NetApp “Sky High” in More Ways Than One…

July 15, 2010

On July 12, NetApp, Inc. (NTAP) announced an —enhanced integration with Microsoft Corporation (MSFT) that will help small- and medium-size businesses afford —enterprise-class data protection solutions offered by cloud service providers. In other words, cloud computing used to be too expensive for a lot of companies; now they might be able to afford it.

But while the opportunity for new revenues may hover in the clouds, the July 13 proxy reveals the weighty fact that it costs a lot to pay NetApp’s executives and directors.

In fiscal year 2010, the total compensation packages for the 7 Named Executive Officers exceeded $33.56 million. (That includes a relative newcomer who became an executive officer in that fiscal year, Sr. Vice President/General Counsel Andrew Kryder, whose total compensation package was —only $1,678,762.)

Thomas Georgens, NetApp’s president and CEO, got nearly $12.5 million of the executive compensation pie. On top of a base salary of $754,038, Georgens got $1.72 million in RSUs, $8-plus million in stock options, and over $2 million in non-equity incentive plan compensation.

Another notable recipient was executive chairman, Daniel Warmenhoven, who received nearly $4.2 million in options alone, a hefty chunk of his total compensation package of more than $6.11 million.

The proxy also shows that NetApp gave generous awards to its two newest board members, T. Michael Nevens and Gerald Held. The company filed an 8-K on December 23, 2009 that disclosed the awards, but the proxy provides more detail. The options were made under the —Automatic Option Grant Program, which is a part of the —1999 Stock Option Plan. That plan provides that each new director can choose either an option to purchase 55,000 shares or a —mixed award of an option to purchase 27,500 shares of common stock and 9,166 RSUs.

Nevens elected to receive an option award as his initial grant, which the proxy disclosed as having a fair market value of $660,341. Held, meanwhile, chose the —mixed award; the proxy shows a total value of $640,256 for his awards.

The long-range compensation forecast for NetApp remains high. In its discussion of the latest awards, the company explained that it approved grants

—— that were above the Company’s competitive grant guidelines for the NEOs. The Compensation Committee chose to approve fiscal 2011 grants at above market levels partly for retention purposes and partly due to the highly competitive market for talent as the economy improves.

Clearly, NetApp is investing a lot in its executive team. If all turns out well, the only connection to the clouds will be the new revenue stream. Compensation decisions, on the other hand, are hopefully being made by board members whose feet are planted firmly on the ground.

Image source: Richard0 via flickr

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