2018 Guide to Effective Proxies

6 TH EDITION | GUIDE TO EFFECTIVE PROXIES 450 COMPENSATIONDISCUSSIONANDANALYSIS(CONTINUED) Committeecappedfundingoftheexecutiveofficerbonuspooland set the amounts payable to each individual NEO with respect to fiscal2018at100%ofthetargetopportunity. Accordingly, the cash bonuses paid to the NEOs for fiscal 2018 undertheKokuaBonusPlanwere: NamedExecutiveOfficer Fiscal2018BonusPayment Mr.Benioff $3,100,000 Mr.Hawkins $ 750,000 Mr.Block $1,150,000 Mr.Harris $ 900,000 Mr.Dayon $ 900,000 EquityCompensation The Compensation Committee periodically reviews our equity compensation program from a market perspective as well as in the context of our overall compensation philosophy. The Compensation Committee also considers the appropriateness of variousequityvehicles,suchasstockoptions,PRSUsandRSUs, as well as overall program costs (whichincludeboth stockholder dilution and compensation expense), when evaluating the long- term incentive mix. Further, the Compensation Committee considers peer company data and competitive positioning analysis, each executive’s individual performance, as described below,aswellasstockholderinput. StockOptions We grant stock options to our executives to align their interests withthoseofourstockholdersandasanincentivetoremainwith us. The Compensation Committee believes that options to purchase shares of our common stock, with an exercise price equal to the market price of our common stock on the date of grant, are inherently performance-based and are a very effective tool to motivate our executives to build stockholder value and reinforce our position as a growth company. With stock options, ourexecutivescanrealizevalueonlytotheextentthatthemarket price of our common stock increases during the period that the option is outstanding, which provides a strong incentive to our executivesto increasestockholder value.Further,becausethese options typically vest over a four-year period, they incentivize our executivestobuildvaluethatcanbesustainedovertime. RestrictedStockUnits(RSUs) Wealsograntrestrictedstockunits,orRSUs,toourexecutivesand other employees. RSUs align the interests of our executives and other employees with those of our stockholders and help manage the dilutive effect of our equity compensation program. Our RSUs aresubjecttotime-basedvesting.BecauseRSUshavevaluetothe recipientevenintheabsenceofstockpriceappreciation,RSUshelp us retain and incentivize employees during periods of market volatility, and also result in our granting fewer shares of common stockthanthroughstockoptionsofequivalentgrantdatefairvalue. OurRSUstypicallyvestoverafour-yearperiod,andwebelievethat, likestockoptions,theyhelpincentivizeourexecutivestobuildvalue thatcanbesustainedovertime. Performance-BasedRestrictedStockUnits(PRSUs) We also grant equity awards subject to pre-established performance-based vesting conditions. We initially granted PRSUs to our CEO in fiscal 2016 and, in fiscal 2017, the Compensation Committee granted PRSUs to all of the NEOs, including our CEO. As discussed above, no PRSUs or other equity awards were granted to the NEOS during fiscal 2018 due tothechangeintimingofourannualequityawardcycle. The PRSUs that we have granted to date contain the following keyterms: • Asingle,three-yearperformanceperiod • The performance metric is three-year relative TSR, as compared to the NASDAQ 100 Index group of companies as ofthegrantdate • Target payout requires 60 th percentile TSR performance percentile • Nopayoutifperformanceisbelowthe30 th TSRpercentile • NopayoutabovetargetifTSRisnegativeonanabsolutebasis • Amaximumpayoutcappedat2xtarget • Each percentile of TSR performance below target reduces payout by 3.3333%, whereas performance above target increasespayoutbyonly2.5641% In developing the performance conditions, performance period, comparison group, payout scale and other terms of the PRSUs, the Compensation Committee undertook significant deliberation, considering input received from stockholders, market data and the advice of its compensation consultant. The Compensation Committee also considered that the annual cash incentive plan already incentivizes performance on three key Company-specific financial measures, and the importance of emphasizing holistic Company performance, as opposed to an isolated metric; the importance of setting a sufficiently difficult target for maximum payout; the benefit of a large and objectively determined performance comparator group; and the overarching goal of an incentive clearly and directly aligned with stockholder interests. The chart and table below illustrate the potential PRSU payouts basedonrelativeTSRpercentileperformance. PRSUPayoutScale 200% 150% 100% 50% 0% 0% 10% 20% 30% TSRPercentRankvs.NASDAQ100 Target requires 60%Percentile Performance PayoutasaPercentofTarget 40% 50% 60% 70% 80% 90% 100% 2018ProxyStatement 27 Total of 04 pages in section COMPENSATIONDISCUSSIONANDANALYSIS(CONTINUED) includinganassessmentofindividualperformanceandinputfrom ourCEO. Fiscal2018TargetCashBonusOpportunity To establish our executive officers’ individual target cash bonus opportunities, which are expressed as a percentage of base salary, the Compensation Committee considers competitive pay data, input from its compensation consultant, and the level, position, objectives and scope of responsibilities of each executive, as well as considerations of internal parity among similarlysituatedCompanyexecutives. In late fiscal 2017, based on its review of our executive compensation program, peer company data, and the other factorsdescribedabove,theCompensationCommitteeapproved the following NEO target annual cash bonus opportunities for fiscal2018,whichremainedunchangedfromfiscal2017levels. NamedExecutive Officer Fiscal 2018Target CashBonus Opportunity (asa Percentage ofBase Salary) Fiscal 2018Target CashBonus Opportunity Changefrom Fiscal2017 Mr.Benioff 200% $3,100,000 Nochange Mr.Hawkins 100% $ 750,000 Nochange Mr.Block 100% $1,150,000 Nochange Mr.Harris 100% $ 900,000 Nochange Mr.Dayon 100% $ 900,000 Noc ange The Compensation Committee maintained Mr. Benioff’s target bonus opportunity at 200% of base salary for fiscal 2018 in light of our continuing growth and success, the increasing size and complexity of our business and our overall ongoing Company performance,includingsignificantrevenuegrowth . Fiscal2018CashBonusPoolPayoutMetrics,Performance andFiscal2018Payouts For fiscal 2018, the amount of the bonus pool for executive officers was based on our performance during the fiscal year compared to pre-established target levels for three equally weighted measures. The Compensation Committee believes that these measures and this weighting are appropriate to incentivize achievement of certain annual corporate performance goals that furtherourstrategy andthatareusedbyinvestorstoevaluateour financialperformance. The Compensation Committee believes that targets for the cash pool should be rigorous and challenging and therefore it has typically set the targets at levels exceeding the financialguidance the Company publishes at the beginning of the fiscal year. Additionally, as shown below, the fiscal 2018 targets were significantlyhigherthanthefiscal2017targets. AnnualBonusPerformanceMetricTargets (allamountsinmillions) Fiscal2017 Fiscal2018 Guidance* Target Actual Guidance** Target Actual Achievement Revenue $8,080-$8,120 $8,268 $8,272 $10,150-$10,200 $10,298 $10,480 Exceeded OperatingCashFlow $1,984-$2,000 $2,118 $2,162 $ 2,594-$2,616 $ 2,625 $ 2,738 Exceeded Non-GAAPIncomefrom Operations N/A $1,170 $1,186 N/A $ 1,516 $ 1,520 Exceeded * Guidanceaspublishedatthebeginningoffiscal2017onFebruary26,2016. ** Guidanceaspublishedatthebeginningoffiscal2018onFebruary28,2017. For purposes of the Kokua Bonus Plan, “Revenue” is defined as our GAAP revenues, as may be adjusted to exclude certain acquisitions. “Operating Cash Flow” is defined as our GAAP operating cash flow. “Non-GAAP Income from Operations” is defined as our non-GAAP incomefrom operations (revenuesless costofrevenuesandoperatingexpenses,excludingtheimpactof stock-based compensation expense and amortization of acquisition-related intangible assets), as adjusted to exclude certain acquisitions and not including the impact of amounts payableundertheKokuaBonusPlan. The Compensation Committee believes that basing the executive officer bonus pool under the Kokua Bonus Plan on these measures aligns executiveincentiveswith stockholder interests in accordancewithourcompensationphilosophy. The Compensation Committee has the discretion to increase or decreasethebonusamountsactuallypaidtoindividualexecutives but did not exercise such discretion for fiscal 2018 awards, although the Company’s performance for fiscal 2018 exceeded the target for all three measures. Instead, the Compensation 26 2018ProxyStatement SALESFORCE.COM, INC. STARBUCKS CORPORATION COMPENSATIONDISCUSSIONANDANALYSIS(CONTINUED) A description of our key pay elements, the applicable performance measures and the rationale for each element are set forth in the followingtable: PayComponent FY 2018Metric Rationale Performance-Based RestrictedStockUnits Relative TSR RestrictedStockUnits StockPrice StockPrice StockOptions BaseSalary AnnualPerformance-Based CashBonus Revenue Non-GAAP Income fromOperations OperatingCash Flow Establishes direct alignment withCompany and stock price performance and the interests of stockholders CEO LTImix (PRSUs and stock options) establishes even greater emphasis on Company performance Drives achievement of key annual corporate performance goals that alignwith our strategy and that are used by investors to evaluate our financial performance Provides compensation for day- to-day responsibilities for all employees – Base Salary Long- Term Equity Incentives Annual Cash Incentive Base Salaries We believe we must offer competitive base salaries to attract, motivate and retain all employees, including our executives. The Compensation Committee has generally set the base salaries for ourexecutives,includingtheNEOsotherthanourCEO,basedon threeprimaryfactors: • a comparison to the base salaries paid by the companies in ourcompensationpeergroup; • the overall compensation that each executive may potentially receiveduringhisorheremploymentwithus;and • internal parity considerations with respect to the base salaries of other executives who are comparably situated in terms of reportingstructureandlevelofresponsibility. In the second half of fiscal 2017, the Compensation Committee conducted a review of our executive compensation program for purposesofdeterminingthebasesalariesandbonusopportunityfor ourexecutivesforfiscal2018,takingintoaccounttheabovefactors aswellasoverallCompanyandindividualperformanceandtheroles and responsibilities of each of our executives. For fiscal 2018, the Compensation Committee set base salaries for the NEOs at the levelsshownbelow,maintainingeachatthefiscal2017level. NamedExecutiveOfficer Fiscal2018 BaseSalary Changefrom Fiscal2017 Mr.Benioff $1,550,000 Nochange Mr.Hawkins $ 750,000 Nochange Mr.Block $1,150,000 Nochange Mr.Harris $ 900,000 Nochange Mr.Dayon $ 900,000 Nochange Performance-Based Cash Bonuses We provide annual performance-based cash incentive award linked to achievement against certain corporate performance goals under our broad-based Kokua Bonus Plan. The Compensation Committee believes that the annual performance metrics used in the bonus plan contribute to driving long-term stockholder value, play an important role in influencing executive performance and are an important component of our compensation program to help attract, motivate and retain our executivesandotheremployees. Under the Kokua Bonus Plan, the Compensation Committee establishes three bonus pool targets: one for our executive officers, including the NEOs, a second for non-executive officers attheVicePresidentlevelandabove,andathirdforemployeesat the level of Senior Director and below. Each pool may be funded based on achievement of certain Company performance goals pre-established by the Committee for each of the three groups. The performance goals applicable to executive officers in fiscal 2018arediscussedinmoredetailbelow. Typically, after the first half of the fiscal year, we pay 25% of the full target bonus amount, and after the end of the fiscal year, we pay the remaining amount. The remaining amount is determined based on the level of achievement against the applicable Company performance goals, and may also take into account individualperformance. TheCompensationCommitteeadministerstheKokuaBonusPlan withrespecttoourexecutiveofficersanddeterminestheamounts of any awards under this plan to our executive officers. The Committeemayincreaseordecreaseawardsunderthisplaninits discretion based on factors the Committee deems appropriate, PayComponentFY2018MetricRationaleLong-TermEquityIncentivesAnnualCashIncentiveBaseSalaryPerformance-BasedRestrictedStockUnitsRestrictedStockUnitsStockOptionsAnnualPerformance-BasedCashBonusRelativeTSRStockPriceStockPriceRevenueOperatingCashFlowNon-GAAPIncomefromOperationsBaseSalaryEstablishesdirectalignmentwithCompanyandstockpriceperformanceandtheinterestsofstockholders—CEOLTImix(PRSUsandstockoptions)establishesevengreateremphasisonCompanyperformanceDrivesachievementofkeyannualcorporateperformancegoalsthatalignwithourstrategyandthatareusedbyinvestorstoevaluateourfinancialperformanceProvidescompensationforday-to-dayresponsibilitiesforallemployees 2018 Proxy Statement 25 EXECUTIVECOMPENSATION Thefiscal2017performancetargetsweresetatlevelsabovefiscal 2016performancebaseduponourchallengingbusinessgrowthplans. ThosetargetsandactualresultsforAdjustedOperatingIncomeareas follows: AdjustedOperatingIncome (1) Threshold (Millions US$) Target (Millions US$) Maximum (Millions US$) Adjusted Actual Performance (Millions US$) Payout Consolidated(AllNEOs) 4,400.5 4,633.1 5,057.0 4,394.1 0 GlobalRetail(Culver) 4,697.9 4,946.3 5,398.8 4,621.4 0 (1) TheperformanceplanmeasuresundertheEMBPthatwereapprovedatthebeginningoftheperformanceperiodprovidedforcertainnon-GAAPadjustmentsso thattheperformancemeasureswouldmoreconsistentlyreflectunderlyingbusinessoperationsthanthecomparableGAAPmeasures.Thefiscal2017 consolidatedoperatingincomeresultexcludestheimpactofforeigncurrencyfluctuations,ownershipchangesinJapanandSingapore,GreaterChinatransaction costs,restructuringandimpairmentchargesassociatedwithourrestructuringefforts,adonationtoTheStarbucksFoundation,andotheritems. EMBPPayouts PayoutsundertheEMBParealignedwithStarbucksfiscal2017 performance. Aftertheendoffiscal2017,theCompensationCommitteedetermined theextenttowhichtheperformancegoalswereachieved,and subsequentlyapprovedandcertifiedtheamountoftheEMBPawardto bepaidtoeachNEO,otherthanMr.SchultzandMr.Johnsonwhose awardswererecommendedbytheCommitteeandapprovedbyallof ourindependentdirectors. Thetablebelowshowsthefiscal2017actualpayoutlevelsforeach componentoftheEMBP,basedonachievementoftheperformance metrics,andtheaggregatefiscal2017annualincentivepayouts,which arealsodisclosedinthe“Non-EquityIncentiveCompensationPlan” columnoftheSummaryCompensationTable.TheEMBPpayoutsto Messrs.Schultz,Johnson,Maw,Burrows,MuttyandMs.Helmwhich werebasedonourchallengingCompanyrevenueandoperating incomegrowthtargets,reflectedthefiscal2017financialperformance achievedbytheCompany.TheEMBPpayouttoMr.Culverreflected StarbucksoverallperformanceandtherelativeperformanceofGlobal Retailagainstourchallengingoperatingplan. Fiscal2017ExecutiveManagementBonusPlanPayout NamedExecutiveOfficer Payouton Consolidated Adjusted Operating Income (50%or30% Weighting) Payouton Business Unit Adjusted Operating Income (30% Weighting) Payouton BusinessUnit/ Consolidated Adjusted NetRevenue (50%or40% Weighting) EMBPBonusPayout (%)of Target ($) HowardSchultz 0 NA 45% 22.5% $843,750 KevinJohnson 0 NA 45% 22.5% $469,688 ScottMaw 0 NA 45% 22.5% $180,000 CliffordBurrows 0 NA 45% 22.5% $222,750 JohnCulver 0 0 60% 24.0% $237,600 PaulMutty 0 NA 45% 22.5% $ 39,465 LucyHelm 0 NA 45% 22.5% $101,250 Long-TermIncentiveCompensation OverviewofAnnualLong-TermIncentiveAwards. Wegrantour executiveslong-termperformance-basedcompensationintheformof stockoptionsandPRSUs.TheCompensationCommitteebelieves stockoptionsandPRSUsincentivizeexecutivestodrivelong-term companyperformance,therebyaligningourexecutives’interestswith thelong-terminterestsofshareholders.Underourcurrentannualgrant program,60%ofthetotalannuallong-termincentiveawardvalueis deliveredinPRSUsand40%instockoptions. Bothtypesofequityawardswegrantaspartofourlong-termincentive compensationprogramareperformance-based.Stockoptionsprovide valueonlyifourstockpriceincreasesovertime.PRSUsareearned onlytotheextentpre-establishedperformancegoalsaremetand,if earned,aresubjecttoadditionaltime-basedvestingrequirements. AlthoughthevalueofPRSUsisimpactedbyourstockpriceduringthe vestingperiod,PRSUsservetoretainexecutivesastheyaregenerally perceivedbyrecipientsasbeingmorevaluablethanstockoptions duringperiodsofhigherstockpricevolatility. 30 / 2018PROXYSTATEMENT