Item 7.01. Regulation FD Disclosure.
On June 2, 2023, the Compensation and People Committee of the Board of Directors of Palo Alto Networks, Inc. (the “Company”) granted Nikesh Arora, the Company’s Chief Executive Officer, a performance-based restricted stock unit award (PSUs) that can result in as few as zero shares, if the Company’s performance is less than 40% of the companies in the S&P 500 over a five-year period, and up to 750,000 shares if the Company’s performance is better than 90% of the companies in the S&P 500.
Following the completion of the five-year performance period, the Compensation and People Committee will make the final determination of performance in connection with the award (the day that such determination is made will be the “Certification Date”), after which the shares will fully vest. The award agreement provides that the shares received upon vesting may not be sold, transferred, pledged or otherwise disposed of before the earlier of (i) the one-year anniversary of the Certification Date or (ii) a change in control of the Company.
Below is a letter from the Compensation and People Committee to the Company’s shareholders relating to the PSUs.
Letter from our Compensation and People Committee
Dear Fellow Shareholders,
The Compensation and People Committee of the Palo Alto Networks Board of Directors is committed to ensuring that we retain and attract individuals of outstanding character and ability who are champions of our company culture and mission. To do so, we design programs that fairly compensate our employees and allow us to maintain a world-class leadership team worthy of your confidence. With this mission in mind, we have determined that it is imperative that the company retain Nikesh Arora, our Chairman and Chief Executive Officer, as its leader for the foreseeable future.
For the past five years, Nikesh has typified our leadership ethos – one that values high integrity and high performance for the benefit of all company stakeholders. He has led the transformation of our company from a market leader in next generation firewalls into the world’s cybersecurity leader, with best-of-breed products across network security, cloud security and cutting edge security operations. During his tenure, our total revenue and total billings have grown from $2.3 billion and $2.9 billion, respectively, in fiscal 2018 to $5.5 billion and $7.5 billion, respectively, in fiscal 2022. Our product innovation has accelerated from 13 product releases in fiscal 2019 to 49 in fiscal 2022. Our stock has appreciated by 212%. And, our market capitalization has increased from $19B to $66B (as of June 2, 2023). Indeed, Palo Alto Networks stock has performed above the 90th percentile of total return of the current S&P 500 constituents over the last three and five years. With Nikesh at the helm, Palo Alto Networks has delivered extraordinary value creation for our shareholders and become the largest pure-play cybersecurity company in the world.
We firmly believe that Nikesh is one of only a very few executive leaders who can deliver the caliber of performance critical to Palo Alto Networks’ successful attainment of our next phase of growth. We reach this conclusion based on Nikesh’s track record of undeniable success, our extensive conversations with the company’s leadership team, our regular assessment of company strategy, consistent attention to the marketplace for high-caliber senior executives, and of course the concurrence of the entire Board of Directors. Moreover, our conclusion is buttressed by the advent of a new generation of artificial intelligence tools and technologies that promise to transform virtually every industry, including cybersecurity. As much as any CEO, Nikesh embraces this transformation and intends to place Palo Alto Networks at the forefront of AI innovation. This is a signal moment of change for our company, our industry and the broader economy, and Nikesh is the right person to navigate us through it.
