UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

(Rule 14a-101)

INFORMATION REQUIRED IN PROXY STATEMENT

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the Securities

Exchange Act of 1934 (Amendment No.    )

Filed by the Registrantþ

Filed by a Party other than the Registrant¨

Check the appropriate box:

Cray Inc.

(Name of Registrant as Specified In Its Charter)

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

NOTICE OF 20112014 ANNUAL MEETING OF SHAREHOLDERS

Dear Cray Inc. Shareholder:

You are cordially invited to attend our Annual Meeting of Shareholders, which will be held in the Fifth Avenue Conference Room at our principal executive offices located at 901 Fifth Avenue, Seattle, Washington 98164 on Thursday, June 16, 2011,12, 2014, at 3:00 p.m. Pacific Time for the following purposes:

1.    To vote on the election of eightseven directors, each to serve a one-year term;

2.    To vote, on an advisory or non-binding basis, on the compensation of our Named Executive Officers;

3.    To vote, on an advisory or non-binding basis, on the frequency of holding future advisory votes on the compensation of our Named Executive Officers;

4.    To vote to approve our amended and restated 2001 Employee Stock Purchase Plan, which includes amendments that increase the total number of shares issuable thereunder by 750,000 shares and extend its term by five years; and

5.    To ratify the appointment of Peterson Sullivan LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2011.2014; and

3.    To vote, on an advisory or non-binding basis, to approve the compensation of our Named Executive Officers.

The shareholders will also act on any other business that may properly come before the Annual Meeting, including any adjournments or postponements of the Annual Meeting.

Any action on the items of business described above may be considered at the Annual Meeting at the scheduled time and date specified above or at any time and date to which the Annual Meeting may be properly adjourned or postponed. Your Board of Directors recommends a voteFORthe election of the nominees for director;FOR the approval of the compensation of our Named Executive Officers;FOR the option of every year as the frequency with which our shareholders are provided an advisory vote on the compensation of our Named Executive Officers;FOR the amendments to our 2001 Employee Stock Purchase Plan; andFOR ratification of the appointment of our independent registered public accounting firm for the fiscal year ending December 31, 2011.2014; andFOR the approval of the compensation of our Named Executive Officers.

Only shareholders of record on April 11, 2011,10, 2014, the record date for the Annual Meeting, are entitled to vote on these matters.

At the Annual Meeting, we will review our performance during the past year. You will have an opportunity to ask questions about Cray Inc. and our operations.

As we did last year, we are furnishing proxy materials via the Internet. The approximate date of availability for the Proxy Statement and accompanying proxy materials isApril 28, 2011.is April 23, 2014. Please read the Proxy Statement for more information on this alternative for distributing our proxy materials, which we believe will allow us to provide shareholders with the information they need, while lowering the costs of delivering the Proxy Statement and related materials and reducing the environmental impact of the Annual Meeting.

Your vote is important regardless of the number of shares you own or whether you plan to attend the Annual Meeting in person. You may vote through several different ways, and instructions on the various voting methods are contained in the accompanying Proxy Statement. Even if you plan to attend the Annual Meeting, we urge you to vote at your earliest convenience so we avoid further solicitation costs.convenience. Any shareholder attending the Annual Meeting may vote in person even if he or she has voted previously.

Details of the business to be conducted at the Annual Meeting are more fully described in the accompanying Proxy Statement.

We look forward to seeing you. Thank you for your ongoing support of and interest in Cray.

Sincerely,

PETERPeter J. UNGAROUngaro

President and Chief Executive Officer

Seattle, Washington

April 28, 201123, 2014

PROXY STATEMENT

TABLE OF CONTENTS

CRAY INC.

901 Fifth Avenue, Suite 1000

Seattle, WA 98164

PROXY STATEMENT FOR

ANNUAL MEETING OF SHAREHOLDERS

To Be Held At:

901 Fifth Avenue, Fifth Avenue Conference Room

Seattle, WA 98164

June 16, 201112, 2014

3:00 p.m. Pacific Time

INFORMATION ABOUT THE ANNUAL MEETING AND VOTING

It is possible that other business may come before the Annual Meeting, although we currently are not aware of any such matters.

every year as the frequency with which our shareholders are provided an advisory vote on the compensation of our Named Executive Officers; “FOR” the amendments to our 2001 Employee Stock Purchase Plan; and “FOR” the ratification of the appointment of Peterson Sullivan LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2011.2014; and “FOR” the approval of the compensation of our Named Executive Officers. In this Proxy Statement, the terms “the Board of Directors,” “the Board,” or “our Board” refer to the Board of Directors of Cray.

Beneficial Owner of Shares Held in Street Name.    If you have shares held in an account at a brokerage firm, bank, broker-dealer or other similar organization, then you are the beneficial owner of shares held in “street name” and the Notice was forwarded to you by that organization. The organization holding the shares in your account is considered the shareholder of record with respect to those shares for the purpose of voting at the Annual Meeting. As a beneficial owner, you have the right to direct that organization on how to vote the shares it holds in your account.

If your shares are registered directly in your name, you may vote via the Internet or by telephone through services offered by Broadridge Financial Solutions, Inc.(“ (“Broadridge”). If you received the Notice, then go to the website referred to on the Notice. If you received a full set of proxy materials in the mail, then go to the website or call the telephone number referred to on the proxy card. Please have the Notice or proxy card in hand when going online or calling, and follow the instructions on the form you are using.

You may vote via the Internet or by telephone 24 hours a day, 7 days a week until 11:59 p.m. Eastern Time/8:59 p.m. Pacific Time, on Wednesday, June 15, 2011,11, 2014, the day before the Annual Meeting.

If you requested printed copies of the proxy materials, you may also vote by completing and signing the enclosed proxy card and mailing it to us in the enclosed self-addressed envelope (postage-free in the United States). We need to receive the signed proxy card by the time of the Annual Meeting.

If You Are thea Beneficial Owner of Shares Registered in the Name of a Brokerage Firm, Bank or Other Organization:

A number of brokerage firms, banks and other organizations participate in a program for shares held in “street name” that offers Internet and telephone voting options. This program is different from the program for shares registered directly in the name of the shareholder. If your shares are held in an account at an organization participating in this program, then you may vote those shares by using the website or calling the telephone number referenced on the instructions provided by that organization. Similarly, if you received printed copies of the proxy materials through your broker, bank or other nominee organization, then you may vote by completing and signing the voting form and mailing it to that organization in the self-addressed envelope it provided.

We will tabulate the latest valid vote or instruction that we receive from you.

The shares allocated under the Cray 401(k) Plan can be voted by submitting voting instructions via the Internet, by telephone or by mailing your proxy card. Voting of shares held in the Cray 401(k) Plan must be completed by 11:59 p.m. Eastern Time/8:59 p.m. Pacific Time on Monday, June 13, 2011.9, 2014. These shares cannot be voted at the Annual Meeting and prior voting instructions cannot be revoked at the Annual Meeting. Otherwise, participants can vote these shares in the same manner as described above for shares held directly in the name of the shareholder.

The Trustee will cast votes for shares in the Cray 401(k) Plan according to each participant’s instructions. If the Trustee does not receive instructions from a participant in time for the Annual Meeting, the Trustee will vote the participant’s allocated shares in the same manner and proportion as the shares with respect to which voting instructions were received.

Q:	What happens if I do not give specific voting instructions?

then the proxy holders will vote your shares in the manner recommended by our Board on all matters presented in this Proxy Statement and as the proxy holders may determine in their discretion with respect to all other matters properly presented for a vote at the Annual Meeting, including without limitation whether to postpone or adjourn the Annual Meeting.

Beneficial Owners of Shares Held in Street Name.Name.    If you are a beneficial owner of shares held in “street name” and do not provide the organization that holds your shares with specific voting instructions, then under the rules of various national and regional securities exchanges, the organization that holds your shares may generally vote on “discretionary” matters but cannot vote on “non-discretionary” matters.

If the organization that holds your shares does not receive instructions from you on how to vote your shares on a non-discretionary matter, then the organization will inform our Inspector of Elections that it does not have the authority to vote on this matter with respect to your shares. This is generally referred to as a “broker non-vote.”

Please provide voting instructions to the organizations that hold your shares by carefully following their instructions.

For the purpose of determining whether the shareholders have approved Proposal 2 (ratification of independent registered public accounting firm) or Proposal 3 (advisory vote on the compensation of our Named Executive Officers), Proposal 4 (approval of our amended and restated 2001 Employee Stock Purchase Plan) or Proposal 5 (ratification of independent registered public accounting firm), each proposal will be adopted if the number of votes cast in favor of the proposal exceeds the number of votes cast against the proposal andas abstentions are not treated as votes cast affirmatively or negatively, and therefore will have no effect on the outcome of Proposal 2 Proposal 4 or Proposal 5.3.

Q:	What is the quorum requirement for the Annual Meeting?

The eightseven nominees for director who receive the most votes “for” election will be elected, assuming the presence of a quorum. Accordingly, if you do not vote for a nominee, do not instruct your broker how to vote for a nominee or if you indicate “withhold authority to vote” for a nominee, your vote will not count either “for” or “against” the nominee.

Proposal 2: Advisory Vote onTo Ratify the CompensationAppointment of Peterson Sullivan LLP as Our Named Executive Officers.Independent Registered Public Accounting Firm for the Year Ending December 31, 2014.

To be approved, the number of votes cast in favor must exceed the number of votes cast against. If you do not vote or if you abstain from voting, it will have no effect on this proposal, assuming the presence of a quorum.

Proposal 3: Advisory Vote on the Frequency of Holding Future Advisory Votes on the Compensation of Our Named Executive Officers.

The option of one year, two years or three years that receives the highest number of votes cast will be the frequency of the vote on the compensation of our Named Executive Officers that has been approved by shareholders on an advisory basis. Accordingly, if you do not vote for any option, do not instruct your broker how to vote or you abstain from voting, your vote will not have any effect on the outcome of the advisory vote.

Proposal 4: To Approve the Amendments to our 2001 Employee Stock Purchase Plan.

To be approved, the number of votes cast in favor must exceed the number of votes cast against. If you do not vote or if you abstain from voting, it will have no effect on this proposal assuming the presence of a quorum.

Proposal 5: To Ratify the Appointment of Peterson Sullivan LLP as Our Independent Registered Public Accounting Firm for the Fiscal Year Ending December 31, 2011.

To be approved, the number of votes cast in favor must exceed the number of votes cast against. If you do not vote or if you abstain from voting,either case it will have no effect on thisnot count either “for” or “against” the proposal, assuming the presence of a quorum.

Internet or other electronic means of communication, or in person. No additional compensation will be paid to officers or employees for their assistance in soliciting proxies. We will reimburse banks, brokers, nominees and other fiduciaries for the expenses they incur in forwarding the proxy materials to you. Laurel Hill Advisory Group, LLC may help solicit proxies for an approximate cost of $10,000 plus reasonable out-of-pocket expenses.

Shareholder of Record:    Please visit the Broadridge Investor E-Connect proxy delivery preferencesweb-page,www.proxyvote.com, enter your voter control number found on your Notice, and follow the instructions for obtaining your documents electronically, or telephone: 1-800-579-1639, or send an email to: sendmaterial@proxyvote.com.sendmaterial@proxyvote.com.

Beneficial Owner of Shares Held in Street Name:    Please visit the Broadridge Investor E-Connectweb-page,www.proxyvote.com, and follow the instructions at that site, or telephone Broadridge at1-800-579-1639, or send an email to: sendmaterial@proxyvote.com.sendmaterial@proxyvote.com.

Please have the Notice in hand when accessing these sites or telephoning. Your election to view these documents via the Internet will remain in effect until you revoke it. If you so elect, then next year you would receive an email with instructions containing links to those materials and to the proxy voting site. Please be aware that if you choose to access these materials via the Internet, then you may incur costs such as telephone and Internet access charges for which you will be responsible.

If your shares are registered directly in your name, you may be receiving more than one copy of the proxy materials because our transfer agent has more than one account for you with slightly different versions of your name, such as different first names (“James” and “Jim,” for example) or with and without middle initials. If this is the case, you can contact our transfer agent and consolidate your accounts under one name. The contact information for our transfer agent is set out below in the next Q and A.

If you own shares through a brokerage firm, bank or other organization holding your shares in “street name,” we have implemented “householding,” a process that reduces the number of copies of the Annual Meeting materials and other correspondence you receive from us. Householding is available for shareholders who share the same last name and address and hold shares in “street name,” where the shares are held through the same brokerage firm, bank or other nominee. As a result of householding, only one Notice of Internet Availability of Proxy Materials or Proxy Statement and Annual Report will be delivered to multiple shareholders sharing an address unless you notify your broker or bank to the contrary. If you hold your shares in street name and would like to start householding, or if you participate in householding and would like to receive a separate Notice of Internet Availability of Proxy Materials or Proxy Statement and Annual Report, please call 1-800-542-1061 from a touch-tone phone and provide the name of your broker, bank or other nominee and your account number(s), or contact Ruby H. Alexander, Assistant Corporate Secretary, at Cray Inc., 901 Fifth Avenue, Suite 1000, Seattle, WA 98164.

Unfortunately, householding is only possible for shares held through the same brokerage firm, bank or other nominee. Thus you cannot apply householding to reduce the number of sets of proxy materials you receive in the mail if you have accounts at different brokers, for example. In those circumstances, one way to reduce the number of sets of proxy materials you receive in the mail is to sign up to review the materials via the Internet. See “Can I view future proxy statements, annual reports and other documents via the Internet, and not receive any paper copies through the mail?” above.

We will deliver promptly upon written or oral request a separate copy of the Annual Meeting materials to a shareholder at a shared address to which a single copy of such materials had been delivered.

OUR COMMON STOCK OWNERSHIP

The following table shows, as of April 4, 2011,10, 2014, the number of shares of our common stock beneficially owned by the following persons:

As of April 4, 2011,10, 2014, there were 36,176,18940,689,400 shares of our common stock outstanding.

(1)	Unless otherwise indicated, all addresses are c/o Cray Inc., 901 Fifth Avenue, Suite 1000, Seattle, WA 98164.

The information under the column “Common Shares Owned” with respect to Joseph L. Harrosh (“Harrosh”) is based on a Schedule 13G filed with the SEC on January 10, 2011, regarding beneficial ownership as of December 31, 2010. In that Schedule 13G, Harrosh reported sole voting power and sole dispositive power over 3,557,380 shares.

The information under the column “Common Shares Owned” with respect to Paradigm Capital Management, Inc. (“Paradigm”)Invesco Ltd. is based on a Schedule 13G filed with the SEC on February 14, 201110, 2014, regarding beneficial ownership as of December 31, 2010.2013. In that Schedule 13G, ParadigmInvesco Ltd. reported beneficial ownership of 3,726,891 shares, with sole voting power of 3,505,018 shares, without shared voting power, sole dispositive power of 3,726,891 shares and without shared dispositive power.

The information under the column “Common Shares Owned” with respect to Wells Fargo & Company is based on a Schedule 13G/A filed with the SEC, on January 28, 2014, regarding ownership as of December 31, 2013. In that Schedule 13G/A, Wells Fargo & Company, as parent company, reported beneficial ownership of 3,608,388 shares, with sole voting power of 27,216 shares, sole dispositive power of 27,216 shares and shared voting power of 3,580,953 shares and shared dispositive power of 3,581,172 shares, with its subsidiary, Wells Capital Management Incorporated, an investment adviser, reporting beneficial ownership of 3,557,268 shares, without sole voting power or sole dispositive power and shared voting power of 790,968 shares and shared dispositive power of 3,557,268 shares, and another subsidiary, Wells Fargo Funds Management, LLC, an investment adviser, reporting beneficial ownership of 2,787,641 shares, without sole voting power or sole dispositive power and shared voting power of 2,787,641 shares and shared dispositive power of 2,787,641 shares.

The information under the column “Common Shares Owned” with respect to FMR LLC is based on a Schedule 13G/A filed with the SEC on March 10, 2014, regarding beneficial ownership as of December 31, 2013. In that Schedule 13G/A, FMR LLC reported beneficial ownership of 2,721,729 shares, with sole voting power over 393,057 shares and sole dispositive power over 2,631,0572,721,729 shares.

The information under the column “Common Shares Owned” with respect to T. Rowe Price Associates, Inc. is based on a Schedule 13G filed with the SEC on February 10, 2014, regarding beneficial ownership as of December 31, 2013. In that Schedule 13G, T. Rowe Price Associates, Inc. reported beneficial ownership of 2,503,797 shares, with sole voting power of 244,000 shares, without shared voting power, sole dispositive power of 2,503,797 shares and without shared dispositive power.

The information under the column “Common Shares Owned” with respect to Capital Research Global Investors is based on a Schedule 13G filed with the SEC on February 12, 2014, regarding beneficial ownership as of December 31, 2013. In that Schedule 13G, Capital Research Global Investors reported beneficial ownership of 2,453,105 shares, with sole voting power of 2,453,105 shares, without shared voting power, sole dispositive power of 2,453,105 shares and without shared dispositive power.

The information under the column “Common Shares Owned” with respect to BlackRock, Inc. (“BlackRock”) is based on a Schedule 13G filed with the SEC on February 3, 2011, regarding beneficial ownership as of December 31, 2010. In that Schedule 13G, BlackRock reported sole voting power and sole dispositive power over 2,093,261 shares.

The information under the column “Common Shares Owned” with respect to Royce & Associates, LLC (“Royce”) is based on a Schedule 13G filed with the SEC on January 12, 2011,28, 2014, regarding beneficial ownership as of December 31, 2010.2013. In that Schedule 13G, RoyceBlackRock, Inc. reported beneficial ownership of 2,339,296 shares, with sole voting power andof 2,225,420 shares, without shared voting power, sole dispositive power over 1,957,131 shares.of 2,339,296 shares and without shared dispositive power.

(4)	The number of shares of common stock shown for the indicated directors includes restricted shares that vest on the dates indicated, and that are forfeitable in certain circumstances, as follows:

(5)	The number of shares of common stock shown for the indicated executive officers includes restricted shares that vest on the dates indicated, and are forfeitable in certain circumstances, as follows:

Executive Officers		Performance Vesting Restricted Stock Awards
Peter J. Ungaro			20,000
Brian C. Henry			10,000
William C. Blake			7,000
Arvind Parthasarathi(a)			184,000
Michael C. Piraino			7,000
Other executive officers			21,000

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934, as amended, (the “or the Exchange Act,”), requires that our directors, executive and other specified officers and greater-than-10% shareholders file reports with the SEC on their initial beneficial ownership of our common stock and any subsequent changes. They must also provide us with copies of the reports.

We are required to tell you in this Proxy Statement if we know about any failure to report as required. We reviewed copies of all reports furnished to us and obtained written representations that no other reports were required. Based solely on this review, we believe that all of thesethe reporting persons complied with their filing requirements for 2010.2013, except as follows: Each of (a) Barry C. Bolding, Brian C. Henry, Charles A. Morreale, Peter J. Ungaro and Margaret A. Williams filed a Form 5 to report three late Form 4 transactions reporting the forfeiture of common stock by holders of restricted stock awards in exchange for payments by the Company of statutory tax withholding amounts on behalf of the holders arising as a result of the vesting of restricted stock awards; (b) Charles D. Fairchild, Arvind Parthasarathi and Michael C. Piraino filed a Form 5 to report two late Form 4 transactions reporting the forfeiture of common stock by holders of restricted stock awards in exchange for payments by the Company of statutory tax withholding amounts on behalf of the holders arising as a result of the vesting of restricted stock awards; and (c) William C. Blake filed a Form 5 to report one late Form 4 transaction reporting the forfeiture of common stock by holders of restricted stock awards in exchange for payments by the Company of statutory tax withholding amounts on behalf of the holders arising as a result of the vesting of restricted stock awards.

THE BOARD OF DIRECTORS

The Board of Directors oversees our business and affairs and monitors the performance of our management. In accordance with corporate governance principles, the Board does not involve itself in day-to-day operations. The directors keep themselves informed through discussions with the Chief Executive Officer, other key executives and our principal external advisers (legal counsel, outside auditors and outside auditors)compensation consultants), by reading the reports and other materials that we send them regularly and by participating in Board and committee meetings.

Corporate Governance Principles

The goals of our Board are to build long-term value for our shareholders and to ensure our vitality for our customers, employees and others that depend on us. Our Board has adopted and follows corporate governance practices that our Board and our senior management believe promote these purposes, are sound and represent best practices. To this end we have established the following:

Under our Corporate Governance Guidelines and the applicable Committee charters, each director has complete access to our management, and the Board and each Committee have the right to consult and retain independent legal counsel, accountants and other advisers at our expense. All of the foregoing documents are available via the Internet at our website atwww.cray.com under “Investors“About Cray — Investors — Corporate Governance.” We will post on this website any amendments to the Code of Business Conduct or waivers of the Code of Business Conduct for directors and executive officers.

We periodically review our governance practices against requirements of the SEC, the listing standards of the Nasdaq Global Market (“(“Nasdaq”)Nasdaq”), the laws of the state of Washington and practices suggested by recognized corporate governance authorities.

Independence

Currently,As of April 23, 2014, our Board has eight members. John B. Jones, Jr. is not standing for re-election to our Board, his term as a director will end on the date of the Annual Meeting and the size of our Board will decrease from eight to seven directors at such time. The Board appreciates Mr. Jones’ service and contributions to our success. The Board has determined that all of our directors serving on our Board as of April 23, 2014, except for Mr. Ungaro, our President and Chief Executive Officer, meet the Nasdaq and SEC standards for independence and that all the members of the Audit Committee meet the heightened independence standards required for Audit Committee members under Nasdaq and SEC standards. Only independent directors may serve on our Audit, Compensation and Corporate Governance Committees.

As set forth in our Corporate Governance Guidelines, the Board believes that at least two-thirds of the Board should consist of independent directors and that, absent compelling circumstances, the Board should not contain more than two members from our management. Currently,As of April 23, 2014, seven of our eight directors are considered independent, and one member of our management, Mr. Ungaro, our President and Chief Executive Officer, is on the Board.

In determining the independence of our directors, the Board affirmatively decides whether a non-management director has a relationship that would interfere with that director’s exercise of independent judgment in carrying out the responsibilities of being a director. In making that decision, the Board is informed of the Nasdaq and SEC rules that disqualify a person from being considered as independent, considers the responses from each director toin an annual questionnaire and reviews the applicable standards with each Board member.

Meetings and Attendance

The Board met sixnine times, and the Board’s standing committees held a total of 2420 meetings and the Board’s special transaction committee held one meeting during 2010.2013. The rate of attendance in 20102013 for all directors at Board and standing committee meetings was 100%98%.

The non-management directors meet in executive sessions of the Board on a regular basis, generally at the beginning and at the end of each scheduled quarterly Board meeting and at other meetingstimes as required. In addition, the Board committees meet periodically without members of our management present.

The Committees of the Board

The Board has established an Audit Committee, a Compensation Committee, a Corporate Governance Committee and a Strategic Technology Assessment Committee as standing committees of the Board. None of the directors who serve as members of these committees is, or has ever been, one of our employees.

Audit Committee.Committee.    The current members of the Audit Committee are Daniel C. Regis (Chair), Sally G. Narodick and Stephen C. Richards. The Audit Committee and the Board have determined that each individual who currently is and who in 20102013 was a member of the Audit Committee is “independent,” as that term is defined in SEC and Nasdaq rules and regulations, and that Mr. Regis is an “audit committee financial expert,” as that term is defined in SEC regulations. The Audit Committee met 11seven times during 2010.2013. As noted above, the Audit Committee’s charter is available atwww.cray.com under “Investors“About Cray — Investors — Corporate Governance.” The Audit Committee assists the Board in fulfilling its responsibility for oversight of:

The Audit Committee reviews all reports submitted on our anonymous, confidential reporting system and is directly and solely responsible for appointing, determining the compensation payable to, overseeing, terminating and replacing any independent auditor engaged for the purpose of preparing or issuing an audit report or performing other audit, review or attest services for us. See “Discussion of Proposals Recommended by the Board — Proposal 5:2: To Ratify the Appointment of Peterson Sullivan LLP as Our Independent Registered Public Accounting Firm for the Fiscal Year Ending December 31, 20112014 — Audit Committee Pre-Approval Policy” below.

The report of the Audit Committee regarding its review of the consolidated financial statements and other matters is set forth below beginning on page 54.55.

Compensation Committee.Committee.    The current members of the Compensation Committee are Frank L. Lederman (Chair), John B. Jones, Jr., Stephen C. Kiely and Stephen C. Richards. Mr. Jones is not standing for re-election to

our Board, and his term on the Compensation Committee will end on June 12, 2014, the date of the Annual Meeting. The Compensation Committee and the Board have determined that each individual who currently is and who in 20102013 was a member of the Compensation Committee is “independent,” as that term is defined in Nasdaq rules and regulations, and an “outside director” within the meaning of Section 162(m) of the Internal Revenue Code of 1986, as amended (the ““IRC”IRC”). The Compensation Committee met fivesix times during 2010.2013. As noted above, the Compensation Committee’s charter is available atwww.cray.com under “Investors“About Cray — Investors — Corporate Governance.” The Compensation Committee assists the Board in fulfilling its responsibilities for the oversight of:

See “Compensation of the Executive Officers — Compensation Discussion and Analysis” for further information regarding the Compensation Committee and its actions with respect to senior officer compensation. The Compensation Committee’s Report on the Compensation Discussion and Analysis and related matters is set forth below beginning on page 22.39.

Corporate Governance Committee.Committee.    The current members of the Corporate Governance Committee are Stephen C. Kiely (Chair), Frank L. Lederman, Sally Narodick and Daniel C. Regis. The Corporate Governance Committee and the Board have determined that each individual who currently is and who in 20102013 was a member of the Corporate Governance Committee is “independent,” as that term is defined in Nasdaq rules and regulations. The Corporate Governance Committee met four times during 2010.2013. As noted above, the Corporate Governance Committee’s charter is available atwww.cray.com under “Investors“About Cray — Investors — Corporate Governance.” The Corporate Governance Committee has the responsibility to:

See “Shareholder Communications, Director Candidate Recommendations and Nominations and Other Shareholder Proposals” regarding the Corporate Governance Committee’s processes for evaluating potential Board members and how shareholders can nominate director candidates, propose matters to come before the shareholders and communicate with the Board.

Strategic Technology Assessment Committee.Committee.    The current members of the Strategic Technology Assessment Committee are William C. BlakePrithviraj Banerjee (Chair), John B. Jones, Jr. and, Frank L. Lederman.Lederman and Stephen C. Kiely. Mr. Jones served as the Chair of our Strategic Technology Assessment Committee until May 1, 2013 when Dr. Banerjee was appointed as the Chair. Mr. Jones is not standing for re-election to our Board, and his term on the Strategic Technology Assessment Committee will end on June 12, 2014, the date of the Annual Meeting. The Strategic Technology Assessment Committee and the Board have determined that each individual who currently is and who in 2010 was a member of the Strategic Technology Assessment Committee is “independent,” as that term is defined in Nasdaq rules and regulations, although such independence is not a requirement for membership on this Committee. The Strategic Technology Assessment Committee met fourthree times during 2010.2013. As noted above, the Strategic Technology Assessment Committee’s charter is available atwww.cray.com under “Investors“About Cray — Investors — Corporate Governance.” The Strategic Technology Assessment Committee has the responsibility to:

From time to time, the Board establishes other committees on an ad-hoc basis to assist in its oversight responsibilities.

Board Leadership Structure

We separate the roles of Chairman of the Board and Chief Executive Officer in recognition of the differences between the two roles. Mr. Kiely has served as Chairman of the Board, a non-executive position, since August 2005. As Chairman, Mr. Kiely consults with Mr. Ungaro, our Chief Executive Officer, regarding

agenda items for Board meetings; chairs executive sessions of the Board’s independent directors; on behalf of the independent directors, provides feedback and mentoring to the Chief Executive Officer; and performs such other duties as the Board deems appropriate. We believe that this structure is currently appropriate given the experience of Mr. Kiely, both outside of the Companyhis service with us and as a member of our Board, our size and stage of development and the operational efficiencies that currently result from separating the roles. Mr. Kiely has both operational and corporate governance experience that is highly applicable to a company such as ours. Our Board, in consultation with members of our senior executive team, including Mr. Ungaro, believes that capitalizing on such technology and governance expertise by designating Mr. Kiely as Chairman of the Board is the most effective way to realize the leadership potential offered by both Mr. Kiely and Mr. Ungaro at this time. However, we believe that it is in the best interests of our shareholders for the Board to make a determination regarding the separation or combination of these roles each time it elects a new Chairman of the Board or Chief Executive Officer or at other times, based in each case on the relevant facts and circumstances applicable at that time.

Board’s Role in Risk Oversight

The Board’s role in our risk oversight process includes receiving regular reports from members of our senior management on areas of material risk to us, including competitive, economic, operational, financial, legal and regulatory, and strategic and reputational risks. We also utilize a formal Enterprise Risk Management system (the“ERM “ERM System”) to assist us in tracking and mitigating risks. In addition to periodic review, evaluation and modification of risks maintained in the ERM System by management, we provide periodic reports of risks tracked in the ERM System to the Board (or the appropriate committee of the Board in the case of risks that are under the purview of a particular committee). The full Board or the appropriate committee receives these reports from the management personnel principally responsible for identifying, managing and mitigating a particular area of risk within the organization to enable it to understand our risk identification, risk management and risk mitigation strategies. When a committee receives the report, the chairman of the relevant committee reports on the discussion to the full Board during the committee reports portion of the next Board meeting, which enables the Board and its committees to coordinate the risk oversight role, particularly with respect to risk interrelationships. As part of its charter, the Audit Committee discusses our policies with respect to risk assessment, risk management and the ERM System process set forth above.

Risk Considerations in Our Compensation Program

Our Compensation Committee has discussed the concept of risk as it relates to our compensation program. The Compensation Committee engages an independent compensation advisor to assess the risks of its compensation program. The Compensation Committee does not believe our compensation program encourages excessive or inappropriate risk-taking for the following reasons:

Director Attendance at Annual Meetings

We encourage but do not require our directors to attend the annual meeting of shareholders either in person or telephonically. In 2010, all eight2013, seven of our directors attended the 20102013 annual meeting.

Shareholder Communications, Director Candidate Recommendations and Nominations and Other Shareholder Proposals

Communications.Communications.    The Corporate Governance Committee has established a procedure for our shareholders to communicate with the Board. Communications should be in writing, addressed to Corporate Secretary, Cray Inc., 901 Fifth Avenue, Suite 1000, Seattle, WA 98164, and addressed to the attention of the Board or any of its individual committees or to the Chairman of the Board. Copies of all communications so addressed will be promptly forwarded to the chairman of the committee involved, in the case of communications addressed to the Board as a whole or to individual directors, to the Corporate Governance Committee or, if addressed to the Chairman, to the Chairman of the Board.

Director Candidates.Candidates.    The criteria for Board membership as adopted by the Board include a person’s integrity, knowledge, judgment, skills, expertise, collegiality, diversity of experience and other time commitments (including positions on other company boards) in the context of the then-current composition of the Board. While our Corporate Governance Guidelines do not prescribe diversity standards, as a matter of practice, the Corporate Governance Committee considers diversity in the context of the Board as a whole and takes into account the personal characteristics (gender, ethnicity, age) and experience (industry, professional, public service) of current and prospective directors to facilitate Board deliberations that reflect a broad range of perspectives. The Corporate Governance Committee is responsible for assessing the appropriate balance of skills brought to the Board by its members, and ensuring that an appropriate mix of specialized knowledge (e.g., financial, industry or technology) is represented on the Board. Since 2012, the Corporate Governance Committee engaged a third party consulting firm, Heidrick & Struggles, International, Inc., to assist the Corporate Governance Committee in identifying candidates for Board membership.

Once the Corporate Governance Committee has identified a potential director nominee, the Corporate Governance Committee, in consultation with the Chief Executive Officer, evaluates the prospective nominee against the specific criteria that the Board has established and as set forth in our Corporate Governance Guidelines. If the Corporate Governance Committee determines to proceed with further consideration, then members of the Corporate Governance Committee, the Chief Executive Officer and other members of the Board, as appropriate, interview the prospective nominee. After completing this evaluation and interview, the Corporate Governance Committee makes a recommendation to the full Board, which makes the final determination whether to elect the new director.

The Corporate Governance Committee will consider candidates for director recommended by shareholders and will evaluate those candidates using the criteria set forth above. Shareholders should accompany their recommendations with a sufficiently detailed description of the candidate’s background and qualifications to allow the Corporate Governance Committee to evaluate the candidate in light of the criteria described above, a document signed by the candidate indicating his or her willingness to serve if elected and evidence of the nominating shareholder’s ownership of our common stock. Such recommendation and documents should be

submitted in writing to Corporate Secretary, Cray Inc., 901 Fifth Avenue, Suite 1000, Seattle, WA 98164, and addressed to the attention of the Corporate Governance Committee.

Director Nominations by Shareholders.Shareholders.    Our Bylaws permit shareholders to nominate directors at a shareholders’ meeting. In order to nominate a director at a shareholders’ meeting, a shareholder making a nomination must notify us not fewer than 60 nor more than 90 days in advance of the meeting or, if less than 60 days’ notice or prior public disclosure of the date of the meeting is given or made to the shareholders, by the 10th business day following the first public announcement of the meeting. In addition, the proposal must contain the information required in our Bylaws for director nominations, including:

The Chairman of the Board, in his discretion, may determine that a proposed nomination was not made in accordance with the required procedures and, if so, disregard the nomination.

Shareholder Proposals.

20112014 Annual Meeting.    In order for a shareholder proposal to be raised from the floor during the Annual Meeting, written notice of the proposal must be received by us not less than 60 days nor more than 90 days prior to the Annual Meeting or, if less than 60 days’ notice or prior public disclosure of the date of the Annual Meeting is given or made to the shareholders, by the 10th10^th business day following the first public announcement of the Annual Meeting. The proposal must also contain the information required in our Bylaws for shareholder proposals, including:

The Chairman of the Board, if the facts so warrant, may determine that any business was not properly brought before the Annual Meeting in accordance with our Bylaws.

20122015 Proxy Statement.    In order for a shareholder proposal to be considered for inclusion in our proxy statement and form of proxy for the 20122015 annual meeting, we must receive the written proposal no later than December 30, 2011.24, 2014. Shareholder proposals also must comply with SEC regulations regarding the inclusion of shareholder proposals in company-sponsored proxy materials.

If you wish to obtain a free copy of our Articles of Incorporation, Bylaws or any of our corporate governance documents, please contact Ruby H. Alexander, Assistant Corporate Secretary, Cray Inc., 901 Fifth Avenue, Suite 1000, Seattle, WA 98164. These documents also are available on our website,www.cray.com under “Investors“About Cray — Investors — Corporate Governance.”

Compensation of Directors

In setting director compensation in order to attract and retain highly qualified individuals to serve on our Board, the Corporate Governance Committee considers the significant amount of time that directors expend in fulfilling their duties, the skill level required of members of the Board and a general understanding of director compensation at companies of similar size and complexity. Directors who are also our employees of the Company receive no additional compensation for their service on the Board. As described more fully below, director compensation is in the form of cash and, in order to align further the longer-term interests of the individual directors with those of our shareholders, equity, with the grant of a fully vested stock option with a ten-year term upon first joining the Board and annual grants of restricted stock vesting generally over two years.

The Corporate Governance Committee reviews director compensation annually. No changes to director compensation were made in 2010.2013. In reaching decisions about director compensation, the Corporate Governance Committee has used publicly available professional compensation surveys, proxy data and the individual experience of the Committee members. To date, the Corporate Governance Committee has decided not to engage a compensation consultant with respect to director compensation.

Cash Compensation

EachThe following table sets forth the cash compensation policy in 2013 for our non-employee director receives an annual retainer of $20,000 (the retainer includes one Board meeting per quarter), paid quarterly in advance, plus $5,000 for each committee on which a director serves, paid quarterly in advance, and a fee of $1,500 for each meeting of the Board attended, whether in person or telephonically, paid monthly. We pay an annual fee, paid quarterly in advance, to the Chairman of the Board ($10,000), and the chairs of the Audit ($10,000), Compensation ($7,500), Corporate Governance ($5,000) and Strategic Technology Assessment ($5,000) Committees, and each director receives a fee of $1,250 for each committee meeting attended, whether in person or telephonically, which is paid monthly. directors.

When the Board creates committees other than the standing committees identified above, the Board determines whether to extend the same committee fee structure to the members of such committees. We reimburse all expenses related to participation in meetings of the shareholders, Board and committees.

Mr. Jones is not standing for re-election to our Board, and his term on the Board will end on June 12, 2014, the date of the Annual Meeting. In March 2014, the Board granted a $75,000 cash bonus to John B. Jones, Jr. to be paid to Mr. Jones on the date of the Annual Meeting in recognition of his nine years of valued service and contributions to Cray.

Equity Compensation

Amendment to Board Compensation Policy.    In March 2014, the Board amended the Board compensation policy to reflect that future restricted stock awards to continuing non-employee directors will vest 100% on the earlier of (i) 12 months from the date of grant and (ii) the date that is immediately prior to the date of the next annual shareholders’ meeting.

Stock Options.Options.    Each non-employee director, upon his or her first appointment or election to the Board, is granted an option for 5,00020,000 shares, vesting immediately, with an exercise price equal to the fair market value of our common stock on the date of such first appointment or election.

Restricted Stock Awards.Awards.    We currently grant to each continuing non-employee director elected by the shareholders restricted shares of common stock with a value equal to that director’s cash fees earned in the previous fiscal year. The per share value of shares granted is determined by using the fair market value of our common stock on the date of such election, which is the volume weighted averageclosing sales price for our common stock on the trading day immediately prior to grant. Restricted stock awards granted in June 2013 to our continuing non-employee directors will vest 50% on the earlier of June 14, 2014 and the date that is immediately prior to the date of grant. One-halfour Annual Meeting and 50% on the earlier of June 14, 2015 and the date that is immediately prior to the date of our 2015 annual meeting of shareholders, except as noted below. In March 2014, the Board amended the restricted stock award granted to Mr. Jones on June 14, 2013 to accelerate the vesting on such award so that it will be 100% vested on the earlier of June 14, 2014 and the date that is immediately prior to the date of our Annual Meeting. In line with the amended Board compensation policy described above, restricted stock awards to continuing non-employee directors will vest 100% on the earlier of (i) 12 months from the date of grant and (ii) the date that is immediately prior to the date of the next annual shareholders’ meeting. Until the shares are vested, the shares are restricted against sale or transfer for a period of approximately one year from date of grant; the balance is restricted against sale or transfer for a period of approximately two years from the date of grant.transfer. The non-employee directors may vote and receive dividends on the restricted shares while the restrictions remain in place. The restricted shares vest in full if a non-employee director can no longer serve due to death or Disability or if, following a Change of Control, the non-employee director is removed from the Board or is not nominated to continue to serve as a director.Corporate Transaction. The restricted shares are forfeited if, while unvested, a non-employee director resigns or retires from the Board (other than with the express approval of the Corporate Governance Committee), or is asked to leave the Board by the Corporate Governance Committee for Cause or is not nominated by the Board to continue as a director other than following a Change of Control.Committee.

For purposes of the director restricted stock agreements, the following definitions apply:apply (terms not defined in the text below are defined in the 2013 Equity Incentive Plan):

“Cause”Corporate Transaction” means a good faith determination by the Board that: a director has willfully failed or refused in a material respect to follow reasonable policies or directives established by the Board, including the Corporate Governance Guidelines, or willfully failed to attend to material duties or obligationsoccurrence of any of the director’s office (other thanfollowing events: (i) any “person” (as such failure resulting fromterm is used in Sections 13(d) and 14(d) of the director’s incapacity due to physical or mental illness), whichExchange Act) becomes the director has failed to correct within a reasonable period following written notice to“beneficial owner” (as defined in Rule 13d-3 of the director; there has been an act by the director involving wrongful misconduct that has a demonstrably adverse affect on or material damage to us or our subsidiaries, or that constitutes a misappropriation of our assets; the director has engaged in an unauthorized disclosure of our confidential information; or the director has materially breached his or her obligations under the restricted stock agreement or in another agreement with us.

“Change of Control” means: our shareholders approve a merger or consolidation of us with any other corporation (other than to change our state of incorporation or which does not effect a substantial change in

ownership); or our shareholders approve a plan of complete liquidation or an agreement for the sale or disposition of all or substantially all of our assets; the acquisition by any person or entity as “beneficial owner,”Exchange Act), directly or indirectly, of securities of Cray representing 50%fifty percent (50%) or more of the total voting power represented by ourCray’s then-outstanding voting securities, except pursuant to a negotiated agreement with us and pursuant to which such securities are purchased from us; a majoritysecurities; (ii) the consummation of the Board in office atsale or disposition by Cray of all or substantially all of Cray’s assets; (iii) the beginningconsummation of a merger or consolidation of Cray with any 36-month period is replaced during the course of such 36-month period (otherother corporation, other than by voluntary resignation of individual directorsa merger or consolidation which would result in the ordinary coursevoting securities of business) and such placement was not initiatedCray outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or its parent) at least fifty percent (50%) of the total voting power represented by the Boardvoting securities of Cray or such surviving entity or its parent outstanding immediately after such merger or consolidation; (iv) any other transaction which qualifies as constituted at the beginning of such 36-month period.

“Disability” means that, at the time a director’s employment is terminated, the director has been unable to perform the duties“corporate transaction” under Section 424(a) of the director’s positionCode wherein the stockholders of Cray give up all of their equity interest in Cray (except for a periodthe acquisition, sale or transfer of six consecutive months as a resultall or substantially all of the director’s incapability dueoutstanding shares of Cray); or (v) any liquidation or dissolution of Cray. Notwithstanding the foregoing, to physicalthe extent that any amount constituting deferred compensation as defined in Section 409A of the Code) would become payable under this Plan by reason of a Change in Control, such amount shall become payable only if the event constituting a Change in Control would also constitute a change in ownership or mental illness.effective control of Cray or a change in the ownership of a substantial portion of the assets of Cray (both as defined in Section 409A of the Code).

In such restricted stock agreements, “Disability” is determined by Company policies.

Stock Ownership Guidelines.

In April 2011, ourOur Board instituted the following stock ownership guidelines for non-employee directors:

Director Compensation for 20102013

The following table sets forth information regarding compensation earned by our non-employee directors for the year ended December 31, 2010,2013, even if paid in 2011.2012. Mr. Ungaro is not included in this table as he is an employee and he receives no compensation for his service as a director. His compensation as an employee is shown in the Summary Compensation Table on page 39.40.

(2)	The following table provides additional information about non-employee director equity awards, including the stock awards made to non-employee directors during 20102013 and the number of stock options and shares of restricted stock held by each non-employee director on December 31, 2010:2013:

EXECUTIVE OFFICERS

The following table lists our executive officers, who will serve in the capacities noted until their successors are duly appointed, and qualified, and their respective ages as of April 4, 2011:10, 2014:

Peter J. Ungarohas served as Chief Executive Officer and as a member of our Board of Directors since August 2005 and as President since March 2005. He previouslyFrom September 2004 until August 2005, Mr. Ungaro served as our Senior Vice President responsible for sales, marketing and services and from MayAugust 2003 until September 2004, and before thenhe served as Vice President responsible for sales and marketing when he joined us in August 2003. Prior to joining us, hemarketing. He served as Vice President, Worldwide Deep Computing Sales for IBM sinceCorporation from April 2003. Prior2003 to that assignment, he was IBM’sAugust 2003 and as Vice President, Worldwide HPC Sales, a position he held sincefrom February 1999. He1999 to April 2003. Mr. Ungaro also held a variety of other sales leadership positions since joiningat IBM beginning in 1991. Mr. Ungaro received a B.A. from Washington State University.

Brian C. Henryhas served as Executive Vice President and Chief Financial Officer since joining us in May 2005. Mr. Henry is responsible for finance and accounting, manufacturing and supply chain. Mr. Henry previously served as Executive Vice President and Chief Financial Officer of Onyx Software Corporation, a full suite customer relationship management company, which he joined in 2001. He previously served from 2001 to 2005. From 1999 to 2001 ashe was Executive Vice President and Chief Financial Officer of Lante Corporation, a public internet consulting company focused one-markets and collaborative business models. From 1998 to 1999, heMr. Henry was Chief Operating Officer, Information Management Group, of Convergys Corporation, which he helped spin-offwas spun off from Cincinnati Bell Inc., a diversified service company, where heMr. Henry served as Executive Vice President and Chief Financial Officer from 1993 to 1998. From 1983 to 1993, he was with Mentor Graphics Corporation in key financial management roles, serving as Chief Financial Officer from 1986 to 1993. Prior to that, Mr. Henry worked forat Deloitte & Touche LLP, an accounting and audit firm, as a CPA.Certified Public Accountant. Mr. Henry received a B.S. from Portland State University and an M.B.A. from Harvard University where he was a Baker Scholar.

William C. Blakehas served as Senior Vice President and Chief Technology Officer since April 2012 and served on our Board of Directors from June 2006 to June 2012. Mr. Blake is responsible for defining the integrated infrastructure that will drive Cray’s next generation of supercomputers and solutions. Mr. Blake has been involved in the high performance computing industry for three decades. Until January 2011, he served as General Manager of Parallel Computing Platforms in Microsoft Corporation’s technical computing group. Prior to its acquisition by Microsoft, Mr. Blake was President and Chief Executive Officer of Interactive Supercomputing, Inc. which developed and sold an interactive parallel computing platform that extended existing desktop simulation tools for parallel computing on a spectrum of computing architectures. Before assuming this position in January 2007, he served as Senior Vice President, Product Development of Netezza Corporation, which develops, markets and sells data warehouse appliances. Prior to that, he held key management positions with Compaq Computer Corporation and Digital Equipment Corporation. Mr. Blake is a former member of the board of directors of TotalView Technologies, Inc., Terascala, Inc., Cluster File Systems, Inc., and Unlimited

Scale, Inc. and is a member of the Institute of Electrical and Electronics Engineers and the Association for Computing Machinery. He received a B.S.E.E. from the Lowell Technological Institute.

Barry C. Boldingserves became our Vice President, Storage & Data Management and Corporate Marketing in September 2011. Dr. Bolding oversees our storage solutions business and corporate marketing. From May 2010 until November 2011, Dr. Bolding served as Vice President, Cray Products DivisionGroup and Corporate Marketing, overseeing product management, applications, benchmarking and corporate and product marketing for Cray’s entire range of high performance computing solutions. PriorFrom January 2009 to his appointmentMay 2010, he served as our Vice President inof the Scalable Systems Business Unit. Prior to January 2009, Dr. Bolding was Cray’s Director of Product Marketing where he analyzed future products and developed long-term strategies. Over the course of his career, Dr. Bolding has worked with key customers in government, academia and commercial markets and held positions as a scientist, applications specialist, systems architect and presales product and marketing manager. He first joined Cray Research, Inc. in 1992 and has held subsequent positions with Network Computing Services and IBM. Dr. Bolding holdsreceived a B.S. in chemistry from the University of California at Davis and a Ph.D. in chemical physics from Stanford University.

Charles D. Fairchildhas served as Vice President, Corporate Controller and Chief Accounting Officer since joining us in May 2010. Mr. Fairchild previously served as Chief Financial Officer forof Radiant Research, Inc., a clinical research and development company, and spent 14 years at Deloitte & Touche LLP. Mr. Fairchild received a B.A. in Business Administrationbusiness administration and an M.B.A. from the University of Washington.

Larry W. HoelzemanGeun-Bum (Daniel) Kimhas served as Senior Vice President Worldwide Salesand General Manager, Cluster Solutions since January 2011.November 2012, bringing more than 20 years of business and engineering experience. He formerly held the dual role of President and Chief Executive Officer of Appro International, Inc., a company he founded in May 1991 as a contract manufacturer. By 1998, Mr. Hoelzeman previously served as Vice PresidentKim expanded Appro to become one of Sales, North America since 2006. A 23-year veteranthe largest vendors of original equipment manufacturer high performance computing systems in the United States, and in 2000 he repositioned Appro to design and sell Appro’s own line of branded high

computing industry, performance servers and clusters. In 2007, Mr. Hoelzeman has served in a variety of sales and presales roles at Cray Research, Inc., Silicon Graphics, Inc. and Cray.Kim established Appro’s direction to deliver only supercomputing solutions. Mr. Hoelzeman received a B.S. in computer scienceKim holds an M.B.A. from the University of Central Arkansas.

Wayne J. Kugelserves as Senior Vice President OperationsMissouri, Kansas City and Customer Support responsible for operations, customer service, enterprise risk management and product life cycle management. He joined usa Business Administration degree from Sogang University in 2001, and through 2005 he served as program director for the Red Storm supercomputer program and its commercial successor, the Cray XT3 system. He was named Vice President responsible for operations in 2005 and promoted to Senior Vice President in May 2009. From 1995 through 2001, Mr. Kugel held various positions for IBM Business Intelligence, including serving as the leader of the worldwide Enterprise Customer Analytics group. From 1991 through 1995, he held a variety of information technology development and leadership roles for Carlson Marketing Group. Mr. Kugel received a B.A. from the University of Wisconsin, Eau Claire.Korea.

Charles A. Morrealeserves became our Vice President, Field Operations in September 2011. Mr. Morreale is responsible for customer facing organizations around the world including sales and presales, service, benchmarking and special purpose systems. Prior to such appointment, Mr. Morreale served as our Vice President Custom Engineering responsible for custom engineering. He most recentlyPrior to that, he served as our Vice President responsible for central and field service and benchmarking organizations from April 2005 through January 2009. From2009, and, from March 2004 when he first joined us, until April 2005, he served as Director of Worldwide Sales Support. From 2001 to 2004, he was with IBM as an HPC Sales Executive at IBM and was responsible for worldwide HPC sales activities in the Life Scienceslife sciences segment. From 1984 to 2001, he held a variety of positions at Cray Research, Inc. and Silicon Graphics, Inc., starting as a programmer analyst and ending as the Northeast Territory Sales Account Manager. He received a B.S. from The College of New Jersey.

Arvind Parthasarathi has served as Senior Vice President and General Manager, YarcData, a division of Cray Inc., since February 2012. From February 2005 to February 2012, he served in several roles with Informatica Corporation, a provider of enterprise data integration and data quality software and services, where he most recently served as Senior Vice President and General Manager of the Master Data Management business unit, in which he led a global team delivering business-focused data management solutions for life sciences, financial services, retail, manufacturing, and healthcare companies as well as government agencies. From August 2007 to January 2010, he served as Informatica’s Vice President of Product Management for data quality products, and from March 2006 to April 2007, he was Senior Director responsible for data migration and data integration solutions. Mr. Parthasarathi was previously Director of Product Management at i2 Technologies, Inc., a provider of supply chain management solutions. Mr. Parthasarathi received a bachelor’s degree in computer science from the Indian Institute of Technology and a master’s degree in computer science from the Massachusetts Institute of Technology.

Michael C. Pirainoserves has served as Vice President Administration, General Counsel and Corporate Secretary since September 2011. Mr. Piraino is responsible for the legal, human resources, information technology, facilities, government programs and quality and process excellence teams. From October 2009 to September 2011, he served as Vice President, General Counsel and Corporate Secretary and was responsible for legal and from August 2010, he was responsible for human resources. He joined us in October 2009. Prior to joining us, fromresources as well. From October 2007 to September 2009, he served with the Seattle office of the law firmwas an attorney at Fenwick & West LLP (and a predecessor firm), where his practice focused on corporate finance and securities. From October 2006 to June 2007, Mr. Piraino served with the Exbiblio family of technology companies in various positions, including Chief Executive Officer. From May 1999 to October 2006, he served withwas at WatchGuard Technologies, Inc., a provider of network security solutions, in various roles, including Vice President, General Counsel and Secretary, and fromSecretary. From October 1995 to May 1999, he served with the law firmwas an attorney at Perkins Coie LLP.LLP, a law firm. Mr. Piraino began his career as a propulsion engineer at The Boeing Company. He holdsreceived a B.S. in aeronautical and astronautical engineering from Purdue University and a J.D.,magna cum laude, from the Seattle University School of Law.

Steven L. ScottMargaret A.has served as(Peg) Williams became our Senior Vice President, since September 2005. He originally served as an employee, having joined Cray Research in 1992, through mid-July 2005, and rejoined usHigh Performance Computing Systems in September 2005. He was named as Chief Technology Officer in October 2004 and then again in September 2005. He2011. Dr. Williams is responsible for defining the integrated infrastructure that will drive our next generation of supercomputers.high performance computing systems software and hardware research and development efforts, product management and product marketing. Prior to hissuch appointment, Dr. Williams served as Chief Technology Officer, Dr. Scott held a variety of technology leadership positions. He was formerly the chief architect of the Cray X1 system and was instrumental in the design of the Cray XT, Cray XE and follow-on “Cascade” systems. Dr. Scott holds 27 U.S. patents in the areas of interconnection networks, cache coherence, synchronization mechanisms and scalable parallel architectures. Dr. Scott has served on numerous program committees and as an associate editor for the IEEE Transactions on Parallel and Distributed Systems, and is a noted expert in HPC architecture and interconnection networks. In 2005 he was the recipient of both the Seymour Cray Computing Award from the IEEE Computer Society and the Maurice Wilkes Award from the Association of Computing Machinery. He received a B.S. in electrical and computing engineering, an M.S. in computer science and Ph.D. in computer architecture, all from the University of Wisconsin where he was a Wisconsin Alumni Research Foundation and Hertz Foundation Fellow.

Margaret A. “Peg” Williamsisour Senior Vice President of Research and& Development responsible for our software and hardware research and development efforts, including our current and future products and projects. Dr. Williams joined us in May 2005. From 1997 through 2005, she held various positions with IBM, including Vice President of Database Technology and Director and then Vice President of HPC Software and AIX Development. She also led the user support team at the Maui High Performance Computing Center, a research and development center, from 1993 through 1996. From 1987 through 1993, Dr. Williams held various positions in high performance computing software development at IBM. Dr. Williams holdsreceived a B.S. in mathematics and physics from Ursinus College and an M.S. in mathematics and a Ph.D. in applied mathematics from Lehigh University.

COMPENSATION OF THE EXECUTIVE OFFICERS

Compensation Discussion and Analysis

The following discussion describes the material elements of compensation for fiscal 20102013 for our executive officers identified in the “Summary Compensation Table” below (the “Named Executive Officers”).

In thisThis discussion we discuss fiscal 2010covers 2013 corporate performance, cover our compensation philosophy and objectives for fiscal 2010, review2013, the components of our compensation program and describe the process we followed in determining executive compensation for fiscal 2010 and present2013. It also presents a detailed discussion and analysis of the Compensation Committee’s specific decisions about the compensation of the following Named Executive Officers for fiscal 2010. In addition, we describe post-2010 compensation governance changes we have implemented with respect to 280G gross-up payments, CEO and director stock ownership, “clawback” of compensation in the event of a financial restatement and the elimination of share recycling from our equity compensation plans.2013:

20102013 Corporate Performance

We believe that it is critical to both our shortshort-term and long termlong-term success that our compensation policies, plans and programs be closely correlated with our corporate performance. The following illustrateare three areas of corporate performance we evaluated in fiscal 2010 that we believe are important indicators of the effectiveness of that correlationconnection with determining our Named Executive Officers’ total compensation in fiscal 2010.2013.

We achieved these results not only because we executed our business plan successfully and strengthened our product and service offerings, but because of the continued extraordinary performance of our outstanding employees, including our Named Executive Officers. Maintaining these results, positioning ourselves for future successes and further enhancing long-term shareholder value will require that we continue to attract, retain and motivate our workforce effectively.

Summary of Compensation Discussion and Analysis

•

Base Salary —In light of the increases in base salary that were implemented in 2009, the Compensation Committee considered the current The base salaries of our Named Executive OfficersMessrs. Ungaro, Henry and Piraino, were increased by $50,000, $25,000, and $30,000, respectively, to be appropriaterecognize corporate growth, their individual performance and did not make any changes in 2010.the placement of their existing base salaries relative to the market median. In the cases of Messrs. Ungaro and Henry, these were the first salary increases since 2009.

addition, our approach has been to set “stretch” goals such that even threshold attainment can reflect a significant accomplishment and therefore 0% attainment on a particular goal can result from what by external standards could be deemed successful execution. In 2013, we believedachieved approximately 132% of the 2013 Adjusted Operating Income componentsgoal and 101% of the Revenue goal. We did not meet the minimum threshold attainment of the Big Data Business Revenue goal and the Cray Cluster Solutions (“CCS”) & Cluster-Attached Revenue goal, each of which is described in greater detail below. Considering these achievements together with each Named Executive Officer’s attainment of their unique Leadership goals, our balanced scorecard for 2010 created the appropriate incentives for earnings-related performance. Although the Compensation Committee had the discretion to modify cash incentive awards under the plan notwithstanding the achievementNamed Executive Officers achieved a payout that averaged 82.4% of any stated goal, it elected not to do so.their respective target awards.

Philosophy and Objectives

We offer technology-differentiated products and services that require a highly educated, specialized and sought-after workforce and often involve long development cycles. In light of these challenges, our compensation philosophy is to provide and effectively implement policies, plans and programs designed to attract, retain and motivate the workforce required for us to achieve our strategic as well as tactical goals and create long-term value for our shareholders. To assist in these efforts, our compensation program has the following objectives:

Compensation Program Components and Purposes

We believe the components of our compensation program described below provide an appropriate mix of fixed and variable pay, balance incentives for short-term operational performance with long-term increases in shareholder value, reinforce an innovative, high-performance culture and encourage recruitment and retention of our employees and officers. As employees assume greater levels of responsibility, an increasing proportion of their compensation is linked to performance. We review our compensation program periodically and make

adjustments as needed or appropriate in order to meet our objectives. We have described below the principal components of our compensation program and the purpose of each component.

The Executive Compensation Process

Role and Authority of the Compensation Committee

The current members of the Compensation Committee are Frank L. Lederman (Chair), John B. Jones, Jr., Stephen C. Kiely and Stephen C. Richards. TheJohn B. Jones, Jr. will not be standing for re-election to the Board of Directors and his term as a Board member and Compensation Committee andmember will expire upon the Annual

Meeting. The Board havehas determined that each individual who served on the Compensation Committee in 20102013 and each current member of the Compensation Committee is “independent,” as that term is defined in Nasdaq rules and regulations, and an “outside director” within the meaning of Section 162(m) of the IRC.IRC and a “non-employee director” as defined in Rule 16b-3 under the Exchange Act. During 2010,2013, the Compensation Committee met in person or by telephone fivesix times.

The Compensation Committee assists our Board in fulfilling its responsibilities for the oversight of our compensation policies, plans and benefit programs, the compensation of our Chief Executive Officer and other senior officers, and the administration of our equity compensation plans. After reviewing competitive market data, expectations for the position, our corporate goals, business plan and objectives for the year and our prior performance, the Compensation Committee determines base salary, the level of target awards under our annual cash incentive plan, including the balanced scorecard goals and objectives, and the number and type of equity grants to be awarded under our long-term equity incentive plans for our senior officers during that year. The Compensation Committee has the authority to determine the annual compensation for our senior officers, other than forsubject to any approval by the Chief Executive Officer. full Board which the Compensation Committee or legal counsel determines to be desirable or that is required by applicable law or the listing standards of the Nasdaq Stock Market.

The Compensation Committee evaluatesalso: determines the performancepolicy for awarding stock options and/or restricted stock grants to other new hires; makes grants of stock options and/or restricted stock to other employees; works with the Board in overseeing our 401(k) Plan; periodically reviews our staffing, including open positions and recommends the compensation ofturnover; receives reports on our Chief Executive Officer to the full Board.health and safety records and any equal employment opportunity claims, investigations and reports; and considers our medical and other health benefits, including potential changes and enhancements, from both a cost and a competitive perspective.

Role of the Chief Executive Officer and Management

The Compensation Committee confers regularly with Mr. Ungaro, our Chief Executive Officer, and other senior officers and members of our Human Resources department regarding the structure and effectiveness of our compensation plans and proposals for changes to our compensation programs. As members of our Board, Compensation Committee members obtain information regarding our tactical and strategic objectives, goals, operational and financial results, our annual financial plan and the outlook regarding our future performance. The Compensation Committee meets in executive session two times each year with Mr. Ungaro to review his performance and at least once a year to review his evaluation of the performance of other senior officers, and annually to review his recommendations for the compensation of the other senior officers, including the other Named Executive Officers. Mr. Ungaro’s recommendations cover base salary, the structure of the annual cash incentive plan, including target awards and performance goals and objectives for each senior officer and the level and form of equity grants.

Role of Compensation Consultants

In September 2009, the compensation firm of Towers Watson was retained by theThe Compensation Committee retained Mercer to update a review it conducted in 2007 of our compensation programs for senior officers, and to advise the Compensation Committee regarding total compensation philosophy, define the applicable market and conduct benchmarking analyses and provide continuing insight into and education on executive compensation trends and practices. The Compensation Committee actively seeks an

independent broad view of current compensation levels, practices and programs, particularly in the high-technology industry. The historical recommendations made in 2007 have been used by the Compensation Committee as a framework for its decisions regarding compensation for the Named Executive Officers and other senior officers for 2008 and 2009. The Compensation Committee utilized the results of this 2009 updated review when making compensation decisions for 2010. Towers WatsonMercer reported directly to the Compensation Committee and has not performed any services for our management either prior to or since its engagement by the Compensation Committee. The Compensation Committee confirmed that Mercer was an independent compensation advisor to the Compensation Committee and that their respective engagements did not present any conflicts of interest.

Benchmarking and Other Factors

For its 20102013 compensation decisions, the Compensation Committee considered the 2009 Towers WatsonMercer’s recommendations to framecontextualize the overall total compensation approach and general market competitiveness. Thecompetitiveness and compared the compensation approach to our peer group companies.

When considering companies for inclusion as one of our peer group companies, the Compensation Committee considers companies that are in our industry, are similar to us with respect to elements such as operating results, research and development investments and product solutions, and those companies with whom we compete in the recruitment of executive officers. For 2013, the Compensation Committee selected companies to comprise our peer group including F5 Networks, Inc., Super Micro Computer, Inc., Fei Company, Silicon Graphics International Corp., Silicon Laboratories Inc., Semtech Corporation, Emulex Corporation, QLogic Corporation, Fusion-io, Inc., Ocz Technology Group, Inc., Extreme Networks, Inc., Lattice Semiconductor Corporation, Silicon Image, Inc., Radisys Corporation, Micrel, Incorporated, Mercury Systems, Inc. and Electro Scientific Industries, Inc.

Additionally, the Compensation Committee also relied on data from the 20092012 Radford Executive CompensationGlobal Technology Survey, which is comprised of organizations within the technology sector and includes data subsets that are comprised of organizations that are similar to estimate market values for the componentsus in terms of total direct compensation. The Compensation Committee considered other sources, but Radford data provided the best matches for the executive positions and had the greatest observation points.size.

As in previous years, the Compensation Committee, in making specific decisions regarding each Named Executive Officer’s compensation, also considered Mr. Ungaro’s recommendations described above regarding our other senior officers and factors such as the internal and external relative parity among senior management, the experience and performance of individual officers, their current compensation levels, their potential impact within our CompanyCray and the reasonableness of the officer’s compensation in light of our compensation objectives and our operational and financial performance. Historically, we have had a relatively flat salary structure for our senior officers, with the significant differences in total compensation among the senior officers being reflected in short-term cash and long-term equity incentive awards. This approach helps us manage our fixed costs and yet provides the potential for higher compensation levels based on performance-dependent, short-termshort and long-term incentives.

The Compensation Committee recognized that competition for most of our Named Executive Officers, including Mr. Ungaro, generally comes from much larger companies with significantly greater resources, whether in the high-performancehigh performance computing industry or other technology companies, for which directly comparable compensation information may not be publicly available. The Compensation Committee also believes that for technical and engineering positions, there are less consistently defined positions across technology companies so that the survey and peer group compensation information is less directly applicable to them, and that eachthem.

Each of these officersthe Named Executive Officers has significant high-performancehigh performance computing experience andand/or achievements and roles not reflected in general survey and peer group analyses. The Compensation Committee also supplemented the 2009 Towers Watson specific compensation information provided by Mercer with its collective experience, judgment and trending assumptions to establish the 20102013 compensation for the Named Executive Officers and other senior officers.

Results of the 2013 Say on Pay Vote

The Compensation Committee considered the results of our 2013 say on pay vote that reflected strong support for our compensation practices and decided to continue our existing compensation policies and practices. At the 2011 annual shareholders meeting, the shareholders voted, on an advisory basis, to approve the Board’s recommendation that future advisory votes on our executive compensation be held every year and we have determined to follow the shareholder vote and hold an advisory vote on our executive compensation every year.

Results of the 2013 Equity Plan Vote

The Compensation Committee considered the results of our 2013 equity incentive plan vote that reflected strong support for our equity compensation practices and decided to continue our existing equity compensation policies and practices.

20102013 Compensation Determinations

Overview — Total Target Compensation

The Compensation Committee has adopted a total target compensation approach for our Named Executive Officers and other senior officers that framed its decisions covering:

Given our operational and financial performance in 20092012 and earlier and in light of the 2009 Towers Watson analysisMercer’s analyses and other factors described in this Proxy Statement, the Compensation Committee, with respect to 2010 compensation for our Named Executive Officers:Committee:

As a result of these decisions, approximately 55%73% to 65%85% of the total 20102013 target compensation for our continuing Named Executive Officers (except for Mr. Ungaro) was performance-based and reliant on organizational and individual performance. For Mr. Ungaro, 77% of his total target compensation was performance-based and reliant on organizational and individual performance.

The Compensation Committee believes that the overall structure of the compensation for the Named Executive Officers is in furtherance of our compensation philosophy and objectives in providing, within our means and for our industry, competitive total target compensation with sufficient base salaries coupled with a significant proportion of the total target compensation based on performance and at risk, including a meaningful proportion that is equity-based, to align the officers’ interests with those of our shareholders and provide a strong retention and performance incentive.

Base Salary

The Compensation Committee uses a salary structure based on market data as a tool to estimate competitive base salaries. The positions are first placed in a band in the salary structure based on competitive market data. With Mr. Ungaro’s assistance (except with respect to Mr. Ungaro’s salary), the salary of each executive officer (except for Mr. Ungaro himself) is assigned a position in that range ofevaluated relative to the market median salary band according to experience, qualifications, performance and the particular impact the role can have within the Company. The base salary associated with the assigned location of the position in the salary band is considered an estimate of competitive market value.Cray. Actual salaries of Named ExecutivesExecutive Officers were generallyaveraged at or slightly below the estimated market valuemedian of the position derived by using the salary structure tool based on competitive market data.

Based on thisTo recognize growth in their organizational management responsibilities, to recognize their individual performances, in consideration of the placement of their existing base salary relative to the market median and in lightconsideration of increases inthe fact that Messrs. Ungaro’s and Henry’s, base salary that were implemented insalaries had not been increased since 2009, the Compensation Committee considered the currentincreased Messrs. Ungaro’s, Henry’s and Piraino’s base salaries, ofby $50,000, $25,000, and 30,000, respectively. Messrs. Blake’s and Parthasarathi’s base salaries were unchanged in 2013. In 2013, after taking into account the increase to base salaries discussed above, our Named Executive Officers to be appropriateOfficers’ base salaries were between the 25^th percentile and did not make any changes in 2010.the median percentile for our peer group companies.

Annual Cash Incentive Compensation Plan

Our annual cash incentive plan is an important element of the compensation program for all of our employees, including the Named Executive Officers. This annual cash incentive plan provides performance-based cash incentives based on our performance and individual performance against specific targets, with the purpose of motivating and rewarding achievement of our critical, tactical, strategic and financial goals. For 2010,2013, the annual cash incentive plan for our senior officers, including all Named Executive Officers, was based on a balanced scorecard award plan, which in turn was based on quantitative financial and qualitative operational goals, consistent with prior years, except that it no longer included a potential additional payment for the Named Executive Officers and certain other senior officers if we achieved a specified level of Adjusted Operating Income because we believed the Adjusted Operating Income components of our balanced scorecard for 2010

created the appropriate incentives for earnings-related performance.2012. These awards were payable only if the specified performance objectives were achieved. As a matter of retention, officers must in most circumstances continue to be employed by us when the awards are paid, generally in early March following the applicable year, in order to receive the cash payments.

Based on the benchmarking data, the target awards as a percentage of base salary for Messrs. Ungaro, Blake and Piraino were consideredabove the 75th percentile and Messrs. Henry and Parthasarathi were between the 50th and 75th percentiles. When comparing our Named Executive Officers to be consistent with the competitive marketbenchmarking data, findings, except for Mr. Ungaro (whose target award was not changed in 2010). The Compensation Committee determined not to decrease his incentive plan target award as his current target award put Mr. Ungaro’s total compensation in the range that the Compensation Committee believed appropriate and the Compensation Committee believed that comparisons with the market data were not sufficient to determine appropriate compensation for our Chief Executive Officer, who must lead us in competition against much larger companies such as IBM and Hewlett-Packard, and as a result of the Compensation Committee’s continued high rating of Mr. Ungaro’s performance. Further, the Compensation Committee wantedwants a greater proportion of Mr. Ungaro’stheir variable compensation relative to total compensation to be at risk and based on performance, thus emphasizing the incentive nature of histheir compensation, and the Compensation Committee further believedalso believes that the incentive plan targets contained rigorous thresholds that must be met before the target awards could be earned, which thresholds had prevented incentive plansplan awards being paid in previous years.

Annual Cash Incentive Compensation Targets

The following table shows the 20102013 target award amount for each Named Executive Officer regardingunder our annual cash incentive plan:

Balanced Scorecard Awards

The following is a description of the balanced scorecard componentcomponents and goals for our Named Executive Officers:

General Conditions. The minimum percentage achievement for each balanced scorecard goal was 25% (at the “Threshold” target — below the Threshold target achievement was set at 0%) and the maximum was 150%200% (at the “Stretch”“Maximum” target). Subject to the caps described below, the achievement for each balanced scorecard goal was added based on the weighting of that particular goal for the individual to determine an overall balanced scorecard percentage payout. Without achieving

The aggregate bonus payment to all participants under the annual cash incentive plans for executive officers and employees (the “Bonus Plans”) may not exceed 50% of PBOI (“pre-bonus” operating income, defined below). To the extent, absent this cap, the aggregate bonus payment under the Bonus Plans would exceed 50% of PBOI, all such bonus payments are reduced on a positive Adjustedpro-rata basis such that the aggregate bonus payment under the Bonus Plans equals 50% of PBOI. “PBOI” means Operating Income with aggregate bonuses paid under the maximum aggregate balanced scorecard percentage payout was capped at 12.5%. The maximum aggregate balanced scorecard percentage payout was also capped at 25% above the Adjusted Operating Income percent achievement (for example, if the Adjusted Operating Income percent achievement was 40%, overall balanced scorecard percentage payouts would be capped at 50% regardless of achievement against other goals). Finally, the maximum aggregate balanced scorecard percentage payout was capped at 100% unless we achieved at least $280 million in Product and Custom Engineering Bookings, as defined below, in 2010 in order to emphasize the need for revenue over a term longer than 2010 and to replace the revenue anticipated to be recognized in 2010.Bonus Plans added back.

Balanced Scorecard Goals. In setting 20102013 performance goals for the annual cash incentive plan, the Compensation Committee set performance goals weighted differentlywith varied weighting for each Named Executive Officer, depending on their areas of responsibility and the factors onover which they have the most influence. Each Named Executive Officer had one or more ofindividual leadership goals and the following quantitative financial goals for 2010 as set out in the following table. If actual results fell between the specified points in the table but above the Threshold target, a resulting percentage could, at the discretion of the Compensation Committee, be interpolated. All dollar figures are in millions.

The Compensation Committee selected the foregoing financial measurement factors2013, for the following reasons:

With respect to the Revenue goal, the minimum goal, or 25% attainment, was changed from 2009 primarily$450 million, the target goal, or 100% attainment, was $525 million, and the maximum goal, or 200% attainment, was $625 million. With respect to eliminate non-cash stock compensation as an “add back”the Adjusted Operating Income goal, the minimum goal, or 25% attainment, was $3 million, the target goal, or 100% attainment, was $16 million, and as a result, the increase in thismaximum goal, or 200% attainment, was $33 million. With respect to the Big Data Business Revenue goal, the minimum goal, or 25% attainment, was $70 million, the target from 2009goal, or 100% attainment, was $85 million, and the maximum goal, or 200% attainment, was $110 million. With respect to 2010the CCS and Cluster-Attached Storage Revenue goal, the minimum goal, or 25% attainment, was more significant than$70 million, the numerical change reflected intarget goal, or 100% attainment, was $95 million, and the balanced scorecard would otherwise indicate.maximum goal, or 200% attainment, was $130 million.

In addition to the Named Executive Officers responsible for technical areas had similar quantitative financial goals, and qualitative product development and marketing goals for the year, weighted as appropriate for their respective areas of responsibility, and each Named Executive Officer had qualitativehis own leadership goals.goals, which are described in more detail below. With respect to the leadership goals, the minimum goal, or 25% attainment, was Meets Some Expectations, the target goal, or 100% attainment, was Fully Meets/Sometimes Exceeds Expectations, and the maximum goal, or 200% attainment, was Dramatically Exceeds Expectations.

If actual results fell between the specified levels but above the minimum threshold goal, a resulting percentage could, in the discretion of the Compensation Committee, be interpolated.

Individual Balanced Scorecards. The 20102013 scorecards for each Named Executive Officer are described below:the same except for their Leadership goals and with respect to the weighting of Mr. Parthasarathi’s scorecard which included a greater emphasis on his YarcData-specific goals that were included in his Leadership goals and lesser emphasis on Revenue and CCS and Cluster-Attached Storage Revenue.

Peter J. Ungaro — As our President and Chief Executive Officer, Mr. Ungaro’s scorecard was based on our overall financial performanceweighted 20% for Revenue, 20% Big Data Business Revenue, 10% for CCS and most heavily weighted on Adjusted Operating Income, with weightings of 15% for 2010 revenue, 15% for revenue from strategic initiatives, 50%Cluster-Attached Storage Revenue, 40% for Adjusted Operating Income and 20%10% for leadership goals. Mr. Ungaro’s leadership categorygoals included strategy development and execution goals, which included growingwinning a role in a major research and development contract, positioning the company for growth, building a big data strategy, living our market share, specific product development goals, maintaining a healthy financial positioncore values and SEC/Sarbanes-Oxley compliance.continued compliance with applicable governmental rules and regulations.

Brian C. Henry — As our Executive Vice President, Chief Financial Officer and head of IT, Mr. Henry’s scorecard was based on our overall financial performanceweighted 20% for Revenue, 20% Big Data Business Revenue, 10% for CCS and most heavily weighted on Adjusted Operating

Income, with weightings of 15% for 2010 revenue, 15% for revenue from strategic initiatives, 50%Cluster-Attached Storage Revenue, 40% for Adjusted Operating Income and 20%10% for leadership goals. Mr. Henry’s leadership goals included goals relating to cash management, improving our long-term business model and our overall competitiveness, capital expenditure levels, SEC/Sarbanes-Oxley compliance, succession planning within the finance department,integration of Appro International,

Inc., on-time delivery of manufactured products, implementing a finance and IT department budget management, hiring initiatives, sales team assistance on specified mattersbudgeting tool, living our core values and specific IT process enhancements.continued compliance with applicable governmental rules and regulations.

Margaret A. WilliamsWilliam C. Blake — As our Senior Vice President responsible for research and development, Dr. Williams’Mr. Blake’s scorecard was weighted 30%20% for specific product development achievements, 15%Revenue, 20% Big Data Business Revenue, 10% for engineering budget management, 35%CCS and Cluster-Attached Storage Revenue, 40% for Adjusted Operating Income and 20%10% for leadership goals. Dr. Williams’Mr. Blake’s leadership goals included advancing successiondeveloping a strategy for large-scale data-intensive computing, establishing a MapReduce/Hadoop programming model, shifting from a Statement of Work based product planning for key positions within the researchprocess to a broader market-in customer driven approach, living our core values and development group, improving product qualitycontinued compliance with applicable governmental rules and reliability, planning, designing and implementing specific development goals, obtaining approval of specific Defense Advanced Research Projects Agency(“DARPA”)High Productivity Computing Systems(“HPCS”)program milestones, and successful implementation of improved processes and methodologies across the research and development group.regulations.

Steven L. ScottArvind Parthasarathi — As our Senior Vice President and Chief Technology Officer, Dr. Scott’sMr. Parthasarathi’s scorecard was weighted across several factors, with 10% for 2010 revenue, 15% for revenue from strategic initiatives, 50%Revenue, 20% Big Data Business Revenue, 5% for Adjusted Operating IncomeCCS and 25% for leadership goals. Dr. Scott’s leadership goals included defining our long-term product roadmap, supporting our Custom Engineering unit in developing new business, providing technical leadership to our Cascade program and the DARPA HPCS project, managing our principal engineer program and corporate technology board and using the team to assist in key technical directions, working with our government programs office to obtain increased governmental research and development support, supporting Dr. Williams in achieving budget and development targets and adding software-focused expertise to the Chief Technology Officer.

Wayne J. Kugel — As our Senior Vice President responsible for operations and customer support, Mr. Kugel’s scorecard was weighted 20% for customer support gross margin, 20% for 2010 product gross profit,Cluster-Attached Storage Revenue, 40% for Adjusted Operating Income and 20% for leadership goals. Mr. Kugel’sParthasarathi’s leadership goals included continuing the roll-outbookings goals, acquisition of enterprise risk management, advancing succession planning for key positions within the organization, managing the overall budget of his team, supporting Cray’snew customers, Urika deliverables, product development, living our core values and process quality initiativescontinued compliance with applicable governmental rules and meeting certain product availability goals, attaining certain revenue threshold for certain Company initiatives, establishing long-term strategies for global operations and maintaining SEC/Sarbanes-Oxley and export compliance.regulations.

Ian W. MillerMichael C. Piraino — Until his departure from Cray on August 14, 2010, Mr. Miller was our Senior Vice President responsible for Productivity Solutions Group and Marketing. Mr. Miller’s originalPiraino’s scorecard was most heavily weighted to specific sales20% for Revenue, 20% Big Data Business Revenue, 10% for CCS and marketing goals, with 40% for Cray CX system revenue and margin,Cluster-Attached Storage Revenue, 40% for Adjusted Operating Income and 20%10% for other specific Productivity Solutions Group and marketingleadership goals. Mr. Miller’s Productivity Solutions Group and marketingPiraino’s leadership goals included advancing succession planning and building management skills within marketing, supporting other business efforts, managing the marketing budget and corporate events, developing and deepening marketing relationships with certain partners and building the Cray brand. Pursuantspecific goals relating to the Company’s Executive Severance Policy then in effect, Mr. Miller’s 2010 bonus would be solely based on “the most significant Company operating measure(s) used in the Company’s annual cash incentive plan.” The Company considered this to be Adjusted Operating Incomemany administrative departments for which he is responsible, living our core values and as a result, Mr. Miller’s 2010 bonus payout was based solely on the Company’s attainment of this metric (which was 100.7% although it was subject to the otherwisecontinued compliance with applicable capsgovernmental rules and because the Company did not achieve its product and custom engineering bookings target, Mr. Miller’s 2010 bonus attainment was capped at 100%).regulations.

For 2010,2013, the percentage achievement for each ofthe Revenue goal was determined to be 100.8%, the percentage achievement for the Adjusted Operating Income, 2010 Revenue goal was determined to be 131.9%. Attainment against the Big Data Business Revenue goal and 2010the CCS and Cluster-Attached Storage Revenue from Strategic Initiatives goalsgoal was 100.7%, 86.9% and 46.6%, respectively. determined to not meet the minimum thresholds.

It was determined that Mr.each of Messrs. Ungaro, attained 95%, Messrs. Henry and Kugel each attained 90% and Drs. Williams and Scott each

Piraino attained 100% of their respective leadership goals under the 20102013 cash incentive plan. Additionally, Dr. Williams had two product development-relatedplan, Mr. Blake attained 92% of his leadership goals, that were weighted 20% and 10%Mr. Parthasarathi attained 85% of her individual balanced scorecard total. Dr. Williams’ attainment against these two product development-relatedhis leadership goals was determined to be 100% for each goal.

Becauseunder the Company did not achieve the product and custom engineering bookings target (the Company achieved over 95% of the target, however), total 2010 bonus achievement was capped at 100%.

The Compensation Committee has the right to adjust the formula2013 cash incentive award for each officer based on their judgment as to the officer’s individual performance. No 2010 awards to officers were adjusted for individual performance.plan.

Difficulty of Performance and Net Income Targets

We believe that the Compensation Committee and the Board havehas historically set performance targets for our annual cash incentive plan that are achievable, but require significant effort to be met, with annual incentive awards at target being at substantial risk and incentive awards above target being very difficult to realize. In the past teneight years, we paid no cash incentive awards for 2001, 2004, 2005 or 2007, paid at-target awards for 2006, paid above-target awards for 2002, 20032008 and 20082012, and paid below-target awards for 2009, 2010, 2011 and 2010.2013.

Discretionary Bonuses

Our Compensation Committee may award discretionary bonuses to, among other things, incentivize new hires, encourage retention of executives and reward individuals or groups of individuals who make exceptional contributions to Cray. No discretionary bonuses were awarded to Named Executive Officers in 2013.

Long-Term Equity Awards

We grant stock options and restricted stock for certain new hires, principally for senior manager and officer positions and generally on an annual basis as part of the total target compensation plan for the Named Executive Officers and other senior officers. In accordance with our compensation philosophy and objectives described above, these grants are designed to:

As noted earlier, in the past several years we have recruited a number of key senior officers and through that process have learned that the available talent pool in our industry is limited and that candidates and our officers have significant other opportunities. Given these circumstances, the Compensation Committee has emphasized the retention nature of equity awards to keep our senior management team in place. For this reason and due to the difficulty in designing appropriate performance criteria that remained operative over several years, the Compensation Committee considered but did not add specific performance criteria to any of the 2010 equity grants. The Compensation Committee has undertaken to continue to review whether to add performance criteria to at least part of future equity grants.

In order toTime-Based Equity Awards

To provide longer-term performance and retention incentives, we generally grant stock options with ten-year terms and four-year vesting schedules, with exercise prices equal to 100% of grant date fair market value (determined by the most recent closing price for our common stock prior to the date of grant). Equity awards are typically granted each year. Whether grants are made and the number of shares granted vary based on many factors, including financial performance and retention concerns. As financial gain from stock options depends on increases in the market price for our common stock after the date of grant, we believe option grants encourage recipients to focus on performance and initiatives that should lead to an increase in the market price of our common stock, which benefits all of our shareholders. In addition, when the market price for the underlying common stock is higher than the exercise prices of stock options that are not fully vested, those options provide a retention incentive. Stock options, however, represent a high-risk and potential high-return component, as the realizable value, and consequently the retention incentive, of each option can fall to zero if the market price for the underlying common stock falls below the exercise price.

We grant restricted stock with vesting dependent on continued employment, generally with four-year vesting schedules, with halfone quarter of the granted shares vesting after two years and the balance vesting after four years (the actual vesting date is generally designed to occur during open trading window periods following publication of our quarterly and/or annual operating results).each year. Awards of restricted stock are designed to increase each recipient’s ownership of our common stock, thereby aligning their interests with shareholders and, with a longer-term vesting schedule, to provide a significant long-term retention incentive.

Towers WatsonPerformance-Based Equity Awards

To provide specific performance incentives with respect to the development of our YarcData business, some of our employees, including all Named Executive Officers, were granted Performance Vesting Restricted Stock Awards in 2013, which were one-time grants associated with the development of our YarcData business. These awards of restricted stock vest, if at all, only upon the achievement of certain operational and strategic performance criteria exclusively related to the operation of our YarcData business or upon a change of control of Cray. The amount that would vest as a result of a change of control depends on the gross proceeds received by our shareholders. The gross proceed levels are set at the time of grant with an objective of increasing the reward to the extent that the YarcData business likely contributed materially to the amount of gross proceeds received by our shareholders. We currently believe that achieving such operational and strategic performance criteria will be very difficult, even when considered over a multi-year time horizon.

The Performance Vesting Restricted Stock Awards do not provide for any time-based vesting and the value that such employee will receive, if any, is contingent solely upon the achievement of the performance criteria. The Performance Vesting Restricted Stock Awards will expire completely if the operational and strategic performance vesting criteria are not satisfied by the calendar day immediately following that date on which we file our Form 10-K with the SEC for the fiscal year ended December 31, 2016. In 2013, the number of time-based Restricted Stock grants that would have normally been awarded was reduced for all of our executive officers, including each Named Executive Officer, as an offset to the addition of the grant of Performance Vesting Restricted Stock. Our executive officers and each Named Executive Officers received fewer time-based Restricted Stock awards in 2013 than they would have typically been granted had we not granted Performance

Vested Restricted Stock Awards. Our typical practice is to award the same number of time-based Restricted Stock and stock options to our executives, but in 2013, we reduced the number of time-based Restricted Awards in light of the Performance Vesting Restricted Stock Awards in 2013. The Performance Vesting Restricted Stock Awards granted in 2013 were meant to provide additional focus on the development of our YarcData business.

Target Total Equity Awards

Mercer provided market data estimating the market median total long-term incentive values expressed as multiples of base salaries for each of our Named Executive Officers. In determining the positions. Towers Watson suggested using valuation methods analogous tosize of equity awards, the expensing of these awards for financial reporting purposes to determineCompensation Committee considered the number of options and restricted shares to grant. Making 2010 individual equity grants involved considerations of the contribution the officer has madeNamed Executive Officer’s (i) contributions to our overall performance, the officer’s(ii) future potential performance and contribution and retirement plans, thecontributions to Cray, (iii) current stock ownership of the officer, theour common stock, (iv) extent and frequency of prior option grants and restricted stock awards the officer’sand (vi) unvested stock optionoptions and restricted stock position and the remaining duration of the outstanding options.options and restricted stock. When considering the total target equity awards for 2013, given the contingency and difficulty of achievement, the Compensation Committee significantly discounted the value of Performance Vesting Restricted Stock Awards. The value of the 20102013 equity grants to the Named Executive Officers expressed as a multiple of base salary were generally at or belowabove the estimated market medians primarily due to the one-time addition of Performance Vesting Restricted Stock, and thus in furtherance ofconsistent with our compensation philosophy and objectives described above.

As explained above, the Compensation Committee has not used any one factor in its equity grant determinations nor set a specific burn or use rate, although therate. The Compensation Committee generally expects that the pool of options and restricted stock should becurrently available for grants for at least the next twois sufficient to three years. See “Guidelines for Granting Equity Compensation” below.meet our current and future requirements.

For information regarding equity grants in 20102013 and in prior years, see the tables and associated footnotes and narratives under “Compensation Tables” below.

Severance Policy and Change of Control Agreements

We have adopted an executive severance policy and entered into certain change of control agreements and titled management retention agreements, designed to attract and retain officers in a competitive marketplace for talent, to retain officers during the uncertainty of rumored or actual fundamental corporate changes and to ensure

that the officers evaluate any potential acquisition situations impartially without concern for how they may be personally affected. We believe that these plans are important competitive considerations, as it is generally believed that it takes senior corporate officers significant time to find new employment after their employment

ends. As described below, our Board implementedWe have a policy that prohibits the inclusion of any new policy, whichprovisions related to 280G gross-up payments and requires the removal of any provisions related to 280G gross-up payments in any existing agreement or arrangement with any executive officer in the event the material compensation terms of any such arrangement or agreement are amended in a manner that is materially favorable to such executive officer.the executive.

Executive Severance Policy.Policy.    In October 2002, our Board adopted an Executive Severance Policy that covered our then senior executive officers. We updated the Executive Severance Policy in late 2008 to comply with Section 409A of the IRC, and in December 2010 in order to comply with Section 409A of the IRC, and eliminate unnecessarily complex provisions. If officers are terminated without Cause or resign for Good Reason, as those terms are defined in the Policy, the officers receive a single lump sum payment equal to his or her per pay period base salary rate multiplied by a number, ranging from six to 12 months of base salary, depending on their position and how long they have served as officers, continuation of health and term life insurance benefits for a period generally ranging from six to 12 months (or up to 18 months in certain circumstances), and outplacement services. Mr. Ungaro and Mr. Henry also receive their full target incentive award in accordance with our previous agreements with each of them, which were negotiated in 2005 when Mr. Ungaro was named our President and Mr. Henry first joined us, and theus. The other covered officers also receive part or all of their respective target cash incentive awards for the year in which their employment terminates depending on the timing of their termination. To receive these benefits, the officer must provide us with a general release and continue to comply with his or her confidentiality and other agreements with us. For officers who are not parties to the management retention agreements discussed below, the Policy provides benefits following a Change of Control if they are terminated without Cause or terminate for Good Reason, as such terms are defined in the Policy, within 24 months of the Change of Control. Our obligations under the Policy are unfunded, and our Board has the express right to modify or terminate the Policy at any time prior to a Potentialpotential Change of Control or Change of Control, as those terms arethat term is defined in the Policy, or prior to delivery of a notice of termination of employment for a covered officer.

Management Retention Agreements.Agreements    We previously entered.    In 2008, we began entering into change of control agreements with each of the Named Executive Officers and certain other senior officers. In late 20082011, we entered into new management retention agreements with our senior officers, including each Named Executive Officer,amended the form of Management Retention Agreement, which modified the earlier agreements to comply with Section 409A of the IRC. Payments are made under these agreements only if two events occur (often referred to as a “double-trigger” form of agreement): first, there must be a Change of Control; and, second, within 24 months after the Change of Control, the officer’s employment is terminated without Cause or the officer resigns for Good Reason, as such terms are defined in the agreement. If the agreements apply, the officer is to receive a lump sum payment equal to two times the officer’s annual compensation (base salary plus annual cash incentive plan award at target), payment of the COBRA costs for medical benefits for 18 months, reimbursement of the cost of term life insurance for 24 months, the acceleration of vesting of all stock options and 12 months to exercise all options after termination or, if earlier, until the options expire, and outplacement services. If there is a dispute as to whether “Cause” or “Good Reason” exists, the officer remains an employee until the dispute is settled, with the CompanyCray having the election to have the officer continue to work or be placed on paid leave. All or a part of certain payments may be delayed to after six months following termination of employment, as required by Section 409A of the IRC. In thesethe prior agreements, we provided for a tax gross-up payment if payments are subject to an “excess parachute payment” excise tax. We believed at the time these agreements were entered into that tax gross-up payments were an appropriate component of executive compensation so that the recipient could receive the benefit of the intended compensation without regard to the complexity of the calculations of “excess parachute payments” and because the payment would be limited to two times annual compensation and benefits, rather than the higher levels generally permitted by IRC before the excise tax is imposed. As described below, subsequent to the end of fiscal 2010, our Compensation Committee implementedWe have a new policy whichthat mandates any future amendments to these retention agreements meeting specific criteria must remove these gross-up payments and that no gross-up payments be included in any new retention agreements.

In addition, the agreements with Mr. Ungaro and Mr. Henry each provide that, for a one-month period beginning six months following a Change of Control, he can resign and receive the benefits under his Agreement

if at such time he no longer holds his same position and reporting relationship at a company registered under the Exchange Act as he held with us prior to the Change of Control. This was added as a competitive provision and balanced the key nature of their current positions with a publicly-held company, the loss of which constitutes a substantial diminution of job responsibilities and duties, and the provision of an appropriate period following a Change of Control to permit negotiations as to their respective positions, if any, with the new controlling entity.

Stock Option Plans and Restricted Stock Agreements.Agreements.    Our stock option plans and restricted stock agreements (other than the restricted stock agreements reflecting the Performance Vesting Restricted Stock Awards) provide that if the CompanyCray is sold and the existing options and restricted stock are not continued or assumed by the successor entity, or paid out an amount equal to the excess of the fair market value over the exercise price or purchase price, then each optionee would have the opportunity to exercise his or her options in full, including any portion not then vested, and the options would terminate upon the sale becoming effective, and the restricted stock would vest in full. We believe that acceleration of vesting of options and restricted stock is appropriate when the options and restricted stock grants are not continued or assumed by the successor company or paid out an amount equal to the excess of the fair market value over the exercise price or purchase price, as the recipient has not received the full contemplated benefit of the equity award due to circumstances beyond the recipient’s control. In addition, our restricted stock agreements (other than the restricted stock agreements reflecting the Performance Vesting Restricted Stock Awards) generally provide that if the holder’s employment is terminated without Cause or for Good Reason following a Changechange of Controlcontrol or dies or suffers a Disability (as those terms are defined in the agreements),disability, all restricted shares not then vested shall immediately vest. In addition, if a Named Executive Officer has held restricted stock for 18 months and his or her employment is terminated for any reason other than Cause, then the Named Executive Officer receives a pro-rata portion of the unvested shares based on the time period he or she has held the restricted stock compared to the four-year vesting period.

The Executive Severance Policy, the Management Retention Agreements and the stock option plans and restricted stock agreements (other than the restricted stock agreements reflecting the Performance Vesting Restricted Stock Awards) are described in more detail under “Termination of Employment and Change of Control Arrangements — Narrative to the Termination of Employment and Change of Control Payments Table” below.

Retirement Plans

Our only retirement plan for all U.S. employees, including the Named Executive Officers, is a qualified 401(k) plan under which employees may contribute a portion of their salary on a pre-tax basis. Participants may invest in a limited number of mutual funds, and may sell, but may not direct the purchase of, shares of our common stock.

Prior to December 31, 2010, For 2013, we matched 25% of participant contributions, with half12.5% of the match paid in shares of common stock on a quarterly basis during the year and the balance paid after year-end in cash and/or shares of common stock, as the Board decided. From December 31, 2010 until either February or April 2011 (depending on an employee’s title) we matched or will match 25% of participant contributions in cash. From February or April 2011 (depending on an employee’s title), we matched or will match 12.5% of employeeparticipant’s total 2013 contributions in cash.

We do not have any pension plan for any of our U.S. employees, including our Named Executive Officers. We do not have any plan for any of our Named Executive Officers or other employees that provides for the deferral of compensation on a qualified or non-qualified basis under the IRC other than the Crayour 401(k) Plan.

Additional Benefits and Perquisites

We have health and welfare plans available on a non-discriminatory basis to all employees in the United States designed to meet the health and welfare needs of our employees and their families and to provide a total competitive compensation package. We provide these benefits to the Named Executive Officers and other senior officers on the same terms and conditions as provided to all other eligible employees:

We do not provide benefits or perquisites for the Named Executive Officers or other senior officers that are not available on the same terms to our employees generally.

Post-2010 Compensation Governance Changes

As part of its 2011 annual review of our compensation practices and policies, the Compensation Committee recommended to the Board, and the Board subsequently implemented, a series of governance changes that will affect the future compensation of our Named Executive Officers. These changes did not influence the specific decisions the Compensation Committee made with respect to the compensation of our Named Executive Officers for fiscal 2010. Nonetheless, we believe they are illustrative of the continued desire of our leadership, including our Board and Compensation Committee, to adopt and implement new compensation practices which strengthen and enhance the effectiveness of our overall compensation programs and further create a strong correlation between our performance and the compensation of our Named Executive Officers. Specifically, we adopted new policies with respect to:

Elimination of Future 280G Tax Gross-Up Payments.    Our existing management retention agreements provide for a tax gross-up payment if payments are subject to an “excess parachute payment” excise tax. We believed at the time these agreements were entered into that tax gross-up payments were an appropriate component of executive compensation so that the recipient could receive the benefit of the intended compensation without regard to the complexity of the calculations of “excess parachute payments” and because the payment would be limited to two times annual compensation and benefits, rather than the higher levels generally permitted by IRC before the excise tax is imposed. The Board, however, has since concluded, after consulting with the Compensation Committee and outside advisors, that these types of gross-up payments should not be a component of our executive compensation practices in the future and are no longer necessary to recruit and retain talented executives. As a result, our Board implemented a new policy, which requires the removal of any provisions related to these payments in any existing agreement or arrangement with any executive officer in the event the material compensation terms of any such arrangement or agreement are amended in a manner that is materially favorable to such executive officer and that no gross-up payments be included in any new agreement we enter into with new or existing executive officers.

CEO Stock Ownership Guidelines.    We adoptedhave stock ownership guidelines for our Chief Executive Officer in furtherance of our goal of aligning the interests of our Chief Executive Officer with those of our stockholders. Under the guidelines, our Chief Executive Officer is expected to hold 200,000 vested shares of our common stock, which amount representsrepresented, when we adopted this guideline, at least three (3) times the value of his currentthen-current base salary based on the closing stock price of our stock as of December 31, 2010 (this amount is greater than three (3) times his current base salary based on the closing price per share of our common stock on December 31, 2013), within the later of five years from appointment as Chief Executive Officer and February 2016.

Compensation Recovery.    We adoptedhave a recoupment or “clawback” policy for cash and equity incentive awards paid to executive officers. The policy provides that if an executive officer’s actual compensation was based upon the achievement financial results that were subsequently the subject of a substantial restatement of our financial statements and the executive officer’s fraud or intentional illegal conduct materially contributed to that financial restatement, then, in addition to any other remedies available to us under applicable law, to the extent permitted by law and as the Board determines appropriate, we may:

Under the policy, it is a requirement that the individual was an executive officer when the compensation was granted or received and that the financial restatement resulted in greater compensation than would have otherwise been received.

Elimination of Share Recycling.    We amended each of our existing equity incentive plans to eliminate any share recycling provisions contained in them. As a result, in the future, any shares of our common stock that are either tendered as payment for an option or withheld for payment of taxes will be not added back to the overall pool of shares available for future grant under the applicable plan.

Stock Ownership Guidelines

In April 2011, to better align our Chief Executive Officer’s and our Board’s interest with those of our shareholders, our Board adopted stock ownership guidelines for our Chief Executive Officer and more robust ownership guidelines for our Board. Details of our Chief Executive Officers’ stock ownership guidelines are disclosed under “CEO Stock Ownership Guidelines” on page 36and details of our Board’s stock ownership guidelines are disclosed under “Stock Ownership Guidelines” on page 18.

Guidelines for Granting Equity Compensation

In 2005 and 2006, the Compensation Committee made decisions regarding base salaries and annual cash incentive awards in the spring of each year and decisions regarding annual equity grants in December. In 2007, the Compensation Committee decided to make all awards to senior officers in the spring concurrent with compensation decisions for all employees in order to have a more cohesive approach to total compensation for each senior officer, and for that reason the Compensation Committee made no general equity grants to senior executive officers in 2007. In each of 2009 and 2010, the general equity grants were made in May. While the Compensation Committee expects to complete the senior officer compensation awards, including equity grants in August 2011, the 2011 awards have not yet been made. The Compensation Committee approves new-hire equity grants for vice presidents and has established guidelines for equity grants of new hires below that rank to be approved by the Chief Executive Officer pursuant to those guidelines. New-hire grants for awards approved by the Chief Executive Officer are effective on the seventh day of the month following the month the employee commenced employment with us, or, if later, following the month during which the Chief Executive Officer formally approves the grant, and the exercise prices for stock option grants are set at the closing price for our common stock on the trading day immediately prior to the effective date of grant.

Under our option plans, we may not grant stock options at a discount to the fair market value of our common stock or, except under certain older plans, reduce the exercise price of outstanding options except in the case of a stock split or other recapitalization events. We do not grant stock options with a so-called “reload” feature, and we do not loan funds to employees to enable them to exercise stock options.

Securities Trading Policies

Our securities trading policy includes that, except for trades pursuant to approved Rule 10b5-1 plans, directors, officers and employees may not trade in CompanyCray securities while possessing material nonpublic information concerning the Company,Cray or trade in CompanyCray securities outside of the applicable trading windows,windows. Our securities trading policy further includes that directors, officers and employees may not purchase or sell puts or calls to sell or buy our common stock, engage in short sales with respect to our common stock, or buy our common stock on margin or pledge shares of our common stock. Except for trades pursuant to approved Rule 10b5-1 plans, our policy restricts trading in CompanyCray securities by directors, officers and employees to open window periods following the release of our quarterly and annual financial results.

Tax Deductibility

Section 162(m) of the IRC limits to $1 million per person the amount that we may deduct for compensation paid in any one year to our Chief Executive Officer and certain of our most highly compensated officers. This limitation does not apply, however, to “performance-based” compensation, as defined in the IRC. Our stock options generally qualify as “performance-based” compensation, and, except for incentive stock options, may result in a deduction for us at the time of exercise.options. Payments to our Chief Executive Officer and certain of our most highly compensated officers under our annual cash incentive plan and our outstanding restricted stock grants do not qualify as “performance-based” compensation and are not deductible to the extent that the $1 million limit is exceeded. The deductibility of some types of compensation payments depends upon the timing of the awards and the vesting or exercise of previously granted rights. Interpretations of and changes in applicable tax laws and regulations, as well as other factors beyond our control, also can affect deductibility of compensation. Although deductibility of compensation is preferred, tax deductibility is not a primary objective of our compensation programs, particularly given our considerable net loss carry-forward position for U.S. tax purposes. Rather, we maintain the flexibility to structure our compensation programs in ways that promote the best interests of our shareholders.

Compensation Committee Report

The Compensation Committee is responsible for overseeing the Company’sour compensation policies, plans and benefits program, the compensation of the Chief Executive Officer and other senior officers and the administration of our equity compensation plans. As set forth in the Compensation Committee’s charter, which can be found at:www.cray.com under “Investors“About Cray — Investors — Corporate Governance,” the Compensation Committee acts only in an oversight capacity, and relies on the work and assurances of management and outside advisers that the Compensation Committee retains. The Compensation Committee believes it has satisfied its charter responsibilities for 2010.2013.

The Compensation Committee has worked with management for the past several years to develop a systematic compensation philosophy and structure. In 2007, theThe Compensation Committee retained Watson Wyatt Worldwide (now Towers Watson), a leading executive compensation consultant,Mercer to advise the Compensation Committee. Towers Watson personnel conducted an in-depth review of the then current compensation practices, including interviews with a number of managers at the Company,The analysis and then reported its findings to the Compensation Committee in a series of meetings, some with management and some in executive sessions. In September of 2009, the Compensation Committee retained Towers Watson to update the 2007 review. The results of that collaboration, whichadvice provided by Mercer formed the basis in many respects for the 20102013 executive compensation decisions areas described in the foregoing Compensation Discussion and Analysis.

A second focus area of the Compensation Committee has been the structure and strength of the Company’sour senior management team. Most of the Company’sour current management team was hired in 2005, when Mr. Ungaro became President, or more recently, including key hires and promotions in 2008, 2009, 2011 and 2010.2012. The Compensation Committee meets twice a year with Mr. Ungaro to review his performance as our Chief Executive Officer and to obtain his assessment of the strengths and weaknesses of the management team. The Compensation Committee believes that under Mr. Ungaro’s leadership, the Company haswe have made great strides in a very competitive market and inthrough difficult times. The Compensation Committee has worked with Mr. Ungaro to develop a strong “performance culture” at the Company.Cray. One aspect of that process has been emphasis on succession plans, identification of high potential, at-risk and retiring employees and efforts to improve the officers’ management and leadership skills within a relatively new and thinour management group. Another aspect, as is reflected in the Towers Watsonour compensation structure, is to add significant retention and incentive elements in long-term compensation awards to competitive base salaries, as discussed in the foregoing Compensation Discussion and Analysis.

The Compensation Committee also: approves the compensation of new vice-presidents as they are hired, including base salary, annual cash incentive targets, equity grants and hiring bonuses, if any; determines the policy for awarding stock options and/or restricted stock grants to other new hires; works with the Board in

overseeing the Cray 401(k) Plan; periodically reviews the Company’s staffing, including open positions and turnover; receives reports on the Company’s health and safety records and any equal employment opportunity claims, investigations and reports; and considers the Company’s medical and other health benefits, including potential changes and enhancements, from both a cost and a competitive perspective.

The Compensation Committee has reviewed and discussed with management the above Compensation Discussion and Analysis. Based on that review and discussion, the Compensation Committee has recommended to the Board that the Compensation Discussion and Analysis be included in this Proxy Statement.

The Compensation Committee

Frank L. Lederman, Chair

John B. Jones, Jr.

Stephen C. Kiely

Stephen C. Richards

Compensation Tables

The tables on the following pages describe, with respect to our Named Executive Officers, the 2010, 20092013, 2012 and 20082011 salaries, bonuses, incentive awards and other compensation reportable under SEC rules, plan-based awards granted in 2010,2013, values of outstanding equity awards as of year-end 2010,2013, exercises of stock options and vesting of restricted stock awards in 2010,2013, and potential payments upon termination of employment and following a Change of Control.

Summary Compensation

The following table summarizes the compensation for the indicated years offor our ChiefNamed Executive Officer, our Chief Financial Officer and our four highest paid other executive officersOfficers for the year ended December 31, 2010 including Mr. Miller whose employment with us terminated effective August 14, 2010.2013.

Summary Compensation Table