SanDisk 2006 Annual Report Download - page 33

formulaic. These discretionary adjustments represented the means by which individual performance was factored
into the incentive payout amount, consistent with our philosophy that a substantial portion of compensation should
be tied to Company and individual performance.
In February 2007, the Compensation Committee reviewed the Company’s performance with respect to after-
tax net income and revenue growth, certified the level of performance achieved and approved incentive payouts
under the cash incentive awards based on that review. The amount of the payout approved by the Compensation
Committee under each Named Executive Officer’s cash incentive awards for fiscal 2006 is presented in column
(g) of the Summary Compensation Table — Fiscal 2006 below. The Compensation Committee also approved
increases to the fiscal 2007 individual bonus targets for Dr. Harari (from 100% to 125%), Mr. Mehrotra (from 85%
to 95%) and Ms. Bruner (from 75% to 85%).
Long-Term Share-Based Incentive Awards
The Company’s policy is that the Named Executive Officers’ long-term compensation should be directly
linked to the value provided to our stockholders. Therefore, 100% of the Named Executive Officers’ long-term
compensation is currently awarded in the form of share-based instruments that are in or valued by reference to our
Common Stock. Prior to fiscal 2006, the Company historically made annual equity incentive grants solely in the
form of stock options. Commencing in fiscal 2006, the annual awards were granted in the form of stock options and
restricted stock units. The number of shares of the Company’s Common Stock subject to each annual award is
intended to create a meaningful opportunity for stock ownership in light of the Named Executive Officer’s current
position with the Company, the size of comparable awards to comparable executives at our peer group companies,
the individual’s potential for increased responsibility and promotion over the award term, and the individual’s
personal performance in recent periods. The Compensation Committee also takes into account the number of
unvested equity awards held by the Named Executive Officer in order to maintain an appropriate level of equity
incentive for that individual. However, the Compensation Committee does not adhere to any specific guidelines as
to the relative equity award holdings of the Company’s Named Executive Officers.
Stock Options. The Company makes a portion of its long-term incentive awards to Named Executive Officers
in the form of stock options with an exercise price that is equal to the fair market value of the Company’s Common
Stock on the grant date. Thus, the Named Executive Officers will only realize value on their stock options if our
stockholders realize value on their shares. The stock options also function as a retention incentive for our executives
as they vest over a four (4) year period following the grant date. In fiscal 2006, the Compensation Committee
granted stock options to each of our Named Executive Officers (other than Dr. Thakur who was not eligible for a
grant at the time the grants were made). The material terms of these options are described below under “Grants of
Plan-Based Awards.”
Restricted Stock Units. Commencing in fiscal 2006, the Company makes a portion of its long-term incentive
grants to Named Executive Officers in the form of restricted stock units. A restricted stock unit represents a
contractual right to receive one share of the Company’s Common Stock if the applicable vesting requirements are
satisfied. The Company has determined that it is advisable to grant restricted stock units in addition to stock options
(and in lieu of larger stock option grants) in order to minimize stock expense to the Company and dilution. The
restricted stock units also function as a retention incentive as they vest over four (4) years following the grant date.
In fiscal 2006, the Compensation Committee granted restricted stock units to each of our Named Executive Officers
(other than Dr. Thakur who was not eligible for a grant at the time the grants were made). The material terms of the
unit awards are described below under “Grants of Plan-Based Awards.”
401(k) Retirement Benefits
The Company provides retirement benefits to the Named Executive Officers under the terms of its tax-
qualified 401(k) plan. In fiscal 2006, the Company made a discretionary matching contribution on behalf of each
participant equal to one-half of the first 6% of compensation contributed to the plan by the participant. These
Company contributions function as a retention incentive as they vest ratably over the first four (4) years of service
with the Company (as determined under the plan). The Named Executive Officers participate in the plan on
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