SanDisk 2012 Annual Report Download - page 32

does not expect to be able to offer competitive equity packages to retain our current employees or hire new
employees beyond fiscal year 2013, due to the limitations on the Company’s ability to issue RSUs under the
2005 Plan and the fact that the 2005 Plan expires on March 15, 2015.
The Company’s Success Depends on Providing Sufficient Equity-Based Incentives to Attract and Retain
Personnel
The Compensation Committee and the Board believe that equity-based incentives have played a pivotal role
in the Company’s efforts to attract and retain key personnel essential to the Company’s long-term growth and
financial success. The Compensation Committee reviews the Company’s equity award practices from time to
time with a view towards developing equity-based incentives for the Company that are competitive relative to
those of its industry peers, including its peer companies, and maximizing the retention value of its equity-based
awards. The Compensation Committee and the Board believe that the 2013 Plan is a vital component of our
employee compensation programs, since it allows the Company to compensate its employees based on company
performance, while at the same time providing an incentive to build long-term stockholder value. The
Compensation Committee also considers the impact of potential dilution on our stockholders from such equity-
based awards.
In reviewing the equity award practices of its peer companies over the past few years, the Company has
noted an increasing shift away from traditional option grants to RSUs and other share-based awards. In fiscal
years 2011 and 2010, while 30% and 27% of the Company’s equity awards were issued in the form of RSUs,
respectively, the median comparable percentages for the Company’s peer companies were 66% and 59%,
respectively. Because RSUs provide more tangible compensation levels than stock options, the Compensation
Committee concluded that the Company’s lesser use of RSUs placed the Company at a disadvantage in recruiting
and retaining top-tier talent. Furthermore, as a result of the cyclicality of the Company’s financial performance,
the retention value of many of the Company’s outstanding options had decreased. Based on these considerations,
in fiscal year 2012, the Compensation Committee established an equity award policy that was more heavily
weighted in favor of RSUs, resulting in 44% of the Company’s total equity awards issued in the form of RSUs.
In November 2012, the Compensation Committee further revised the Company’s equity award policy for fiscal
year 2013 and beyond to provide for an even greater increase in RSU awards as compared to stock options, by
providing that employees below the vice president level would only receive RSU awards, while maintaining that
employees at a level of vice president and above would continue to receive a mix of RSU and stock option
awards. In changing the equity award policy, the Compensation Committee considered the disparity between the
Company’s equity award practices and those of its peer companies, the competitiveness of the markets in which
the Company would be recruiting top-tier talent, the importance of recruiting and retaining top-tier talent to drive
increases in future stockholder value, the retention value of the Company’s outstanding equity awards, and,
because there are generally fewer shares awarded through an RSU than for a stock option grant of comparable
value, the potential dilution to the voting power of the Company’s stockholders from additional stock option
grants. Based on its consideration of the foregoing factors, the Compensation Committee determined that the
shift in the Company’s equity mix towards RSUs was in the best interests of the Company and its stockholders.
For the reasons discussed above, the Compensation Committee and the Board have structured the 2013 Plan
to provide the Company with more flexibility, compared to the 2005 Plan, in designing equity incentives in an
environment where a number of companies have continued to transition from traditional option grants to other
stock or share-based awards, such as stock appreciation rights, restricted stock and RSUs. Accordingly, the 2013
Plan provides the Company with a broad array of equity incentives to utilize for purposes of attracting and
retaining the services of top-tier talent. The proposed 2013 Plan will furnish the Company with the additional
shares and flexibility the Company needs to remain competitive in the marketplace for executive talent and other
key employees. The 2013 Plan differs from the 2005 Plan in the following principal respects:
• Under the 2005 Plan, the aggregate number of shares which may be issued as Full Value Awards may
not exceed twenty-five percent (25%) of the total number of shares of Common Stock authorized for
20