SanDisk 2011 Annual Report Download - page 45

Proxy Statement
Annual Cash Incentive Awards
None of the executive officers, including the Named Executive Officers who are currently employees of the
Company, has an employment agreement or other contractual right to cash incentive awards for any given year
other than the change in control agreements entered into with the Named Executive Officers and the severance
benefits agreement entered into with the Company’s Chief Executive Officer. In recent years, the Company has
granted cash incentive awards to the Named Executive Officers that were determined based on the achievement
of specified performance goals. In February 2011, the Compensation Committee approved a cash incentive
program for fiscal 2011 in which the employees, including the Named Executive Officers, were participants (the
“2011 bonus program”). Cash incentive awards provided to the Named Executive Officers under the 2011 bonus
program were intended to qualify as “performance-based” for purposes of Section 162(m) of the Internal
Revenue Code of 1986, as amended (the “Code”), with respect to Messrs. Mehrotra, Brelsford, Sadana and
Cedar. The Named Executive Officers’ cash incentive awards under the 2011 bonus program include a target
incentive amount that is expressed as a percentage of base salary, each of which was approved by the
Compensation Committee based on its review of comparable bonus opportunities at the Company’s peer
companies, internal comparability with percentage targets of other executive officers and the executive officer’s
level of responsibility, experience and knowledge. The target incentive amounts generally increase as an
executive officer’s responsibilities increase, reflecting the Company’s compensation philosophy that as an
executive officer’s level of responsibility increases, a greater portion of that executive officer’s total
compensation should be dependent on the Company’s performance.
In February 2011, the Compensation Committee set the Named Executive Officer target bonus percentages
for fiscal 2011 as follows: 125% of base salary for Mr. Mehrotra; 90% of base salary for Ms. Bruner; 70% of
base salary for Mr. Brelsford; 70% of base salary for Mr. Sadana and 90% of base salary for Mr. Cedar. The
Named Executive Officer target bonus percentages for fiscal 2011 were the same for the Named Executive
Officers as in fiscal 2010, except for Mr. Mehrotra in that his percentage was increased by 25% to reflect his
promotion to Chief Executive Officer, effective as of January 1, 2011. Mr. Mehrotra’s target bonus percentage
for fiscal 2011 is consistent with the target bonus percentage previously provided to the Chief Executive Officer
of the Company in fiscal 2009 and 2010 and is based upon the Compensation Committee’s determination that the
increase was appropriate due to Mr. Mehrotra’s increased responsibilities as Chief Executive Officer and its
evaluation of the factors described above. In accordance with Section 162(m) of the Code, the Company
established a maximum bonus amount payable to each Named Executive Officer under the 2011 bonus program
of 300% of his or her target bonus amount. Subject to the maximum target bonus amount, the Compensation
Committee has the discretion to vary the individual cash incentive awards or bonuses based on the performance
of the Company and the individual.
The 2011 bonus program was based on the following: (1) the Company’s performance during fiscal 2011
relative to a non-GAAP EPS target level, which constituted 65% of the 2011 bonus program, and (2) seven
strategic objectives categorized in the three areas of (i) technology development, (ii) products and solutions, and
(iii) customers and channels, which collectively constituted 35% of the 2011 bonus program. With respect to the
fiscal 2011 EPS goal, the Company over-achieved this goal with a non-GAAP EPS of $4.65 per share due
primarily to higher than targeted gross margins. With respect to the seven strategic objectives, the Company also
over-achieved the technology development objectives and partially achieved the objectives in the areas of
products and solutions and customers and channels objectives in fiscal 2011. Part II, Item 7 “Management’s
Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Financial Measures,” of
the Company’s Form 10-K for the fiscal year ended January 1, 2012 includes a discussion of the non-GAAP
financial measures used by the Company. The table within the non-GAAP financial measures discussion
reconciles the Company’s non-GAAP net income to the Company’s GAAP-basis net income and shows how the
corresponding per-share amounts were derived. The discussion following that table also includes a description of
the adjustments shown in the table, including income tax adjustments.
After the completion of fiscal 2011, the Compensation Committee evaluated the fiscal 2011 performance of
the Company and the individual performance of each Named Executive Officer who was currently an employee
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