation for our executives and also considers developments in compensation practices outside of the Company. Specifically, the Compensation Committee is provided with competitive positioning data for similarly situated executives at companies in our peer group, as well as summary consolidated information about our executives’ total compensation and pay history (commonly called “tally sheets”) to use in setting individual compensation elements and making decisions on total executive compensation levels.

Peer data is a helpful reference for the Compensation Committee to assess the competitiveness and appropriateness of our executive compensation program within our industry sector and the broader business community. While peer data is important, the Committee is also mindful that the roles of some of our executives may be broader than those of similarly-titled

executives at our peer companies. For example, our Chief Legal Officer currently oversees our corporate development, information technology, compliance, internal audit, our public sector sales organization, and legal and government affairs organizations. Ultimately, the Committee applies its own business judgment and experience to determine the individual compensation elements, the amount of each compensation element and total target compensation; the Committee does not set or target the compensation of our executives at specific levels or within specified percentile ranges relative to peer company pay levels. Depending upon Company and individual performance, as well as the various other factors discussed in this Compensation Discussion and Analysis, target and actual total direct compensation of our executives, as well as individual compensation elements, may be within, below, or above the market range for their positions.

Role of Committee Advisors

The Compensation Committee has the authority to engage its own advisors to assist in carrying out its responsibilities. As in the past, the Compensation Committee continued to engage the services of Compensia, Inc., an independent, national compensation consulting firm (the “compensation consultant”) in fiscal 2016. The compensation consultant provides the Compensation Committee and the Board with guidance regarding the amount and types of compensation that we provide to our executives, how these compare to peer company compensation practices and advice regarding other compensation-related matters. The compensation consultant also provides the Compensation Committee with advice related to the Company’s equity plans and provides the Board with data that helps the Board develop the Board’s compensation program.

Representatives of the compensation consultant attend meetings of the Compensation Committee as requested and also communicate with the Compensation Committee outside of meetings. The compensation consultant reports to the

 

								COMPENSATION DISCUSSION AND ANALYSIS (CONTINUED)

Compensation Committee rather than to management, although representatives of the firm may meet with members of management, including our CEO and executives in our Employee Success (human resources) department, for purposes of gathering information on proposals that management may make to the Compensation Committee. During fiscal 2015 and fiscal 2016, the compensation consultant met with various executives to collect data and obtain management’s perspective on the fiscal 2016 compensation for our executives. The compensation consultant also provided services and advice, at the request of the Compensation Committee, in connection with implementation of the performance equity program introduced for our CEO in fiscal 2016. The Compensation Committee may replace its compensation consultant or hire additional advisors at any time.

Role of Peer Companies

The Compensation Committee regularly reviews the appropriateness of the compensation peer group used by the compensation consultant to generate competitive pay data for the Committee’s review in connection with executive compensation decisions.

In the second half of fiscal 2015, when the Committee evaluated our executive compensation program and considered fiscal 2016 base salaries and target bonus opportunities, as well as fiscal 2015 equity awards, the compensation consultant provided a comparative analysis of the Company’s executive compensation program based on pay practices of the group of peer companies listed below (the “2016 Peer Group”). Selected based on similarity to us on various financial and other metrics, such as industry, revenue, market capitalization, number of employees and growth history and potential, the 2016 Peer Group was:

 

Adobe Systems, Inc.				Juniper Networks, Inc.
Autodesk, Inc.				LinkedIn Corporation
CA Technologies, Inc.				Netflix, Inc.
Cerner Corporation				Symantec Corporation
Citrix Systems, Inc.				The Priceline Group Inc.
Expedia, Inc.				Twitter, Inc.
Facebook, Inc.				VMware, Inc.
Intuit, Inc.				Yahoo! Inc.

In addition, the Compensation Committee reviewed aggregated survey data, which provided additional context regarding executive compensation practices in the marketplace, drawn from the Radford 2014 Custom Compensation Survey and publicly available information about peer company practices.

Similarly, in the second half of fiscal 2016, when the Committee was evaluating our executive compensation program and considering fiscal 2016 equity awards, as well as fiscal 2017 base salaries and target bonus opportunities, the compensation consultant provided a comparative analysis of the Company’s executive compensation program based on pay practices of the group of peer companies listed below (the “2017 Peer Group”). Also selected based on similarity to us on various financial and

other metrics, such as industry, revenue, market capitalization, number of employees and growth history and potential as well as competition for executives, the 2017 Peer Group was:

 

Adobe Systems, Inc.				LinkedIn Corporation
Amazon.com, Inc.				Microsoft Corporation
Autodesk, Inc.				Netflix, Inc.
CA Technologies, Inc.				Oracle Corporation
Cerner Corporation				SAP
Citrix Systems, Inc.				Symantec Corporation
Expedia, Inc.				The Priceline Group Inc.
Facebook, Inc.				Twitter, Inc.
IBM				VMware, Inc.
Intuit, Inc.				Yahoo! Inc.
Juniper Networks, Inc.

In addition, the Compensation Committee reviewed aggregated survey data, which provided additional context regarding executive compensation practices in the marketplace, drawn from the Radford 2015 Custom Compensation Survey. The Committee also from time to time reviews compensation data from certain other companies in the market for the executive talent for which we compete.

Role of Executive Officers

Our CEO provides general input to the Compensation Committee with respect to the compensation of executive officers who report directly to him, including the other Named Executive Officers, and reviews their performance at least annually. Our CEO considers all relevant factors in his review, including each executive officer’s performance and accomplishments during the year, areas of strength and areas for development. Our CEO may also meet with the compensation consultant if he chooses to do so as he prepares his recommendation. Historically, our CEO generally advocated minimal compensation differentiation among the similarly situated executive officers who report to him to foster a spirit of teamwork and cooperation. The Compensation Committee takes our CEO’s general input into consideration when determining and approving executive officer compensation, including for the Named Executive Officers other than the CEO.

Our Chief Legal Officer, General Counsel and our Executive Vice President of Global Employee Success provide general administrative support to the Compensation Committee throughout the year, including providing legal advice and overseeing the documentation of equity plans and awards as approved by the Compensation Committee, and attending Compensation Committee meetings as requested.

Role of Stockholder Input

In setting the form and amount of compensation for our Named Executive Officers, the Compensation Committee also considers the voting results from our most recent annual stockholder advisory vote on executive compensation as well as specific input

 

provided by stockholders throughout the year. In particular, in November 2015, when making decisions regarding fiscal 2016 equity awards and in setting cash compensation levels for fiscal 2017, the Compensation Committee gave significant

consideration to the 2015 advisory vote as well as specific input provided by stockholders through our stockholder engagement program undertaken in calendar year 2015.

 

As set forth above, in November 2015, the Compensation Committee conducted a review of our executive compensation program for purposes of determining the base salaries and bonus opportunity for our executives for fiscal 2017. As a result of this review, it was determined that Mr. Benioff would receive no increase in base salary for fiscal 2017. In addition, the Committee

did not make any increases to the target bonus opportunity of the Named Executive Officers, keeping the CEO’s fiscal 2017 target bonus opportunity at 200% of base salary and each other Named Executive Officer’s target bonus opportunity for fiscal 2017 at 100% of base salary.

 

Stock Ownership Guidelines

The Company has a stock ownership policy for its non-employee directors, as described earlier in “Directors and Corporate Governance—Compensation of Directors” and as set forth in our Corporate Governance Guidelines (the “Guidelines”). The Guidelines also include stock ownership guidelines for our executive officers, including our Named Executive Officers. The Guidelines provide that our CEO must attain ownership of, by no later than March 14, 2018 or the fifth anniversary of his or her appointment as CEO, and maintain ownership throughout his or her tenure of a number of shares of our common stock equal to the lesser of 112,000 shares or the number of shares equivalent in value to four times his or her annual salary. With ownership of over 35 million shares, Mr. Benioff significantly exceeds his ownership requirement under these guidelines.

The Guidelines also provide that each other executive officer must attain ownership, by no later than the later of March 14, 2018 or the fifth anniversary from the date he or she becomes an executive officer, and maintain ownership throughout his or her tenure of a number of shares equivalent in value to 1.5 times his or her annual salary.

Performance-Based Compensation Recoupment “Clawback” Policy

The Guidelines include a clawback provision, which provides that if we restate our reported financial results, the Board will review the performance-based awards made to our executive officers. If and to the extent required by the Dodd-Frank Wall Street Reform

and Consumer Protection Act, other clawback provisions of applicable law, or NYSE Listing Standards, we will seek to recover or cancel any such awards that were awarded as a result of achieving performance targets that would not have been met under the restated financial results. We will also continue to monitor rule-making actions of the SEC and the NYSE related to clawback policies. In addition, if the Company is required as a result of misconduct to restate our financial results due to our material noncompliance with any financial reporting requirements under the federal securities laws, our CEO and CFO may be legally required to reimburse us for any bonus or other incentive-based or equity-based compensation they receive pursuant to the provisions of Section 304 of the Sarbanes-Oxley Act of 2002.

Prohibition on Hedging and Pledging Transactions

Our insider trading policy prohibits any employee or director from, among other things, engaging in short sales, hedging of stock ownership positions and transactions involving derivative securities relating to our common stock. Executive officers and directors are also not permitted to pledge our securities.

Equity Award Grant Practices

The majority of our equity awards are granted on an annual basis, historically in the month of November, with new hire and ad hoc awards generally being granted monthly throughout the fiscal year, typically on the 22^nd day of the month.

 

We recognize that it is possible that we may be involved in a transaction involving a change of control of the Company, and that this possibility could result in the departure or distraction of our executives to the detriment of our business. The Compensation Committee and the Board believe that the prospect of such a change of control transaction would likely result in our executives facing uncertainties about their future

employment and distractions resulting from concern over how the potential transaction might personally affect them.

To allow our executives to focus solely on making decisions that are in the best interests of our stockholders in the event of a possible, threatened, or pending change of control transaction, and to encourage them to remain with us despite the possibility that a change of control might affect them adversely, we have

 

								COMPENSATION DISCUSSION AND ANALYSIS (CONTINUED)

entered into Change of Control and Retention Agreements with each of the Named Executive Officers that provide them with certain payments and benefits in the event of the termination of their employment within the three-month period prior to, or the 18 month period following, a change of control of the Company (referred to as the “change of control period”). Severance payments and benefits under these agreements are conditioned on the executive’s signing a release of claims in favor of the Company. The Compensation Committee and the Board believe that these agreements serve as an important retention tool to ensure that personal uncertainties do not dilute our executives’ complete focus on building stockholder value.

These agreements provide each of the Named Executive Officers (other than, as described below, our CEO) who has a qualifying termination during the change of control period with a payment equal to 150% of his annual base salary and target cash bonus, Company-paid premiums for health care (medical, dental and vision) continuation coverage for a period of up to 18 months following termination of employment, and the full and immediate vesting of all outstanding and unvested equity awards.

If our CEO has a qualifying termination during the change of control period, his Change of Control and Retention Agreement provides him with a lump-sum payment equal to 200% of his annual base salary and target cash bonus, Company-paid premiums for health care (medical, dental and vision) continuation coverage for a period of up to 24 months following termination of employment, and the full and immediate vesting of all outstanding and unvested equity awards. See “CEO Performance-Based Restricted Stock Units” on page 41 for specific information regarding how such a qualifying termination would impact Mr. Benioff’s PRSUs.

In establishing the terms and conditions of these agreements, the Compensation Committee and the independent members of the Board of Directors considered competitive market data and governance best practices information provided by the compensation consultant. The Compensation Committee and the

independent members of the Board also evaluated the cost to us of these arrangements and the potential payout levels to each affected executive under various scenarios. In approving these agreements, they determined that their cost to us and our stockholders was reasonable and not excessive, given the benefit conferred to us.

The Compensation Committee and the Board believe that these agreements will help to maintain the continued focus and dedication of our executives to their assigned duties without the distraction that could result from the possibility of a change of control of the Company.

In addition, in connection with the negotiation of Mr. Block’s employment terms when he joined the Company in 2013, and Mr. Hawkins’ employment terms when he joined the Company in 2014, each of these Named Executive Officers received an offer letter that provided for eligibility for ongoing severance benefits in connection with involuntary terminations. Under Mr. Block’s offer letter, if his employment is terminated without cause or he resigns for good reason, he will be entitled to payments equal to one year of his base salary and 100% of his annual target cash bonus, as well any bonus earned as of his termination but not yet paid, and unpaid reimbursement of expenses. Receipt of these severance benefits is conditioned on Mr. Block’s signing a release of claims in favor of the Company. In addition, Mr. Block’s offer letter provides him (or his estate) with certain severance benefits in the event his termination is due to death or disability. Under Mr. Hawkins’ offer letter, if his employment is terminated without cause or he resigns for good reason, he will be entitled to payments equal to one year of his base salary and 100% of his annual target cash bonus, and unpaid reimbursement of expenses. Receipt of these severance benefits is conditioned on Mr. Hawkins’ signing a release of claims in favor of the Company.

For a summary of the material terms and conditions of agreements in effect during fiscal 2016, see “Employment Contracts and Certain Transactions—Change of Control,” elsewhere in this Proxy Statement.

 

Deductibility of Executive Compensation

Section 162(m) of the Internal Revenue Code imposes limitations on the deductibility for corporate federal income tax purposes of remuneration in excess of $1 million paid to the chief executive officer and each of the three next most highly compensated executive officers (other than the chief financial officer) of a public company. Generally, remuneration in excess of $1 million may only be deducted if it is “performance-based compensation” within the meaning of the Internal Revenue Code.

We monitor the application of Section 162(m) and the associated Treasury regulations on an ongoing basis and the advisability of qualifying executive compensation for deductibility. The Compensation Committee considers whether to make efforts to qualify our executive compensation for deductibility under applicable tax laws to the extent practicable, balancing the desirability of having compensation qualify for deductibility with our need to maintain flexibility in compensating executive officers in a

manner designed to promote our goals. The Compensation Committee has not adopted a policy that any or all compensation must be deductible. For example, compensation realized upon the vesting of time-based RSU awards and fiscal 2016 bonuses paid to our executives are not designed to qualify as “performance-based” for purposes of Section 162(m) and so will not be deductible to the extent that they and the executive’s other non-“performance-based” compensation for the taxable year exceed $1 million. This affords us flexibility in designing the bonus structure best suited to our goals, and allows us the ability to grant time-based RSUs with strong retention value.

Taxation of “Parachute” Payments and Deferred Compensation

Sections 280G and 4999 of the Internal Revenue Code provide that executive officers, 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 of control of the Company that exceed certain prescribed limits, and that we (or our successor) may forfeit a deduction on the amounts subject to this additional tax. We did not provide any executive, including any Named Executive Officer, with a “gross-up” or other reimbursement payment for any tax liability that the executive might owe as a result of the application of Sections 280G or 4999 during fiscal 2016 and we have not agreed and are not otherwise obligated to provide any executive with such a “gross-up” or other reimbursement.

Section 409A of the Internal Revenue Code imposes significant additional taxes in the event that an executive officer, director, or service provider receives “deferred compensation” that does not satisfy the restrictive conditions of the provision. Although we do not maintain a traditional nonqualified deferred compensation plan, Section 409A applies to certain equity awards and severance arrangements. We generally have structured our equity awards in a manner intended to comply with the applicable Section 409A conditions. In addition, the Change of Control and Retention Agreements that we have entered into with the Named Executive Officers generally have been drafted or modified in a manner intended to comply with Section 409A.

Accounting for Stock-Based Compensation

We follow Financial Accounting Standards Board’s Accounting Standards Codification Topic 718 (“ASC Topic 718”) in connection with the financial reporting of our stock options and other stock-based awards. ASC Topic 718 requires companies to calculate the grant date “fair value” of their stock option grants using a variety of assumptions, as well as the grant date “fair value” of their other stock-based awards. This calculation is performed for accounting purposes and reported in the compensation tables below, even though our executives may never realize any value from their options or other stock-based awards. ASC Topic 718 also requires companies to recognize the compensation cost of their stock option grants and other stock-based awards in their income statements over the period that an executive is required to render service in exchange for vesting of the option or other award. When determining the types and amounts of equity compensation granted to the Named Executive Officers, the Compensation Committee considers the advantages and disadvantages of various equity vehicles, such as stock options, RSU awards and performance-based equity awards. As part of this consideration, the Compensation Committee takes into account the overall program cost, which includes the associated compensation expense for financial reporting purposes.

 

As part of its review of the compensation to be paid to our executives, as well as the compensation programs generally available to the Company’s employees, the Compensation Committee considers potential risks arising from our compensation programs and the management of these risks, in light of the Company’s overall business, strategy and objectives.

As is the case with our employees generally, our Named Executive Officers’ base salaries are fixed in amount and thus do not encourage risk-taking. Bonus amounts under the Company bonus plan are tied to overall corporate and individual performance, and the bonus pool for executive officers is based on the Company’s performance during the fiscal year compared to pre-established target levels for three equally-weighted measures: revenue, operating cash flow and non-GAAP income from operations. These three financial metrics counterbalance each other, decreasing the likelihood that our Named Executive Officers will pursue any one metric to the detriment of overall

financial performance. Combined, these measures limit the ability of an executive to be rewarded for taking excessive risk on behalf of the Company by, for example, seeking revenue enhancing opportunities at the expense of profitability. Moreover, a significant portion of compensation provided to our Named Executive Officers is in the form of long-term equity awards that help further align their interests with those of the Company’s stockholders. The Compensation Committee believes that these awards do not encourage unnecessary or excessive risk-taking because the ultimate value of the awards is tied to the Company’s stock price and because the awards are staggered and subject to long-term vesting schedules to help ensure that executives have significant value tied to long-term stock price performance. The Company has also implemented controls such as the Code of Conduct and periodic sub-certification processes for its executives to mitigate the risks of unethical behavior.

 

								SUMMARY COMPENSATION TABLE