Vmware (VMW) DEF 14ADefinitive proxy

We are holding the meeting for the following purposes:

All stockholders of record of our common stock at the close of business on May 16, 2022, the record date, are entitled to notice of and to vote at the Annual Meeting and any adjournments thereof.

References to “VMware,” the “Company,” “we” and “our” in this proxy statement refer to VMware, Inc., a Delaware corporation.

As demand for computing capacity continues to build and companies increasingly deploy a multi-cloud approach, VMware software provides a flexible digital foundation to enable customers in their digital transformation. Our strategy is to be the trusted multi-cloud platform and partner to our customers, putting VMware in the center of the ecosystem.

We continued to enable our customers’ application transformation by providing a modern platform with DevSecOps capabilities and multi-cloud management offerings to help them build, manage and secure their modern applications on any cloud, with both VMware Tanzu and VMware Cloud Management. We also continued to enable customers to modernize and migrate enterprise workloads to all major hyperscalers, sovereign clouds, private clouds and the edge with VMware Cloud built on vSphere, NSX and vSAN.

VMware continues to focus on the delivery of VMware Anywhere Workspace for the distributed workforce of today and the future with VMware SASE, Carbon Black, Workspace ONE and Horizon offerings completing this solution.

Highlights include:

Our current leadership structure separates the roles of CEO and Chairman. The CEO is responsible for setting the strategic direction for the Company and the day-to-day leadership and performance of the Company, while the Chairman provides guidance to the CEO, sets the agendas for Board meetings and presides over meetings of the full Board. Our leadership structure also includes a Lead Independent Director role to facilitate effective performance of the Board and its oversight of our business. We believe that having a separate Chairman and Lead Independent Director structure allows the Board to effectively address governance issues by providing another channel for the Board to express its views to management and provide feedback to the CEO on company performance. The leadership structure of the Board has not impacted the Board’s ability to provide effective oversight of risk management.

The Board’s role in the Company’s risk oversight process includes receiving regular reports from members of senior management on areas of material risk to the Company, including financial, operational, cybersecurity, legal, regulatory, strategic, ESG and reputational risks.

Our Audit Committee also oversees the Company’s compliance with applicable legal and regulatory requirements and risks related to potential non-compliance, including those related to cybersecurity, incident response, information security and data privacy. In addition to reviewing cybersecurity risks during each of its quarterly meetings, the Audit Committee periodically holds special meetings dedicated solely to discussing cybersecurity risks and developments of importance to the Company. The Audit Committee receives regular reports on significant cybersecurity matters from the CSO and other members of senior management. These reports include topics such as, among other things, the status of projects to strengthen the Company’s security systems and improve cyber readiness and resilience, existing and emerging threat landscapes, as well as the results of exercises and response readiness assessments performed by internal stakeholders and outside advisors. The Audit Committee also reviews and oversees implementation of our policies and procedures related to cybersecurity risk assessment and management. In addition, the Company has adopted a cybersecurity reporting policy, which provides for controls and procedures for timely and accurate reporting to the Audit Committee of any significant cybersecurity incidents or significant vulnerabilities that are unresolved within standard procedures. As part of our cybersecurity, privacy and risk management programs, the Company provides broad-based and role-specific information security, data protection and compliance training to employees. Additionally, in an effort to mitigate information security risk, the Company maintains insurance coverage intended to respond to certain network, cyber, and privacy risk events and to defray the costs of data security incidents. Furthermore, the Company has based its security policies in part on the ISO (International Organization for Standardization) Industry Framework and holds numerous security certifications, a number of which require independent third-party validation, at the corporate and individual cloud services levels, further demonstrating the Company's strong commitment to cybersecurity.

The internal audit group reviews the adequacy and effectiveness of the Company’s risk management and controls framework and processes, provides that risk management activities are integrated, consistent and managed at a level consistent with the risk, makes recommendations for, and tracks and reports on progress of, changes in the risk management framework, and assists the Company’s executive staff in assuring that significant risks to the Company are identified and risk benefit trade-offs are managed appropriately to protect the Company’s assets and stockholder value. The head of internal audit meets with and regularly reports to the Audit Committee.

Our Governance Committee oversees the management of governance risks associated with director independence, potential director and executive conflicts of interest, the composition and structure of the Board and its committees and

Our Compensation Committee oversees and reviews with management our executive officer and employee compensation plans and programs that could have a material impact on VMware for each of our functional groups. Our management review considers whether any of these plans or programs may encourage inappropriate risk-taking or give rise to risks that are reasonably likely to have a material adverse effect on us, and whether it would recommend any changes to the plans or programs. Long-term, equity-based compensation, which we believe discourages excessive short-term risk taking and strongly aligns employee interests with the creation of long-term increased stockholder value, is an important feature in the compensation packages we offer our executive officers and employees. Management also reviews with the Compensation Committee risk-mitigating controls, such as our compensation recovery policy for executive officer bonus and equity compensation, the degree of committee and senior management oversight of each program, and the level and design of internal controls over such programs. Based on these reviews, we have concluded that our compensation plans and programs are not reasonably likely to have a material adverse effect on our Company.

Directors Nicole Anasenes, Marianne Brown and Paul Sagan have each been nominated by the Board for election at the Annual Meeting, and each has agreed to stand for election for an additional three-year term.

Information concerning our continuing directors is presented below.

Our entire Board is responsible for nominating members for election to the Board and for filling vacancies on the Board that may occur between Annual Meetings.

The Governance Committee identifies, evaluates and recommends director candidates to the entire Board. The Governance Committee reviews and assesses the skills and characteristics it believes are or may be required for Board service based on the needs of our business. The Governance Committee identifies director candidates through numerous sources, including recommendations from directors, executive officers and stockholders of VMware. The Governance Committee identifies those individuals most qualified to serve as members of the Board and considers many factors with regard to each candidate, including judgment, integrity, diversity, prior experience, the interplay of the candidate’s experience with the experience of other members of the Board, the extent to which a director candidate would be desirable as a member of any committees of the Board, and a candidate’s willingness to devote substantial time and effort to the Board. As such, the Board believes that a diverse mix of viewpoints and experiences is an important consideration in determining the composition of the Board. The effectiveness of the Board’s efforts to recruit members with appropriate skill sets and experiences and to promote the exchange of differing viewpoints is reviewed as part of the Board’s annual self-evaluation process. The Board believes that a board having no fewer than six and no more than twelve directors enables needed expertise, diversity of experiences, and independence, without hindering effective discussion or diminishing individual accountability. In considering director candidates, the Board considers the entirety of each candidate’s credentials in the context of these standards. With respect to the nomination of continuing directors for re-election, the individual’s contributions to the Board are also considered. Our Board

Our stockholders may recommend individuals to the Board for consideration as potential director candidates by submitting the suggested candidate’s name and appropriate background and biographical information to the VMware Board of Directors, 3401 Hillview Avenue, Palo Alto, California, 94304. Assuming that the appropriate information has been timely provided, the Governance Committee will consider these candidates substantially in the same manner as it considers other candidates it identifies.

The Board expects that each director will prepare for, attend and participate in all Board and applicable committee meetings and that each director will ensure that other commitments do not materially interfere with service on the VMware Board. During FY22, the Board held ten meetings. Each director serving during FY22 attended at least 75% of the Board and applicable committee meetings held during the period in which he or she served, with the exception of Mr. Durban. VMware’s Corporate Governance Guidelines provide that each director is expected to attend the Annual Meeting. All members of the then-current Board attended our 2021 Annual Meeting.

The Board has determined that our Audit Committee is comprised solely of independent directors within the meaning of the applicable SEC rules and regulations and the NYSE Rules. The Board has determined that all current Audit Committee members meet the additional, heightened independence criteria of Rule 10A-3 of the Exchange Act applicable to audit committee members. The Board has also determined that Nicole Anasenes, Michael Brown, Donald Carty and Karen Dykstra is each an “audit committee financial expert” as defined by the SEC and that all Audit Committee members are financially literate under the current listing standards of the NYSE.

The Audit Committee held nine meetings in FY22. This committee reviews with management and our auditors our financial statements, the accounting principles applied in their preparation, the scope of the audit, any comments made by our independent auditor on our financial statements and our accounting controls and procedures, the independence of our auditors, our internal controls, other matters as set forth in the Audit Committee charter and such other matters as the committee deems appropriate.

In accordance with its charter, the Audit Committee is responsible for the appointment, compensation, retention and oversight of the work of our independent auditor for the purpose of preparing or issuing an audit report or performing other audit, review or attest services for us and pre-approves such audit, review or attest engagements. The Audit Committee also pre-approves non-audit services to be performed by our independent auditor in accordance with the Audit Committee’s pre-approval policy. Pursuant to its charter, our Audit Committee recommends, establishes and monitors procedures designed to facilitate the receipt, retention and treatment of complaints relating to accounting, internal accounting controls or auditing matters and the receipt of confidential, anonymous submissions by employees of concerns regarding questionable accounting or auditing matters.

The Audit Committee also oversees management of financial risk exposures, including the integrity of our accounting and financial reporting processes and controls. In addition, the Audit Committee appoints the head of the internal audit department and oversees the Company’s internal audit function, reviews the appointments of our CECO and our CSO, receives periodic reports on ethics and compliance and information security matters, and is notified of any significant ethics and compliance and cybersecurity matters.

During FY22, senior members of our financial and legal management participated in each of the Audit Committee’s regularly scheduled meetings. During the course of the year, the Audit Committee had separate executive sessions with our CFO and members of his staff, our General Counsel, our CECO, our CSO, the head of our internal audit department and our independent auditor at which candid discussions regarding legal matters, cybersecurity matters, financial reporting, compliance, internal controls and accounting systems and processes took place. The Audit Committee discussed with VMware’s independent auditor the overall scope and plans for its audit.

The Audit Committee reviewed and discussed our FY22 financial statements with our management and our independent auditor. The meetings included a discussion of the quality and not just the acceptability of the accounting principles applied, the reasonableness of the significant accounting judgments and estimates, the use of non-GAAP financial measures as a measure of financial performance, and the clarity of disclosures in the financial statements.

In performing all of these functions, the Audit Committee acts in an oversight capacity. The Audit Committee reviews our quarterly and annual reports on Form 10-Q and Form 10-K prior to filing with the SEC and discusses with management the earnings press releases, as well as the disclosure of financial information and earnings guidance provided to investors. In its oversight role, the Audit Committee relies on the work and assurances of our management, which has the primary responsibility for establishing and maintaining adequate internal control over financial reporting and for preparing our financial statements. The Audit Committee also relies on the work and assurances of our independent auditor who is engaged to audit and report on our consolidated financial statements and the effectiveness of our internal control over financial reporting.

The M&A Committee, pursuant to its charter, reviews and assesses, with our management, potential acquisitions, divestitures and investments and, where appropriate, will make recommendations to the Board regarding potential target candidates. In connection with such review and assessment, our M&A Committee may approve acquisitions, divestitures and investments up to a specified applicable dollar limit and in accordance with any other relevant parameters as established by the Board. The M&A Committee also assesses risk to the Company in connection with proposed acquisitions, divestitures and investments.

The Governance Committee met five times in FY22, three prior to November 1, 2021 as the Related Persons Transactions Committee and two subsequent to that date as the Governance Committee. The Governance Committee is responsible for overseeing and advising the Board with respect to corporate governance matters, determining the slate of director nominees for election to the Board, recommending to the Board individuals to fill vacancies occurring between annual meetings of stockholders, making recommendations to the Board with respect to Board committee assignments and overseeing the evaluation of the Board.

During FY22, the Compensation Committee was comprised of Directors Anthony Bates, Marianne Brown, Michael Brown and Paul Sagan. No executive officer of VMware during FY22 served, or currently serves, as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving on the Board or the Compensation Committee.

These Class III directors must be elected by a majority of the votes of the Common Stock.

We are asking our stockholders to indicate their support for the compensation of our NEOs as described in this proxy statement by voting in favor of the following resolution:

“RESOLVED: That the stockholders approve, on an advisory basis, the compensation of the Company’s named executive officers as disclosed in the Compensation Discussion and Analysis section, the Summary Compensation Table, and the other related tables as set forth in the proxy statement in accordance with the compensation disclosure rules of the Securities and Exchange Commission relating to the Company’s 2022 Annual Meeting of Stockholders.”

Even though your vote is advisory, and therefore will not be binding on the Company, the Compensation Committee and the Board value the opinions of our stockholders and will consider the outcome of the vote when determining future executive compensation. We have adopted a policy providing for annual advisory votes to approve the compensation of our NEOs. The next advisory vote to approve the compensation of our NEOs will be at the 2023 Annual Meeting.

The following table sets forth information, as of May 3, 2022, about the beneficial ownership of Common Stock held by (i) each person who is known by us to own beneficially more than 5% of our Common Stock, (ii) each of our directors and nominees for director, (iii) each of our NEOs and (iv) all directors and executive officers of VMware as a group.

Applicable percentage ownership is based on 421,381,120 shares of Common Stock outstanding as of May 3, 2022. In computing the number of shares of Common Stock beneficially owned by a person and the percentage ownership of that person, we deemed as outstanding shares of Common Stock subject to options, warrants, rights or conversion privileges related to securities beneficially owned by that person that are currently exercisable or exercisable within 60 days of May 3, 2022. We did not deem these shares outstanding, however, for the purpose of computing the percentage ownership of any other person.

References in this CD&A to our fiscal years cover the following periods:

In FY22, we completed a leadership transition with the appointment of our new CEO and President. The table below details our NEOs in FY22.

Technologies emerge faster than organizations can absorb, creating increasingly complex environments. Organizations’ IT departments and corporate divisions are working at an accelerated pace to harness new technologies, platforms and cloud models, ultimately guiding businesses and their product teams through a digital transformation. To take on these challenges, we are helping customers drive their multi-cloud strategy by providing the multi-cloud platform for all applications, enabling digital innovation and enterprise control. Our multi-cloud portfolio, spanning application modernization, cloud management, cloud infrastructure, networking, security and anywhere workspaces, forms a flexible, consistent digital foundation on which customers can build, run, manage, connect and protect their mission-critical workloads. Our portfolio supports and addresses our customers’ key priorities, including modernizing their applications, managing multi-cloud environments, accelerating their cloud journey, modernizing the network using commodity hardware, embracing zero-trust security and empowering anywhere workspaces. We enable digital transformation of customers’ applications, infrastructure and operations for their constantly evolving business and employee needs by providing them with a ubiquitous software platform, enabling them to build, run and manage IT workloads from anywhere on any cloud.

FY22 was a historic year for VMware as we completed a Spin-Off from Dell, our former controlling stockholder. In connection with the spin-off on November 1, 2021, VMware issued a special dividend of $11.5 billion ($27.40 per share of Common Stock). As a standalone company, VMware has a simplified capital structure and governance model and additional operational and financial flexibility while maintaining our strategic partnership with Dell. Alongside the completed Spin-Off, and with consideration and input from our shareholders, we eliminated the dual-class stock structure for a one-share, one-vote structure.

In January 2021, Mr. Gelsinger announced his resignation as CEO effective February 12, 2021, and our Board commenced a search for his successor. During the CEO search, Mr. Rowe served as our Interim CEO in addition to his CFO role. In May 2021, the Board announced its selection of Mr. Raghuram as CEO and Mr. Dhawan as President, both effective June 1, 2021. We believe that the successful execution of the leadership transition results in a strong executive team that embodies our innovative culture, represents our values and demonstrates a clear vision for VMware’s future success.

In selecting Mr. Raghuram, the Board noted his prior performance helping to lead VMware’s strategic direction and its technology evolution after he joined the Company in 2003 and served in various roles since that time. Most recently, Mr. Raghuram served as the COO of Products and Cloud Services, a role in which he oversaw the growth of VMware from its core virtualization business to its cloud computing business while playing a pivotal role in M&A strategy and development of strategic partnerships. Mr. Raghuram embodies VMware’s innovative culture, represents our values and has a clear vision for the future of the Company.

In his role as President, Mr. Dhawan leads all go-to-market functions including worldwide sales, the worldwide partner and commercial organization, the customer experience and success team and marketing and communications. Mr. Dhawan was selected based on his broad experience building and scaling subscription businesses and his customer-centric orientation. Prior to assuming the role of President, Mr. Dhawan served as Senior Vice President and Chief Customer Officer at VMware. He has extensive experience designing our business strategy for emerging multi-cloud and subscription offerings and has played a vital role in transforming how VMware’s customers can consume the Company’s services.

The compensation packages provided to Mr. Raghuram and Mr. Dhawan upon their promotion to CEO and President, respectively, included increases to their existing salaries and performance-based annual cash bonus opportunities as well as additional time-based and performance-based equity (in the form of restricted stock units, or RSUs, and performance-based restricted stock units, or PSUs). Each executive’s new compensation packages are heavily weighted toward performance-based awards.

To ensure that both Mr. Raghuram and Mr. Dhawan only derive value from the FY22 TSR PSU awards if significant sustainable shareholder value is created, the Compensation Committee incorporated substantial governance safeguards, described in the table below:

Any dividends paid by VMware or any company in the Index during the performance period will be included in the calculation of the respective 90-day trailing VWAPs. Accordingly, the special dividend of $27.40 per share of Common Stock issued by VMware on November 1, 2021 in connection with the Spin-Off, presuming reinvestment of dividends on the ex-dividend date, will be included when calculating achievement of VMware’s TSR appreciation and relative TSR performance milestones.

In connection with our leadership transition, the Compensation Committee granted additional equity awards as follows:

The objectives of our executive compensation program are to:

The compensation packages of our NEOs include a mix of cash- and equity-based compensation. The major compensation components are as follows: 

When designing the executive compensation program, the Compensation Committee gives significant weight to equity incentives, which reflects the Compensation Committee’s belief that a predominant portion of executive compensation should be performance-based, tied to achievement of individual and corporate performance metrics. With respect to equity awards, the value ultimately realized by the recipient is determined by the price of our Common Stock, thereby directly linking an executive’s compensation opportunity with stockholder value. The Compensation Committee believes that equity incentives are particularly significant because they drive the achievement of VMware’s long-term operational and strategic goals and align the executives’ interests with those of our stockholders, while cash incentives are utilized to drive the achievement of shorter-term performance goals.

The Compensation Committee reviews NEO compensation packages on an annual cycle, taking into account peer group data, Company and individual performances, unvested equity holdings and internal pay equity. In its review, the Compensation Committee may adjust the pay mix and typically considers apportioning annual equity awards between PSUs and RSUs.

The Compensation Committee takes seriously its responsibility to align the individual component (or MBO) cash payout under the Bonus Program with the Company’s overall financial results. As illustrated in the table below, and consistent with past practice, the Compensation Committee exercised its negative discretion over the MBO component of the bonus to our CEO (Mr. Gelsinger resigned as CEO prior to the Compensation Committee’s evaluation of his individual performance for FY21, so the application of negative discretion was not applicable to that fiscal year).

The table below details the total bonus payouts including both financial and individual components to each of our NEOs for FY22.

Included below is a summary of each of the four vehicles used in VMware’s performance plan and the Compensation Committee’s decision for specific NEOs.

In determining the Selected Value of equity awards, the Compensation Committee took into consideration data from compensation benchmarking of our peer group, the unvested equity retention values of our NEOs and each NEO’s performance and impact to the Company.

In May 2021, the Compensation Committee determined the size and mix of the equity awards granted to Mr. Raghuram and Mr. Dhawan in connection with their promotions to CEO and President, respectively, so that the total Selected Value of FY22 Operating PSUs and FY22 RSUs was in line with their new roles.

Performance in FY22 applied to the three PSU plans as follows: (1) the first of three tranches of the FY22 Operating PSU Plan, (2) the second of three tranches of the FY21 Operating PSU Plan and (3) the third of three tranches of the FY20 Operating PSU Plan. Under each Plan, metrics for the FY22 performance tranche were subscription and SaaS license revenue (weighted 70%) and non-GAAP operating income (weighted 30%).

The Operating PSU Plans are intended to drive multi-year performance achievement by NEOs over factors within their control. Consistent with common practice, VMware’s Operating PSU Plans have historically included carveout provisions triggered by transformative corporate transactions such as a change-in-control, spin-off and roll-up transaction that can significantly impact pre-set goals in unpredictable ways. The objective of these provisions is to encourage executives to keep their focus on successful completion of the transformative transaction and acknowledge that such a material change to corporate structure could result in previously-established performance goals being no longer relevant to increases in stockholder value. In such cases, the objective of such carveouts is to retain a time-based retention incentive as well as a continuing incentive for the PSUs to increase in value via stock price appreciation.

Consistent with the design of VMware Operating PSU Plans since 2015, the FY20 and FY21 Operating PSU Plans provide that if a spin-off of VMware from its parent company occurs during an annual performance period, performance will be considered to be achieved at target for that annual performance period and for subsequent annual performance periods and that the multi-year multiplier will be considered to be achieved at target. On November 1, 2021, VMware executed a successful Spin-Off from Dell that constituted a material change in its capital and stockholder structure. Pursuant to terms of the FY20 and FY21 Operating PSUs, the FY22 tranche in both plans was considered to be achieved at target; the FY23 tranche of the FY21 Operating PSU Plan will be considered to be achieved at target once the performance period is completed; and the multi-year multiplier of both the FY20 and FY21 Operating PSU Plans will be considered to be at target once the multi-year performance periods are completed. The FY22 Operating PSU Plan did not include a spin-off provision because when it was adopted in April 2021, spin-off planning was already underway and any potential impact on performance metrics was considered reasonably foreseeable and reasonably within the control of the NEOs when the performance goals were established.

As discussed above, the FY21 Operating PSU Plan also includes a spin-off provision. Accordingly, VMware’s Spin-Off from Dell on November 1, 2021 will result in the FY22 and FY23 annual tranches as well as the three-year multi-year performance multiplier to be calculated at target. The FY21 Operating PSU Plan performance period will continue through the end of FY23 and will vest in May 2023 subject to continuing employment.

The FY24 performance metrics applicable to the third of the three tranches of the FY22 Operating PSU Plan will be established in early FY24. Accordingly, grant date fair values for the third tranche of FY22 Operating PSU Plan will be determined in FY24 and will be reflected in the 2024 proxy statement.

We provide only minimal and select executive-level benefits or perquisites to our NEOs targeted to assist in the recruitment of new executives and meet market practices.

During FY22, our NEOs were eligible to participate in a program for VMware to reimburse employees at the senior vice president level or above, including each NEO, for annual comprehensive physical examinations and medical screenings. We determined that offering such a benefit was in the best interests of VMware and our stockholders, given the critical role of our senior staff to the ongoing performance of our business.

Other than with respect to relocation benefits, we do not generally provide NEOs with tax gross-ups or reimbursements on compensation and perquisites.

Each NEO is eligible for change-in-control benefits pursuant to the CIC Plan, which is intended to encourage the retention of NEOs and reduce uncertainty regarding the personal consequences of a potential change in control. The CIC Plan provides severance benefits for NEOs who are involuntarily terminated without “cause,” or who terminate employment for “good reason,” within 12 months following a “change in control” of VMware (each such term as defined in the CIC Plan), with benefits designed to be competitive with similar plans at VMware’s peer companies. The November 2021 Spin-Off of VMware from Dell was not considered a change-in-control under the CIC Plan and, accordingly, does not give rise to any potential benefits under the CIC Plan.

Upon a qualifying termination under the CIC Plan following a change in control, each NEO is eligible to receive: (1) a lump sum payment equal to a multiple of annual base salary, target annual bonus and monthly health insurance premiums; and

The monthly health insurance premium amount equals 150% of the monthly cost required to obtain continuation coverage for NEOs and their covered dependents. NEOs would be required to execute a release in favor of VMware in exchange for CIC Plan benefits. Performance-based equity awards will generally convert into shares at target amounts if a change in control occurs during a performance period, unless otherwise specified in the performance award agreement.

The change-in-control provision in the FY22 TSR PSUs provides that in the event of a change-in-control of VMware, the consideration paid for each share of VMware will be utilized in place of the VMware 90-day trailing VWAP for determining the stock price appreciation measurement and the Relative TSR Modifier. Vesting is not accelerated and the TSR PSU vesting dates are not impacted by a change-in-control unless the executive is involuntarily terminated following the change-in-control. Any remaining post-vesting holding period would terminate on the effective date of a change-in-control.

If Mr. Raghuram or Mr. Dhawan becomes eligible for benefits under the CIC Plan due to involuntary termination following a change-in-control, the FY22 TSR PSUs will be eligible to vest in accordance with the terms of the CIC Plan to the extent that PSUs have become funded by applying the stock price appreciation and relative TSR metrics as of the effective date of the change-in-control. Any PSUs that are not funded as of the effective date of the change-in-control will be forfeited.

Each NEO is also eligible for severance benefits pursuant to the Executive Severance Plan. The Severance Plan provides severance benefits to NEOs in the event of an involuntary termination without “cause” or for “good reason.” The Compensation Committee adopted the Severance Plan in 2018 following a survey of the practices of the Company’s peers, a number of which provide similar benefits to some or all of their executive officers. The Severance Plan benefits are comparable to those offered by such peers. The Severance Plan is intended to provide a consistent framework to addressing covered terminations.

Upon a qualifying termination under the Severance Plan, each NEO is eligible to receive: (1) a lump sum payment equal to annual base salary, target annual bonus, as well as the value of 12 months of the health insurance premiums; (2) accelerated vesting of outstanding RSU and stock option awards that were otherwise scheduled to vest within and including the 12 months following termination; and (3) unless otherwise specified in the award agreement, accelerated vesting of outstanding PSU awards, to the extent that performance periods have been completed, as further detailed in the Severance Plan. The FY22 TSR PSUs awarded to Messrs. Raghuram and Dhawan are excluded from acceleration under the Severance Plan.

On January 12, 2021, Mr. Gelsinger resigned his position as CEO of VMware effective February 12, 2021. Given that Mr. Gelsinger’s departure was voluntary, he did not receive any severance benefits under the Severance Plan. All of Mr. Gelsinger’s unvested equity awards were forfeited effective as of his termination date and no shares were issued. Mr. Gelsinger’s participation in the FY21 Executive Bonus Program terminated without a bonus being paid.

On May 12, 2021, in connection with its leadership transition, VMware announced that Mr. Poonen would depart VMware on August 6, 2021. Mr. Poonen received benefits under the Severance Plan in connection with his departure pursuant to the “termination for good reason” provision in the Severance Plan as detailed above.

VMware equity awards for all employees, including those granted to NEOs, provide for full acceleration of vesting upon death or termination of employment due to disability. In such event, PSU awards would accelerate presuming that target performance had been achieved. Commencing with the FY21 Operating PSU Plan, the Compensation Committee amended the acceleration provision in PSU agreements so that vesting in such instances would accelerate instead on a pro rata basis based on actual performance prior to the termination date. The FY22 Operating PSU Plan and the FY22 TSR PSU Plan also provide for pro rata acceleration. The Compensation Committee determined that the PSU plan revision was consistent with the unique nature of performance-based awards which scale award payouts based upon the Company’s actual performance.

The Company conducts an annual compensation risk assessment covering all employees including the NEOs. We believe that the mix and design of the elements of our compensation plans are well balanced and do not encourage management to assume excessive risk. With respect to NEOs, as detailed above, our pay mix is balanced among base salary, short-term performance cash bonus awards and long-term equity compensation. NEO compensation is heavily weighted towards long-term, equity-based incentive compensation, which we believe discourages excessive short-term risk taking and strongly aligns NEO interests with the creation of long-term increased stockholder value. In addition, we maintain policies precluding the purchase of hedging instruments in order to help maintain the alignment of NEO interests with long-term changes in stockholder value by prohibiting NEOs from purchasing financial instruments that trade off the potential for upside gain in order to lock in the current market value of our securities. Similarly, we also maintain executive stock ownership requirements

We have adopted a policy prohibiting any of our directors or employees, including our NEOs, from “hedging” their ownership in shares of our Common Stock or other equity-based interests in us, including by engaging in short sales or trading in derivative securities based on VMware securities. In addition, our policy discourages all directors and employees from pledging VMware securities or holding VMware securities in margin accounts. Currently, none of our executive officers and directors have pledged any VMware securities or held VMware securities in margin accounts.

Our Executive Bonus Program for our executive officers, including our NEOs, and the performance-based, long-term equity award program were both adopted under the Incentive Plan. The Incentive Plan includes a “clawback” provision to tie our ability to claw back outstanding equity awards to any restatements of VMware’s financial results and in case of termination for “cause,” as defined in the Incentive Plan. The Incentive Plan also includes provisions that the Compensation Committee will review outstanding incentive awards held by executive officers or the value of such awards realized during or in the year following the restatement and, in its sole discretion, determine to cancel or claw back the value of such awards if the Compensation Committee deems it appropriate. Additionally, if an employee, including a NEO, is terminated for “cause,” (as defined in the Incentive Plan), all unvested or unexercised awards will be forfeited and the Compensation Committee may determine to require reimbursement of amounts realized after the event constituting cause has occurred.

VMware’s C-level executive officers are subject to executive stock ownership guidelines that are designed to further align the interests of our senior executive officers with the interests of our stockholders and to underscore our commitment to strong corporate governance practices. Under the guidelines, our C-level executive officers are required to own shares of our common stock valued at a multiple of their annual base salary (six times in the case of our CEO, three times with respect to our President and two times in the case of our CFO). The guidelines include a holding requirement for executives until they achieve their respective ownership level. Any executive who holds less than the requisite level of ownership must hold at least 50% of the shares net of tax withholdings that are acquired upon vesting in their equity awards and, with respect to stock options, 50% of the shares net of exercise and tax withholdings. Only issued shares are counted toward satisfaction of the ownership requirement. Accordingly, unvested equity awards (including both time- and performance-based) and unexercised stock options, if any, do not count toward satisfying the executive stock ownership requirement. Requisite ownership levels for each senior executive are adjusted annually to reflect changes during the previous year to base salaries and Common Stock price.

The table below summarizes the compensation information for the fiscal years ended January 28, 2022, January 29, 2021 and January 31, 2020 for each year that our NEOs—our CEO, CFO and three other most highly compensated individuals who were serving as executive officers of VMware at the end of FY22, as well as our former CEO, who served as a principal executive officer during FY22, and our former COO, Customer Operations, who would have qualified as one of the three other most highly compensated individuals had he remained at the Company through the end of FY22—served as an NEO. The amounts shown in the Stock Awards column do not reflect compensation actually received by the NEOs, but instead include the aggregate grant date fair value of awards computed in accordance with GAAP, and as such, amounts shown in the Total column also do not reflect compensation actually received by the NEOs.