WDC Western Digital Corporation

DIRECTOR COMPENSATION

Executive Summary

We believe that it is important to attract and retain exceptional and experienced directors who understand our business, and to offer compensation opportunities that further align the interests of those directors with the interests of our stockholders. To that end, we established a compensation program for fiscal 2016 for our non-employee directors that consisted of a combination of:

We also permit directors to participate in our Deferred Compensation Plan. Any director who is employed by us is not entitled to additional compensation under our director compensation program for serving as a director.

Our Compensation Committee reviews our non-employee director compensation on at least a biannual basis and periodically reviews trends concerning director compensation. As part of this review, the Compensation Committee’s compensation consultant, Mercer, reviews and evaluates the competitiveness of our director compensation program in light of general director compensation trends and director compensation programs of the peer group companies we use to evaluate our executive compensation program, which are listed in the “Compensation Discussion and Analysis” section below. After receiving input from its compensation consultant, the Compensation Committee makes recommendations to the full Board of Directors regarding any changes in our non-employee director compensation program that the Compensation Committee determines are advisable. After reviewing this input, our Board of Directors determined it was appropriate not to make any compensation changes to our director compensation program for fiscal 2016.

Our director compensation program for fiscal 2016 is described in more detail in the tables and narrative that follow.

Director Compensation Table for Fiscal 2016

The table below summarizes the compensation for fiscal 2016 for each of our directors who is not our employee (referred to in this Proxy Statement as “non-employee directors”). Mr. Milligan was one of our named executive officers for fiscal 2016 and information regarding his compensation for fiscal 2016 is presented below in the “Fiscal Years 2014 — 2016 Summary Compensation Table” and the related explanatory tables. As our employee, Mr. Milligan did not receive any additional compensation for his services as a director during fiscal 2016.

In addition, the following table presents the aggregate number of shares of our common stock covered by stock awards held by each of our non-employee directors on July 1, 2016:

Fiscal 2016 Director Compensation Program

The following section describes the elements and other features of our director compensation program for fiscal 2016 for non-employee directors.

Non-Employee Director Fees

Annual Retainer and Committee Retainer Fees. The director retainer fees are payable based on Board of Directors and committee service from annual meeting to annual meeting and are paid in a lump sum immediately following the annual meeting marking the start of the year. Directors who are appointed to our Board of Directors during the year are paid a pro-rata amount of the annual director retainer fees based on service to be rendered for the remaining part of the year after appointment.

The following table sets forth the schedule of the annual retainer and committee membership fees for non-employee directors for fiscal 2016.

If our Chairman of the Board is not one of our employees, the Chairman is entitled to the additional Non-Executive Chairman of the Board Retainer referred to above.

Non-employee directors do not receive a separate fee for each Board of Directors or committee meeting they attend. However, we reimburse our non-employee directors for reasonable out-of-pocket expenses incurred to attend each Board of Directors or committee meeting.

Non-Employee Director Equity Awards

Non-Employee Director Restricted Stock Unit Grant Program. Our Board of Directors has adopted a Non-Employee Director Restricted Stock Unit Grant Program under our 2004 Performance Incentive Plan. For fiscal 2016, the Non-Employee Director Restricted Stock Unit Grant Program provided that each of our non-employee directors automatically receive, immediately following each annual meeting of stockholders if he or she has been reelected as a director at that annual meeting, an award of RSUs equal in value to $225,000 (or, in the case of our non-employee director serving as Chairman of the Board, $275,000), based on the closing market value of an equivalent number of shares of our common stock on the grant date, rounded down to the nearest whole share. We award non-employee directors who are newly elected or appointed to our Board of Directors after the date of the annual meeting for a given year a prorated award of RSUs for that year. We also award members of our Board of Directors a prorated award of RSUs upon or as soon as practical after first becoming a non-employee director by virtue of retiring or otherwise ceasing to be employed by us after the annual meeting for a given year. The number of RSUs subject to this prorated award is equal to the following, rounded down to the nearest whole share: (i) the number of units subject to the immediately preceding annual unit award, divided by (ii) 365, multiplied by (iii) the number of days from the date such individual first becomes a non-employee director until the anticipated date for the immediately following annual meeting of stockholders. Each award of RSUs represents the right to receive an equivalent number of shares of our common stock on the applicable vesting date.

The RSUs granted in fiscal 2016 vest 100% upon the earlier of (i) the first anniversary of the grant date, or (ii) immediately prior to the first annual meeting of stockholders held after the grant date. If dividends are paid prior to the vesting and payment of any RSUs granted to our non-employee directors, the director is credited with additional RSUs as dividend equivalents that are subject to the same vesting requirements as the underlying RSUs.

Director Stock Ownership Guidelines. Under our director stock ownership guidelines, directors are prohibited from selling any shares of our common stock (other than in a same-day sale in connection with an option exercise to pay the exercise price of the option or to satisfy any applicable tax withholding obligations) unless they own “qualifying shares” with a market value of at least $375,000. Common stock, RSUs, deferred stock units and common stock beneficially owned by the director by virtue of being held in a trust, by a spouse or by the director’s minor children are considered qualifying shares for purposes of the stock ownership requirement. Shares the director has a right to acquire through the exercise of stock options (whether or not vested) are not counted towards the stock ownership requirement.

Deferred Compensation Plan for Non-Employee Directors

For each calendar year, we permit each non-employee director to defer payment of between a minimum of $2,000 and a maximum of 80% of any cash compensation to be paid to the director during the following calendar year in accordance with our Deferred Compensation Plan. We also permit non-employee directors to defer payment of any RSUs awarded under our Non-Employee Director Restricted Stock Unit Grant Program beyond the vesting date of the award. Restricted stock units and other amounts deferred in cash by a director are generally credited and payable in the same manner as amounts deferred by our executive officers and other participants in our Deferred Compensation Plan as further described below under the “Fiscal 2016 Non- Qualified Deferred Compensation Table.”

Subsequent Events

In August 2016, our Board of Directors approved the following changes in our non-employee director compensation program for fiscal 2017:

EXECUTIVE OFFICERS

Listed below are all of our executive officers, followed by a brief account of their business experience during the past five years. Executive officers are normally appointed annually by the Board of Directors at a meeting of the directors immediately following the annual meeting of stockholders. There are no family relationships among these officers nor any arrangements or understandings between any officer and any other person pursuant to which an officer was selected.

Mr. Milligan was appointed Chief Executive Officer in January 2013. Biographical information regarding Mr. Milligan is set forth under “Proposal 1: Election of Directors” above.

Mr. Cordano joined us in March 2012 in connection with our acquisition of HGST. Mr. Cordano was appointed President and Chief Operating Officer in October 2015, having previously served as President of our HGST subsidiary from July 2012 to October 2015. Prior to that, Mr. Cordano served as HGST’s executive vice president, sales & marketing, and president, branded business, from April 2009 to March 2012. From February 2005 to April 2009, Mr. Cordano served as chief executive officer and co-founder of Fabrik, Inc., which was acquired by HGST in April 2009. From 1994 to February 2005, Mr. Cordano served in various roles of increasing responsibility at Maxtor Corporation, including as the executive vice president of worldwide sales and marketing from April 2001 until February 2005, where he formed and managed the branded products business unit.

Mr. Long was appointed as our Executive Vice President, Chief Financial Officer and Chief Strategy Officer on September 1, 2016, having previously served as our Executive Vice President, Finance and Chief Strategy Officer since July 2016. Prior to that, Mr. Long served as Executive Vice President and Chief Strategy Officer from August 2015 to July 2016, and as Executive Vice President, Strategy & Corporate Development from February 2013 to August 2015. From March 2012 to February 2013, he served in various consulting capacities for Western Digital. Prior to that, from July 2010 to March 2012, he served as senior vice president, strategy and corporate development at HGST, which was acquired by us in March 2012. From August 2005 to July 2010, he served as managing director of VisionPoint Capital, where he provided merger and acquisition and corporate finance services to a range of technology companies, including Fabrik, Inc., which was acquired by HGST in April 2009. Mr. Long previously served as a senior executive with both public and private venture- backed technology companies and was an investment banker with Credit Suisse First Boston and Deutsche Bank Securities. Among his duties as our Executive Vice President, Chief Financial Officer and Chief Strategy Officer, Mr. Long also leads Western Digital Capital, our wholly owned strategic investment fund.

Mr. Ray was appointed as our Executive Vice President, Chief Legal Officer and Secretary in November 2015, having previously served as Senior Vice President, General Counsel and Secretary from April 2011 to November 2015. From October 2010 to April 2011, Mr. Ray served as our Vice President, General Counsel and Secretary. From September 2000 to October 2010, Mr. Ray served in a number of positions in our legal department, ranging from Senior Counsel to Vice President, Legal Services. From September 1998 to September 2000, Mr. Ray served as corporate counsel for Wynn’s International, Inc. Prior to that, he served as a judicial clerk to the U.S. District Court, Central District of California and practiced law at O’Melveny & Myers LLP.

Mr. Campbell re-joined us in March 2012 in connection with our acquisition of HGST. Mr. Campbell was appointed as our Executive Vice President and Chief Technology Officer in November 2015. Mr. Campbell previously served as Chief Technology Officer of HGST, from March 2012 to November 2015, and as chief technology officer of HGST from January 2009 until our acquisition of HGST in March 2012. From July 2002 to September 2008, Mr. Campbell served as chief executive officer of Magnecomp International (later re-named as Innotek Limited). Prior to that, from October 2000 to May 2002, Mr. Campbell served as senior vice president for DataPlay. Mr. Campbell previously served in a variety of capacities with Hewlett Packard, Quantum Corporation and Western Digital, including as General Manager of Desktop Solutions, Senior Vice President of Engineering, Vice President of New Product Introduction and Chief Quality Officer of Western Digital.

Ms. DeMaria was appointed as our Executive Vice President and Chief Human Resources Officer in November 2015. She previously served as our Senior Vice President, Global Human Resources from November 2009 to November 2015, and as our Vice President, Human Resources from July 2005 to November 2009. Prior to that, Ms. DeMaria served as senior vice president, human resources, at Earth Tech from April 2004 to July 2005, chief people officer at Overture from January 2001 to April 2003, and vice president, human resources, at Mitsubishi Motors North America from October 1997 to December 2000. Before joining Mitsubishi, Ms. DeMaria held various senior human resources roles with Southern California Edison.

Our Named Executive Officers

When we refer to our “named executive officers,” “executives” or “executive officers” in this section, we mean:

Under SEC rules, the individuals listed above are our named executive officers for fiscal 2016 and are listed below in the “Fiscal Years 2014 — 2016 Summary Compensation Table.”

Executive Summary

Business Highlights

We are a leading developer, manufacturer and provider of data storage devices and solutions that enable consumers, businesses, governments and other organizations to create, manage, experience and preserve digital content. Our broad portfolio of offerings addresses three categories: client devices, client solutions, and datacenter devices and solutions.

Managing our global business to provide long-term value for our stockholders requires a team of passionate, innovative, dedicated and experienced executives. Our overriding executive compensation philosophy is clear and consistent — we pay for performance . Our executives are accountable for the performance of the company and the operations they manage and are compensated primarily based on that performance. We believe that our executive compensation program contributes to a high-performance culture where executives are expected to deliver results that drive sustained profitable growth.

Fiscal 2016 was a transformative year for our company. We took significant steps to transform into a leading data storage devices and solutions company with global scale and extensive product and technology assets.

We also achieved solid financial performance in fiscal 2016, amidst the opportunities and challenges presented by these transformative events and a rapidly changing PC market.

The Compensation Committee took into consideration the transformative events affecting our company in fiscal 2016, which significantly increased the scale and scope of the operations led by our named executive officers. These transformative events provided an important context for our Compensation Committee’s decisions regarding executive pay, including our ability to retain, incentivize and reward our named executive officers during this critical time. As a result, the Compensation Committee determined to make certain compensation adjustments and grant performance-based compensation awards directly tied to the transformative events affecting our company, as further described below.

Promotions

Our Board of Directors approved expanded roles and promotions for key named executive officers that showed exceptional leadership in creating and executing on our company’s transformation. These promotions were intended to position our leadership team to most effectively drive growth and long-term value creation:

Our management team is focused on successfully executing its integration plan, and the Compensation Committee believes it is important to establish incentive opportunities that drive timely, focused action toward this goal, as described in the “Key Compensation Actions” below.

Key Compensation Actions

We believe that executive officer compensation for fiscal 2016 was consistent with the objectives of our compensation philosophy and with our performance and strategic goals, as described above. The key compensation actions taken by the Compensation Committee in fiscal 2016 are summarized below.

Effective Corporate Governance Reinforces our Executive Compensation Program

We believe that our executive compensation governance practices also help to drive performance and align with our stockholders’ long-term interests.

R   What We Do

☒   What We Don’t Do

Consideration of Say-on-Pay Advisory Vote and Stockholder Outreach Efforts

At our 2015 annual meeting of stockholders, more than 94% of the votes cast on the advisory Say-on-Pay proposal indicated approval of the fiscal 2015 compensation of our named executive officers. The Compensation Committee believes that the vote outcome is an indication that stockholders generally approve of the structure of our executive compensation program. In addition, during fiscal 2016, the company reached out to institutional stockholders in the context of the special meeting of stockholders relating to the SanDisk acquisition. Further, in fiscal 2017, our Chairman and Lead Independent Director participated, along with members of management, in our stockholder outreach program. In light of the 2015 advisory Say-on-Pay vote results, as well as direct feedback received from stockholders during the company’s stockholder outreach efforts, the Compensation Committee determined it was appropriate to structure our executive compensation program for fiscal 2016 in a manner generally similar to the program in place for fiscal 2015, with certain key changes described in this Compensation Discussion and Analysis aimed at the transformative events occurring in fiscal 2016 and our strategic plan. Stockholders will have an opportunity annually to cast an advisory vote in connection with named executive officer compensation.

Our Executive Compensation Philosophy and Objectives

Our compensation philosophy for our executive officers is based on the belief that the interests of our executives should be closely aligned with our long-term performance and return to our stockholders. To support this philosophy, a large portion of each executive officer’s compensation is placed “at risk” and linked to the accomplishment of specific financial or operational goals that we expect will lead to increased long-term value for our stockholders.

Analysis of Direct Compensation Allocation

The Compensation Committee does not use a specific formula for allocating total direct compensation between variable and fixed compensation, between annual and long-term compensation or between cash and non-cash compensation. However, the Compensation Committee believes that a substantial portion of total direct compensation should be at-risk compensation (with the percentage of the executive’s compensation that is at risk increasing as the executive’s responsibility increases). The Compensation Committee believes that this philosophy assists in achieving the compensation objectives of motivating executives to improve our overall performance over the long term, encouraging accountability and better linking the interests of our stockholders with those of our executives.

As illustrated in the charts below, approximately 90% of Mr. Milligan’s target total direct compensation for fiscal 2016, and approximately 85% (on average) of our other named executive officers’ target total direct compensation for fiscal 2016, was “at risk” in that it was variable and based on our stock price performance and achievement of other specified financial and strategic performance goals. We use “target total direct compensation” to mean the executive’s base salary for fiscal 2016, semi-annual incentive compensation target bonus opportunity for fiscal 2016 and LTI compensation grant at midpoint of fiscal 2016 grant guidelines, as discussed below.

Chief Executive Officer Pay Mix		Named Executive Officer Average Pay Mix

Determination of Executive Compensation

Role of the Compensation Committee

Our executive compensation program is administered by our Compensation Committee. The Compensation Committee is responsible for approving all elements of compensation for our executive officers. The Compensation Committee generally reviews the performance and compensation of our executive officers on an annual basis and at the time of hiring, promotion or other change in responsibilities. The Compensation Committee’s annual review typically occurs near the beginning of each fiscal year, with the review for fiscal 2016 compensation commencing in August 2015 and continuing during the Compensation Committee’s meeting in September 2015.

Except as otherwise noted in this Compensation Discussion and Analysis, the Compensation Committee’s executive compensation decisions are subjective and the result of the Compensation Committee’s business judgment. The Compensation Committee’s business judgment is informed by the experiences of the Compensation Committee members as well as input from Mercer, its independent compensation consultant. In addition, in setting the compensation for our executives, the Compensation Committee generally considers a variety of factors, with no one factor being determinative or carrying a specified weight. These factors include our target pay positioning strategy (described below), all elements of compensation, our compensation philosophy and objectives and a subjective evaluation of other relevant facts and circumstances, including the following:

Role of Executive Officers

While no executive participates in any discussions or decisions regarding his or her own compensation, certain of our executive officers and other employees assist the Compensation Committee in the administration of our executive compensation process. Our Chief Executive Officer works with our Chief Human Resources Officer in reviewing the performance of the other named executive officers and developing recommendations to the Compensation Committee regarding the base salaries, bonuses, equity awards and other incentive compensation to these executives for consideration by the Compensation Committee at its annual review. While the Compensation Committee considers these recommendations, the Compensation Committee is solely responsible for making the final decision regarding the compensation of our executive officers.

Our Chief Human Resources Officer or her designee also may provide internal and external compensation data to the Compensation Committee and Mercer. Our Chief Financial Officer or his designee may provide input to the Compensation Committee on the financial targets for our performance-based compensation programs and may present data regarding the impact of compensation programs on our financial statements. Our Chief Legal Officer or his designee generally assesses and advises the Compensation Committee regarding legal implications or considerations involving our compensation program.

The Compensation Committee alone is charged with approving the compensation of our Chief Executive Officer, although in determining the Chief Executive Officer’s compensation, the Compensation Committee confers with the Governance Committee, which evaluates the Chief Executive Officer’s performance. Our Chief Executive Officer does not participate in deliberations or decisions concerning his own compensation.

Role of the Compensation Consultant

The Compensation Committee’s practice has been to retain a compensation consultant to provide objective advice and counsel to the Compensation Committee on matters related to the compensation of our executive officers and our compensation programs generally. Mercer has been retained by the Compensation Committee as its compensation consultant. The Compensation Committee’s relationship with Mercer is reviewed annually and was continued in fiscal 2016. Mercer attended all in-person meetings of the Compensation Committee held during fiscal 2016. Mercer’s responsibilities for fiscal 2016 generally included:

Mercer communicates regularly with management to gather information and review management proposals but is retained by and reports directly to the Compensation Committee. During fiscal 2016, certain affiliates of MMC, the parent company of Mercer, also provided welfare plan consulting, insurance brokerage, and actuarial and plan administration services to the company with respect to the company’s general employee benefit plans and programs, as explained in more detail in the section above entitled “Corporate Governance — Committees — Compensation Committee.” However, MMC and its affiliates committed to establish and follow safeguards between the executive compensation consultants engaged by the Compensation Committee and the other service providers to the company. Specifically, Mercer provided to the Compensation Committee an annual update on Mercer’s financial relationship with the company, as well as written assurances that, within the MMC organization, the Mercer consultants who perform executive compensation services for the Compensation Committee have a reporting relationship and compensation determined separately from MMC’s other lines of business and from its other work for the company. These safeguards were designed to help ensure that the Compensation Committee’s executive compensation consultants continued to fulfill their role in providing objective, unbiased advice. In addition, in August 2016, the Compensation Committee has assessed Mercer’s independence pursuant to applicable SEC and NASDAQ rules. Taking the foregoing safeguards into account, the Compensation Committee concluded that the engagement did not raise any conflicts of interest during fiscal 2016 and currently does not raise any conflicts of interest.

Comparative Market Data

To assist the Compensation Committee during its annual review of the competitiveness of compensation levels and the appropriate mix of compensation elements to our executive officers, Mercer uses comparative market data on compensation practices and programs and provides guidance on industry practices. The Compensation Committee, with guidance from Mercer and input from management, determines the composition of our peer group and reevaluates this group on an annual basis. In February 2015, the Compensation Committee determined that no changes would be made to our peer group for the fiscal 2016 annual compensation review. Accordingly, the peer group for fiscal 2016 was the same as used for these purposes for fiscal 2015 and consists of 14 U.S.-based technology companies with size (primarily based on revenue) and business characteristics that we believe are comparable to us and who compete with us for executive talent. Most of the companies included in our fiscal 2016 peer group are, like us, included in the Dow Jones US Technology, Hardware & Equipment Index, which the company has selected as the industry index for purposes of the stock performance graph appearing in our Annual Report for fiscal 2016. Below is a list of the companies in our peer group for fiscal 2016:

The company’s revenue approximates the 62 ^nd percentile of the peer group. Peer group compensation data is taken from each company’s most recent proxy statement and other SEC filings.

For fiscal 2016, market data was also collected from the Radford Executive Survey, an independent published survey.

The survey data was filtered for high-technology companies (where such data was not available, the survey was filtered for durable manufacturing companies or general industry), and adjusted to screen for companies with revenue levels comparable to ours. In reviewing this market data, the Compensation Committee did not focus on any particular company used in the survey (other than the peer companies noted above). For individuals who were executive officers at the time of the annual review, the survey data and the peer group data were averaged (with the survey and peer group data weighted equally) to create what we refer to in this section as “composite market data.” The composite market data, along with our target pay positioning strategy outlined below, provided the Compensation Committee a reference point, which was one of several factors (as described above) that it used to make subjective compensation decisions during its fiscal 2016 annual compensation review.

Elements of Our Executive Compensation Program

Our current executive compensation program consists of several elements. The following chart briefly summarizes the general characteristics of each element of direct compensation, the compensation objectives we believe the element helps us achieve and the Compensation Committee’s target pay positioning for such element based on the relevant composite market data. Actual pay for individual executive officers can and does vary from our target pay positioning based on circumstances the Compensation Committee considers appropriate, including, without limitation, to attract or retain critical talent and incentive and reward an executive’s expected future performance and contributions to the company. As outlined below, we position base pay conservatively against the market, but position short and long-term incentives based on achievement of what we believe are more aggressive goals. We also believe this emphasis on variable compensation is aligned with our focus on operating excellence, allowing our compensation expense to flex up or down more significantly depending on company performance. While actual pay positioning varies by executive from below median to above median, we believe that our broad positioning strategy is necessary to provide the Committee with the flexibility it needs to attract, retain and motivate a talented and seasoned executive team.

In addition to these elements of our direct compensation program, we also provide executives with relatively limited and modest perquisites and certain other indirect benefits, including participation in certain post-employment compensation arrangements. For a description of these other features of our compensation program, please refer to the section below entitled “Other Features of our Executive Compensation Program.”

The following sections describe each element of our direct compensation program in more detail.

Base Salary

Executive officers are paid a base salary that the Compensation Committee believes is competitive to attract highly-qualified executive talent and to maintain a stable management team. Base salaries are generally reviewed by the Compensation Committee as part of its annual compensation review and at the time of hiring, a promotion or other change in responsibilities. Base salary levels for our executive officers are determined by the Compensation Committee after considering our pay positioning strategy and a subjective evaluation of such factors as the competitive environment, our financial performance, the executive’s experience level and scope of responsibility, and the overall need and desire to retain the executive in light of current performance, expected future performance, future potential and the overall contribution of the executive. The Compensation Committee exercises its judgment based on all of these factors in making its decisions. No specific formula is applied to determine the weight of each criterion.

STI Compensation

Our STI formally links cash bonuses for executive officers and other participating employees to our semi-annual financial performance. We believe that the STI is a valuable component of our overall compensation program because it assists us in achieving our compensation objective of motivating our executives to achieve, in a consistent, regular manner, financial goals that help to drive our overall annual financial performance during the course of the fiscal year. The short-term focus of the STI provides balance to the long-term emphasis of our annual LTI program, although we believe that it is appropriate to keep a long-term focus and accordingly weight our annual LTI program more heavily than our STI program in each executive’s target total direct compensation opportunity. In addition, the six-month performance period under our STI program reinforces our focus on strong operational execution. In addition, setting goals on a six-month basis allows us to more aggressively recalibrate goals in the face of industry dynamics that unfold over the course of a year. In many instances, this can lead to more aggressive goal-setting than might otherwise be the case if goals are adjusted for industry dynamics over an annual period. The STI also encourages accountability by rewarding executives based both on the actual financial performance achieved as well as a subjective evaluation by the Compensation Committee of other discretionary factors such as individual and business group performance.

The Compensation Committee establishes target bonus opportunities under the STI for each executive officer that are expressed as a percentage of each executive’s base salary for the performance period, which is typically a semi-annual period. In establishing these target bonus opportunities, the Compensation Committee refers to our target pay positioning strategy for short-term incentives and its own subjective evaluation of the executive’s position and responsibility.

Shortly after the start of each performance period, the Compensation Committee establishes STI achievement levels of specific operating and/or financial performance goals that correspond to payout opportunities that range from 0% to 200% of the target bonus opportunity for executive officers for a semi-annual performance period. At the end of the applicable performance period, the Compensation Committee determines the STI achievement level for executive officers based upon our performance against the goals established for the period. The achievement rate ranges from a threshold of 80% to a maximum of 126% of achievement. If performance results in an achievement rate that is less than 80%, no bonus is payable under the STI with respect to that performance goal. The Compensation Committee may adjust the achievement rate percentage (subject to a cap of 200% for each semi-annual performance period) based upon the recommendation of the Chief Executive Officer (other than with respect to the Chief Executive Officer’s bonus) and/or a subjective evaluation of the company’s performance as well as changes in the business and industry

that occur during the performance period and how well we and our executive officers were able to adapt to those changes. The STI achievement rate, as adjusted by the Compensation Committee, determines the overall funding level for bonus payments to our executives for the applicable performance period.

The STI achievement rate for each semi-annual performance period corresponds to the STI payout rate using the following leverage curve. The leverage curve is designed to reward higher achievement of performance, with a lower achievement rate resulting in a decline in the payout rate or no payout, while an achievement rate above target results in a larger increase in the payout rate, subject to the 200% cap on the payout rate for the semi-annual performance period. As described below, Mr. Murphy did not participate in the semi-annual STI bonus opportunity for the first half of fiscal 2016, and the Compensation Committee established a separate quarterly bonus opportunity for Mr. Murphy for the second quarter of fiscal 2016.

Actual bonus amounts to the executive officers for each performance period under the STI typically are calculated by multiplying the executive’s target semi-annual bonus opportunity by the STI payout rate percentage approved by the Compensation Committee based on achievement of the applicable performance metrics, subject to any individual adjustment approved by the Compensation Committee in its sole discretion based upon a subjective evaluation of the executive’s individual and business group performance.

LTI Compensation

A substantial portion of each named executive officer’s compensation is comprised of long-term equity-based incentive compensation. Regular annual LTI awards, with long-term financial performance goals and vesting schedules, help link the officer’s interests with the long-term interests of our stockholders.

Annual LTI Award Program.

Under our annual LTI program, a combination of stock options, RSUs and PSUs are generally granted on an annual basis to our executive officers. The Compensation Committee has established annual LTI grant guidelines for the grant date fair value (as determined for purposes of financial reporting) of the annual LTI awards granted to each of our executive officers in a particular fiscal year, which are based on the individual’s position level and our pay positioning strategy and are expressed as a percentage range of the individual’s annual base salary level. The annual LTI grant guidelines are reviewed and approved by the Compensation Committee during its annual compensation review after review of the composite market data and consultation with Mercer and management.

In fiscal 2016, the Compensation Committee approved increasing Mr. Leonetti’s annual LTI grant guideline midpoint from 350% to 400% of his base salary after reviewing composite market data for his position and to better align with our pay positioning strategy. In addition, the Compensation Committee approved increasing Mr. Cordano’s annual LTI guideline midpoint from 500% to 600% in connection with his promotion to President and Chief Operating Officer, and Mr. Ray’s annual LTI guideline midpoint from 225% to 350% in connection with his promotion to Executive Vice President, Chief Legal Officer and Secretary, both to better align with our pay positioning strategy and consistent with composite market data for each executive officer’s new role. These adjustments were also intended to incentivize each executive in light of his increased responsibilities in connection with our company’s transformative events during fiscal 2016.

The following table presents the fiscal 2016 annual LTI grant guidelines for our named executive officers with respect to the grants made in August 2015:

These LTI ranges provide a guideline for the Compensation Committee when determining the grant value of the awards to each executive under the annual LTI program. In determining the actual grants made to each executive, the Compensation Committee also considers our target pay positioning strategy, the recommendation of our Chief Executive Officer (other than for the Chief Executive Officer’s annual LTI award), the current compensation package and the value of unvested equity awards, as well as a subjective evaluation of the executive’s individual performance, current responsibilities, expected future contributions and value to the company. No specific formula is applied to determine the weight of each criterion.

Once the grant values for these executives are determined, the Compensation Committee determines the appropriate allocation of the grant value among our LTI award types. The following table explains in more detail the award types we used in fiscal 2016 and how they help accomplish our compensation objectives.

Additional LTI Awards.

In addition to our annual LTI award program, special LTI cash and/or equity awards outside of our annual LTI program may be granted from time to time to achieve specific objectives. For example, in fiscal 2016, the Compensation Committee granted Integration PSU awards to certain of our named executive officers, as further described below.

Executive Officer Compensation for Fiscal 2016

Base Salary

For fiscal 2016, the Compensation Committee reviewed the base salary levels for our executive officers during its annual review in August 2015 and again in November 2015 in connection with executive officer promotions. The Compensation Committee approved an increase in the base salary level of Mr. Cordano, from $700,000 to $725,000, Mr. Ray, from $475,000 to $500,000, and Mr. Long, from $475,000 to $500,000.

After a review of the relevant composite market data and in light of Mr. Cordano’s promotion to President and Chief Operating Officer and Mr. Ray’s promotion to Executive Vice President, Chief Legal Officer and Secretary, the Compensation Committee approved these modest increases to better align the executives’ base salaries with the market median for their new roles. The Compensation Committee also determined to increase Mr. Long’s base salary in light of his increased responsibilities relating to our strategic initiatives, including the acquisition of SanDisk. The Compensation Committee also believed that the existing base salary levels for Messrs. Milligan, Leonetti and Murphy continued to be appropriate, and as a result, did not change their base salary levels during fiscal 2016.

Each named executive officer’s base salary level for fiscal 2016 is reflected below:

STI Compensation

Target Bonus Level Opportunities.

In its fiscal 2016 review for the named executive officers, the Compensation Committee approved an increase in the target bonus levels of Mr. Cordano, from 110% to 125% of base salary in connection with his promotion, Mr. Ray from 75% to 85% of base salary in connection with his promotion, and Mr. Long, from 85% to 100% of base salary in connection with his increased responsibilities relative to our strategic transactions. In each case, the increases were intended to incentivize each executive in light of his increased responsibilities in connection with our company’s transformative events during fiscal 2016 and bring each executive’s compensation closer in line with our pay positioning strategy. The Compensation Committee concluded that the target bonus levels for our remaining named executive officers were within a reasonable range of our stated pay positioning strategy and, as a result, no adjustments were made to the target bonus levels for our remaining named executive officers.

Each named executive officer’s annual target bonus opportunity for fiscal 2016 is reflected below:

STI Performance Goals.

For both the first and second halves of fiscal 2016, the Compensation Committee selected adjusted earnings per share as the financial measure for Messrs. Milligan, Cordano, Leonetti, Long and Ray under the STI because it believed that adjusted earnings per share is an appropriate holistic metric for corporate-level executives in order to measure the level of the company’s overall short-term performance. Following Mr. Cordano’s promotion to our President and Chief Operating Officer, the Compensation Committee determined that it would be appropriate to use a corporate-level adjusted earnings per share financial measure for Mr. Cordano for fiscal 2016, rather than the subsidiary-level financial measure previously selected for him in fiscal 2015, when he served as President of our HGST subsidiary.

For fiscal 2016, the Compensation Committee provided that adjusted earnings per share was calculated as earnings per share under generally accepted accounting principles (“GAAP”), adjusted to exclude certain material, non-recurring or unusual items that were unrelated to the day-to-day execution of our business, including accounting charges relating to certain acquisitions and the other items noted below, and that we believe are not indicative of the underlying performance of the business. The adjusted earnings per share measure is a financial measure that is not based on GAAP, which we use in preparing our financial statements. We believe that excluding certain items for purposes of the adjusted earnings per share measure used in our STI program provides a better understanding of the magnitude of the change in earnings between performance periods due to the underlying performance of the business. The footnotes to the STI achievement and payout tables that follow provide a reconciliation of the GAAP measure of earnings per share to the adjusted earnings per share measure used in determining the STI bonuses.

The Compensation Committee determined not to establish a bonus opportunity for Mr. Murphy for the first quarter of fiscal 2016 (when Mr. Murphy served as President of our WD subsidiary) due to the rapidly changing PC market, which made it difficult to the set appropriate financial metrics as bonus targets for the

WD subsidiary for that quarter. Instead, the Compensation Committee determined that Mr. Murphy’s entire bonus opportunity for the first half of fiscal 2016 would be established as a target bonus opportunity for the second quarter of fiscal 2016. The primary metric was subsidiary-level operating income, and a subsidiary-level operating expense reduction target was also established as a secondary metric, providing Mr. Murphy with an opportunity to achieve an additional quarterly bonus opportunity for exceptional performance. The Committee believed subsidiary operating income is an appropriate metric to measure short-term operating performance at the subsidiary level, while subsidiary operating expense reduction reflects the necessary cost-saving measures required to position the subsidiary for profitability in future quarters. For fiscal 2016, subsidiary operating income was calculated as subsidiary revenue less cost of goods sold and operating expenses and excludes the same items that we believe are not indicative of the underlying performance of the business as noted above. The operating expense reduction target excluded cost savings realized from not having an STI opportunity for the first quarter of fiscal 2016.

For the second half of fiscal 2016, the Compensation Committee determined it would be appropriate to move Mr. Murphy to the corporate-level adjusted earnings per share financial measure to align the WD subsidiary to a single company-wide financial measure following the MOFCOM decision.

STI Achievement and Payout – First Half of Fiscal 2016.

For the first half of fiscal 2016, the Compensation Committee noted that the company’s adjusted earnings per share for the first half of fiscal 2016 was $3.11, compared to the target of $3.30, resulting in an achievement rate of 94% and a payout rate of 85% for Messrs. Milligan, Cordano, Leonetti, Long and Ray after applying the leverage curve.

The Compensation Committee also noted that the WD subsidiary’s achievement rate under the STI of $219 million in operating income for the second quarter of fiscal 2016, or 112% of the quarterly target of $195 million, resulted in a payout rate of 142% after applying the leverage curve. The Compensation Committee also noted that the WD subsidiary’s achievement rate of $18 million in operating expense reductions, or 79% of the target of $22.8 million, resulted in a payout of 79% of the secondary bonus pool to WD subsidiary STI participants, including Mr. Murphy. The final payout rate for Mr. Murphy for the second quarter of fiscal 2016 was determined by multiplying each of the operating income payout rate and operating expense reduction payout rate by Mr. Murphy’s quarterly target bonus opportunity, resulting in a payout of 221% of Mr. Murphy’s quarterly bonus opportunity (if Mr. Murphy had been granted a semi-annual STI bonus opportunity, the payout percentage would have averaged to 110.5%).

The following table reflects the target goals under the STI for the first half of fiscal 2016, the achievement rates of the goals, the resulting bonus payout rates and the actual bonus payments to each named executive officer for the first half of fiscal 2016.

STI Achievement and Payout – Second Half of Fiscal 2016.

For the second half of fiscal 2016, the Compensation Committee established an adjusted earnings per share target of $3.38. This target excluded items and expenses related to SanDisk, which was acquired after the STI metrics were established for the second half of fiscal 2016. The company’s adjusted earnings per share for the second half of fiscal 2016 was $2.20 (excluding items and expenses relating to SanDisk), based on preliminary financial results provided to the Compensation Committee, compared to the target of $3.38, resulting in an achievement and payout rate of 0% for our named executive officers. As a result, our named executive officers did not receive any payout under the STI for the second half of fiscal 2016.

The following table reflects the target goals under the STI for the second half of fiscal 2016, the achievement rates of the goals, the resulting bonus payout rates and the actual bonus payments to each named executive officer for the second half of fiscal 2016.

LTI Compensation

Fiscal 2016 Annual LTI Awards.

After reviewing the annual LTI grant guidelines for each executive officer, our target pay positioning strategy, the recommendation of our Chief Executive Officer (other than with respect to the Chief Executive Officer’s LTI award), current compensation package, value of unvested equity awards and expected future contributions and value to the company, as well as a subjective evaluation of the executive’s responsibilities and individual performance, the Compensation Committee determined the annual LTI grant values for each executive officer and the allocation of those grant values among the LTI vehicles, as indicated in the table below. Mr. Long’s fiscal 2016 LTI grant is discussed separately below.

Annual LTI PSU Awards – Named Executive Officers Other than Mr. Long.

For our named executive officers (other than Mr. Long), the annual LTI grant consisted of a mix of stock options, RSU and PSU awards. The PSU awards vest based on the achievement of pre-established corporate- level cumulative revenue and operating income goals, discussed in more detail below. For Messrs. Milligan and Leonetti, the Compensation Committee determined it would be appropriate to weight the mix more heavily toward PSUs to align their focus with our long-term corporate financial objectives, given their roles and overall responsibilities as Chief Executive Officer and Chief Financial Officer, respectively. The Compensation Committee determined it would be appropriate to include PSUs in the award mix for Messrs. Cordano and Murphy (who served as our subsidiary presidents at the time of grant) and Mr. Ray but place less emphasis on PSUs in their award mix given the corporate-level goals applicable to the PSUs in light of each officer’s respective role and area of responsibility. 

The actual number of shares that may become earned and payable under the annual LTI PSU awards granted to our named executive officers (other than Mr. Long) will generally range from 0% to 200% of the target number of units based on achievement of the specified cumulative revenue and operating income performance goals over a two-year period covering fiscal 2016 and 2017. The Compensation Committee determined that a two-year performance period for our annual LTI PSU awards is appropriate because it balances our focus on multi-year financial performance with the need to establish meaningful performance goals in the face of a rapidly changing industry. In addition, utilizing a two-year performance period allows us to set more aggressive goals than might otherwise be the case if goals are adjusted for industry uncertainties over a performance period exceeding two years.

The payout of the annual LTI PSUs will be capped at the target number of PSUs if our total stockholder return, or TSR, is below the 50 th percentile of our peer group. If our TSR relative to our peer group is at or above the 50 th percentile but below the 60 th percentile, the annual LTI PSU payout will be capped at 150% percent. If our TSR relative to our peer group is at or above the 60 th percentile, the annual LTI PSU payout will be determined based on the achievement of the financial metrics alone. The cumulative performance goals are generally subject to automatic upward or downward adjustment at the end of the performance period in the same proportion by which the total available market, or TAM, for hard drives during the period exceeds or falls short of the TAM forecasted by our Board of Directors at the time the goals are established. The TAM modifier is a pre-established modifier that is approved as part of the terms of the annual LTI PSU award at the time the performance goals are approved by the Compensation Committee. The Compensation Committee determined that a two-year performance period for our annual LTI PSU awards is appropriate because it balances our focus on multi-year financial performance with the need to establish meaningful performance goals in the face of a rapidly changing industry. In addition, utilizing a two-year performance period allows us to set more aggressive goals than might otherwise be the case if goals are adjusted for industry uncertainties over a performance period exceeding two years.

Payout under Fiscal 2015/2016 LTI PSU Awards to Messrs. Milligan and Leonetti.

In August and September 2014, the Compensation Committee approved the grant of PSU awards to Messrs. Milligan and Leonetti with a performance period comprised of fiscal 2015 and fiscal 2016. The PSU awards were granted with a pre-established cumulative revenue goal of $30.96 billion and cumulative operating income goal of $4.31 billion over fiscal 2015 and 2016, each goal with an equal weighting of 50%.

As described in our proxy statement for our 2015 annual meeting of stockholders, the fiscal 2015-2016 PSU award represents the right to receive a target number of shares of our common stock based on our cumulative revenue and operating income for the performance period against a pre-established milestone. Between 0% and 200% of the target number of units covered by this award could have been earned based on the level of achievement of the milestones. No amount could be paid in excess of 150% of target unless our total stockholder return over the performance period is equal to or greater than the 60 th percentile of our peer group. The achievement level of each performance goal corresponds to a pre-established performance level for each goal, with a minimum performance level of 85% for each goal. A performance level that is less than 85% for any performance goal would result in 0% achievement for that goal. 

The PSU award achievement rate corresponds to the payout rate using the following leverage curves:

The performance goals generally are subject to automatic upward or downward adjustment at the end of the performance period in the same proportion by which the TAM for hard drives during the period exceeds or falls short of the TAM forecast included in the two-year plan approved by our Board of Directors at the time the goals are established. The actual TAM for hard drives for the performance period was less than the TAM forecasted when the PSU award goals were established by a difference of 15.7%. Accordingly, in fiscal 2016, the revenue and operating income goals were linearly adjusted by applying the TAM modifier, causing the target cumulative revenue goal to be adjusted from $30.959 billion to $26.098 billion, and the target cumulative operating income goal to be adjusted from $4.314 billion to $3.637 billion.

In July 2016, the Compensation Committee approved a payout under the fiscal 2015-2016 PSU awards granted to Messrs. Milligan and Leonetti at 92.7% of the target number of shares based on its determination of the achievement of the milestones, resulting in a payout of 41,744 shares to Mr. Milligan and 6,029 shares to Mr. Leonetti after interpolating the achievement rate for the goals. After excluding expenses relating to extraordinary, unusual or non-recurring items, including amortization of intangibles relating to the acquisitions of HGST, sTec and Virident, and unforeseen material expenses relating to restructuring, acquisition expenses and litigation, in accordance with the terms and conditions of the 2004 Performance Incentive Plan and the PSU award agreements governing the awards, the actual performance over fiscal 2015 and 2016 resulted in cumulative revenue of $26.773 billion and adjusted cumulative operating income of $3.368 billion, or an achievement rate against the target goals of 102.6% and 92.6%, respectively, with a payout rate of 110.7% and 74.6%, respectively, with each payout rate weighted equally resulting in an overall payout rate of 92.7%.

The payout approved by the Compensation Committee is reflected in the following table. For purposes of determining the 2015-2016 PSU award achievement and payout, the financial results exclude the revenue and operating income of SanDisk, which was acquired in late fiscal 2016 after the metrics were established.

Fiscal 2016 LTI PSU Award – Mr. Long.

For Mr. Long, the Compensation Committee approved an LTI award relative to his role and responsibilities in leading our corporate strategy and development. Mr. Long was tasked with critical and significant responsibilities in fiscal 2016 during this transformative and historical time, including (i) leading the efforts for a transformative acquisition, which culminated in the acquisition of SanDisk in May 2016, (ii) advising on integration and synergy efforts for the HGST and WD subsidiaries following the MOFCOM decision, (iii) pursuing a joint venture with a strategic partner, which culminated in the joint venture agreement with Unis, and (iv) exploring a potential significant equity investment in our stock with a third-party investor, which was contemplated by the potential Unis investment, and which was ultimately terminated by Unis and its subsidiary in February 2016. The Compensation Committee believed that, at the time they were established, the targets corresponding to a 100% payout were challenging yet achievable based on expectations regarding opportunities and contributions by Mr. Long, and that the maximum targets would be achievable only with extraordinary efforts.

Given the breadth and significance of these undertakings assigned to Mr. Long, the Compensation Committee determined it would be appropriate to provide Mr. Long with a multi-year grant in lieu of the annual LTI grant awarded to our other named executive officers. Mr. Long’s LTI PSU grant spans a six fiscal year performance period, from July 4, 2015 through July 2, 2021, compared to the two fiscal year performance period used for the annual LTI PSUs granted to our other named executive officers. The grant date value of Mr. Long’s award was determined to be approximately three times the value of his midpoint guideline of 400% of base salary, given the span of the performance period and critical performance objectives associated

with the award. The vesting of Mr. Long’s LTI PSUs is based in part upon milestones related to entering into, and realizing the benefits of, certain corporate transactions (described further below) during the performance period. Following the end of each fiscal year during the performance period, the Compensation Committee will determine the number of PSUs, if any, that will be credited to Mr. Long with respect to the milestones, if any, achieved during the respective fiscal year.

Once the number of PSUs to be credited based on achievement of the performance goals is determined, the credited PSUs are subject to service-based vesting and vest in three installments as follows: (i) 40% of the credited PSUs will vest as of the last day of the fiscal year for which the Compensation Committee has determined that the applicable performance milestones have been achieved, (ii) 40% of the credited PSUs will vest on the first anniversary of the first vesting date, and (iii) 20% of the credited PSUs will vest on the second anniversary of the first vesting date. Mr. Long is entitled to receive dividend equivalents with respect to outstanding PSUs, which are subject to the same vesting, forfeiture and termination conditions applicable to the PSUs.

In addition to the fact that a significant portion of the PSUs relate to achieving the intended strategic and financial objectives of the transactions in the years following the consummation of the transactions, the Compensation Committee determined it was appropriate to include an additional service-based vesting requirement to provide an extended retention incentive in order to ensure Mr. Long’s engagement in helping us to realize the benefits of the transactions.

The performance goals relate to our engaging in, and achieving the intended benefits from, certain corporate strategic transactions, as further described below. The achievement of each performance goal and crediting of PSUs is determined with respect to achievement of particular milestones associated with that performance goal. In reviewing our position in light of declining PC markets, the Compensation Committee determined that each of the following performance goals would significantly contribute to our long-term strategy to be an innovative leader in the storage industry by (i) allowing us to acquire storage solutions companies with global scale, extensive product and technology assets and deep expertise in certain desired industries, such as non-volatile memory, (ii) providing an infusion of cash to pursue such transactions, and (iii) enabling us to form a strategic partnership to develop new technologies and access new markets for data storage solutions.

In addition, the Compensation Committee approved performance goals relating to the integration of the HGST and WD subsidiaries (the “Integration”), as described below under “Other LTI Awards – Integration PSUs.”

As further described below, in connection with Mr. Long’s appointment to Executive Vice President, Finance and Chief Strategy Officer, the tranches relating to the Other Significant Revenue Acquisition and Equity Infusion performance goals were terminated and no shares will be paid out under these performance goals or the related milestones. The “Other Significant Revenue Acquisition” performance goal related to one or more corporate transactions approved by our Board of Directors that would result in the merger, combination or consolidation with, or acquisition of, entities, which did not constitute a Transformational Transaction. The “Equity Infusion” performance goal related to the significant sale of our common stock to a single third-party investor other than in the context of a merger or acquisition.

With respect to the crediting of Mr. Long’s LTI PSU award, the Compensation Committee placed the most emphasis on the achievement of post-closing goals aligned to the business plan goals approved by our Board of Directors in connection with the specific transaction (the “Board Approved Plan”), which encourages accountability and retention by rewarding Mr. Long for the realization of the intended goals of the transaction following the consummation of each transaction.

The actual number of shares that may become earned and payable under Mr. Long’s LTI PSU award will generally range from 0% to 300% of the target number of shares based on the timing of the achievement of the specified milestone during the performance period, as set forth in the table below. The Compensation Committee determined it would be appropriate to use a leverage of 0% to 300% based on the timing of the achievement of a specified milestone to motivate Mr. Long to pursue the transactions outlined in the performance goals in accordance with our strategic timeline and roadmap. With several of the performance goals, the Compensation Committee placed the greatest emphasis on achieving the targets related to the Board Approved Plan for each transaction to reward Mr. Long for executing an implementation strategy that aligned to the long-term vision, synergies and goals approved by our Board of Directors in connection with that transaction.

Performance below the threshold level for a particular milestone will not result in a payout of PSUs pursuant to that milestone. In the event achievement of a milestone lies between two levels based on the time the milestone is achieved, the number of shares to be credited will be interpolated proportionately between the two levels. The milestones for the Integration performance goal are described separately below under “Integration PSUs.”

The following table describes the payout leverage for each of the Transformational Transaction and Strategic Joint Venture performance goals. The leverage for the Other Significant Revenue Acquisition and Equity Infusion are described separately below.

The tranches relating to the Other Significant Revenue Acquisition and Equity Infusion performance goals were cancelled. The payout leverage relating to these goals is described below.

Other Significant Revenue Acquisition payout leverage:

Equity Infusion payout leverage:

Fiscal 2016 Payout under Mr. Long’s LTI PSU Award .

In July 2016, the Compensation Committee approved crediting Mr. Long with 83,327 PSUs, to vest as follows in accordance with the terms of Mr. Long’s LTI PSU award: (i) 40% of the credited PSUs vest as of the last day of the fiscal 2016 (the “first vesting date”); (ii) 40% of the credited PSUs will vest on the first anniversary of the first vesting date, and (iii) 20% of the credited PSUs will vest on the second anniversary of the first vesting date. The Compensation Committee determined the achievement of the milestones as follows:

investment, triggering a 15-day period during which either we or Unis Union could terminate the stock purchase agreement. As a result, Unis Union elected to terminate the stock purchase agreement. Because the Equity Infusion transaction was not consummated, the Compensation Committee determined that no PSUs would be credited under this milestone. As further described below, in connection with Mr. Long’s appointment to Executive Vice President, Finance and Chief Strategy Officer on July 6, 2016, the tranche relating to the Equity Infusion was cancelled and no shares will be paid out under this performance goal or the related milestones.

Other LTI Awards – Integration PSUs.

In early 2016, the Compensation Committee determined that a one-time, broad-based, integration-focused LTI award was warranted for senior leaders and key employees of the company, given the significant integration efforts relating to the HGST and WD subsidiaries and the critical importance to the company of incentivizing these individuals during this transformative time for us to help streamline the company and achieve the synergies and goals relating to our acquisition of HGST in 2012. As part of this broad-based award, the Compensation Committee approved the grant of Integration PSUs in March 2016 to Messrs. Cordano, Leonetti, Long, Murphy and Ray.

The Compensation Committee determined it was appropriate to grant Integration PSUs to Messrs. Cordano, Leonetti, Long, Murphy and Ray, among other senior leaders of the company, given each executive’s critical role in the integration efforts as well as the executive’s current responsibilities and expected future contributions to the company. Integration PSUs are subject to the achievement of cost synergy targets over a fifteen-month period (October 2015 to December 2016) and cumulative twenty-seven month period (October 2015 to December 2017). The actual number of shares that may become earned and payable under the Integration PSUs will generally range from 0% to 300% of the target number of units based on achievement of the specified synergies performance goals over the fifteen-month and twenty-seven month periods, with the threshold payout at 80% of the target level. Upon achievement of the performance goals, the Integration PSUs are scheduled to vest as to 50% of the PSUs on each of the second anniversary (March 2018) and third anniversary (March 2019) following the grant date. The cost synergy milestones relate to operating expense reduction and cost savings targets to be achieved during the performance periods. The Compensation Committee determined that operating expense reduction and cost savings are appropriate performance metrics because they provide objective measures of our company’s ability to integrate the WD and HGST subsidiaries and realize the synergies of the HGST acquisition.

No shares will be payable if a minimum cumulative synergies threshold for the entire performance period is not achieved. In addition, the Integration PSUs are subject to a pre-established management by objective (MBO) modifier relating to employee engagement, which could cause the numbers of shares that may become earned and payable to increase or decrease by 10%, provided, in no event will the shares payable exceed 300% of the target number of units. The Compensation Committee determined that it would be appropriate to include the MBO as a modifier of the Integration PSU awards because it would incentivize management to engage our employees during the integration period, when new challenges and demands could be introduced to our employees.

The following graph represents the performance periods and vesting periods of the Integration PSUs:

For Messrs. Cordano, Leonetti, Murphy and Ray, the Compensation Committee determined it would be appropriate to award the Integration PSUs with a grant value of 75% of their LTI grant guideline midpoint, consistent with the Integration PSU awards granted to other senior leadership and key talent in the company. For Mr. Long, the Compensation Committee awarded Integration PSUs with a grant value of 10% ($600,000) of his total intended LTI grant value of $6 million, which the Compensation Committee determined was an appropriate magnitude for this milestone given the scope and significance of the other milestones of his award. The Integration PSUs awarded to Messrs. Cordano, Leonetti, Long, Murphy and Ray are reflected in the table below.

Promotion Grants.

In connection with their promotions, Messrs. Cordano and Ray received grants in accordance with our LTI guidelines for promotions, which are intended to bring the grant date value of the executive officer’s aggregate annual LTI awards for the fiscal year to each officer’s new LTI guideline midpoint based on his new role. Mr. Cordano received a promotion grant with a total grant date fair value equal to 100% of his base salary to increase the annual grant value of his awards from his prior LTI guideline midpoint of 500% of base salary to his new midpoint of 600%. Mr. Ray received a promotion grant with a total grant date fair value equal to 125% of his base salary to increase the annual grant value of his awards from his prior LTI midpoint of 225% of base salary to his new midpoint of 350%. The promotion grants consist of 50% of the grant value in the form of stock options and 50% in the form of RSUs. Our promotion guidelines are intended to bring an individual’s outstanding equity awards closer to our desired pay positioning strategy for a given role as well as to recognize the increased overall responsibilities in connection with the new role.