SanDisk 2006 Annual Report Download - page 31

term and short-term elements allows us to achieve our dual goals of attracting and retaining executives (with the
longer-term benefits geared toward retention and the short-term awards focused on recruitment).
Our annual cash incentive opportunity is primarily intended to hold Named Executive Officers accountable for
performance, although we also believe it aligns Named Executive Officers’ interests with those of our stockholders
and helps us attract, retain and motivate executives. Our long-term equity incentives are primarily intended to align
Named Executive Officers’ interests with those of our stockholders, although we also believe they help hold
executives accountable for performance and help us attract, retain and motivate executives. These are the elements
of our current executive compensation program that are designed to reward performance and the creation of
stockholder value, and therefore the value of these benefits is dependent on performance. Each Named Executive
Officer’s annual bonus opportunity is paid out on an annual short-term basis and is designed to reward performance
for that period. Long-term equity incentives are generally paid out or earned on a longer-term basis and are designed
to reward performance over one or more years.
The individual compensation elements are intended to create a total compensation package for each Named
Executive Officer that we believe achieves our compensation objectives and provides competitive compensation
opportunities. From time to time, management has retained Buck Consultants, an independent compensation
consulting firm, to review and identify our appropriate peer group companies, and to obtain and evaluate current
executive compensation data for these companies. We selected the following companies as our peer group
companies in fiscal 2006: Advanced Micro Devices Inc.; Apple Inc.; Applied Materials, Inc.; Broadcom Corp.;
Cisco Systems, Inc.; Cypress Semiconductor Corporation; Dell Inc.; Google Inc.; Hewlett-Packard Company; Intel
Corporation; Juniper Networks, Inc.; Logitech International SA; Marvell Technology Group Ltd.; NVIDIA Corp.;
Palm, Inc.; Seagate Technology; Xilinx, Inc.; Yahoo! Inc.; Plantronics, Inc.; and Creative Labs, Inc. We believe that
these peer group companies, which were selected from within and outside the Company’s industry, are comparable
in size and growth pattern with the Company and compete with the Company for executive talent. This peer group
was expanded to 20 companies compared to the 16 companies used last year. Although the peer group differs from
the S&P Semiconductor Company Stock Index, which the Company has selected as the industry index for purposes
of the stock performance graph appearing later in this Proxy Statement, we believe these peer group companies
provide relevant comparative compensation data for the Company. Consistent with our compensation philosophies
described above, our goal is to provide each Named Executive Officer with a current executive compensation
program that is competitive in light of the compensation paid to comparable executives at our peer group
companies. To that end, we generally target base salaries and long-term incentives at approximately the 50th per-
centile within our peer group companies. We generally target total cash compensation at approximately the
60th percentile within our peer group companies; however, we have the ability to, and do, exercise discretion to set
compensation levels that are above or below these benchmarks. As indicated in the Charter of the Compensation
Committee, in determining the appropriate levels of compensation to be paid to Named Executive Officers, we may
consider amounts realized from prior compensation.
Current Executive Compensation Program Elements
Base Salaries
None of our Named Executive Officers has an employment agreement or other contractual right to receive a
fixed base salary. The Compensation Committee generally reviews the base salaries for each Named Executive
Officer in the first quarter of each year. In determining the appropriate fiscal 2006 base salary for our Named
Executive Officers, we considered the base salary levels in effect for comparable executives at our peer group
companies (based on their published 2005 fiscal year data), the experience and personal performance of the officer
and internal comparability considerations. The weight given to each of these factors differed from individual to
individual, as the Compensation Committee deemed appropriate. Based on our review in fiscal 2006, we
determined that the appropriate base salary for each Named Executive Officer for fiscal 2006 was the amount
reported for such officer in column (c) of the Summary Compensation Table — Fiscal 2006 below. In line with our
target benchmark, the fiscal 2006 compensation level for Named Executive Officers ranged from the 50th percentile
to the 60th percentile of the base salary levels in effect for comparable executives at our peer group companies
(based on their published 2005 fiscal year data). In connection with the Company’s overall cost reduction program,
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