At the Annual Meeting, stockholders are being asked to ratify the appointment of PricewaterhouseCoopers LLPPwC as our independent registered public accounting firm for our fiscal year ending July 31, 2019.2024. Stockholder ratification of the appointment of PricewaterhouseCoopers LLPPwC is not required by our bylaws or other applicable legal requirements. However, our board of directors is submitting the appointment of PricewaterhouseCoopers LLPPwC to our stockholders for ratification as a matter of good corporate governance. In the event that this appointment is not ratified by the affirmative vote of a majority of the voting power of the shares of our common stock present in person or represented by proxy at the Annual Meeting and entitled to vote, such appointment will be reconsidered by our audit committee. Even if the appointment is ratified, our audit committee, in its sole discretion, may appoint another independent registered public accounting firm at any time during our fiscal year ending July 31, 20192024 if our audit committee believes that such a change would be in the best interests of Zscaler and its stockholders. If the appointment is not ratified by our stockholders, the audit committee may reconsider whether it should appoint another independent registered public accounting firm. A representative of PricewaterhouseCoopers LLPPwC is expected to be present at the Annual Meeting, will have an opportunity to make a statement if he or she wishes to do so, and is expected to be available to respond to appropriate questions from stockholders.
The following table presents fees for professional audit services and other services rendered to us by PricewaterhouseCoopers LLPPwC for our fiscal years ended July 31, 20182023 and 2017.2022.
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(2) | Audit-Related Fees consist primarily of fees for assurance and related services that are reasonably related to the performance of the audit or review of our consolidated financial statements and not reported under “Audit Fees.” For our fiscal years July 31, 2018 and 2017, this category includes accounting consultations and technical accounting guidance associated with the adoption of the new revenue accounting standard issued by the Financial Accounting Standards Board (“FASB”), Accounting Standards Updated (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606). |
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(3)PROPOSAL TWO | All Other Fees consist of aggregate fees billed for products and services provided by the independent registered public accounting firm other than those disclosed above. These services specifically relate to subscription fees paid for access to online accounting research software and regulatory applications.l | |
Auditor Independence
In the fiscal year ended July 31, 2018,2023, there were no other professional services provided by PricewaterhouseCoopers LLPPwC that would have required our audit committee to consider their compatibility with maintaining the independence of PricewaterhouseCoopers LLP.PwC.
Audit Committee Policy on Pre-Approval of Audit and Permissible Non-Audit Services of Independent Registered Public Accounting Firm
Our audit committee has established a policy governing our use of the services of our independent registered public accounting firm. Under the policy, our audit committee is required to pre-approve all audit and permissible non-audit services performed by our independent registered public accounting firm in order to ensure that the provision of such services does not impair such accounting firm’s independence. All fees paid to PricewaterhouseCoopers LLPPwC for our fiscal years ended July 31, 20182023 and 20172022 were pre-approved by our audit committee.
Vote Required
The ratification of the appointment of PricewaterhouseCoopers LLPPwC requires the affirmative vote of a majority of the sharesvoting power of our common stockthe shares present in person or represented by proxy at the Annual Meeting and entitled to vote thereon. Abstentions will have the effect of a vote AGAINST the proposal.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE RATIFICATION OF THE APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR OUR FISCAL YEAR ENDING JULY 31, 2019.
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| | | | The Board of Directors recommends a vote “FOR” the ratification of the appointment of PRICEWATERHOUSECOOPERS LLP as our independent registered public accounting firm for our fiscal year ending July 31, 2024. |
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AUDIT COMMITTEE REPORTAudit Committee Report
The information contained in the following Audit Committee Report shall not be deemed to be soliciting material or to be filed with the Securities and Exchange Commission, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that Zscaler, Inc. (the “Company”) specifically incorporates it by reference in such filing.
The audit committee serves as the representative of our board of directors with respect to its oversight of:
•our accounting and financial reporting processes and the audit of our financial statements;
•the integrity of our financial statements;
•our compliance with legal and regulatory requirements;
•inquiring about significant risks, reviewing our policies for risk assessment and risk management, including privacy and cybersecurity risk, and assessing the steps management has taken to control these risks; and
•the independent registered public accounting firm’s appointment, qualifications and independence.
The audit committee also reviews the performance of our independent registered public accounting firm, PricewaterhouseCoopers LLP,PwC, in the annual audit of our financial statements and in assignments unrelated to the audit, and reviews the independent registered public accounting firm’s fees.
The audit committee is currently composed of three non-employee directors. Our board of directors has determined that each current member of the audit committee is independent, and that Ms. Blasing qualifies as an “audit committee financial expert” under the SEC rules.
The audit committee provides our board of directors such information and materials as it may deem necessary to make our board of directors aware of financial matters requiring the attention of our board of directors. The audit committee reviews our financial disclosures and meets privately, outside the presence of our management, with our independent registered public accounting firm. In fulfilling its oversight responsibilities, the audit committee reviewed and discussed the audited financial statements in our fiscal year ended July 31, 20182023 Annual Report with management, including a discussion of the quality and substance of the accounting principles, the reasonableness of significant judgments made in connection with the audited financial statements, and the clarity of disclosures in the financial statements. The audit committee reports on these meetings to our board of directors.
The audit committee has reviewed and discussed with Zscaler’s management and PwC the Company’s audited consolidated financial statements with management and PricewaterhouseCoopers LLP, the Company’s independent registered public accounting firm.of Zscaler contained in Zscaler’s Annual Report on Form 10-K for fiscal year 2023. The audit committee has also discussed with PricewaterhouseCoopers LLPPwC the matters required to be discussed by Auditing Standard No. 1301, Communications with Audit Committees, issued byapplicable requirements of the Public Company Accounting Oversight Board (“PCAOB”). and the SEC.
The audit committee has received and reviewed the written disclosures and the letter from PricewaterhouseCoopers LLPPwC required by the applicable requirements of the PCAOB regarding PricewaterhouseCoopers LLP’sPwC’s communications with the audit committee concerning independence, and has discussed with PricewaterhouseCoopers LLP its independence. In addition, the audit committee discussed with PricewaterhouseCoopers LLPPwC its independence from management and the Company, including matters in the letter from PricewaterhouseCoopers LLP required by PCAOB Rule 3526, Communication with Audit Committees Concerning Independence, and considered the compatibility of non-audit services with PricewaterhouseCoopers LLP’s independence.Zscaler.
Based on the review and discussions referred to above, the audit committee recommended to ourthe board of directors that the Company’s audited consolidated financial statements be included in the Company’sZscaler’s Annual Report on Form 10-K for theits fiscal year ended July 31, 20182023 for filing with the Securities and Exchange Commission.SEC. The audit committee also has selected PricewaterhouseCoopers LLPPwC as the independent registered public accounting firm for fiscal year 2019.2024. Our board of directors recommends that stockholders ratify this selection at the Annual Meeting.
Respectfully submitted by the members of the audit committee of the board of directors:
Karen Blasing (Chair)
Andrew Brown
Scott Darling
ADVISORY VOTE ON THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and Section 14A of the Exchange Act enables stockholders to approve, on an advisory or non-binding basis, the compensation of our Named Executive Officers as disclosed in this Proxy Statement in accordance with the rules of the SEC. This proposal, commonly known as a “Say-on-Pay” proposal, gives our stockholders the opportunity to express their views on our Named Executive Officers’ compensation as a whole. This vote is not intended to address any specific item of compensation or any specific Named Executive Officer, but rather the overall compensation of all of our Named Executive Officers and the philosophy, policies and practices described in this Proxy Statement.
The Say-on-Pay vote is advisory, and therefore is not binding on us, our compensation committee or our board of directors. The Say-on-Pay vote will, however, provide information to us regarding investor sentiment about our executive compensation philosophy, policies and practices, which our compensation committee will be able to consider when determining executive compensation for the remainder of the current fiscal year and beyond. Our board of directors and our compensation committee value the opinions of our stockholders. To the extent there is any significant vote against the compensation of our Named Executive Officer as disclosed in this Proxy Statement, we will endeavor to communicate with stockholders to better understand the concerns that influenced the vote and consider our stockholders’ concerns. Our compensation committee will evaluate whether any actions are necessary to address those concerns.
We believe that the information provided in the section titled “Executive Compensation,” and in particular the information discussed in the section titled “Executive Compensation—Compensation Discussion and Analysis—Compensation Philosophy and Objectives,” demonstrates that our executive compensation program was designed appropriately and is working to ensure management’s interests are aligned with our stockholders’ interests to support long-term value creation. Accordingly, we ask our stockholders to vote “For” the following resolution at the Annual Meeting:
“RESOLVED, that the stockholders approve, on an advisory basis, the compensation paid to the Named Executive Officers, as disclosed in the Proxy Statement for the Annual Meeting pursuant to the compensation disclosure rules of the SEC, including the compensation discussion and analysis, compensation tables and narrative discussion, and other related disclosure.”
Vote Required
The advisory vote on the compensation of our Named Executive Officers requires the affirmative vote of a majority of the voting power of the shares of our common stock present in person or represented by proxy at the Annual Meeting and entitled to vote thereon. Abstentions will have the effect of a vote AGAINST the proposal. Broker non-votes will have no effect on the outcome of the vote.
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| | | | The Board of Directors recommends a vote “FOR” the approval, on an advisory basis, of the compensation of our Named Executive Officers. |
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Executive Officers
The following table sets forth certain information about our executive officers and their respective ages as of October 31, 2018.November 1, 2023. Officers are electeddesignated by the board of directors to hold office until their successors are elected and qualified.
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Name | Age | Age | | Position |
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Jay Chaudhry | 65 | 60 | | President, Chief Executive Officer and Chairman of the Board |
Manoj Apte, Ph.D.
| | 45 | | Chief Strategy Officer |
Remo Canessa | 66 | 61 | | Chief Financial Officer |
Syam Nair | 50 | Chief Technology Officer |
Dali Rajic | 50 | Chief Operating Officer |
Robert Schlossman | 55 | 50 | | Chief Legal Officer |
Amit Sinha, Ph.D. | | 42 | | Chief Technology Officer, Executive Vice President of Engineering and Cloud Operations and DirectorSecretary |
For the biography of Mr. Chaudhry and Dr. Sinha,, see “Board“Board of Directors and Corporate Governance—Continuing Directors. Director Nominees.”
Manoj Apte, Ph.D.Remo E. Canessa has served as our senior vice president and as our chief strategy officer since September 2016. Prior to his appointment as our chief strategy officer, Dr. Apte served as our vice president of product management from September 2008. Dr. Apte has a Doctor of Philosophy in computer science from Mississippi State University, a Master of Science in computational engineering from Mississippi State University and a Bachelor of Technology in aerospace engineering from the Indian Institute of Technology, Bombay.
Remo E. Canessa has served as our chief financial officerChief Financial Officer since February 2017. Prior to joining us, he served as chief financial officer of Illumio Inc., a private cybersecurity company, from July 2016 to February 2017. Prior to joining Illumio, from October 2004 to April 2016, Mr. Canessa served as chief financial officer and an advisor to Infoblox Inc., a network control, network automation and domain name system security company. Mr. Canessa is a certified public accountant (inactive), and he holds a Bachelor of ArtsB.A. in economics from the University of California, Berkeley and a Master of Business Administrationan M.B.A. from Santa Clara University. Mr. Canessa servespreviously served on the board of directors of Aerohive Networks, Inc., a cloud-managed mobile networking platform provider, where he iswas chairman of the audit committee and a member of the compensation committee.
Robert Schlossman Syam Nair has served as our chief legal officerChief Technology Officer and Executive Vice President of R&D since February 2016.May 2023. Prior to joining us, and from June of 2017, he served in various engineering leadership roles with Salesforce, most recently as executive vice president and head of product engineering. Mr. Nair holds a Master's in Computer Science and Applications from Goa University, India, and a M.B.A. from Kelley School of Business, Indiana University.
Dali Rajic has served as our Chief Operating Officer since January 2022. Mr. Rajic previously served as our President, go-to-Market and Chief Revenue Officer from September 2019. Prior to joining us, he served as the chief legalcustomer officer and as chief revenue officer from August 2016 to September 2019 at Lucid MotorsAppDynamics, Inc., an electric carapplication performance management company and subsidiary of Cisco Systems, Inc. Mr. Rajic holds a B.S. in international marketing from May 2015 to January 2016. Prior to joining Lucid Motors,California State Polytechnic University, Pomona and an M.B.A. from March 2010 to August 2014, Mr.the Kellogg Graduate School of Management at Northwestern University.
Robert Schlossman has served as the chief legalour Chief Legal Officer and administrative officer at Aptina Inc., a provider of imaging solutions, which was acquired by ON Semiconductor Corporation.our Secretary since February 2016. Mr. Schlossman holds a Juris DoctorJ.D. from the University of California, Berkeley School of Law, as well as a Master of Artsan M.A. and Bachelor of ArtsB.A. in English from Stanford University.
Executive Compensation
EXECUTIVE COMPENSATION
Compensation Discussion and Analysis ProcessesINTRODUCTION
This Compensation Discussion and Procedures for Compensation Decisions
Our compensation programs are designed to attract, motivate, incentivize and retain our employees, including our executive officers, who are important to our long-term success. Pay that is competitive, rewards performance and effectively alignsAnalysis provides information regarding the interests of our employees, including our executive officers, with those of our stockholders is key to ourfiscal 2023 compensation program design and decisions. Our executive compensation programs are weighted towards long-term equity incentives that correlate with the growth of sustainable long-term value for our stockholders.
Our compensation committee is responsible for the executive compensation programs for our executive officers and reports to our board of directors on its discussions, decisions and other actions. Typically, our chief executive officer makes recommendations to our compensation committee, often attends committee meetings and is involved in the determination of compensation for the respective executive officers who report to him, except that our chief executive officer does not make recommendations as to his own compensation. Our chief executive officer makes recommendations to our compensation committee regarding short- and long-term compensation for all executive officers (other than himself) based on our results, an individual executive officer’s contribution toward these results and performance toward individual goal achievement. Our compensation committee then reviews the recommendations and other data. Prior to the effectiveness of our initial public offering, our compensation committee then made recommendations to our board of directors with respect to each executive officer, including our chief executive officer, as well as with respect to each individual compensation component. Beginning with the effectiveness of our initial public offering, our compensation committee makes decisions as to total compensation for each executive officer, although it may instead, in its discretion, make recommendations to our board of directors regarding executive compensation.
Our compensation committee is authorized to retain the services of one or more executive compensation advisors, as it sees fit, in connection with the establishment of our compensation programs and related policies. In the fiscal year ended July 31, 2018, our compensation committee retained Compensia, Inc. an independent compensation consultant, to provide it with information, recommendations and other advice relating to executive compensation on an ongoing basis. Accordingly, Compensia now serves at the discretion of our compensation committee. Our compensation committee engaged Compensia to assist in developing an appropriate group of peer companies to help us determine the appropriate level of overall compensation for our executive officers, as well as assess each separate element of compensation, with a goal of ensuring that the compensation we offer to our executive officers is competitive and fair.
Our named executive officers for the fiscal year ended July 31, 2018, which consist of our principal executive officer, the next two most highly compensatedour principal financial officer, and our three other executive officers at fiscal year-end who were serving asour most highly-compensated executive officers (our “Named Executive Officers”). This section provides details about our executive compensation philosophy, objectives and design; how and why our compensation committee arrived at the specific compensation policies and decisions relating to fiscal 2023, which resulted in the compensation as set forth in the Summary Compensation Table and other compensation tables contained in this proxy statement.
EXECUTIVE SUMMARY
As has historically been the case when designing our compensation programs, in fiscal 2023, our compensation committee aimed to tie our Named Executive Officers’ compensation to key performance measures focusing on growth and capturing additional market share. Specifically, in addition to a base salary, our Named Executive Officers’ target total direct compensation included annual short-term and long-term incentives that are based on our attainment of July 31, 2018key business objectives focused on growth. For fiscal 2023, achievement of cash bonuses was determined based on revenue and calculated billings performance metrics, as well as corporate and individual executive performance metrics and goals, and attainment of our former chief operating officer are:newly issued performance-based equity awards will be determined based on long term, multi-year ARR growth targets.
We believe our “pay for performance” design is working, as fiscal 2023 was another year of record growth for Zscaler. For the full year, our revenue grew 48% to $1.6 billion and billings grew 37% to over $2 billion. In fiscal 2023, we increased our ARR to over $2 billion, doubling our ARR in only seven quarters and reaching a milestone only a select handful of SaaS companies have achieved. At the end of fiscal 2023, we secured over 7,700 customers and protected over 41 million users.
In fiscal 2023, the key highlights of our executive compensation program included:
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BASE SALARIES AND BONUS TARGETS | BONUSES BASED ON PERFORMANCE | PERFORMANCE AWARDS BASED ON LONG-TERM ARR TARGETS | CEO COMPENSATION HEAVILY WEIGHTED TOWARDS PERFORMANCE |
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We increased base salaries by a range of 0% to 15% and set bonus targets at similar rates as prior years — ranging from 67% to 100% of base salary. | We set cash bonus funding based on achievement of annual revenue and calculated billings targets, with 50% of the bonus subject to downward discretion by our CEO.
For the full year, eligible Named Executive Officers earned an aggregate of 82.6% of their target performance amounts. | After considering analysis performed by Compensia, feedback from our stockholders and the compensation committee’s desire to establish long-term performance metrics, the compensation committee determined the PSU performance metrics for fiscal 2023 were to be based on achievement of a long-term, multi-year ARR metric. | Our CEO was awarded a long-term equity incentive package with 80% of his incentive compensation opportunity in the form of PSU awards and 20% in the form of RSUs. |
NAMED EXECUTIVE OFFICERS
For fiscal 2023, our Named Executive Officers were:
•Jay Chaudhry, President,our Chief Executive Officer and Chairman of the Board;Board (our “CEO”);
•Remo E. Canessa, our Chief Financial Officer;Officer (our "CFO");
Amit Sinha, •Syam Nair, our Chief Technology Officer and Executive Vice President of Engineering and Cloud Operations; and
R&D (our "CTO");William Welch, Former•Dali Rajic, our Chief Operating Officer.
Officer (our "COO"); and
•Robert Schlossman, our Chief Legal Officer and Secretary (our "CLO")
SummaryEXECUTIVE TRANSITION
During fiscal 2023, Dr. Sinha informed us of his intention to resign as our President effective as of October 21, 2022. Dr. Sinha is expected to continue to serve as a member of the Board through the commencement of the Annual Meeting. Dr. Sinha did not receive any severance payments or benefits and forfeited all unvested equity awards in connection with his resignation. During fiscal 2023, Syam Nair joined us as our new CTO assuming many of Dr. Sinha's previous responsibilities. In July 2023, our board of directors designated Syam Nair as an officer under Rule 16a-1(f) of the Exchange Act and as an executive officer under Rule 3b-7 of the Exchange Act. Mr. Nair's compensation is described throughout this section, including compensation decisions made prior to his designation as an executive officer.
COMPENSATION PHILOSOPHY AND OBJECTIVES
We design our executive compensation program to achieve the following objectives, consistent with our “pay for performance” philosophy:
•attract, motivate and retain executive officers of outstanding ability, potential and experience;
•incentivize long-term, sustained performance;
•motivate and reward behavior that results in exceeding our corporate performance objectives; and
•appropriately reward strong performance, and meaningfully align our compensation programs with the creation of short- and long-term value for our stakeholders.
We believe that our executive compensation programs should include short-term and long-term elements which reward consistent performance that meets or exceeds expectations. We evaluate both performance and compensation to ensure that the compensation provided to our executive officers remains competitive relative to the compensation paid by similar companies operating in the technology industry, taking into account the role and performance of the individual executive officer and the performance and strategic objectives of the Company.
Focus on Growth
We believe that organizations are still in the early stages of embracing cloud-based business solutions and adopting the security and networking solutions, including our products, that are necessary to secure and manage cloud-based operations. To be successful in this market, we believe that delivering growth and capturing market share are paramount, while prudently managing expenses as we invest in our business. We focus our compensation programs on aggressive growth targets that we believe will deliver stockholder value in a highly competitive and emerging market. In addition, beginning in fiscal 2024, the compensation committee introduced and expects to continue to incorporate performance metrics focused on operating profitability into our compensation programs.
The labor market remains extremely competitive for skilled executives, like ours, who have demonstrated the ability to dramatically scale a business, develop and sell new technology, oversee operation of one of the largest cloud platforms, disrupt legacy industries, produce strong financial results and deliver sustained value to stockholders. In order to retain our existing executives and recruit new leaders, the compensation committee believes that we must provide our executives with attractive compensation packages which provide a compelling incentive to join us and remain employed for an extended period of time.
Business Highlights
Our focus on growth in compensating and incentivizing our employees, including our executives, has succeeded in delivering both robust financial performance and also long-term value to our stockholders.
Fiscal 2023 Financial Performance
Fiscal 2023 was a strong year for us marked by significant achievement and growth across all of our key metrics. Fiscal 2023 highlights were as follows:
*Calculated billings is a non-GAAP financial measure that we believe is a key metric to measure our periodic performance. Calculated billings represents our total revenue plus the change in deferred revenue in a period. See Appendix A for the calculation of calculated billings.
†Free Cash Flow and Free Cash Flow Margins are non-GAAP financial measures that we believe are useful indicators of liquidity and provide information to management and investors about the amount of cash generated from our operations that, after the investments in property, equipment and other assets and capitalized internal-use software, can be used for strategic initiatives, including investing in our business, and strengthening our financial position. Free cash flow is calculated as net cash provided by operating activities less purchases of property, equipment and other assets and capitalized internal-use software. Free cash flow margin is calculated as free cash flow divided by revenue. See Appendix A for the calculation of free cash flow margins.
Long-Term Financial Performance
During the three-year period ending July 31, 2023, we have achieved substantial growth across all of our key metrics:
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| | | Revenue | | | | | Free Cash Flow* | | | | | Stock Price |
| | | 275% | | | | | 1113% | | | | | 24% |
| | | CAGR of 55%† | | | | | CAGR of 130%† | | | | | CAGR of 7%† |
| | | Revenue Increased from $431 million for fiscal 2020 to $1.62 billion in fiscal 2023, an increase of 275% | | | | | Free cash flow increased from $28 million for fiscal 2020 to $334 million in fiscal 2023, an increase of 1113% | | | | | The closing market price of our common stock on July 31, 2023, the last trading day of fiscal 2023 was $160.38 per share. Comparatively, the price on the last trading day of fiscal 2020 was $129.85 per share. This reflects an increase of 24%. |
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*Free Cash Flow and Free Cash Flow Margins are non-GAAP financial measures that we believe are useful indicators of liquidity and provide information to management and investors about the amount of cash generated from our operations that, after the investments in property, equipment and other assets and capitalized internal-use software, can be used for strategic initiatives, including investing in our business, and strengthening our financial position. Free cash flow is calculated as net cash provided by operating activities less purchases of property, equipment and other assets and capitalized internal-use software. Free cash flow margin is calculated as free cash flow divided by revenue. See Appendix A for the calculation of free cash flow margins.
†The compound annual growth rate (CAGR) is the mean annual growth rate over a specified time period. We believe it is useful to investors to use a three-year CAGR, here shown from fiscals 2020 to 2023, to reflect underlying growth trends.
Pay-for-Performance
We believe our executive compensation program is reasonable, competitive, and appropriately balances the goals of attracting, motivating, rewarding, and, most importantly, retaining our Named Executive Officers with the goal of aligning their interests with those of our stockholders. To ensure this alignment and to motivate and reward individual initiative and effort, a substantial portion of our Named Executive Officers’ target annual compensation opportunity is both variable in nature and “at-risk.”
We emphasize variable compensation that appropriately rewards our Named Executive Officers through two separate compensation elements:
•First, we provide our Named Executive Officers (other than our CEO) the opportunity to participate in our cash bonus plan which provides cash payments if they produce results that meet or exceed the financial, operational, and strategic objectives for the fiscal year, as established by our compensation committee.
•In addition, we grant RSU and PSU awards that will reward recipients over a multi-year period, with the PSU awards being earned only for achieving performance objectives established by the compensation committee. The RSU awards and, if earned, PSU awards comprise a majority of our Named Executive Officers’ target total direct compensation opportunities. The future value of these awards depends significantly on our performance and the value of our common stock, thereby incentivizing them to build sustainable long-term value for the benefit of our stockholders.
These variable pay elements ensure that, each year, a substantial portion of our Named Executive Officers’ target total direct compensation is contingent (rather than fixed) in nature, with the amounts ultimately payable subject to variability above or below target levels commensurate with our actual performance.
Executive Compensation TablePolicies and Practices
We endeavor to maintain sound governance standards consistent with our executive compensation policies and practices. The compensation committee evaluates our executive compensation program on a regular basis to ensure that it is consistent with our short-term and long-term goals given the dynamic nature of our business and the market in which we compete for executive talent.
The following table provides information regardingsummarizes our executive compensation and related policies and practices:
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| What We Do |
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Maintain an Independent Compensation Committee The compensation committee consists solely of independent directors who establish our compensation policies and practices. |
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Retain an Independent Compensation Advisor The compensation committee has engaged its own compensation consultant to provide information, analysis, and other advice on executive compensation independent of management. |
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Annual Executive Compensation Review The compensation committee conducts an annual review and approval of our compensation strategy, and a review of our compensation-related risk profile to ensure that our compensation programs do not encourage excessive or inappropriate risk-taking. |
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At-Risk Compensation Our executive compensation program is designed so that a significant portion of our Named Executive Officers’ compensation is “at risk” based on corporate performance, as well as equity-based, to align the interests of our Named Executive Officers and stockholders. |
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Use Pay-for-Performance Philosophy Most of our Named Executive Officers’ compensation is directly linked to corporate performance; and includes a significant long-term equity component, thereby making a substantial portion of each Named Executive Officer’s target total direct compensation dependent upon the long-term growth of our stock price. |
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Nominal Base Salary and Zero Bonus Potential for Our CEO Our CEO receives only a nominal base salary and is not eligible for a cash bonus. |
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Succession Planning We review the risks associated with our key executive officer positions to ensure adequate succession plans are in place. |
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Clawback Policy Our compensation committee is obligated to recover Excess Incentive Compensation received by covered executives under applicable circumstances. |
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| What We Don't Do |
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No Executive Retirement Plans We do not currently offer, nor do we have plans to offer, defined benefit pension plans or any non-qualified deferred compensation plans or arrangements to our Named Executive Officers other than the plans and arrangements that are available to all employees. Our Named Executive Officers are eligible to participate in our Section 401(k) retirement plan on the same basis as our other employees. |
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Limited Perquisites Perquisites or other personal benefits are not a material part of our compensation program for our Named Executive Officers. |
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No Excise Tax Payments on Future Post-Employment Compensation Arrangements We do not provide any excise tax reimbursement payments (including “gross-ups”) on payments or benefits contingent upon a change in control of the Company. |
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No Special Health or Welfare Benefits We do not provide our Named Executive Officers with any health or welfare benefit programs, other than participation in our broad-based employee programs on the same basis as our other full-time, salaried employees. |
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No Hedging or Pledging of Our Equity Securities We prohibit our employees, including our Named Executive Officers and the members of our board of directors, from hedging or pledging our equity securities. |
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Stockholder Advisory Vote on Named Executive Officer Compensation
At our 2022 Annual Meeting of Stockholders, we conducted our non-binding stockholder advisory vote on the compensation of our namedNamed Executive Officers (commonly known as a “Say-on-Pay” vote). Approximately 63.6% of the votes cast were cast “FOR” the approval of our Named Executive Officer compensation for fiscal 2022.
We value the opinions of our stockholders. Our board of directors and the compensation committee will continue to monitor stockholder opinions, including the outcome of future advisory votes on the compensation of our Named Executive Officers, as well as feedback received throughout the year, when making compensation decisions for our executives.
After considering the above results and feedback from our stockholders, and in consideration of the primary objective to drive growth and capture market share, the compensation committee decided to retain the majority of our overall approach to executive officers duringcompensation, including the continued use of multi-year long-term ARR financial targets in connection with PSU awards.
COMPENSATION-SETTING PROCESS
Role of Compensation Committee
The compensation committee discharges the responsibilities of our board of directors relating to the compensation of our Named Executive Officers and the non-employee members of our board of directors. The compensation committee has overall responsibility for overseeing our compensation and benefits policies generally, and overseeing and evaluating the compensation plans, policies, and practices applicable to our CEO and other Named Executive Officers.
In carrying out its responsibilities, the compensation committee evaluates our compensation policies and practices with a focus on the degree to which these policies and practices reflect our executive compensation philosophy, develops strategies and makes decisions that it believes further our philosophy or align with developments in best compensation practices, and reviews the performance of our Named Executive Officers when making decisions with respect to their compensation.
The compensation committee’s authority, duties, and responsibilities are further described in its charter, which is reviewed annually and revised and updated as warranted. The charter is available at http://ir.zscaler.com.
The compensation committee retains a compensation consultant (as described below) to provide support in its review and assessment of our executive compensation program.
Setting Target Total Compensation
The compensation committee reviews the base salary levels, annual cash bonus award opportunities, and long-term incentive compensation opportunities of our Named Executive Officers and all related performance criteria at the beginning of each year, or more frequently as warranted. Adjustments to cash compensation are generally effective at the beginning of the fiscal years ended July 31, 2017year.
The compensation committee utilizes a number of factors when formulating the target total direct compensation opportunities of our Named Executive Officers, including the following:
•our executive compensation program objectives;
•our performance against the financial, operational, and 2018.strategic objectives established by the compensation committee and our board of directors;
•each individual Named Executive Officer’s knowledge, skills, experience, qualifications, and tenure relative to other similarly-situated executives at the companies in our compensation peer group and/or Compensia’s proprietary compensation database;
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Name and Principal Position | | Year | | Salary ($) | | Bonus ($) | | Option Awards ($)(1) | | Non-Equity Incentive Plan Compensation ($) | | All Other Compensation ($) | | Total ($) |
Jay Chaudhry | | 2018
| | 96,500 | | — |
| | — — |
| | — — |
| | 200,809(2) — |
| | 297,309 — |
President, Chief Executive Officer and Chairman of the Board
| | 2017 | | —
| | —
|
| | — |
| | —
|
| | —
|
| | —
|
Remo Canessa | | 2018 | | 300,000 | | — |
| | — |
| | 169,359(4) |
| | — |
| | 469,359 |
Chief Financial Officer | | 2017 | | 146,591 | | 72,313(3) |
| | 2,161,320 |
| | — |
| | — |
| | 2,380,224 |
Amit Sinha(5) | | 2018 | | 300,000 | | — |
| | — |
| | 129,519(4) |
| | 1,457(6) |
| | 430,976 |
EVP of Engineering and Chief Technical Officer | | | | | | | | | | | | | | |
William Welch | | 2018 | | 236,364 | | — |
| | — |
| | 264,145(4) |
| | 596(6) |
| | 501,105 |
Former Chief Operating Officer(7) | | 2017 | | 300,000 | | — |
| | 728,896 |
| | 379,561(8) |
| | — |
| | 1,408,457 |
___________________________
| | | | | | | | |
(1)42 | The amounts included in this column reflect the aggregate grant date fair value of stock options granted during fiscal 2017 and 2018 computed in accordance with the provisions of Accounting Standards Codification (ASC) 718, Compensation—Stock Compensation. The assumptions that we used to calculate these amounts are discussed in Note 8 to our audited consolidated financial statements for the year ended July 31, 2018 included in our Annual Report on Form 10-K for the year ended July 31, 2018. These amounts do not reflect the actual economic value that will be realized by the named executive officer upon the vesting of the stock options, the exercise of the stock options, or the sale of the common stock underlying such stock options.2023 Proxy Statement | |
| | | | | | | | |
(2) | The amount reported represents a Hart-Scott-Rodino filing fee paid on behalf of Mr. Chaudhry ($125,000) and associated tax reimbursement ($75,809). |
| |
(3)EXECUTIVE COMPENSATION | The amount reported consists of a pro-rated bonus guaranteed to Mr. Canessa under the terms of his offer letter. l | |
•the scope of each Named Executive Officer’s role and responsibilities compared to other similarly-situated executives at the companies in our compensation peer group and/or Compensia’s proprietary compensation database;
•the prior performance of each individual Named Executive Officer, based on a subjective assessment of his or her contributions to our overall performance, ability to lead his or her business unit or function, and work as part of a team, all of which reflect our core values;
•the potential of each individual Named Executive Officer to contribute to our long-term financial, operational, and strategic objectives;
•our financial performance relative to our compensation and performance peers;
•the compensation practices of our compensation peer group and/or the companies in Compensia’s proprietary compensation database and the positioning of each Named Executive Officer’s compensation in a ranking of peer company compensation levels based on an analysis of competitive market data; and
•the recommendations of our CEO with respect to the compensation of our Named Executive Officers (except with respect to his own compensation).
These factors provide the framework for compensation decision-making and final decisions regarding the compensation opportunity for each Named Executive Officer.
Role of Management
In discharging its responsibilities, the compensation committee works with members of our management, including our CEO. Our management assists the compensation committee by providing information on corporate and individual performance, market compensation data, and management’s perspective on compensation matters. The compensation committee solicits and reviews our CEO’s proposals with respect to program structures, as well as his recommendations for adjustments to annual cash compensation, long-term incentive compensation opportunities, and other compensation-related matters for our Named Executive Officers (except with respect to his own compensation) based on his evaluation of their performance for the prior year.
At the beginning of each year, our CEO reviews the performance of our other Named Executive Officers based on such individual’s level of success in accomplishing the business objectives established for him or her for the prior year and his or her overall performance during that year and then shares these evaluations with, and makes recommendations to, the compensation committee for each element of compensation as described above.
The compensation committee reviews and discusses our CEO’s proposals and recommendations with our CEO and considers them as one factor in determining and approving the compensation of our Named Executive Officers, including our CEO. Our CEO also attends meetings of our board of directors and the compensation committee at which executive compensation matters are addressed, except with respect to discussions involving his own compensation.
Role of Compensation Consultant
The compensation committee engaged Compensia as its external compensation consultant to assist it by providing information, analysis, and other advice relating to our executive compensation program. The compensation consultant reports directly to the compensation committee and its chair and serves at the discretion of the compensation committee, which reviews the engagement annually.
| | | | | | | | |
(4) | These amounts represent aggregate achievement against plan of 99% for the first half and 118% for the second half of fiscal 2018 under the Company's Employee Incentive Compensation Plan.2023 Proxy Statement | 43 |
| | | | | | | | |
(5) | Dr. Sinha was an executive officer but not a named executive officer for fiscal 2017. |
| |
(6) | This amount consists of a tax gross-up provided with respect to the Company-paid costs of attending a Company sales team and leadership event, which was provided on the same terms to all other employees who attended the event.l | EXECUTIVE COMPENSATION |
During fiscal 2023, Compensia attended the meetings of the compensation committee (both with and without management present) as requested and provided the following services:
•consultation with the compensation committee chair and other members between compensation committee meetings;
•review, research, and updating of our compensation peer group;
•an analysis of competitive market data based on the compensation peer group and Compensia's proprietary compensation database for our Named Executive Officers’ positions and an evaluation of how the compensation we pay our Named Executive Officers compares both to our performance and to how the companies in our compensation peer group compensate their executives;
•review and analysis of the base salary levels, target annual cash bonus opportunities, and long-term incentive compensation opportunities of our Named Executive Officers;
•review and analysis of the metrics used by the companies in our compensation peer group in their short-term incentive compensation plans;
•assessment of executive compensation trends within our industry, and updating on corporate governance and regulatory issues and developments;
•review and analysis of director compensation levels; and
•support on other ad hoc matters throughout the year.
The terms of Compensia’s engagement includes reporting directly to the compensation committee chair. Compensia also coordinated with management for data collection and job matching for our Named Executive Officers. Additionally, Compensia provided analysis and produced certain charts and figures, which after having been reviewed and assessed by the Company, were included in the Pay vs. Performance section of this proxy. In fiscal 2023, Compensia did not provide any other services to us.
The compensation committee has evaluated its relationship with Compensia to ensure that it believes that such firm is independent from management. This review process included a review of the services that Compensia provided, the quality of those services, and the fees associated with the services provided during fiscal 2023. Based on this review, as well as consideration of the factors affecting independence set forth in Exchange Act Rule 10C-1(b)(4), Rule 5605(d)(3)(D) of the Nasdaq Marketplace Rules, and such other factors as were deemed relevant under the circumstances, the compensation committee has determined that no conflict of interest was raised as a result of the work performed by Compensia and that Compensia is independent.
Competitive Positioning
For purposes of assessing our executive compensation against the competitive market, the compensation committee reviews and considers the compensation levels and practices of a select group of peer companies. This compensation peer group consists of technology companies that are similar to us in terms of revenue, market capitalization, and industry focus. The competitive data drawn from this compensation peer group is only one of several factors that the compensation committee considers in making its decisions with respect to the compensation of our Named Executive Officers.
| | | | | | | | |
(7)44 | Mr. Welch resigned as our chief operating officer in May 2018.2023 Proxy Statement | |
| | | | | | | | |
(8) | The amount reported represents payments to Mr. Welch under our Sales Compensation Plan. |
Outstanding Equity Awards at Fiscal Year-End 2018
The following table provides information regarding equity awards held by our named executive officers as of July 31, 2018.
|
| | | | | | | | | | | | | | | | | | | | |
| | Option Awards | | Stock Awards |
Name | Grant Date (1) | Number of Securities Underlying Unexercised Options (#) Exercisable | | Number of Securities Underlying Unexercised Options (#) Unexercisable | | Option Exercise Price ($)(2) | | Option Expiration Date | | Number of Shares or Units of Stock That Have Not Vested (#) | | Market Value of Shares or Units of Stock That Have Not Vested ($)(3) |
Jay Chaudhry | — |
| — |
| | — |
| | — |
| | — |
| | — |
| — |
| — |
|
Remo Canessa | 03/02/2017 |
| 750,000(4) |
| | — |
| | 5.82 |
| | 03/02/2024 |
| | — |
| | — |
|
Amit Sinha | 01/29/2013 |
| 101,333(5) |
| | — |
| | 1.34 |
| | 01/29/2020 |
| | 62,493 |
| | 2,206,628 |
|
| 04/06/2017 |
| — |
| | 333,333(6) |
| | 5.93 |
| | 04/06/2024 |
| | | | |
William Welch | — |
| — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
____________________________
| |
(1)EXECUTIVE COMPENSATION | Each of the outstanding equity awards was granted pursuant to our 2007 Stock Plan (the “2007 Plan”).l | |
The compensation peer group for fiscal 2023 compensation decisions was established in March 2022 and was comprised of publicly-traded technology companies against which we compete for executive talent, as well as, in some instances, business opportunities. In evaluating the companies comprising the compensation peer group, we worked with Compensia to establish the following criteria:
•publicly-traded companies headquartered in the United States and traded on a major United States stock exchange with a preference for California-based companies;
•companies in the application software and systems software industries;
•similar revenues – within a range of ~0.5x to ~2.0x our then-current trailing four quarters revenue of approximately $761 million (approximately $380 million to approximately $1.5 billion); and
•similar market capitalization – within a range of ~0.33x to 3.0x our then-current 30-day average market capitalization of approximately $37.2 billion (approximately $12.4 billion to approximately $111.7 billion).
Our fiscal 2023 peer group consisted of the following companies:
| | | | | | | | | | | |
(2)ANSYS | This column represents the fair value of a share of our common stock on the date of grant, as determined by our board of directors.Datadog | Okta | The Trade Desk |
Arista Networks | DocuSign | Palantir Technologies | Twilio |
Bill.com Holdings | Dynatrace | Paycom Software | Unity Software |
Cloudflare | HubSpot | RingCentral | Veeva Systems |
CrowdStrike Holdings | MongoDB | Snowflake | Zoominfo Technologies |
The compensation committee reviews our compensation peer group at least annually and makes adjustments to its composition if warranted, taking into account changes in both our business and the businesses of the companies in the peer group.
COMPENSATION ELEMENTS
In fiscal 2023, the principal elements of our executive compensation program, and the purposes for each element, were as follows:
| | | | | | | | | | | |
(3)Element | This column representsType of Element | Compensation Element | Objective |
| | | |
Base Salary | Fixed | Cash | Designed to attract and retain highly talented executives by providing fixed compensation amounts that are competitive in the fair market value |
Annual Cash Bonuses | Variable | Cash | Designed to provide financial incentives to motivate our executives to achieve semi-annual (and, in the case of Mr. Rajic, quarterly) financial objectives |
Long Term Incentive Compensation | Variable | Equity awards in the form of PSU awards and RSU awards,, that may be settled for shares of our common stock, as of July 31, 2018, based onand occasionally option awards | Designed to align the closing priceinterests of our common stock, as reported on the Nasdaq Global Select Market, of $35.31 per share on July 31, 2018.executives and our stockholders by motivating them to create sustained long-term stockholder value |
| | | | | | | | |
(4) | The option is subject to an early exercise provision and is immediately exercisable. One-fourth of the shares subject to the option vested on February 6, 2018 and 1/48 of the shares vest monthly thereafter.2023 Proxy Statement | 45 |
| | | | | | | | |
(5) | Shares subject to the option are fully vested and immediately exercisable. |
| |
(6) | One-fourth of the shares subject to the option vest on November 1, 2018 and 1/48 of the shares vest monthly thereafter.l | EXECUTIVE COMPENSATION |
Non-Equity Incentive PlanBase Salary
Base salary represents the fixed portion of the compensation of our Named Executive Officers and is an important element of compensation intended to attract and retain highly talented individuals. Generally, we use base salary to provide each Named Executive Officer with a specified level of cash compensation during the year with the expectation that he or she will perform his or her responsibilities to the best of his or her ability and in our best interests.
In September 2022, the compensation committee reviewed the base salaries of our Named Executive Officers, taking into consideration a competitive market analysis performed by its compensation consultant and the recommendations of our CEO (except with respect to his own base salary), as well as the other factors described in “Compensation-Setting Process – Setting Target Total Compensation” above. Following this review, the compensation committee determined to maintain the base salary of our CEO at his fiscal 2022 level and to increase the base salaries of our other Named Executive Officers to levels that were more comparable to those of similarly-situated executives in the competitive marketplace. The compensation committee determined that Mr. Chaudhry would continue to receive a nominal base salary. The base salary adjustments were effective August 1, 2022.
Our boardThe base salaries of directors has adopted anour Named Executive Officers for fiscal 2023 were as follows:
| | | | | | | | | | | |
Named Executive Officer | Fiscal 2023 Base Salary ($) | Fiscal 2022 Base Salary ($) | Percentage Adjustment |
| | | |
Mr. Chaudhry | 23,660 | 23,660 | 0% |
Mr. Canessa | 430,000 | 400,000 | 7.5% |
Mr. Nair(1) | 430,000 | _ | _ |
Mr. Rajic | 430,000 | 415,000 | 3.6% |
Mr. Schlossman | 375,000 | 325,000 | 15% |
1.In connection with his appointment as our CTO in May 2023, Mr. Nair’s initial base salary was set at $430,000.
The base salaries actually paid to our Named Executive Officers during fiscal 2023 are set forth in the “Fiscal 2023 Summary Compensation Table” below.
Annual Cash Bonuses
We use our Employee Incentive Compensation Plan, or the Incentive Compensation Plan. Our Incentive Compensation Plan allows our compensation committeea cash bonus plan, to provide cash incentive awards tomotivate employees selected by ourthe compensation committee, including our named executive officers, based upon performance goals established byNamed Executive Officers (other than our compensation committee.CEO), to achieve our annual business goals. Pursuant to the Employee Incentive Compensation Plan, our compensation committee, in its sole discretion, establishes a target award for each participantexecutive and a bonus pool for our executives as a group, with actual awards payable from suchthe bonus pool, with respect to the applicable performance period. For fiscal 2023, the Employee Incentive Compensation Plan included semi-annual performance periods with semi-annual award payouts after the end of the first six-month period (the period from August 1, 2022 through January 31, 2023), and, then again, after the end of the fiscal year (the period from February 1, 2023 through July 31, 2023). Pursuant to the terms of his Employment Offer Letter, Mr. Rajic is eligible to receive quarterly award payouts under the Employee Incentive Compensation Plan.
Fiscal 2023 Target Annual Cash Bonus Award Opportunities
For purposes of the Employee Incentive Compensation Plan, cash bonus awards were based upon target annual cash bonus award opportunities as determined by the compensation committee. In September 2022, the compensation committee reviewed the target annual cash bonus award opportunities of our Named Executive Officers and determined to adjust the target annual cash bonus opportunities for each of our eligible Named Executive Officers to set their total target annual cash opportunity for fiscal 2023 at a level that was comparable to those of similarly-situated executives in the competitive marketplace. As in prior fiscal years, our CEO declined to participate in the Employee Incentive Compensation Plan.
The target annual cash bonus award opportunities of our Named Executive Officers for fiscal 2023 were as follows:
| | | | | | | | | | | |
Named Executive Officer | Fiscal 2023 Target Annual Cash Bonus Award Opportunity ($) | Fiscal 2022 Target Annual Cash Bonus Award Opportunity ($) | Percentage Adjustment |
| | | |
Mr. Chaudhry | — | — | — |
Mr. Canessa | 325,000 | 300,000 | 8.3% |
Mr. Nair(1) | 430,000 | — | — |
Mr. Rajic | 430,000 | 415,000 | 3.6% |
Mr. Schlossman | 250,000 | 225,000 | 11.1% |
1.In connection with his appointment as our CTO in May 2023, Mr. Nair’s initial bonus target was set at $430,000. Mr. Nair’s target annual cash bonus award opportunity was pro-rated during fiscal 2023 to reflect his three month’s employment with us.
Potential annual cash bonus awards for our Named Executive Officers under the Employee Incentive Compensation Plan could range from zero to 150% of their target annual cash bonus award opportunity. For the full year, eligible named Executive Officers, including Mr. Rajic, earned an aggregate of 82.6% of their target performance amounts.
The cash bonuses actually paid to our Named Executive Officers for fiscal 2023 are set forth in the “Fiscal 2023 Summary Compensation Table” below.
Incentive Plan Performance Metrics
Under the Employee Incentive Compensation Plan, the compensation committee determined the performance metrics and related target levels for the fiscal 2023 annual cash bonus awards.
The compensation committee selected revenue and calculated billings as the appropriate corporate performance metrics for the Named Executive Officers because, in its view, these metrics were key indicators of our periodic performance and our progress in executing on our business strategy of focusing on growth and gaining market share.
For purposes of the Named Executive Officers’ cash bonus awards:
•“revenue” represented total revenue calculated in accordance with generally accepted accounting principles, or GAAP, as reported in our audited financial statements; and
•“calculated billings” represented our total revenue plus the change in deferred revenue in a given fiscal period. Calculated billings in any particular fiscal period aims to reflect amounts invoiced for subscriptions to access our cloud platform, together with related support services for our new and existing customers.
As reflected in our annual operating plan presented to and approved by our board of directors, the target levels established for revenue and calculated billings for the full year of fiscal 2023 by the compensation committee were as follows:
| | | | | |
Performance Metric | Full Year Fiscal 2023 ($) |
| |
Revenue | 1,683,000 |
Calculated Billings | 2,202,000 |
For fiscal 2023, the revenue and calculated billing targets for the Employee Incentive Compensation Plan were significantly greater than the amount achieved in the previous period for the prior fiscal year and represented a very aggressive target for fiscal 2023.
The compensation committee determined that the bonus pool would fund and our Named Executive Officers were eligible to earn 50% of their target cash bonus awards (the "Initial Pool") to the extent that we achieved the minimum thresholds for revenue and calculated billings for each performance period in fiscal 2023 as set forth in the following schedule:
| | | | | | | | |
Initial Pool |
Metric Achievement | Payment | Bonus Attainment |
| | |
Less than 80% | 0% | No payout below 80% achievement |
80% - 90% | 0% to 70% linear | 80% attainment pays 0% and 90% pays 70% |
90% - 95% | 70% to 90% linear | 90% attainment pays 70% and 95% pays 90% |
95% - 100% | 90% to 100% linear | 95% attainment pays 90% and 100% pays 100% |
100% - 105% | 100% to 125% linear | 100% attainment pays 100% and 105% pays 125% |
105% - 110% | 125% to 150% linear | 105% attainment pays 125% and 110% pays 150% |
>110% | TBD | Payout over 150%, determined in the discretion of the board of directors |
The compensation committee also determined that the remaining 50% of the bonus pool (the "Secondary Pool") would fund and be reserved for distribution based on achievement of the same revenue and calculated billings targets, with any payouts subject to downward discretion by the CEO, with final payments to be approved by the compensation committee. The Secondary Pool would be funded based on the following performance metrics:
| | | | | | | | |
Secondary Pool |
Metric Achievement | Funding Level | Cash Payment |
| | |
Less than 90% | 0% | No payout below 90% achievement |
90% - 99% | 100% | CEO may designate up to funded amount for payment |
100% or greater | 150% | CEO may designate up to funded amount for payment |
The amounts funded in the Secondary Pool were to be earned and distributed based on our CEO’s determination of each executive’s individual performance and the Company’s achievement of organization specific goals. Our CEO could authorize payment at any level up to but not exceeding 100% of the funded amount in the Secondary Pool, with final payouts to be approved by the compensation committee.
| | | | | | | | | | | |
Initial Pool - Fiscal 23 Achievement Results |
Period | Billings (% of Target) | Revenue (% of Target) | Bonus Payment (% of Target) |
| | | |
First Fiscal Half | 91.7 | 98.4 | 86.8 |
Second Fiscal Half | 93.3 | 94.2 | 85 |
Full Fiscal Year | 92.5 | 96.3 | 85.9 |
Secondary Pool - Fiscal 23 Achievement Results |
Period | Metric Achievement | Funded (% of Target) | Adjusted Payment (% of Target) |
| | | |
First Fiscal Half | | 100 | 58.7 |
Second Fiscal Half | | 100 | 100 |
Full Fiscal Year | | 100 | 79.4 |
Cash Bonus Payments (Other than Mr. Rajic)
In February and September 2023, for results relating to the first and second fiscal halves respectively, the compensation committee determined that as a result the performance as displayed in the table above, the cash bonus payments to our eligible Named Executive Officers (other than Mr. Rajic) were equal to 72.8% of their target semi-annual cash bonus for the first half of the year and 85% of their target semi-annual cash bonus for the second half of the year.
| | | | | | | | | | | |
Named Executive Officer | Period | Target Bonus Opportunity ($) | Bonus Payment ($) |
| | | |
Mr. Canessa | First Half | 162,500 | 118,235 |
| Second Half | 162,500 | 150,313 |
| Total | 325,000 | 268,548 |
Mr. Nair | First Half(1) | — | — |
| Second Half(2) | 71,667 | 66,507 |
| Total | 71,667 | 66,507 |
Mr. Schlossman | First Half | 125,000 | 90,950 |
| Second Half | 125,000 | 115,625 |
| Total | 250,000 | 206,575 |
1.Mr. Nair’s was not employed during the first half of fiscal 2023.
2.Mr. Nair’s participation was pro-rated from his start date for the second half of fiscal 2023.
Cash Bonus Payments for Mr. Rajic
As provided pursuant to his Employment Offer Letter, Mr. Rajic was eligible to participate in the Employee Incentive Compensation Plan on the same terms and conditions, described above for our other Named Executive Officers, subject to determination and receipt of his cash bonus payments on a quarterly, rather than a semi-annual, basis.
Based on our corporate performance and funding of the supplemental bonus pool as awarded by our CEO, the cash bonus payments to Mr. Rajic for fiscal 2023 were as follows:
| | | | | | | | |
Fiscal Period | Quarterly Target Bonus Opportunity ($) | Quarterly Bonus Payment ($) |
| | |
First Fiscal Quarter | 107,500 | 86,000 |
Second Fiscal Quarter | 107,500 | 70,435 |
Third Fiscal Quarter | 107,500 | 101,319 |
Fourth Fiscal Quarter | 107,500 | 97,395 |
Total | 430,000 | 355,149 |
Long-Term Incentive Compensation
We view long-term incentive compensation in the form of equity awards as a critical element of our executive compensation program. We use equity awards to incentivize and reward our Named Executive Officers for long-term corporate performance based on the value of our common stock and, thereby, to align the interests of our Named Executive Officers with those of our stockholders. In fiscal 2023, equity awards were granted to the Named Executive Officers included both time-based and performance-based stock awards.
The compensation committee determined the amount of long-term incentive compensation for our Named Executive Officers (and, in the case of our CEO, formulated its recommendation to the independent members of the Board for his long-term incentive compensation award) as part of its annual compensation review. In making these awards and recommendation, the compensation committee took the following factors into consideration:
•a competitive market analysis performed by its compensation consultant;
•the amount of equity compensation held by the Named Executive Officer (including the current economic value of his or her unvested equity and the ability of these unvested holdings to satisfy our retention objectives);
•the recommendations of our CEO (except with respect to his own equity awards);
•the projected impact of the proposed awards on our earnings and stock-based compensation as a percentage of revenue;
•the proportion of our total shares outstanding used for annual employee long-term incentive compensation awards (our “burn rate”) in relation to the companies in our compensation peer group; and
•the potential dilution to our shareholders (our “overhang”) in relation to the companies in our compensation peer group
Fiscal 2023 Annual Equity Awards
For fiscal 2023, except for Mr. Nair, whose new hire package is described below, we issued our annual long-term incentive compensation awards to our Named Executive Officers in the form of PSU awards and time-based RSU awards. The awards were weighted more heavily towards PSUs for our CEO, with 80% of his long-term incentive compensation opportunity in the form of PSU awards and 20% in the form of an RSU award. The compensation committee believed that weighting our CEO’s long-term compensation opportunity more heavily toward PSUs in comparison to other executives better aligns our CEO’s goals with those of our stockholders. For the other Named Executive Officers, their long-term incentive compensation was weighted 25% in the form of PSU awards and 75% in the form of RSU awards. Due to the uncertain macroeconomic environment at the time of the original approval, the awards were approved in October 2022 and were issued with a set number of shares being issued in October 2022 and additional shares issued in April 2023 with such share number determined by dividing a target award value for each Named Executive Officer, respectively, by the average closing share price of the Company's stock for each of the trading days in April 2023. The total equity awards approved for our Named Executive Officer in October 2022 and April 2023 were as follows:
| | | | | | | | | | | | | | |
Named Executive Officers | Restricted Stock Unit Award October 2022 (Number of shares) (#) | Performance Stock Unit Award October 2022 (Number of shares) (#) | Restricted Stock Unit Award April 2023 (Number of shares) (#) | Performance Stock Unit Award April 2023 (Number of shares) (#) |
| | | | |
Mr. Chaudhry | 43,704 | 174,815 | 57,726 | 230,902 |
Mr. Canessa | 15,278 | 5,093 | 20,180 | 6,727 |
Mr. Rajic | 33,334 | 11,112 | 44,028 | 14,676 |
Mr. Schlossman | 9,723 | 3,241 | 12,842 | 4,281 |
Fiscal 2023 Time-Based Equity Awards
Our fiscal 2023 time-based equity awards to our Named Executive Officers, other than Mr. Nair, were issued in the form of RSUs for shares of our common stock and vest over a four-year period in 16 equal quarterly installments beginning on December 15, 2023, subject to each recipient's continued service to the Company.
Fiscal 2023 PSU Awards
After considering analysis performed by Compensia, feedback from our stockholders and the compensation committee’s desire to establish long-term performance metrics, the compensation committee determined the PSU performance metrics for fiscal 2023 were to be based on achievement of a long-term, multi-year ARR metric.
The compensation committee will certify achievement of the performance criteria for these awards after completion of the quarter in which the Company meets or exceeds the required ARR target, as indicated by the financial records of the Company. If such ARR target is achieved on or before January 31, 2026 awarded shares will equal 140% of target shares, and if the ARR target achieved after January 31, 2023 but on or before April 30, 2026 awarded shares will equal 120% of target shares. If the ARR target is achieved after April 30, 2026, awarded shares will equal 100% of target shares. The long-term ARR target was selected because it requires significant growth and we believe it will be a transformative milestone for the Company in our growth cycle.
CEO Equity Awards
The compensation committee intends the CEO awards for fiscal 2023 to cover approximately four years of equity awards and, as noted above, 80% of the awards are long term performance based-award which will not be attained until the company reaches a long term ARR target. This ARR target represents a challenging, long term and multi-year corporate milestone, the achievement of
which will benefit our stockholders. This equity structure, which only rewards our CEO upon achievement of an aggressive and significant ARR target, establishes material stockholder value alignment. The compensation committee does not anticipate providing additional equity awards to our CEO for the multi-year period covered by the 2023 awards.
Fiscal 2023 New Hire Equity Awards
On May 24, 2023, Mr. Nair was hired as our CTO and EVP of R&D. Pursuant to his new hire agreement, Mr. Nair received equity stock awards, on June 6,2023, consisting of time-based RSUs with a grant date value of $16,800,000, performance-based awards with a grant date value of $7,200,000 and options to purchase 50,000 shares of common stock. The time based RSUs vest over four years with the first 12.5% vesting after six months and the remainder vesting in equal quarterly installments thereafter. The performance-based awards vest in accordance with the annual executive performance-based awards, as described below, and the options vest 25% after the first year and monthly thereafter over a total of four years.
Legacy PSU Awards - Fiscal 2023 Performance Period
In fiscal 2020, under the term of his new hire offer letter, Mr. Rajic was granted multi-year PSU awards under a separate four-year arrangement ending in fiscal 2023 and for which fiscal 2023 performance metrics were to be determined during fiscal 2023. The compensation committee determined that the fiscal 2023 PSU Awards were to be earned based on our level of attainment of two equally weighted performance metrics: revenue and calculated billings. The compensation committee selected the metrics because they are key indicators of our progress in executing our business strategy of pursuing growth to capture significant market share aligned directly to Mr. Dali’s role in the Company.
For purposes of the Fiscal 2023 PSU Awards, “revenue” and “calculated billings” had the same meanings as under the Employee Incentive Compensation Plan for our senior executives. As reflected in our annual operating plan presented to and approved by our board of directors, the target levels established for revenue and calculated billings for the full year of fiscal 2023 by the compensation committee were as follows:
| | | | | |
Performance Metric | Full Year Fiscal 2023 ($) |
| |
Revenue | 1,683,000 |
Calculated Billings | 2,202,000 |
For the fiscal 2023 performance year, the total number of units that could be earned scaled from 0% to 150% of the target number of units, based on actual achievement of the fiscal 2023 performance metrics as follows:
| | | | | | | | |
Metric Achievement | Payment | PSU Award Attainment |
| | |
Less than 80% | 0% | No attainment below 80% achievement |
80% - 90% | 0% to 70% linear | 80% attainment pays 0% and 90% pays 70% |
90% - 95% | 70% to 90% linear | 90% attainment pays 70%, and 95% pays 90% |
95% - 100% | 90% to 100% linear | 95% attainment pays 90% and 100% pays 100% |
100% - 105% | 100% to 125% linear | 100% attainment pays 100%, and 105% pays 125% |
105% - 110% | 125% to 150% linear | 105% attainment pays 125%, and 110% pays 150% |
In September 2023, our revenue and calculated billings results for fiscal 2023 were presented to the compensation committee for review. After reviewing and analyzing these results, the compensation committee certified that, for the annual performance period
ended July 31, 2023, our calculated billings were achieved at 92.4% of the target performance level and our revenue was achieved at 96.1% of the target performance level, resulting in 79.6% of the calculated billings attainment and 92.2% of the revenue attainment for a total of 85.9% achievement. Of the 23,182 target shares, 19,914 shares were attained and vested on September 15, 2023.
The total compensation for Mr. Rajic for fiscal 2023 includes the value of these legacy PSU awards, which significantly increased in value between the grant approval date and the date when the compensation committee determined the metrics and related target levels for the PSU awards. The closing market price of our common stock was $43.98 per share for the awards approved in October 2019 for Mr. Rajic. However, as a result of our strong growth and financial performance following the award approval, the closing market price of our common stock appreciated to $147.63 per share in October 2022 when the performance metrics for these legacy PSU awards were established, and the value of the awards for fiscal 2023 compensation purposes was determined.
Health and Welfare Benefits
Our Named Executive Officers are eligible to receive the same employee benefits that are generally available to all employees, subject to the satisfaction of certain eligibility requirements. These benefits include medical, dental, and vision insurance, business travel insurance, an employee assistance program, health and dependent care flexible spending accounts, basic life insurance, accidental death and dismemberment insurance, short-term and long-term disability insurance and reimbursement for mobile phone coverage.
We maintain a tax-qualified retirement plan, or the 401(k) plan, that provides eligible employees, including our Named Executive Officers, with an opportunity to save for retirement on a tax-advantaged basis. Eligible employees are able to participate in the 401(k) Plan as of the first day of the month following the date they meet the plan’s eligibility requirements, and participants are able to defer up to 100% of their eligible compensation subject to applicable annual limits as set under the Internal Revenue Code. All participants’ interests in their deferrals are 100% vested when contributed. We also make employer matching contributions to the 401(k) plan in an amount of up to $2,000 annually on a dollar for dollar basis.
The 401(k) Plan is intended to be qualified under Section 401(a) of the Internal Revenue Code with the plan’s related trust intended to be tax-exempt under Section 501(a) of the Internal Revenue Code. As a tax-qualified retirement plan, contributions to our 401(k) Plan and earnings on those contributions are not taxable to our employees until distributed from the plan.
We design our employee benefits programs to be affordable and competitive in relation to the market as well as compliant with applicable laws and practices. We adjust our employee benefits programs as needed based upon regular monitoring of applicable laws and practices and the competitive market.
Perquisites and Other Personal Benefits
Currently, we do not view perquisites or other personal benefits as a significant component of our executive compensation program. Accordingly, we do not provide significant perquisites or other personal benefits to our Named Executive Officers, except as generally made available to our employees or in situations where we believe it is appropriate to assist an individual in the performance of his or her duties, to make him or her more efficient and effective, and for recruitment and retention purposes. During fiscal 2023, none of our Named Executive Officers received perquisites or other personal benefits that were, in the aggregate, $10,000 or more for any individual.
We have in the past and may in the future, we may provide perquisites or other personal benefits in limited circumstances, such as those described in the preceding paragraph. All future practices with respect to perquisites or other personal benefits will be approved and subject to periodic review by the compensation committee.
EMPLOYMENT ARRANGEMENTS
We entered into written employment agreement with our CEO and employment offer letters with our other Named Executive Officers in connection with their employment with us. We believe that these arrangements were necessary to induce these individuals to forego other employment opportunities or leave their then-current employer for the uncertainty of a demanding position in a new and unfamiliar organization.
In filling each of our executive positions, our board of directors or the compensation committee, as applicable, recognized that it would need to develop competitive compensation packages to attract qualified candidates in a dynamic labor market. At the same time, our board of directors and the compensation committee were sensitive to the need to integrate new executive officers into the executive compensation structure that we were seeking to develop, balancing both competitive and internal equity considerations.
Each of these arrangements provides for “at will” employment (meaning that either we or the executive may terminate the employment relationship at any time without cause) and sets forth the initial compensation arrangements for the executive, including their base salary, target annual cash bonus award opportunity (expressed as fixed amount or as a percentage of his or her base salary), participation in our employee benefit programs, eligibility for future equity awards, and reimbursement for all reasonable and necessary business expenses.
In addition, in the case of our Named Executive Officers, their employment offer letters and other agreements provide that the executive will be eligible to receive certain severance payments and benefits in connection with certain terminations of employment. These post-employment compensation arrangements are discussed in “Post-Employment Compensation” below.
For detailed descriptions of the employment arrangements with our Named Executive Officers, see “Potential Payments upon Termination or Change in Control” below.
POST-EMPLOYMENT COMPENSATION
The employment offer letters and equity award agreements with our Named Executive Officers provide them with certain protection in the event of their termination of employment other than for “cause,” death, or “disability” (as such terms are defined in the employment offer letters). In addition, our Named Executive Officers are participants in our Change of Control and Severance Policy, or the Severance Policy, which provides for certain protections in the event of a termination of employment in connection with a change in control of the Company. We believe that these protections were necessary to induce these individuals to leave their former employment for the uncertainty of a demanding position in a new and unfamiliar organization and help from a retention standpoint and to retain their services on an ongoing basis. We also believe that these arrangements provided by the Severance Policy help maintain the continued focus and dedication of our Named Executive Officers to their assigned duties to maximize stockholder value if there is a potential transaction that could involve a change in control of the Company.
These arrangements provide reasonable compensation to a Named Executive Officer if he or she leaves our employ under certain circumstances to facilitate his or her transition to new employment. Further, in some instances we seek to mitigate any potential employer liability and avoid future disputes or litigation by conditioning post-employment compensation and benefits on a departing Named Executive Officer signing a separation and release agreement acceptable to us.
Under the Severance Policy, all payments and benefits in the event of a change in control of the Company are payable only if there is a subsequent loss of employment by a Named Executive Officer (a so-called “double-trigger” arrangement). In the case of the acceleration of vesting of outstanding equity awards, we use this double-trigger arrangement to protect against the loss of retention value following a change in control of the Company and to avoid windfalls, both of which could occur if vesting of either equity or cash-based awards accelerated automatically as a result of the transaction.
In the event of a change in control of the Company, to the extent Section 280G or 4999 of the Internal Revenue Code is applicable to a Named Executive Officer, such individual is entitled to receive either:
•payment of the full amounts specified in the policy to which he or she is entitled; or
•payment of such lesser amount that does not trigger the excise tax imposed by Section 4999, whichever results in him or her receiving a higher amount after taking into account all federal, state, and local income, excise and employment taxes.
We do not use excise tax payments (or “gross-ups”) relating to a change in control of the Company and have no such obligations in place with respect to any of our Named Executive Officers.
We believe that having in place reasonable and competitive post-employment compensation arrangements, including in the event of a change in control of the Company, are essential to attracting and retaining highly-qualified executive officers. The compensation committee does not consider the specific amounts payable under the post-employment compensation arrangements when determining the annual compensation for our Named Executive Officers. We do believe, however, that these arrangements are necessary to offer compensation packages that are competitive.
For detailed descriptions of the post-employment compensation arrangements with our Named Executive Officers, as well as an estimate of the potential payments and benefits payable under these arrangements, see “Potential Payments upon Termination or Change in Control” below.
EXECUTIVE STOCK OWNERSHIP GUIDELINES
We believe that our executives should hold a significant amount of Company equity to link their long-term economic interests directly to those of our stockholders. Accordingly, effective January 1, 2022, our board of directors adopted stock ownership guidelines for Named Executive Officers. Our chief executive officer is required to own shares of our common stock with a value equal to at least five times his or her annual base salary, and each other Named Executive Officer is required to own shares of our common stock with a value equal to at least three times his or her annual base salary.
We believe that this multiple constitutes significant amounts for our Named Executive Officers and provides a substantial link between the interests of our Named Executive Officers and those of our stockholders. Compliance with these guidelines for our Named Executive Officers is required within five years of becoming subject to them. For purposes of meeting the ownership requirements, unvested RSU awards are counted, but unearned performance awards and unexercised stock options are not. At the end of fiscal 2023, each of our Named Executive Officers exceeded these guidelines based on their current stock accumulation.
OTHER COMPENSATION POLICIES
Hedging and Pledging Prohibitions
Under our Incentive Insider Trading Policy, our employees (including officers) and members of our board of directors are prohibited from making short-sales and engaging in transactions in publicly-traded options, such as puts and calls, and other derivative securities with respect to our securities. This latter prohibition extends to any hedging or similar transaction designed to decrease the risks associated with holding our securities. In addition, under our Insider Trading Policy, our employees and members of our board of directors are prohibited from using our securities as collateral for a loan or holding our securities in a margin account.
Compensation Plan,Recovery ("Clawback") Policy
In 2023, our compensation committee determines the performance goalsadopted a Compensation Recovery Policy applicable to our CEO and all of our current and former Named Executive Officers (each a "Covered Person"). Under this policy, our compensation committee is obligated to recover, Excess Incentive Compensation received by any Covered Person on or after October 2, 2023, if any, in the event Zscaler is required to prepare an accounting restatement due to material noncompliance with any financial reporting requirement under the securities laws. For purposes of this policy, Excess Incentive Compensation means, the amount of certain incentive based
compensation actually received by the Covered Person, minus the amount of such incentive based compensation that otherwise would have been received had the incentive compensation been determined based on the applicable restated amounts.
This Policy is intended to comply with, and will be interpreted in a manner consistent with, Section 10D of the Securities Exchange Act of 1934 (the “Exchange Act”), with Exchange Act Rule 10D-1 and with the Nasdaq listing standards.
TAX AND ACCOUNTING CONSIDERATIONS
The compensation committee takes the applicable tax and accounting requirements into consideration in designing and overseeing our executive compensation program.
Deductibility of Executive Compensation
Section 162(m) of the Internal Revenue Code generally places a $1 million limit on the amount of compensation a public company can deduct in any one year for certain specified executive officers. While our compensation committee considers tax deductibility as one factor in determining executive compensation, our compensation committee also looks at other factors in making its decisions, as noted above, and retains the flexibility to award compensation that it determines to be consistent with the goals of our executive compensation program even if the awards are not deductible by us for tax purposes.
Taxation of “Parachute” Payments
Sections 280G and 4999 of the Internal Revenue Code provide that executive officers and directors who hold significant equity interests and certain other service providers may be subject to significant additional taxes if they receive payments or benefits in connection with a change in control of the Company that exceeds certain prescribed limits, and that the Company (or a successor) may forfeit a deduction on the amounts subject to this additional tax. We have not agreed to provide any executive officer, including any Named Executive Officer, with a “gross-up” or other reimbursement payment for any tax liability that the executive officer might owe as a result of the application of Sections 280G or 4999 of the Internal Revenue Code.
Section 409A of the Internal Revenue Code
Section 409A of the Internal Revenue Code imposes additional significant taxes in the event that an executive officer, director or service provider receives “deferred compensation” that does not satisfy the requirements of Section 409A of the Internal Revenue Code. Although we do not maintain a traditional nonqualified deferred compensation plan for our executive officers, Section 409A of the Internal Revenue Code does apply to certain severance arrangements, bonus arrangements and equity awards, and we have structured all such arrangements and awards in a manner to either avoid or comply with the applicable requirements of Section 409A of the Internal Revenue Code.
Accounting for Stock-Based Compensation
The compensation committee takes accounting considerations into account in designing compensation plans and arrangements for our executive officers and other employees. Chief among these is Financial Accounting Standards Board Accounting Standards Codification Topic 718 (“ASC Topic 718”), the standard which goals may include, without limitation,governs the attainmentaccounting treatment of researchcertain stock-based compensation. Among other things, ASC Topic 718 requires us to record a compensation expense in our income statement for all equity awards granted to our executive officers and development milestones, billings, bookings, business divestituresother employees. This compensation expense is based on the grant date “fair value” of the equity award and, acquisitions, cash flow, cash position, contract awards or backlog, customer-related measures, customer retention rates, business unit or division earningsin most cases, will be recognized ratably over the award’s requisite service period (which, may include any calculation of earnings, including but not limited to earnings before interest and taxes, earnings before taxes, earnings before interest, taxes, depreciation and amortization, earnings before taxes and net earnings), earnings per share, employee retention, employee mobility, expenses, geographic expansion, gross margin, growth in stockholder value relativegenerally, will correspond to the movingaward’s vesting schedule). This compensation expense is also reported in the compensation tables below, even though recipients may never realize any value from their equity awards.
EMPLOYMENT OFFER LETTER WITH MR. CANESSA
Under Mr. Canessa’s employment offer letter, if we terminate Mr. Canessa’s employment with us other than for “cause,” death or “disability” outside of the period beginning on a “change of control” (as such terms are defined in the Severance Policy) and ending 12 months following the change of control, he will be entitled to receive (i) accelerated vesting as to the number of unvested shares
subject to equity awards that otherwise would have vested during the six months following the date his employment with us terminates had he remained employed with us through such time; (2) extension of the period of time in which he has to exercise his vested options until the date that is 12 months following his termination date, subject to earlier termination on a change in control (or similar transaction) pursuant to the terms of the equity plan under which the options are granted; and (3) severance pay at a rate equal to 100% of his annual base salary, as then in effect, for a period of six months following the date of such termination, payable in accordance with our normal payroll practices.
To receive the severance benefits upon a qualifying termination, Mr. Canessa must sign and not revoke a release of claims within the time specified in his employment offer letter.
EMPLOYMENT OFFER LETTER WITH MR. RAJIC
Under Mr. Rajic's employment offer letter, if we terminate Mr. Rajic's employment with us other than for “cause” or he resigns for “good reason”, outside of the “change of control period" (as such terms are defined in the employment offer letter), he will be entitled to receive (i) severance pay at a rate equal to 100% of his annual base salary, as then in effect (less applicable withholding) for a period of six months following the date of such termination; and (ii) extension of the period of time in which he will have to exercise his vested options to purchase our common stock subject to the options until the date that is 12 months following his termination date, subject to earlier termination on a change in control (or similar transaction) pursuant to the terms of the equity plan under which the options were granted. Further, If Mr. Rajic is subject to a "qualifying termination" (as defined in the employment offer letter), he will be entitled to an extension of the period of time in which he will have to exercise his vested options to purchase our common stock subject to the Option until the date that is 12 months following his termination date, subject to earlier termination on a change in control (or similar transaction) pursuant to the terms of the equity plan under which the options were granted.
To receive the severance benefits upon a qualifying termination, Mr. Rajic must sign and not revoke a release of claims within the time specified in his employment offer letter.
EMPLOYMENT OFFER LETTER WITH MR. SCHLOSSMAN
Under Mr. Schlossman’s employment offer letter, if we terminate Mr. Schlossman’s employment with us other than for “cause” or he resigns for “good reason”, without a “change of control” (as such terms are defined in the employment offer letter), he will be entitled to receive continuing severance pay at a rate equal to 100% of his annual base salary, as then in effect, for a period of three months from the date of such termination, to be paid periodically in accordance with our normal payroll practices.
To receive the severance benefits upon a qualifying termination, Mr. Schlossman must sign and not revoke a release of claims within the time specified in his employment offer letter.
EMPLOYMENT OFFER LETTER WITH MR. NAIR
In connection with his appointment as CTO and Executive Vice President of Research and Development, we entered into an employment offer letter dated April 12, 2023 (the “Nair Offer Letter”) with Mr. Nair. Pursuant to the Nair Offer Letter, our initial compensation arrangements with Mr. Nair were as follows:
•an initial annual base salary of $430,000;
•a target annual cash bonus awards opportunity equal to $430,000;
•a RSU award with a value of $16,800,000 to acquire shares of our common stock that will vest over approximately a four-year period. The value was to be converted into shares based on the average of the S&P 500 Indexclosing price of our common stock on the Nasdaq Global Select Market for each of the trading days in May;
•a PSU award with a value of $7,200,000 to acquire shares of our common stock that will be subject to performance criteria that are consistent with the performance criteria applicable to the PSU award granted to our other senior officers in fiscal 2023. The value was to be converted into shares based on the average of the closing price of our common stock on the Nasdaq Global Select Market for each of the trading days in May; and
•an option to purchase 50,000 shares of our common stock that will vest over a four-year period from his employment start date.
Mr. Nair was designated as a participant in our Change of Control and Severance Policy under which he is eligible to receive certain severance payments and benefits in the event of his Qualifying Termination (as defined in the policy). The Nair Offer Letter was negotiated on our behalf by our CEO and approved by the compensation committee. In establishing his initial compensation arrangements, we took into consideration the requisite experience and skills that a qualified candidate would need to manage a growing business in a dynamic and ever-changing environment, the competitive market for similar positions at other comparable companies based on a review of compensation survey data, the aggregate value of the equity awards that he held at his then current-employer that he would forfeit if he left such employment, and the need to integrate him into the executive compensation structure, balancing both competitive and internal equity considerations.
To receive the severance benefits upon a qualifying termination, Mr. Nair must sign and not revoke a release of claims within the time specified in his employment offer letter.
Change of Control and Severance Policy
Our board of directors adopted a Change of Control and Severance Policy, or another index, hiring targets, internal ratethe Severance Policy. Each of return, inventory turns, inventory levels, market share, milestone achievements, net billings, net income, net profit, net revenue margin, net sales, new customers, new product development,our current executive officers is a participant in the Severance Policy. Under the Severance Policy, if we terminate a participant other than for “cause,” death or “disability” or the Named Executive Officer resigns for “good reason” during the period beginning on a “change of control” (as such terms are defined in the Severance Policy) and ending 12 months following the change of control (which we refer to as the change of control period), such Named Executive Officer will be eligible to receive the following severance benefits:
new product invention or innovation, number•100% of customers, operating cash flow, operating expenses, operating income, operating margin, origination volume, overhead or other expense reduction, product defect measures, product development, product release timelines, productivity, profit, return on assets, return on capital, return onthe then-unvested shares subject to his then-outstanding equity return on investment, return on sales, revenue, revenue growth, sales efficiency, sales results, sales growth, stock price, time to market, total stockholder return, units sold (totalawards will become vested and new) working capital,exercisable, and individual objectives such as management by objectives, peer reviews or other subjective or objective criteria. Thein the case of equity awards with performance-based vesting, all performance goals may differ from participantand other vesting criteria will be deemed achieved at the specified percentage of target levels;
•a lump-sum payment equal to participant and from100% of the greatest of (i) a participant's annual base salary as in effect immediately prior to his termination, (ii) if the termination is a resignation for good reason based on a material reduction in base salary, a participant's annual base salary as in effect immediately prior to such reduction, or (iii) a participant's annual base salary as in effect immediately prior to the change of control;
•a lump-sum payment equal to (i) 100% of a participant's target annual bonus award to award. Foropportunity for the fiscal year ended July 31, 2018in which the termination occurs plus (ii) a pro-rated portion of such target annual bonus award opportunity reduced by any bonus payments made during such fiscal year; and
•a lump-sum health benefit severance payment of $36,000.
To receive the severance benefits upon a qualifying termination, a Named Executive Officer must sign and not revoke a release of claims within the time specified in the Severance Policy. If we discover, after a Named Executive Officer receives severance payments or benefits, that grounds for terminating him for cause existed, such Named Executive Officer will not receive any further severance payments or benefits under the Severance Policy, and to the extent permitted by law, the Named Executive Officer will be required to repay to us any severance payments or benefits (or gain derived from such payments or benefits) he received under the Severance Policy.
In addition to any benefits available to Named Executive Officers under the Severance Policy, in October 2022, the compensation committee selected goals based onapproved acceleration of attainment of any outstanding PSUs in the dollar valueevent of annual contracts for newa change of control of the Company (as defined in the Severance Policy). In the event of a change of control, outstanding PSUs will be deemed to be achieved at 100% of target, subject, in certain circumstances, to continued time-based vesting.
Fiscal Year 2018 Equity Incentive Plan and existing Zscaler customers.2007 Stock Plan
Our compensation committee administersFiscal Year 2018 Equity Incentive Plan (the “2018 Plan”) provides that in the event of a merger or change in control, as defined under our Incentive Compensation Plan.2018 Plan, each outstanding award will be treated as the administrator determines, without a participant’s consent. The administrator is not required to treat all awards or participants similarly.
In the event that a successor corporation or its parent or subsidiary does not assume or substitute an equivalent award for any outstanding award, then such award will fully vest, all restrictions on such award will lapse, all performance goals or other vesting criteria applicable to such award will be deemed achieved at 100% of our Incentive Compensation Plan may,target levels and all other terms and conditions met and such award will become fully exercisable, if applicable. If an option or stock appreciation right is not assumed or substituted, the administrator will notify the participant in writing or electronically that such option or stock appreciation right will be exercisable for a period of time determined by the administrator in its sole discretion and the option or stock appreciation right will terminate upon the expiration of such period.
In the event of a change in control, with respect to awards granted to an outside director his or her options and other equity awards, will vest fully and become immediately exercisable, all restrictions on his or her restricted stock and RSU awards will lapse and all performance goals or other vesting requirements for his or her performance shares and units will be deemed achieved at any time, increase, reduce100% of target levels, and all other terms and conditions met.
In addition, the agreements for certain performance-based awards granted to our Named Executive Officers hold that performance shares and units will be deemed achieved at 100% of target levels, and all other terms and conditions met, and be subject to continued time-based vesting as set forth in the individual award agreements in the event of a change in control.
Our 2007 Plan provides that, in the event of a merger or eliminate a participant’s actual award, and/or increase, reduce or eliminate the amount allocated to the bonus pool for a particular performance period. The actualchange in control, as defined under our 2007 Plan, each outstanding award may be below, atassumed or above a participant’s target award, insubstituted for an equivalent award. In the discretionevent that awards are not assumed or substituted for, then the vesting of the administrator. The administrator may determine the amount of any increase, reduction or elimination on the basis of such factors as it deems relevant, and it is not required to establish any allocation or weighting with respect to the factors it considers.
Actualoutstanding awards will be paidaccelerated, and stock options will become exercisable in cash (or its equivalent)full prior to such transaction. In addition, if an option is not assumed or substituted in the event of a single lump sum only after they are earned, which usually requires continued employment throughmerger or change in control, the dateadministrator will notify the actualparticipant that such award is paid. will be fully vested and exercisable for a specified period prior to the transaction, and such award will terminate upon the expiration of such period for no consideration, unless otherwise determined by the administrator.
Fiscal 2023 Summary Compensation Table
The compensation committee reserves the right to settle an actual award with a grant of an equity award under the Company’s then-current equity compensation plan, which equity award may have such terms and conditions, asfollowing table presents information regarding the compensation committee determines. Paymentawarded to, earned by and paid to each of awards occurs as soon as administratively practicable after they are earned, but no later than the dates set forth in our Incentive Compensation Plan.Named Executive Officers during fiscal 2023, fiscal 2022 and fiscal 2021.
Our board of directors and our compensation committee have the authority to amend, alter, suspend or terminate our Incentive Compensation Plan, provided such action does not impair the existing rights of any participant with respect to any earned awards.
We sponsored a Fiscal Year 2018 Sales Compensation Plan, or our Sales Compensation Plan, in which Mr. Welch was eligible to participate. The Sales Compensation Plan had an annual performance period, and Mr. Welch’s target commission was $300,000. Amounts under the Sales Compensation Plan generally were payable based on our achievement of new and upsell annual contract value and renewal amounts.
Executive Employment Agreements
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Name and Principal Position | Year | Salary ($) | Bonus ($) | Stock Awards ($)(1) | Option Awards ($) | Non-Equity Incentive Plan Compensation ($) | All Other Compensation ($) | Total ($) | |
| | | | | | | | | |
Jay Chaudhry We entered into an employment agreement with Jay Chaudhry, our president, chief executive officer and chairman of our board of directors, on August 23, 2017. The employment agreement does not have a fixed expiration date, and Mr. Chaudhry’s employment is at-will. Mr. Chaudhry’s current annual base salary is $23,660, and he is currently eligible to receive discretionary bonuses, as determined by our board of directors or our compensation committee.Chief Executive Officer
| 2023 | 23,660 | — | In addition, in August 2017, our board of directors approved the payment by us of filing fees in the amount of $125,000 on behalf of Mr. Chaudhry in connection with a filing made under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, as a result of the acquisition by entities controlled by Mr. Chaudhry of shares of our common stock from existing stockholders. Our board of directors also approved reimbursing Mr. Chaudhry for any applicable taxes payable by Mr. Chaudhry as a result of such payment.57,751,823(2)
| — | — | — | 57,775,483 | |
2022 | 23,660 | — | 41,506,500(3)
| — | — | — | 41,530,160 | |
2021 | 23,660 | — | 19,975,500(4)
Mr. Chaudhry is an eligible participant in our Change of Control and Severance Policy described below and eligible to receive the change of control benefits described below.
In October 2018, the compensation committee approved the award of performance-based restricted stock units to Mr. Chaudhry (the “CEO PSUs”). The CEO PSUs consist of four separate 150,000 PSU grants with individual annual performance periods to correspond to fiscal years 2019 through 2022. Each CEO PSU grant will be subject to vesting annually for each fiscal year from fiscal year 2019 through fiscal year 2022 based on achievement of the performance metrics to be determined each year by the compensation committee. For each performance year, 100% of the earned CEO PSUs will vest on the first Quarterly Vesting Date (as defined below) following the date the achievement for the applicable year performance metric is determined by the compensation committee. For the 2019 performance year, the total number of CEO PSUs that can be earned scales from 0% to 150% of target, based on actual achievement of the 2019 performance metric. The performance metrics and performance targets for the 2020 through 2022 performance years will be determined in the future by the compensation committee. For each of the CEO PSUs, receipt of any shares of common stock underlying the awards is subject to Mr. Chaudhry continuing to be a service provider through any performance determination date or subsequent vesting date. Mr. Chaudhry intends to donate any shares of common stock issued for earned PSUs (or the proceeds from the sale thereof) to charity as part of his philanthropic commitments. A “Quarterly Vesting Date” is the first trading day on or after each of March 15, June 15, September 15 and December 15 in a given year.
| — | — | — | 19,999,160 | |
Remo Canessa We entered into an employment letter with Remo Canessa, our chief financial officer, on January 8, 2017. The employment letter does not have a fixed expiration date, and Mr. Canessa’s employment is at-will. Mr. Canessa’s current annual base salary is $300,000, and he is currently eligible to earn annual incentive compensation with a target equal to $150,000. For fiscal 2017, Mr. Canessa's bonus was pro-rated based on Mr. Canessa’s date of hire and guaranteed so long as Mr. Canessa continued employment with us through the date the bonus was paid.Chief Financial Officer
| 2023 | 430,000 | — | 5,383,820(2) | — | 268,548 | — | 6,082,368 | |
2022 | 400,000 | — | 10,704,526(3) | — | 347,588 | — | 11,452,114 | |
2021 | 375,000 | — | 2,719,670(4) | — | 347,117 | — | 3,441,786 | |
Syam Nair(5) If we terminate Mr. Canessa’s employment other than for “cause”, death or “disability” outside of the “change of control period” (as such terms are defined in our Change of Control and Severance Policy), he will receive (1) continuing payments of base salary for a period of six months, Chief Technology Officer
| 2023 | 80,625 | — | 29,658,794(2) acceleration of the vesting of his equity awards to the extent such awards would have vested had he remained employed with us for an additional six months, and (3) an extended post-termination exercise period of stock options for 12 months after termination, subject to his signing and not revoking a release of claims within the time specified in the employment letter. | 4,448,380(6) | 66,507 | — | 34,254,306 | |
Dali Rajic Mr. Canessa is an eligible participant in our Change of Control and Severance Policy described below and is eligible to receive the change of control benefits described below. In addition to such benefits described below, Mr. Canessa’s extended 12-month post-termination exercise period described above will also apply for qualified terminations during the change of control period.Chief Operating Officer
| 2023 | 430,000 | — | 15,110,749(2) | — | 355,149 | — | 15,895,898 | |
2022 | 415,000 | — | 45,154,450(3) | — | 509,076 | — | 46,078,526 | |
2021 | 400,000 | — | 8,526,289(4) | — | 525,075 | — | 9,451,364 | |
Robert Schlossman In October 2018, the compensation committee approved the award of a mix of restricted stock units (“RSUs”) and performance-based restricted stock units (“PSUs”) to Mr. Canessa. The 56,250 RSUs granted to Mr. Canessa are subject to a delayed vesting schedule. The RSUs will vest over approximately six years in total, with 6.25% of the RSUs vesting on December 15, 2020 and 6.25% of the RSUs vesting each Quarterly Vesting Date thereafter. Mr. Canessa’s PSUs consist of two separate PSU grants of 28,125 units with individual annual performance periods to correspond to fiscal years 2019 and 2020. For the 2019 performance year, the total number of PSUs that can be earned scales from 0% to 150% of target, based on actual achievement of the 2019 performance metric. The performance metrics and performance targets for the 2020 performance year will beChief Legal Officer
| 2023 | 375,000 | — | 3,426,192(2) | — | 206,575 | — | 4,007,767 | |
2022 | 325,000 | — | 8,028,464(3) | — | 260,690 | — | 8,614,154 | |
2021 | 325,000 | — | 2,175,736(4) | — | 229,453 | — | 2,730,189 | |
(1)The amounts reported represent the grant date fair value of the stock awards granted to the Named Executive Officers during the respective fiscal years as computed in accordance with FASB ASC Topic 718. The assumptions used in calculating the grant date fair value of the awards reported in this column are set forth in Note 13 to our audited consolidated financial statements included in our Annual Report on Form 10-K for our fiscal year ended July 31, 2023.
(2)The awards for fiscal 2023 are comprised of (i) time-based RSU and (ii) PSU awards. The amounts shown in respect of the PSU awards represent the grant date fair value based on the probable outcome of the fiscal 2023 performance condition as of the grant date. The grant date fair value of the PSU awards for which metrics were determined in fiscal 2023 assuming achievement of the maximum level of performance are: Mr. Chaudhry, $64,681,951; Mr. Canessa, $1,884,419; Mr. Nair $10,100,155; Mr. Rajic $9,157,928; and Mr. Schlossman $1,199,340. These amounts do not necessarily correspond to the actual value recognized by the Named Executive Officers.
(3)The awards for fiscal 2022 are comprised of PSU awards, and for Mr. Rajic (i) time-based RSU and (ii) PSU awards. The amounts shown in respect of the PSU awards represent the grant date fair value based on the probable outcome of the fiscal 2022 performance condition as of the grant date. The grant date fair value of the PSU awards for which metrics were determined in fiscal 2022 assuming achievement of the maximum level of performance are: Mr. Chaudhry, $62,259,750; Mr. Canessa, $13,380,658; Mr. Rajic $53,044,974; and Mr. Schlossman $10,035,580. These amounts do not necessarily correspond to the actual value recognized by the Named Executive Officers. For example, PSU awards were earned at 106.2% of target for fiscal 2022.
(4)The awards for fiscal 2021 are comprised of (i) time-based RSU and (ii) PSU awards. The amounts shown in respect of the PSU awards represent the grant date fair value based on the probable outcome of the fiscal 2021 performance condition as of the grant date. The grant date fair value of the PSU awards for which metrics were determined in fiscal 2021 assuming achievement of the maximum level of performance are: Mr. Chaudhry, $29,963,250; and Mr. Rajic $4,630,720. These amounts do not necessarily correspond to the actual value recognized by the Named Executive Officers. For example, PSU awards were earned at 129.25% of target for fiscal 2021.
(5)Mr. Nair was appointed Chief Technology Officer and EVP of R&D on May 24, 2023, and appointed as an Executive Officer in July of 2023.
(6)The amounts reported represent the aggregate grant date fair value of the stock options granted to our Named Executive Officers, calculated in accordance with ASC Topic 718. The assumptions used in calculating the grant date fair value of the awards reported in this column are set forth in Note 13 to our audited consolidated financial statements included in our Annual Report on Form 10-K for our fiscal year ended July 31, 2023. These amounts do not necessarily correspond to the actual value recognized by the Named Executive Officers.
the future by the compensation committee. For each performance year, earned PSUs will vest on the same schedule as the RSUs, with 6.25% of the earned PSUs vesting on December 15, 2020 and 6.25% of the PSUs vesting each Quarterly Vesting Date thereafter. For each of the RSU and PSU awards, receipt of any shares of common stock underlying the awards is subject to Mr. Canessa continuing to be a service provider through any vesting date.
Fiscal 2023 Grants of Plan-Based Awards Table
The following table sets forth certain information with respect to all plan-based awards granted to our Named Executive Officers during fiscal 2023.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Estimated Possible Payouts under Non-Equity Incentive Plan Awards(1) | Estimated Possible Payouts under Equity Incentive Plan Awards(2) | All Other Stock Awards: Number of shares of Stock or Units (#) | Exercise Price of Option Awards ($) | Grant Date Fair Value of Stock and Options Awards ($)(3) | |
Name | Grant Date | Threshold ($) | Target ($) | Maximum ($) | Threshold (#) | Target (#) | Maximum (#) | |
| | | | | | | | | | | |
Jay Chaudhry | 10/17/2022 | — | | — | | — | | — | | 174,815 | | 244,741 | | — | | — | | 25,397,123 | | |
10/17/2022 | — | | — | | — | | — | | — | | — | | 43,704(4) | — | | 6,349,317 | | |
04/28/2023 | — | | — | | — | | — | | 230,902 | | 323,263 | | — | | — | | 20,804,270 | | |
04/28/2023 | — | | — | | — | | — | | — | | — | | 57,726(5) | — | | 5,201,113 | | |
Remo Canessa | 10/17/2022 | — | | 325,000 | | 487,500 | | — | | — | | — | | — | | — | | — | | |
10/17/2022 | — | | — | | — | | — | | 5,093 | | 7,130 | | — | | — | | 739,911 | | |
10/17/2022 | — | | — | | — | | — | | — | | — | | 15,278(6) | — | | 2,219,588 | | |
04/28/2023 | — | | — | | — | | — | | 6,727 | | 9,418 | | — | | — | | 606,103 | | |
04/28/2023 | — | | — | | — | | — | | — | | — | | 20,180(6) | — | | 1,818,218 | | |
Syam Nair | 06/06/2023 | — | | 71,667 | | 107,501 | | — | | — | | — | | — | | — | | — | | |
06/06/2023 | — | | — | | — | | — | | — | | — | | 50,000(7) | 152.99 | 4,448,380 | | |
06/06/2023 | — | | — | | — | | — | | 47,156 | | 66,018 | | — | | — | | 7,214,396 | | |
06/06/2023 | — | | — | | — | | — | | — | | — | | 146,705(8) | — | | 22,444,398 | | |
Dalibor Rajic | 10/13/2022 | — | | — | | — | | — | | 23,182 | | 34,773 | | — | | — | | 3,364,404 | | |
10/17/2022 | — | | 430,000 | | 645,000 | | — | | — | | — | | — | | — | | — | | |
10/17/2022 | — | | — | | — | | — | | 11,112 | | 15,557 | | — | | — | | 1,614,351 | | |
10/17/2022 | — | | — | | — | | — | | — | | — | | 33,334(6) | — | | 4,842,764 | | |
04/28/2023 | — | | — | | — | | — | | 14,676 | | 20,546 | | — | | — | | 1,322,308 | | |
04/28/2023 | — | | — | | — | | — | | — | | — | | 44,028(6) | — | | 3,966,923 | | |
Robert Schlossman | 10/17/2022 | | 250,000 | | 375,000 | | — | | — | | — | | — | | — | | — | | |
10/17/2022 | — | | — | | — | | — | | 3,241 | | 4,538 | | — | | — | | 470,852 | | |
10/17/2022 | — | | — | | — | | — | | — | | — | | 9,723(6) | — | | 1,412,557 | | |
04/28/2023 | — | | — | | — | | — | | 4,281 | | 5,994 | | — | | — | | 385,718 | | |
04/28/2023 | — | | — | | — | | — | | — | | — | | 12,842(6) | — | | 1,157,064 | | |
(1)These amounts reflect the fiscal 2023 target cash bonus award amounts for each of our Named Executive Officers under our Executive Incentive Compensation Plan. Mr. Chaudhry did not participate in the Executive Incentive Compensation Plan. There are no threshold bonus amounts under the Executive Incentive
We entered into an employment letter with Amit Sinha, our chief technology officer, on October 10, 2010. The employment letter does not have a fixed expiration date, and Dr. Sinha’s employment is at-will. Dr. Sinha’s current annual base salary is $300,000, and he is currently eligible to earn annual incentive compensation with a target equal to $125,000.
If we terminate Dr. Sinha’s employment other than for “cause”, death or “disability” outside of the “change of control period” (as such terms are defined in our Change of Control and Severance Policy), he will receive (1) continuing payments of base salary for a period of six months, (2) acceleration of the vesting of his equity awards to the extent such awards would have vested had he remained employed with us for an additional six months, and (3) an extended post-termination exercise period of stock options for 6 months after termination, subject to his signing and not revoking a release of claims within the time specified in the employment letter.Compensation Plan. The amounts set forth do not represent actual compensation earned or earnable by the Named Executive Officers for fiscal 2023. Please see the "Fiscal 2023 Summary Compensation Table" for the amounts earned by our Named Executive Officers for fiscal 2023. For a description of the Executive Incentive Compensation Plan, see “Compensation Discussion and Analysis –Annual Cash Bonuses” above.
(2)These amounts reflect PSU awards granted and eligible to be earned based on achievement of long-term ARR targets established during fiscal 2023 under our 2018 Equity Incentive Plan. Mr. Rajic was also granted a PSU award eligible to be earned based on the achievement of fiscal 2023 revenue and calculated billing targets established by the compensation committee.The amounts set forth do not represent actual compensation earned or earnable by the Named Executive Officers for fiscal 2023. For a description of the fiscal 2023 PSU program, see “Compensation Discussion and Analysis –Long-Term Incentive Compensation” above.
(3)The amounts reported represent the aggregate grant date fair value of the stock awards granted to our Named Executive Officers in fiscal 2023, calculated in accordance with ASC Topic 718. The assumptions used in calculating the grant date fair value are set forth in the notes to our consolidated financial statements included in our Annual Report. These amounts do not necessarily correspond to the actual value recognized by the Named Executive Officers.
(4)The RSU award vests in (16) equal quarterly installments beginning December 15, 2022.
(5)The number of shares was determined on April 28, 2023 based on an award value approved on October 17, 2022. The award began vesting on December 15, 2022, prior to the number of shares being determined, resulting in 3/16ths of the RSUs being released on June 15 2023, with the remainder vesting in (13) equal quarterly installments.
(6)The RSU award vests in (16) equal quarterly installments beginning December 15, 2023.
(7)One-fourth of the shares subject to the option vest on May 24, 2024 and 1/48th of the shares vest monthly thereafter.
(8)The RSUs vest 12.5% on December 15, 2023 and the remaining in equal quarterly installments thereafter.
Dr. Sinha is an eligible participant in our Change of Control and Severance Policy described below and is eligible to receive the change of control benefits described below.
In October 2018, the compensation committee approved the award of a mix of RSUs and PSUs to Dr. Sinha. Dr. Sinha’s RSUs consist of two separate RSU grants of 62,500 units with 62,500 RSUs vesting in 16 equal quarterly installments beginning on December 15, 2019 and the remaining 62,500 RSUs vesting in 16 equal quarterly installments beginning on December 15, 2020. Dr. Sinha’s PSUs consist of two separate PSU grants of 62,500 units with individual annual performance periods to correspond to fiscal years 2019 and 2020. For the 2019 performance year, the total number of PSUs that can be earned scales from 0% to 150% of target, based on actual achievement of the 2019 performance metric. The performance metrics and performance targets for the 2020 performance year will be determined in the future by the compensation committee. For each performance year, earned PSUs will vest on the same schedule as the RSUs, with any earned fiscal year 2019 PSUs vesting in 16 equal quarterly installments beginning on December 15, 2019 and any earned fiscal year 2020 PSUs vesting in 16 equal quarterly installments beginning on December 15, 2020. For each of the RSU and PSU awards, receipt of any shares of common stock underlying the awards is subject to Dr. Sinha continuing to be a service provider through any vesting date.Fiscal 2023 Outstanding Equity Awards at Fiscal Year End Table
The following table provides information regarding outstanding equity awards held by our Named Executive Officers as of July 31, 2023. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Option Awards | Stock Awards | |
Name | Grant Date | Number of Securities Underlying Unexercised Options Exercisable (#) | Number of Securities Underlying Unexercised Options Unexercisable (#) | Option Exercise Price ($) | Option Expiration Date | Number of Shares or Units of Stock That Have Not Vested (#) | Market Value of Shares or Units of Stock That Have Not Vested ($)(1) | Equity Incentive Plan Awards: Number of Unearned Shares or Units That Have Not Vested (#) | Equity Incentive Plan Awards: Market Value of Unearned Shares or Units or That Have Not Vested ($) | |
| | | | | | | | | | | |
Jay Chaudhry | 10/17/22 | (2) | — | — | — | — | 35,510 | 5,695,094 | — | — | |
10/17/22 | (3) | — | — | — | — | — | — | 174,815 | 28,036,830 | |
4/28/23 | (2) | — | — | — | — | 46,903 | 7,522,303 | — | — | |
4/28/23 | (3) | — | — | — | — | — | — | 230,902 | 37,032,063 | |
Remo Canessa | 10/5/18 | (4) | — | — | — | — | 17,579 | 2,819,320 | — | — | |
10/31/19 | (4) | — | — | — | — | 9,245 | 1,482,713 | — | — | |
6/2/20 | (4) | — | — | — | — | 18,134 | 2,908,331 | — | — | |
4/13/21 | (5) | — | — | — | — | 12,793 | 2,051,741 | — | — | |
9/1/21 | (6) | — | — | — | — | 23,101 | 3,704,938 | — | — | |
10/17/22 | (7) | — | — | — | — | 15,278 | 2,450,286 | — | — | |
10/17/22 | (3) | — | — | — | — | — | — | 5,093 | 816,815 | |
4/28/23 | (7) | — | — | — | — | 20,180 | 3,236,468 | — | — | |
4/28/23 | (3) | — | — | — | — | — | — | 6,727 | 1,078,876 | |
Syam Nair | 6/6/23 | (13) | — | 50,000 | 152.99 | 06/06/33 | — | — | — | — | |
6/6/23 | (14) | — | — | — | — | 146,705 | 23,528,548 | — | — | |
6/6/23 | (3) | — | — | — | — | — | — | 47,156 | 7,562,879 | |
Change of Control and Severance Policy
Our board of directors adopted a Change of Control and Severance Policy, or the Severance Policy. Each of our current executive officers is a participant in the Severance Policy. Under the Severance Policy, if we terminate a participant other than for “cause,” death or “disability” or the named executive officer resigns for “good reason” during the period beginning on a “change of control” (as such terms are defined in the Severance Policy) and ending 12 months following the change of control (which we refer to as the change of control period), such named executive officer will be eligible to receive the following severance benefits: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Option Awards | Stock Awards | |
Name | Grant Date | Number of Securities Underlying Unexercised Options Exercisable (#) | Number of Securities Underlying Unexercised Options Unexercisable (#) | Option Exercise Price ($) | Option Expiration Date | Number of Shares or Units of Stock That Have Not Vested (#) | Market Value of Shares or Units of Stock That Have Not Vested ($)(1) | Equity Incentive Plan Awards: Number of Unearned Shares or Units That Have Not Vested (#) | Equity Incentive Plan Awards: Market Value of Unearned Shares or Units or That Have Not Vested ($) | |
| | | | | | | | | | | |
Dalibor Rajic | 9/12/19 | (8) | 111,776 | 6,250 | 49.59 | 09/12/29 | — | — | — | — | |
10/31/19 | (9) | — | — | — | — | 5,796 | 929,562 | — | — | |
6/2/20 | (4) | — | — | — | — | 21,156 | 3,392,999 | — | — | |
4/13/21 | (5) | — | — | — | — | 25,585 | 4,103,322 | — | — | |
9/1/21 | (6) | — | — | — | — | 40,427 | 6,483,682 | — | — | |
1/7/22 | (10) | — | — | — | — | — | — | 38,250 | 6,134,535 | |
1/7/22 | (11) | — | — | — | — | 26,297 | 4,217,513 | — | — | |
10/13/22 | (12) | — | — | — | — | — | — | 23,182 | 3,717,929 | |
10/17/22 | (7) | — | — | — | — | 33,334 | 5,346,107 | — | — | |
10/17/22 | (3) | — | — | — | — | — | — | 11,112 | 1,782,143 | |
4/28/23 | (7) | — | — | — | — | 44,028 | 7,061,211 | — | — | |
4/28/23 | (3) | — | — | — | — | — | — | 14,676 | 2,353,737 | |
Robert Schlossman | 10/5/18 | (9) | — | — | — | — | 1,954 | 313,383 | — | — | |
10/5/18 | (4) | — | — | — | — | 9,766 | 1,566,271 | — | — | |
10/31/19 | (4) | — | — | — | — | 10,272 | 1,647,423 | — | — | |
6/2/20 | (4) | — | — | — | — | 9,067 | 1,454,165 | — | — | |
4/13/21 | (5) | — | — | — | — | 10,234 | 1,641,329 | — | — | |
9/1/21 | (6) | — | — | — | — | 17,326 | 2,778,744 | — | — | |
10/17/22 | (7) | — | — | — | — | 9,723 | 1,559,375 | — | — | |
10/17/22 | (3) | — | — | — | — | — | — | 3,241 | 519,792 | |
4/28/23 | (7) | — | — | — | — | 12,842 | 2,059,600 | — | — | |
4/28/23 | (3) | — | — | — | — | — | — | 4,281 | 686,587 | |
(1)This column represents the market value of the shares underlying the RSU awards or PSU awards, as applicable, as of July 31, 2023, based on the closing price of our common stock, as reported on NASDAQ, of $160.38 per share on July 31, 2023.
(2)The remaining RSUs vest in (13) equal quarterly installments through September 15, 2026.
(3)Upon achievement of specified performance metrics, earned PSU awards vest 100% on the first quarterly vesting date after achievement has been certified. Amounts reported reflect achievement at target.
(4)The remaining RSUs vest in five equal quarterly installments through September 15, 2024.
100% of the then-unvested shares subject to his then-outstanding equity awards will become vested and exercisable, and in the case of equity awards with performance-based vesting, all performance goals and other vesting criteria will be deemed achieved at the specified percentage of target levels;
(5)The remaining RSU awards vest as follows: (i) 2.71% of the RSUs vest on September 15, 2023; (ii) 43.24% of the RSUs vest in eight equal quarterly installments through September 15, 2025 and (iii) 54.05% of the RSUs vest in eight quarterly installments through September 15, 2027.
(6)The remaining RSUs vest in nine equal quarterly installments through September 15, 2025.
(7)The RSUs vest in (16) equal quarterly installments through September 15, 2027.
(8)The remaining options vest monthly through September 10, 2023.
(9)The remaining RSUs vest on September 15, 2023.
(10)Upon achievement of specified performance metrics, earned PSU awards, if any, vest 100% on September 15, 2025. Amounts reported reflect achievement at target.
(11)The remaining RSU awards vest in (11) equal quarterly installments through March 15, 2026.
(12)Upon achievement of specified performance metrics, earned PSU awards vest on September 15, 2023, or the first quarterly vesting date after achievement has been certified. Amounts reported reflect achievement at target. PSU awards were achieved at 85.9% of target for fiscal 2023.
(13)One-fourth of the shares subject to the option vest on May 24, 2024 and the remaining shares vest monthly through May 24, 2027.
(14)The RSUs vest 12.5% on December 15, 2023 and the remaining in equal quarterly installments through June 15, 2027.
a lump-sum payment equal to 100% of the greatest of (i) a participant's annual base salary as in effect immediately prior to his termination, (ii) if the termination is a resignation for good reason based on a material reduction in base salary, a participant's annual base salary as in effect immediately prior to such reduction, or (iii) a participant's annual base salary as in effect immediately prior to the change of control;Fiscal 2023 Option Exercises and Stock Vested Table
The following table presents, for each of our Named Executive Officers, the shares of our common stock that were acquired upon the exercise of stock options and the related value realized upon exercise during fiscal 2023 and upon the vesting of stock awards and the related value realized upon vesting during fiscal 2023.
| | | | | | | | | | | | | | | | | | | | |
| Option Awards | Stock Awards |
Name | Number of Shares Acquired on Exercise (#) | Value Realized on Exercise ($)(1) | | Number of Shares Acquired on Vesting (#) | Value Realized on Vesting ($)(2) | |
| | | | | | |
Jay Chaudhry | — | — | | 178,269 | 30,787,046 | |
Remo Canessa | — | — | | 54,973 | 7,951,136 | |
Syam Nair | — | — | | — | — | |
Dalibor Rajic | — | — | | 130,984 | 20,503,492 | |
Robert Schlossman | — | — | | 45,408 | 6,546,952 | |
(1)The value realized on exercise is pre-tax and represents the difference between the market price of our common stock on the date of exercise less the option exercise price paid for those shares, multiplied by the number of shares for which the option was exercised.
(2)The value realized on vesting is calculated as the number of vested shares multiplied by the closing market price of our common stock on the vesting date.
Potential Payments Upon Termination or Change in Control
The tables below quantify the potential payments to our Named Executive Officers under the terms of (i) the Severance Policy and individual agreements in the event of a qualifying termination of employment that is not in connection with a change in control of the Company, (ii) the Severance Policy in the event of a qualifying termination of employment in connection with a change in control of the Company and (iii) individual award agreements and company policies solely in connection with a change in control of the Company . The amounts shown assume that the change in control and/or termination of employment occurred on July 31, 2023, the last business day of fiscal 2023. The values reflected also assume that the payments and benefits to our Named Executive Officers are not reduced by virtue of the provision in the Severance Policy relating to Sections 280G and 4999 of the Internal Revenue Code.
Potential Payments Upon Termination Not in Connection with a Change in Control
| | | | | | | | | | | |
| | Value of Accelerated Equity Awards | |
Named Executive Officer | Salary Severance ($) | Restricted Stock Units ($)(1) | Total ($) |
| | | |
Mr. Canessa | 215,000 | | 4,228,900 | | 4,443,900 | |
Mr. Rajic | 215,000 | | — | | 215,000 | |
Mr. Schlossman | 93,750 | | — | | 93,750 | |
(1)Reflects the aggregate market value of the unvested shares of our common stock underlying outstanding RSU awards. The aggregate market value is equal to the product obtained by multiplying (i) the number of unvested shares of our common stock subject to outstanding RSU awards and eligible for accelerated vesting as of July 31, 2023, by (ii) $160.38 per share (the closing market price of our common stock on Nasdaq on July 31, 2023, the last trading day in the fiscal year ended July 31, 2023).
a lump-sum payment equal to (i) 100% of a participant's target annual bonus for the fiscal year in which the termination occurs plus (ii) a pro-rated portion of such target annual bonus reduced by any bonus payments made during such fiscal year; and
a lump-sum health benefit severance payment of $36,000.Potential Payments Upon Termination in Connection with a Change in Control
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Value of Accelerated Equity Awards | | | | |
Named Executive Officer | Salary Severance ($) | | Bonus Severance ($) | | Restricted Stock Units ($)(1) | | Options ($)(2) | | Health Benefit Severance Payments ($) | | Total ($) | |
| | | | | | | | | | | | |
Mr. Chaudhry | 23,660 | | | — | | | 78,286,289 | | | — | | | 36,000 | | | 78,345,949 | | |
Mr. Canessa | 430,000 | | | 741,765 | | | 20,549,489 | | | — | | 36,000 | | | 21,757,254 | | |
Mr. Nair | 430,000 | | | 143,334 | | | 31,091,427 | | | 369,500 | | | 36,000 | | | 32,070,261 | | |
Mr. Rajic | 430,000 | | | 633,131 | | | 45,522,740 | | | 693,000 | | | 36,000 | | | 47,314,871 | | |
Mr. Schlossman | 375,000 | | | 659,050 | | | 14,226,668 | | | — | | | 36,000 | | | 15,296,718 | | |
(1)These amounts reflect the aggregate market value of the unvested shares of our common stock underlying outstanding RSU awards. The aggregate market value is equal to the product obtained by multiplying (i) the number of unvested shares of our common stock subject to outstanding RSU awards as of July 31, 2023, by (ii) $160.38 per share (the closing market price of our common stock on the Nasdaq Global Select Market on July 31, 2023, the last trading day in the fiscal year ended July 31, 2023). For performance-based restricted stock unit awards, the assumed number of unvested shares is equal to the target number of shares subject to such award.
(2)These amounts reflect the aggregate market value of the unvested shares of our common stock underlying outstanding options. The aggregate market value is equal to (i) the product obtained by multiplying (x) the number of unvested shares of our common stock subject to outstanding options as of July 31, 2023, by (y) $160.38 per share (the closing market price of our common stock on the Nasdaq Global Select Market on July 31, 2023), minus (ii) the aggregate exercise price for such unvested shares.
Potential Payments Solely in Connection with a Change in Control
| | | | | | | | | | | | | | | | | | | | |
| Value of Accelerated Equity Awards | | |
Named Executive Officer | Performance-based Restricted Stock Units ($)(1) | | Total ($) | |
| | | | |
Mr. Chaudhry | 65,068,892 | | | 65,068,892 | | |
Mr. Canessa | 2,110,692 | | | 2,110,692 | | |
Mr. Nair | 7,562,879 | | | 7,562,879 | | |
Mr. Rajic | 13,988,344 | | | 13,988,344 | | |
Mr. Schlossman | 1,206,378 | | | 1,206,378 | | |
(1)These amounts reflect the aggregate market value of the unvested shares of our common stock underlying outstanding performance-based RSU awards at target. The aggregate market value is equal to the product obtained by multiplying (i) the number of unvested shares of our common stock subject to outstanding performance-based RSU awards as of July 31, 2023, by (ii) $160.38 per share (the closing market price of our common stock on the Nasdaq Global Select Market on July 31, 2023, the last trading day in the fiscal year ended July 31, 2023). The unvested shares are equal to the target number of shares subject to such award. Such shares will be subject to time based vesting depending on the progress toward completion of performance metrics as assessed at the time of the change in control event.
To receive the severance benefits upon a qualifying termination, a named executive officer must sign and not revoke a release of claims within the time specified in the Severance Policy. If we discover after a named executive officer receives severance benefits that grounds for terminating him for cause existed, such named executive officer will not receive any further severance benefits under the Severance Policy, and to the extent permitted by law, the named executive officer will be required to repay to us any severance payments and benefits (or gain derived from such payments and benefits) he received under the Severance Policy.
If any of the payments or benefits provided for under the Severance Policy or otherwise payable to a named executive officer would constitute “parachute payments” within the meaning of Section 280G of the Internal Revenue Code and would be subject to the related excise tax under Section 4999 of the Internal Revenue Code, then the named executive officer will be entitled to receive either full payment of such payments and benefits or such lesser amount which would result in no portion of the benefits being subject to the excise tax, whichever results in the greater amount of after-tax benefits to him.In addition to the benefits described above, Mr. Canessa’s 12-month extended post-termination exercise period continues to apply for a qualified termination during the change of control period.
Fiscal Year 2018 Equity Incentive Plan and 2007 Stock Plan
Our Fiscal Year 2018 Equity Incentive Plan (the “2018 Plan”) provides that in the event of a merger or change in control, as defined under our 2018 Plan, each outstanding award will be treated as the administrator determines, without a participant’s consent. The administrator is not required to treat all awards or participants similarly.
In the event that a successor corporation or its parent or subsidiary does not assume or substitute an equivalent award for any outstanding award, then such award will fully vest, all restrictions on such award will lapse, all performance goals or other vesting criteria applicable to such award will be deemed achieved at 100% of target levels and all other terms and conditions met and such award will become fully exercisable, if applicable. If an option or stock appreciation right is not assumed or substituted, the administrator will notify the participant in writing or electronically that such option or stock appreciation right will be exercisable for a period of time determined by the administrator in its sole discretion and the option or stock appreciation right will terminate upon the expiration of such period.
In the event of a change in control, with respect to awards granted to an outside director, his or her options and stock appreciation rights, if any, will vest fully and become immediately exercisable, all restrictions on his or her restricted stock and restricted stock units will lapse and all performance goals or other vesting requirements
for his or her performance shares and units will be deemed achieved at 100% of target levels, and all other terms and conditions met.
Our 2007 Plan provides that, in the event of a merger or change in control, as defined under our 2007 Plan, each outstanding award may be assumed or substituted for an equivalent award. In the event that awards are not assumed or substituted for, then the vesting of outstanding awards will be accelerated, and stock options will become exercisable in full prior to such transaction. In addition, if an option is not assumed or substituted in the event of a merger or change in control, the administrator will notify the participant that such award will be fully vested and exercisable for a specified period prior to the transaction, and such award will terminate upon the expiration of such period for no consideration, unless otherwise determined by the administrator.
401(k) Plan
We maintain a tax-qualified retirement plan, or the 401(k) plan, that provides eligible employees with an opportunity to save for retirement on a tax-advantaged basis. Eligible employees are able to participate in the 401(k) plan as of the first day of the month following the date they meet the 401(k) plan’s eligibility requirements, and participants are able to defer up to 100% of their eligible compensation subject to applicable annual Internal Revenue Code limits. All participants’ interests in their deferrals are 100% vested when contributed. We have not made any matching contributions to the 401(k) plan to date.
Equity Compensation Plan Information
The following table provides information as of July 31, 20182023 with respect to shares of our common stock that may be issued under our existing equity compensation plans.
| | | | | | | | | | | | | | |
Plan Category | Number of Securities to be Issued upon Exercise of Outstanding Options, Restricted Stock Units and Rights (#) | Weighted Average Exercise Price of Outstanding Options and Rights ($) | | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in the First Column) (#) |
| | | | |
Equity compensation plans approved by security holders | — | — | | — |
2007 Stock Plan(1) | 1,098,049 | 9.07 | | — |
Fiscal Year 2018 Equity Incentive Plan(2)(3) | 8,781,070 | 80.2 | | 28,927,397 |
Fiscal Year 2018 Employee Stock Purchase Plan(4) | — | — | | 5,849,353 |
Equity compensation plans not approved by security holders | — | — | | — |
Total | 9,879,119 | 18.51 | | 34,776,750 |
(1)As a result of the adoption of the 2018 Plan, we no longer grant awards under the 2007 Plan; however, all outstanding options issued pursuant to the 2007 Plan continue to be governed by their existing terms. To the extent that any such awards are forfeited or lapse unexercised or are repurchased, the shares of common stock subject to such awards will become available for issuance under the 2018 Plan.
(2)Our 2018 Plan provides that the number of shares available for issuance under the 2018 Plan will be increased on the first day of each fiscal year, in an amount equal to the least of (i) 12,700,000 shares, (ii) five percent (5%) of the outstanding shares of common stock on the last day of the immediately preceding fiscal year or (iii) such other amount as our board of directors may determine.
(3)Includes all outstanding PSU awards as of July 31, 2023 (a) at maximum payout if performance metrics have been determined and (b) at target if no performance metrics have been determined as of the end of fiscal 2023.
(4)Our Fiscal Year 2018 Employee Stock Purchase Plan (the "ESPP") provides that the number of shares available for issuance under the ESPP will be increased on the first day of each fiscal year, in an amount equal to the least of (i) 2,200,000 shares, (ii) one percent (1%) of the outstanding shares of common stock on the last day of the immediately preceding fiscal year or (iii) such other amount as may be determined by the administrator of the ESPP.
Compensation Committee Report
|
| | | | | | | | | |
Plan Category | | Number of Securities to be Issued upon Exercise of Outstanding Options, Restricted Stock Units and Rights | | Weighted Average Exercise Price of Outstanding Options and Rights | | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in the first Column) |
Equity compensation plans approved by security holders | | | | | | |
2007 Stock Plan (1) | | 16,131,798 |
| | $6.19 |
| | — |
|
Fiscal Year 2018 Equity Incentive Plan (2) | | 219,291 |
| | $ 41.25 |
| | 13,471,075 |
|
Fiscal Year 2018 Employee Stock Purchase Plan (3) | | — |
| | — |
| | 2,200,000 |
|
Equity compensation plans not approved by security holders | | — |
| | — |
| | — |
|
TOTAL | | 16,351,089 |
| | $ 6.21 |
| | 15,671,075 |
|
| |
(1) | As a result of the adoption of the 2018 Plan, we no longer grant awards under the 2007 Plan; however, all outstanding options issued pursuant to the 2007 Plan continue to be governed by their existing terms. To the extent that any such awards are forfeited or lapse unexercised or are repurchased, the shares of common stock subject to such awards will become available for issuance under the 2018 Plan. |
| |
(2) | Our 2018 Plan provides that the number of shares available for issuance under the 2018 Plan will be increased on the first day of each fiscal year, in an amount equal to the least of (i) 12,700,000 shares, (ii) five percent (5%) of the outstanding shares of common stock on the last day of the immediately preceding fiscal year or (iii) such other amount as our board of directors may determine. |
| |
(3) | Our Fiscal Year 2018 Employee Stock Purchase Plan (the "ESPP") provides that the number of shares available for issuance under the ESPP will be increased on the first day of each fiscal year, in an amount equal to the least of (i) 2,200,000 shares, (ii) one percent (1%) of the outstanding shares of common stock on the last day of the immediately preceding fiscal year or (iii) such other amount as may be determined by the administrator of the ESPP. |
COMPENSATION COMMITTEE REPORT
The compensation committee has reviewed and discussed the section titled “Executive Compensation”“Executive Compensation” with management. Based on such review and discussion, the compensation committee has recommended to the board of directors that the section titled “Executive Compensation”“Executive Compensation” be included in this proxy statement.Proxy Statement.
Respectfully submitted by the members of the compensation committee of the board of directors:
Andrew Brown (Chair)
Karen Blasing
Charles Giancarlo
Eileen Naughton
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
CEO Pay Ratio Disclosure
As required by SEC rules, we are providing the following information about the relationship between the annual total compensation of our Chief Executive Officer and President, Jay Chaudhry (our CEO), and the annual total compensation of our median employee (our “CEO pay ratio”).
For fiscal 2023, the median of the annual total compensation of all employees of our Company (other than our CEO) was $181,393 and the annual total compensation of our CEO was $57,775,483. Accordingly, the ratio of the annual total compensation of our CEO to the median of the annual total compensation of all employees was approximately 319 to 1. This pay ratio is a reasonable estimate calculated in a manner consistent with SEC rules.
We selected July 31, 2023, the last day of our fiscal year, as the determination date for identifying our median employee. As of July 31, 2023, our employee population consisted of approximately 6,257 individuals (other than our CEO) working at our parent company and consolidated subsidiaries both within and outside the United States, which included all employees whether employed on a full-time, part-time, temporary or seasonal basis. We did not include any contractors or other non-employee workers in our employee population.
To identify our median employee, we used a consistently applied compensation measure consisting of the target base salary of our employees for the 12-month period from August 1, 2022 through July 31, 2023. We selected the foregoing compensation element because it represented our principal broad-based compensation element. Payments not made in U.S. dollars were converted to U.S. dollars using the applicable currency exchange rate in effect as of July 31, 2023. We did not make any cost-of-living adjustment.
Using this approach, we selected the individual at the median of our employee population, who was a full-time employee based in the Netherlands. We then calculated annual total compensation for this individual using the same methodology we use for our Named Executive Officers as set forth in our Fiscal 2023 Summary Compensation Table.
With respect to the annual total compensation of our CEO, we used the amount reported in the “Total” column (column (j)) of our Fiscal 2023 Summary Compensation Table in this Proxy Statement. Because SEC rules for identifying the median of the annual total compensation of all employees allow companies to adopt a variety of methodologies, apply certain exclusions, and make reasonable estimates and assumptions that reflect their employee population and compensation practices, the pay ratio reported by other companies may not be comparable to our pay ratio, as other companies have different employee populations and compensation practices and may have used different methodologies, exclusions, estimates and assumptions in calculating their pay ratios. As explained by the SEC when it adopted these rules, the rule was not designed to facilitate comparisons of pay ratios among different companies, even companies within the same industry, but rather to allow stockholders to better understand and assess each particular company’s compensation practices and pay ratio disclosures.
Pay Versus Performance
As required by Section 953(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, and Item 402(v) of Regulation S-K (the “PvP Rules”), we are providing the following: (1) tabular compensation and performance disclosure for our fiscal years 2021, 2022, and 2023; (2) a list of three performance measures that the Company considers to be its most important measures used to align compensation actually paid to the NEOs for 2023 to Company performance; and (3) additional disclosure relative to the relationship between the “Compensation Actually Paid” (“CAP”) set forth in the Pay versus Performance Table and each of the performance metrics set forth in the Pay versus Performance Table and between the Company’s and the Peer Group TSR, in each case over 2021-2023. For further information concerning our pay-for-performance philosophy and how we align executive compensation with our performance, see “Executive Compensation—Compensation Discussion and Analysis” in this proxy and in our proxy statements filed for 2021 and 2022.
In the below pay versus performance table, we provide information about compensation of our NEOs for each of the last 3 fiscal years (the “Covered Years”). Additionally, we provide information about the results for certain financial performance measures during the Covered Years. Although the PVP Rules require us to disclose “compensation actually paid,” these amounts do not necessarily reflect compensation that our NEOs actually earned in the Covered Years. Instead, “compensation actually paid” reflects a calculation computed in accordance with the PVP Rules, including adjusted values to unvested and vested equity awards during the Covered Years based on either year-end or vesting date stock prices and various accounting valuation assumptions. “Compensation actually paid” generally fluctuates due to annual stock price performance.
PAY VERSUS PERFORMANCE
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Value of Initial Fixed $100 Investment Based on: | | |
Year | Summary Compensation Table Total for PEO (1) | Compensation Actually Paid for PEO (2) | Average Summary Compensation Table Total for Non-PEO NEOs (3) | Average Compensation Actually Paid for Non-PEO NEOs (4) | Total Shareholder Return (5) | Peer Group Total Shareholder Return (6) | Net Income
| Company-Selected Measure: Revenue (7) |
| | | | | | | | |
2023 | $57,775,483 | $85,838,523 | $15,060,085 | $17,984,450 | $124 | $168 | $(202,335,000) | $1,616,952,000 |
2022 | $41,530,160 | $40,909,340 | $26,408,035 | $6,614,390 | $119 | $132 | $(390,278,000) | $1,090,946,000 |
2021 | $19,999,160 | $36,864,645 | $5,446,150 | $29,838,915 | $182 | $140 | $(262,029,000) | $673,100,000 |
(1)Amounts reported in this column represent the total compensation reported in the Summary Compensation Table for the indicated fiscal year for our PEO. For all years reported, our PEO was Mr. Jay Chaudhry
(2)Amounts reported in this column represent the compensation actually paid to our PEO, based on his total compensation reported in the Summary Compensation Table for each of the indicated fiscal years and adjusted as shown in the table below:
PEO (Jay Chaudhry)
| | | | | | | | | | | | | | | | | |
| | | 2021 | 2022 | 2023 |
| | | | | |
| Summary Compensation Table - Total Compensation | (a) | $19,999,160 | | $41,530,160 | | $57,775,483 | |
— | Grant Date Fair Value of Stock Awards and Option Awards Granted in Fiscal Year | (b) | -$19,975,500 | | -$41,506,500 | | -$57,751,823 | |
+ | Fair Value at Fiscal Year End of Outstanding and Unvested Stock Awards and Option Awards Granted in Fiscal Year | (c) | $35,386,500 | | $23,259,000 | | $78,286,289 | |
+ | Change in Fair Value of Outstanding and Unvested Stock Awards and Option Awards Granted in Prior Fiscal Years | (d) | $— | | $— | | $— | |
+ | Fair Value at Vesting of Stock Awards and Option Awards Granted in Fiscal Year That Vested During Fiscal Year | (e) | $— | | $— | | $2,760,286 | |
+ | Change in Fair Value as of Vesting Date of Stock Awards and Option Awards Granted in Prior Fiscal Years For Which Applicable Vesting Conditions Were Satisfied During Fiscal Year | (f) | $1,454,485 | | $17,626,680 | | $4,768,287 | |
— | Fair Value as of Prior Fiscal Year End of Stock Awards and Option Awards Granted in Prior Fiscal Years That Failed to Meet Applicable Vesting Conditions During Fiscal Year | (g) | $— | | $— | | $— | |
— | Compensation Actually Paid | | $36,864,645 | | $40,909,340 | | $85,838,523 | |
Equity Award Valuations: Equity values are calculated in accordance with FASB ASC Topic 718, and the valuation assumptions used to calculate fair values did not materially differ from those disclosed at the time of grant.
(3)Amounts reported in this column represent the average of the total compensation reported in the Summary Compensation Table for the indicated fiscal year for our Named Executive Officers (excluding our PEO) (our “NEOs”) as listed below:
| | | | | |
Fiscal Year | Non-PEO NEOs |
| |
2023 | Remo Canessa, Dali Rajic, Robert Schlossman, and Syam Nair |
2022 | Remo Canessa, Amit Sinha, Dali Rajic, and Robert Schlossman |
2021 | Remo Canessa, Amit Sinha, Dali Rajic, and Robert Schlossman |
(4)Amounts reported in this column represent the compensation actually paid to the Reported NEOs in the indicated fiscal year, as calculated under Item 402(v) of Regulation S-K based on the average total compensation for such NEOs reported in the Summary Compensation Table for the indicated fiscal year and adjusted as shown in the table below:
NEO
| | | | | | | | | | | | | | | | | |
| | | 2021 | 2022 | 2023 |
| | | | | |
| Summary Compensation Table - Total Compensation | (a) | $5,446,150 | | $26,408,035 | | $15,060,085 | |
— | Grant Date Fair Value of Stock Awards and Option Awards Granted in Fiscal Year | (b) | -$4,715,209 | | -$25,656,800 | | -$14,506,984 | |
+ | Fair Value at Fiscal Year End of Outstanding and Unvested Stock Awards and Option Awards Granted in Fiscal Year | (c) | $6,097,920 | | $14,517,376 | | $17,177,068 | |
+ | Change in Fair Value of Outstanding and Unvested Stock Awards and Option Awards Granted in Prior Fiscal Years | (d) | $18,009,376 | | -$9,717,756 | | $395,724 | |
+ | Fair Value at Vesting of Stock Awards and Option Awards Granted in Fiscal Year That Vested During Fiscal Year | (e) | $— | | $177,159 | | $— | |
+ | Change in Fair Value as of Vesting Date of Stock Awards and Option Awards Granted in Prior Fiscal Years For Which Applicable Vesting Conditions Were Satisfied During Fiscal Year | (f) | $5,000,679 | | $886,375 | | -$141,443 | |
— | Fair Value as of Prior Fiscal Year End of Stock Awards and Option Awards Granted in Prior Fiscal Years That Failed to Meet Applicable Vesting Conditions During Fiscal Year | (g) | $— | | $— | | $— | |
— | Compensation Actually Paid | | $29,838,915 | | $6,614,390 | | $17,984,450 | |
Equity Award Valuations: Equity values are calculated in accordance with FASB ASC Topic 718, and the valuation assumptions used to calculate fair values did not materially differ from those disclosed at the time of grant.
(5)Pursuant to Item 402(v) of Regulation S-K, the comparison assumes $100 was invested in our common stock on July 31, 2020, using the closing stock price on that date. Historic stock price performance is not necessarily indicative of future stock price performance.
(6)The TSR Peer Group consists of the S&P 500 Information Technology Index. This calculation assumes that $100 was invested in this index on July 31, 2020 (aligned with the period used in footnote 5 above).
(7)We have selected revenue as the Company-Selected Measure because it is a core driver of our performance and stockholder value creation and, accordingly, was utilized as a metric for performance-based RSUs.
Tabular List of Financial Performance Measures
The following is a list of financial performance measures, which in the Company’s assessment represent the most important financial performance measures used by the Company to link compensation actually paid to the NEOs for 2023. These measures were either used to determine payouts in our Fiscal 2023 Bonus Plan or are tied to vesting of the PSUs.
•Revenue
•Calculated Billings
•Annual Recurring Revenue (ARR)
Relationship Between Pay and Performance
“Compensation actually paid,” as calculated per SEC Item 402(v) of Regulation S-K, reflects cash compensation actually paid as well as changes to the fair values of equity awards during the years shown in the table based on year-end or vesting date stock prices, various accounting valuation assumptions, and projected performance modifiers. Due to how CAP is calculated, the CAP as reported for each year does not reflect the actual amounts earned by our NEOs from their equity awards. CAP generally fluctuates annually due to the change in our stock price from year to year as well as varying levels of actual achievement of performance goals.
Because CAP does not reflect the actual amount earned by our NEOs on their equity compensation, we do not use this measure for understanding how NEO pay aligns with our company performance. For a discussion of how our compensation committee assessed “pay-for-performance” and how our executive compensation program is designed to link executive compensation with the achievement of our financial and strategic objectives as well as stockholder value creation each year, see “Executive Compensation—Compensation Discussion and Analysis” in this proxy and in our proxy statements filed for 2021 and 2022.
Below are graphs showing the relationship of “Compensation Actually Paid” to our PEO and non-PEO NEOs for our fiscal years 2021, 2022 and 2023 to (1) TSR of both our common stock and S&P 500 Information Technology Index, (2) our net loss, and (3) our total revenue.
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information with respect to the beneficial ownership of our common stock as of October 25, 2018November 13, 2023 for:
•each person, or group of affiliated persons, who beneficially owned more than 5% of our common stock;
•each of our named executive officers;Named Executive Officers;
•each of our directors and nominees for director; and
•all of our current executive officers and directors as a group.
We have determined beneficial ownership in accordance with the rules of the SEC and the information is not necessarily indicative of beneficial ownership for any other purpose. Unless otherwise indicated below, to our knowledge, the persons and entities named in the table have sole voting and sole investment power with respect to all shares that they beneficially owned, subject to community property laws where applicable.
We have based our calculation of the percentage of beneficial ownership on 122,096,519148,323,448 shares of our common stock outstanding as of October 25, 2018.November 13, 2023. We have deemed shares of our common stock subject to stock options that are currently exercisable or exercisable within 60 days of October 25, 2018,November 13, 2023, to be outstanding and to be beneficially owned by the person holding the stock option for the purpose of computing the percentage ownership of that person. We did not deem these shares outstanding, however, for the purpose of computing the percentage ownership of any other person.
Unless otherwise indicated, the address of each beneficial owner listed in the table below is c/o Zscaler, Inc., 110 Rose Orchard120 Holger Way, San Jose, California 95134.
| | | | | | | | |
Name of Beneficial Owner | Number of Shares Beneficially Owned | Percentage of Shares Beneficially Owned |
| | |
5% Stockholders: | | |
Ajay Mangal, as trustee(1) | 29,449,532 | 19.9% |
The Vanguard Group(2) | 8,183,936 | 5.5% |
Named Executive Officers and Directors: | | |
Jay Chaudhry(3) | 26,905,246 | 18.1% |
Remo Canessa(4) | 163,930 | * |
Syam Nair(5) | 18,339 | * |
Dali Rajic(6) | 203,788 | * |
Robert Schlossman(7) | 68,221 | * |
Karen Blasing(8) | 117,020 | * |
Andrew Brown(9) | 73,264 | * |
Scott Darling(10) | 74,729 | * |
|
| | | | | | |
Name of Beneficial Owner | | Number of Shares Beneficially Owned | | Percentage of Shares Beneficially Owned |
5% Stockholders: | | | | |
Ajay Mangal, as trustee(1) | | 29,824,532 |
| | 24.4 |
|
Named Executive Officers and Directors: | | |
| | |
|
Jay Chaudhry(2) | | 26,848,704 |
| | 22.0 |
|
Remo Canessa(3) | | 1,000,000 |
| | * |
|
Amit Sinha(4) | | 1,755,687 |
| | 1.4 |
|
William Welch(5) | | 627,797 |
| | * |
|
Lane Bess(6) | | 2,191,792 |
| | 1.8 |
|
Karen Blasing(7) | | 248,958 |
| | * |
|
Andrew Brown(8) | | 198,333 |
| | * |
|
Scott Darling(9) | | 62,500 |
| | * |
|
Charles Giancarlo(10) | | 358,333 |
| | * |
|
Nehal Raj | | — |
| | * |
|
All current executive officers and directors as a group (11 persons)(11) | | 34,032,805 |
| | 27.4 | % |
__________________
| | | | | | | | |
*76 | Represents beneficial ownership of less than one percent (1%) of the outstanding shares of our common stock.2023 Proxy Statement | |
| | | | | | | | |
(1) | Consists of (i) 21,566,041 shares held of record by The CJCP Trust for which Mr. Mangal serves as trustee and (ii) 8,258,491 shares held of record by The CKS Trust for which Mr. Mangal serves as trustee. The beneficiaries of The CJCP Trust and The CKS Trust are members of Jay Chaudhry’s family. The address for The CJCP Trust and The CKS Trust is c/o The Goldman Sachs Trust Company, 200 Bellevue Parkway, Suite 250, Wilmington, Delaware 19809. |
| |
(2)SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT | Consists of (i) 2,177,994 shares held of record by Mr. Chaudhry, (ii) 24,617,379 shares held of record by Jyoti Chaudhry, (iii) 33,333 shares held of record by The Chaudhry Family Trust dated August 1, 2014 for which Surjit Kaur serves as trustee, (iv) 13,332 shares held of record by The Chaudhry Family Trust f/b/o Manpreet Bains for which Ms. Kaur serves as trustee and (v) 6,666 shares held of record by P. Jyoti Chaudhry Family Trust dated March 1, 2000 for which Ms. Kaur serves as trustee.l | |