BMC Bmc Software, Inc.

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No.  )

Filed by the Registrant þ
Filed by a Party other than the Registrant o

Check the appropriate box:

o		Preliminary Proxy Statement
o		Confidential, for Use of the Commission Only (as permitted by Rule 14a- 6(e)(2) )
þ		Definitive Proxy Statement
o		Definitive Additional Materials
o		Soliciting Material Pursuant to §240.14a-12

 

(BMC Software, Inc.)

(Name of Registrant as Specified In Its Charter)

 

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

þ		No fee required.
o		Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

	(1)		Title of each class of securities to which transaction applies:
	(2)		Aggregate number of securities to which transaction applies:
	(3)		Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):
	(4)		Proposed maximum aggregate value of transaction:
	(5)		Total fee paid:

o		Fee paid previously with preliminary materials.
o		Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

	(1)		Amount Previously Paid:
	(2)		Form, Schedule or Registration Statement No.:
	(3)		Filing Party:
	(4)		Date Filed:

BMC Software, Inc.

2101 CityWest Boulevard

Houston, Texas 77042

(713) 918-8800

 

 

June 18, 2008

 

Dear Stockholder:

 

BMC Software’s Annual Meeting of Stockholders will be held on Tuesday, July 22, 2008 at 8:30 a.m., local time, in the Wetzel room at The Hyatt Regency DFW, International Parkway, DFW Airport, Texas. We look forward to your attendance either in person or by proxy. If you received your Annual Meeting materials by mail, the annual report, notice of Annual Meeting, proxy statement and proxy card from our Board of Directors are enclosed. If you received your Annual Meeting materials via e-mail, the e-mail contains voting instructions and links to the annual report and proxy statement on the Internet at http://ww3.ics.adp.com/streetlink/bmc. We encourage you to conserve natural resources, as well as significantly reduce our printing and mailing costs, by signing up for electronic delivery of BMC Software stockholder communications. For more information, see “Electronic Delivery of BMC Software Stockholder Communications” in the proxy statement.

 

At this year’s Annual Meeting, we request your approval of two proposals. First, we seek the election of nine members to our Board of Directors. Second, we seek ratification of the appointment by our Audit Committee of Ernst & Young LLP as our independent registered public accountants for fiscal 2009. Our Board of Directors recommends that you vote FOR each of these proposals. Please refer to the proxy statement for detailed information on each of the proposals to be considered at the Annual Meeting.

 

Very truly yours,

 

B. GARLAND CUPP

Chairman of the Board

BMC SOFTWARE, INC.
2101 CityWest Boulevard
Houston, Texas 77042-2827

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

July 22, 2008

 

To the stockholders of

BMC Software, Inc.:

 

The Annual Meeting of stockholders of BMC Software, Inc., a Delaware corporation (“BMC Software”), will be held in the Wetzel room at The Hyatt Regency DFW, International Parkway, DFW Airport, Texas on July 22, 2008 at 8:30 a.m., local time.

 

We are holding the Annual Meeting for the following purposes:

 

1. To elect nine directors, each to serve until the next annual stockholders’ meeting or until his or her respective successor has been duly elected or appointed;

 

2. To ratify the appointment by our Audit Committee of Ernst & Young LLP as independent registered public accountants of BMC Software for the fiscal year ending March 31, 2009; and

 

3. To transact such other business as may properly come before the Annual Meeting and at any adjournments or postponements of the meeting.

 

The above matters are fully described in the proxy statement, which is part of this notice. We have not received notice of any other matters that may be properly presented at the Annual Meeting.

 

Only stockholders of record at the close of business on May 27, 2008 will be entitled to vote at the Annual Meeting. A list of stockholders entitled to vote at the Annual Meeting will be available for inspection at our offices, 2101 CityWest Boulevard, Houston, Texas 77042 for 10 days prior to the Annual Meeting. If you would like to review the stockholder list, please call our investor relations department at (713) 918-4525 to schedule an appointment.

 

To ensure that your vote is recorded promptly, please vote as soon as possible, even if you plan to attend the Annual Meeting. Most stockholders have three options for submitting their vote: (1) via the Internet, (2) by phone or (3) by mail using the paper proxy card. For further details, see “Voting” and your proxy card or the email you received for electronic delivery of this proxy statement. If you have Internet access, we encourage you to record your vote on the Internet. It is convenient and it saves us significant postage and processing costs.

 

By Order of the Board of Directors,

 

Denise M. Clolery

Secretary

 

June 18, 2008

 

This proxy statement and the Annual Report to stockholders will be made available on the Internet at
http://ww3.ics.adp.com/streetlink/bmc on or about June 18, 2008.

TABLE OF CONTENTS

 

 

If you received your Annual Meeting materials by mail, we encourage you to conserve natural resources, as well as significantly reduce our printing and mailing costs, by signing up to receive your BMC Software stockholder communications via e-mail . With electronic delivery, you will be notified via e-mail as soon as the annual report and the proxy statement are available on the Internet, and you can easily submit your stockholder votes online. Electronic delivery can also help reduce the number of bulky documents in your personal files and eliminate duplicate mailings. If you would like to view future proxy statements and annual reports over the Internet instead of receiving paper copies, you can elect to do so by voting at www.proxyvote.com and providing your e-mail address through such website after you vote. Your election to view these documents over the Internet will remain in effect until you elect otherwise. Please be aware that if you choose to access these materials over the Internet, you may incur costs such as telephone and Internet access charges for which you will be responsible. If you choose to view future proxy statements and annual reports over the Internet, next year you will receive an e-mail with instructions on how to view those materials and vote.

 

Your electronic delivery enrollment will be effective until you cancel it. If you have questions about electronic delivery, please call our investor relations department at (713) 918-4525.

 

In accordance with notices we sent to certain stockholders, we are sending only one copy of our annual report and proxy statement to stockholders who share the same last name and address, unless they have notified us that they want to continue receiving multiple copies. This practice, known as “householding,” is designed to reduce duplicate mailings and save significant printing and postage costs as well as natural resources.

 

If you received a householded mailing this year and you would like to have additional copies of our annual report and/or proxy statement mailed to you or you would like to opt out of this practice for future mailings, please call 1-800-542-1061, send a request via email to sendmaterial@proxyvote.com or write to Householding Department, 51 Mercedes Way, Edgewood, NY 11717, including your name, the name of your broker or other holder of record and your account number(s). If you revoke your consent, you will be removed from the Householding program within 30 days of receipt of your revocation and each stockholder at your address will receive individual copies of our disclosure documents. You may also contact us if you received multiple copies of the Annual Meeting materials and would prefer to receive a single copy in the future.

 

The Annual Meeting will be held at 8:30 a.m., local time, on Tuesday, July 22, 2008, in the Wetzel room at The Hyatt Regency DFW, International Parkway, DFW Airport, Texas. When you arrive, signs will direct you to the Wetzel room. Please note that the doors to the meeting room will not be open until 7:45 a.m. You do not need to attend the Annual Meeting to vote. Even if you plan to attend the Annual Meeting, please submit your vote in advance as instructed below.

 

To ensure that your vote is recorded promptly, please vote as soon as possible, even if you plan to attend the Annual Meeting in person. Most stockholders have three options for submitting their votes: (1) via the Internet, (2) by phone or (3) by mail using the paper proxy card. If you have Internet access, we encourage you to record your vote on the Internet . It is convenient and it saves us significant postage and processing costs. In addition, when you vote via the Internet or by phone prior to the meeting date, your vote is recorded immediately and there is no risk that postal delays will cause your vote to arrive late and therefore not be counted. For further instructions on voting, see your proxy card or the e-mail you received for electronic delivery of this proxy statement. If you attend the Annual Meeting, you may also submit your vote in person, and any previous votes that you submitted, whether by Internet, phone or mail, will be superseded by the vote that you cast at the Annual Meeting.

BMC SOFTWARE, INC.
2101 CityWest Boulevard
Houston, Texas 77042-2827

 

PROXY STATEMENT

 

FOR ANNUAL MEETING OF STOCKHOLDERS

To Be Held July 22, 2008

 

This proxy statement is furnished to the stockholders of BMC Software, Inc. in connection with the solicitation of proxies by the Board of Directors (the “Board”). The proxies are to be voted at the 2008 Annual Meeting of stockholders of BMC Software (the “Annual Meeting”) to be held in the Wetzel room at The Hyatt Regency DFW, DFW Airport, Texas, at 8:30 a.m., local time, on July 22, 2008, and any adjournments or postponements thereof, for the purposes set forth in the accompanying notice. The Board is not aware of any other matters to be presented at the Annual Meeting. If any other matter should be presented at the Annual Meeting upon which a vote properly may be taken, shares represented by all duly executed proxies received by us will be voted with respect thereto in accordance with the best judgment of the persons designated as the proxies. This proxy statement and the accompanying form of proxy have been mailed to stockholders on or about June 18, 2008.

 

As of May 27, 2008, the record date for the determination of stockholders entitled to notice of and to vote at the Annual Meeting, there were outstanding and entitled to vote 191,151,199 shares of the common stock, $.01 par value, of BMC Software (the “Common Stock”). Each share of Common Stock entitles the holder to one vote on each matter presented at the Annual Meeting. A majority of the outstanding shares present in person or by proxy will constitute a quorum.

 

Proxies will be voted in accordance with the directions specified thereon and otherwise in accordance with the judgment of the persons designated as proxies. Any proxy on which no direction is specified will be voted FOR the election of the nominees named herein to the Board, and FOR the ratification of the appointment by our Audit Committee of Ernst & Young LLP as our independent registered public accountants for fiscal 2009.

 

Our annual report to stockholders containing financial statements for the fiscal year ended March 31, 2008 accompanies this proxy statement. Stockholders are referred to the annual report for financial and other information about our business activities. The annual report is not incorporated by reference into this proxy statement and is not deemed to be a part hereof.

 

 

It is your legal designation of another person to vote the stock you own. That other person is called a proxy. If you designate someone as your proxy in a written document, that document also is called a proxy or a proxy card. Robert E. Beauchamp, President, Chief Executive Officer and a Director, and Denise M. Clolery, Senior Vice President, General Counsel and Secretary, have been designated as proxies for the 2008 Annual Meeting.

 

 

It is a document that the regulations of the Securities and Exchange Commission (“SEC”) require us to give you when we ask you to sign a proxy card designating Robert E. Beauchamp and Denise M. Clolery each as proxies to vote on your behalf. The proxy statement includes information about the proposals to be considered at the Annual Meeting and other required disclosures including information about our Board and officers.

 

 

(a) If your shares are registered in your name, you are a stockholder of record.

 

(b) If your shares are registered in the name of your broker or bank, your shares are held in street name.

 

 

(a) By Internet Proxy: All stockholders of record as of May 27, 2008 can have their shares voted by proxy via the Internet, using the procedures and instructions described on the proxy card and other enclosures. Votes submitted electronically via the Internet or by telephone must be received by 11:59 p.m. Eastern Time, on July 21, 2008.

 

(b) By Telephone Proxy: All stockholders of record as of May 27, 2008 can also have their shares voted by proxy via touchtone telephone from the U.S. and Canada, using the toll free telephone number on the proxy card. Votes submitted electronically via the Internet or by telephone must be received by 11:59 p.m. Eastern Time, on July 21, 2008.

 

Street name holders may vote by telephone or over the Internet if their bank or broker makes those methods available, in which case the bank or broker will enclose the instructions with the proxy statement. The telephone and Internet voting procedures, including the use of control numbers, are designed to authenticate stockholders’ identities, to allow share owners to vote their shares and to confirm that their instructions have been properly recorded.

 

(c) By Written Proxy: All stockholders of record as of May 27, 2008 can also vote by written proxy card. Votes submitted via written proxy must be received by 5:00 p.m. Eastern Time on July 21, 2008.

 

(d) In Person: All stockholders of record as of May 27, 2008 may vote in person at the Annual Meeting. Street name holders may vote in person at the Annual Meeting only if they obtain a legal proxy from their bank or broker.

 

 

The record date for the 2008 Annual Meeting is May 27, 2008. The record date is established by the Board as required by Delaware law. Owners of record of Common Stock at the close of business on the record date are entitled to:

 

(a) receive notice of the Annual Meeting, and

 

(b) vote at the Annual Meeting and any adjournments or postponements of the meeting.

 

A stockholder can revoke a proxy prior to the completion of voting at the Annual Meeting by giving written notice to our Secretary, delivering a later-dated proxy (via the Internet, by telephone or by written proxy card), or voting in person at the Annual Meeting.

 

 

In the vote on the election of nine director nominees to serve until the 2009 Annual Meeting, stockholders may:

 

(a) vote in favor of all nominees,

 

(b) vote to withhold votes as to all nominees, or

 

(c) vote to withhold votes as to specific nominees.

 

The nominees receiving votes of a majority of the shares entitled to vote at the Annual Meeting in person or by proxy will be elected as directors. A vote to withhold votes as to a nominee will be treated as a vote against that nominee. Stockholders may not cumulate their votes in the election of directors.

 

The Board recommends a vote FOR each of the nominees.

 

 

In the vote on the ratification of the appointment by our Audit Committee of Ernst & Young LLP as independent registered public accountants for fiscal 2009, stockholders may:

 

(a) vote in favor of the ratification,

 

(b) vote against the ratification, or

 

(c) abstain from voting on the ratification.

 

The proposal to ratify the appointment by our Audit Committee of Ernst & Young LLP as independent registered public accountants for fiscal 2009 will require approval by votes of a majority of the shares entitled to vote at the Annual Meeting in person or by proxy.

 

The Board recommends a vote FOR the ratification of the appointment by our Audit Committee of Ernst & Young LLP as our independent registered public accountants for fiscal 2009.

 

 

Stockholders should specify their choice for each matter on the enclosed proxy. If no specific instructions are given, proxies which are signed and returned will be voted FOR the election of all director nominees, and FOR the proposal to ratify the appointment by our Audit Committee of Ernst & Young LLP.

 

 

Abstentions and broker non-votes are counted for purposes of determining the presence or absence of a quorum for the transaction of business. Abstentions and broker non-votes will have the same effect as a vote against the proposals.

 

 

The size of our Board is currently set at twelve directors. Directors George Raymond and Lew Gray, each of whom is 71 years old, pursuant to the Board’s Corporate Governance Guidelines will not be standing for re-election at the Annual Meeting. In addition, the Board has accepted the resignation of director Thomas Smach, effective as of the date of the Annual Meeting, and Mr. Smach will not be standing for re-election at the Annual Meeting. Therefore, the Board has recently adopted a resolution reducing the size of our Board to nine directors effective as of the Annual Meeting. The current Board members, other than Lew Gray, George Raymond and Thomas Smach, are the Board’s nominees for the upcoming election of directors. Based upon a review of their professional and personal affiliations, the Board has determined that eight of the director nominees are independent directors, as defined in the applicable rules for companies listed on the New York Stock Exchange (“NYSE”). The remaining director nominee is Robert E. Beauchamp, who is our President and Chief Executive Officer and therefore is not independent. Each director serves a one-year term, with all directors subject to annual election. Except for Gary Bloom and Louis J. Lavigne, Jr., each of the nominees listed below was elected by the stockholders at the last annual meeting. Mr. Bloom and Mr. Lavigne were appointed by the Board, effective October 1, 2007 and January 1, 2008, respectively, to fill newly created vacancies on the Board. No proxy may be voted for more persons than the number of nominees listed below. Shares represented by all duly executed proxies received by us and not marked to withhold authority to vote for any individual director or for all directors will be voted FOR the election of all the nominees named below. The nominees receiving votes of a majority of the shares entitled to vote at the meeting will be elected as directors. Stockholders may not cumulate their votes in the election of directors.

 

Recommendation of the Board

 

The Board recommends a vote “FOR” the election to the Board of each of the following nominees:

 

 

Mr. Cupp was employed by the American Express Corporation from 1978 to 1995 in various executive positions. His last position before retiring in 1995 was Executive Vice President — TRS Technologies and Chief Information Officer at the Travel Related Services subsidiary of American Express Corporation. Mr. Cupp is currently a private investor.

 

Mr. Beauchamp has served as our President and Chief Executive Officer since January 2001. He brings to these positions a thorough understanding of our business with experience in key areas, including business strategy, research and development, marketing and sales. Mr. Beauchamp joined us in May 1988, dedicating six years to the sales organization and progressing from senior account representative to sales manager. While in sales he gained a solid understanding of the business issues our customers face on a daily basis. He joined our marketing organization in 1994 as Vice President, Strategy Marketing & Development and subsequently assumed responsibility for our mergers and acquisitions efforts as Vice President, Business Strategy. Prior to his selection as President and Chief Executive Officer, he further developed his knowledge of our company and the software business as Senior Vice President of Research and Development. Mr. Beauchamp currently serves on the board of National Oilwell Varco, Inc., a public company, and is active in the Houston business community, serving on several civic boards.

Mr. Barfield has served since 1995 as the Chairman, President and Chief Executive Officer of The Bartech Group, Inc., one of the nation’s largest minority-owned talent acquisition and management services firms specializing in engineering and information technology staffing services, business process consulting, and outsourced vendor management services for regional and global corporations. From 1981 to 1995, Mr. Barfield served as President of The Bartech Group. He practiced corporate and securities law at Sidley Austin from 1977 to 1981. Mr. Barfield is a director of the following public companies: National City Corporation and CMS Energy Corporation.

 

Mr. Bloom is currently a consultant of TPG, a leading global private investment firm. Mr. Bloom brings more than 20 years of senior executive experience in software technology, most recently as Vice Chairman and President of Symantec, which he joined in 2005 through the company’s merger with VERITAS Software, where he was Chairman, President, and Chief Executive Officer of the company. Earlier in his career, Mr. Bloom spent 14 years at Oracle Corporation, rising to the rank of Executive Vice President. Mr. Bloom also serves on the board of Taleo, a public company.

 

Mr. Gafner is the Chief Executive Officer of the Farsight Group, a company that specializes in advanced communications equipment and consulting. Mr. Gafner served as Chairman of the Board of Kestrel Solutions from April 1997 to June 2001. He was President, Chief Executive Officer and Chairman of the Board of Comstream Corporation, a manufacturer of high-speed satellite earth stations for data distribution, from July 1988 to July 1997. He also serves as a director of several private companies.

 

Mr. Jenkins currently serves as Chairman of the Board of Open Text Corporation, a leader in providing enterprise content management. He served as Chief Executive Officer of Open Text from July 1997 to July 2005. From December 1994 to July 1997, Mr. Jenkins held progressive executive positions with Open Text.

 

Mr. Lavigne is currently a management consultant specializing in the areas of corporate finance, accounting and strategy. Mr. Lavigne retired in March 2005 as Executive Vice President and Chief Financial Officer of Genentech, Inc. He served as Genentech’s Chief Financial Officer from 1988 to 2005. Mr. Lavigne became the Controller in May 1983 and an officer of Genentech in February 1984. Mr. Lavigne also serves on the boards of Allergan, Inc., a public company, and a private medical technology company.

 

Ms. O’Neil is the President and Chief Executive Officer of Liberty Street Advisors, LLC, a company that she founded in 2001. Liberty Street Advisors, LLC advises public and private companies on corporate governance, risk management, strategy development, infrastructure needs, leadership alignment and execution of change initiatives. Prior to her work at Liberty Street Advisors, Ms. O’Neil was employed at IBM as General Manager of the company’s Global Financial Markets Infrastructure Group from January 2001 to September 2001. Prior to joining IBM, Ms. O’Neil served for 24 years at the Federal Reserve Bank of New York in a series of executive roles including Chief Operations Officer, Chief Financial Officer, Chief Administrative Officer and Chief Risk Officer. Earlier in her career she was the bank’s Chief Financial Examiner. She is also a member of the boards of directors of John Carroll University, Guidance Software and MetLife Bank, N.A.

 

Mr. Tinsley has been a Partner with General Atlantic Partners, a private equity investment firm, since February 2001 and served as a Special Advisor to the firm from September 1999 until becoming a partner. Mr. Tinsley joined Baan Company N.V., in November 1995 as President and Chief Operating Officer and served in that position until June 1999. Prior to joining Baan, he was a Director at McKinsey & Company, Inc., where he was employed for eighteen years. Mr. Tinsley is a director of Critical Path, a public company. He also serves as a director of several private technology companies.

 

Corporate governance is typically defined as the system that allocates duties and authority among a company’s stockholders, board of directors and management. The stockholders elect the Board and vote on extraordinary matters; the Board is the company’s governing body, responsible for hiring, overseeing and evaluating management, particularly the Chief Executive Officer (“CEO”); and management runs the company’s day-to-day operations. The nominees for election include eight independent directors, as defined by the rules of the NYSE, and our President

and Chief Executive Officer. The Board’s principal responsibility is to promote the best interests of our stockholders by providing guidance and oversight for the management of our business and affairs.

 

The Board has adopted Corporate Governance Guidelines, and the Board’s Corporate Governance and Nominating Committee is responsible for overseeing the guidelines and making recommendations to the Board concerning corporate governance matters. The guidelines can be viewed on our website at www.bmc.com/investors. Among other matters, the guidelines include the following:

 

 

The Board’s Corporate Governance Guidelines contain a guideline that generally, a director will not be nominated to a new term if he or she would be age 70 or older at the time of the election; provided, that such director has had the opportunity to serve at least five years as a director. In determining the list of nominees to stand for election at the Annual Meeting, the Board considered the guideline with respect to Messrs. Gray and Raymond, each of whom is 71 years old, and determined that Messrs. Gray and Raymond would not be nominated for re-election at the 2008 Annual Meeting.

 

The Board and its committees meet throughout the year on a set schedule and also hold special meetings and act by written consent from time to time as appropriate. Board agendas include regularly scheduled executive sessions for the independent directors (all of whom are non-employee directors) to meet without management present. The Chairman, who is an independent, non-employee director, presides over the executive sessions. The Board met in person five times in fiscal 2008 and held seven telephonic meetings. The independent directors met in executive session at the conclusion of each of the in-person meetings. Each Board member attended at least 75% of the total number of meetings of the Board and its committees; except that Mr. Lavigne attended 50% of the four meetings held after he joined the Board on January 1, 2008 due to pre-existing scheduling conflicts. Each director is encouraged to be present at annual meetings of stockholders. At the 2007 annual meeting of stockholders, seven of the ten directors were in attendance.

 

The Board currently has, and appoints the members of, standing Audit, Compensation, Corporate Governance and Nominating and Mergers & Acquisitions Committees. Each committee has a written charter approved by the Board. These charters are available on our website at www.bmc.com/investors. We will also furnish copies of any charter upon request. Requests for copies should be directed to Ms. Denise M. Clolery, Secretary, BMC Software, Inc., 2101 CityWest Blvd., Houston, Texas 77042.

The current members of the committees are identified in the following table.

 

 

As a non-independent director, Mr. Beauchamp does not serve on any of the Board committees.

 

Audit Committee.   The Audit Committee has been established to assist the Board in fulfilling its responsibility to oversee (i) the quality and integrity of our financial statements and the process that produces them, (ii) our compliance with legal and regulatory requirements, (iii) the quality and integrity of our risk management process, and (iv) the qualifications and independence of the independent registered public accountants. The Audit Committee also oversees the performance of our internal audit function. The Audit Committee has sole responsibility for the retention and termination of the independent registered public accountants. The Audit Committee operates pursuant to a charter, which can be viewed on our website at www.bmc.com/investors . The Board has determined that each of the members of the Audit Committee qualifies as an “audit committee financial expert” as defined by the regulations of the SEC, and each of the members meets the independence criteria for audit committee members as defined by the NYSE. No member of the Audit Committee serves on more than three public company audit committees. In fiscal 2008, the Audit Committee held eight meetings. Mr. Lavigne became Chair of the Audit Committee effective April 1, 2008. The report of the Audit Committee begins on page 46.

 

Compensation Committee.   The Compensation Committee’s primary function is to support the Board in fulfilling its oversight responsibilities relating to senior management performance, compensation and succession. In this regard, the Board and Compensation Committee align total compensation for the CEO and other senior executives with the long-term interests of stockholders. The Compensation Committee’s duties include: making recommendations to the Board with respect to all compensation plans covering executive officers, administering our equity plans, reviewing our employee benefits and reviewing our Compensation Discussion and Analysis disclosure. The Compensation Committee operates pursuant to a charter, which can be viewed on our website at www.bmc.com/investors. In fiscal 2008, the Compensation Committee held eleven meetings. The Compensation Discussion and Analysis section, which begins on page 21, contains information on the roles of the Compensation Committee, the Board, executive officers and outside consultants in determining or recommending executive compensation.

 

Corporate Governance and Nominating Committee.   The Corporate Governance and Nominating Committee (the “Governance Committee”) is appointed by the Board to ensure that the Board governance system performs well. The duties of the Governance Committee include annually reviewing and reassessing the adequacy of our corporate governance guidelines, managing the Board’s annual evaluation process, monitoring director independence and overseeing outside director compensation. In addition, the Governance Committee assesses the appropriate balance of skills, characteristics and perspectives required for an effective Board, identifies, screens and recommends qualified director candidates and periodically reassesses the adequacy of the Board’s size. The Governance Committee operates pursuant to a charter, which can be viewed on our website at www.bmc.com/investors. The Governance Committee identifies director candidates through a variety of means, including recommendations from other Board members and management. From time to time, the Governance Committee utilizes third party search consultants to identify director

candidates. The Governance Committee will consider all stockholder recommendations for candidates for the Board; any such recommendations should be sent to the Governance Committee, c/o Denise M. Clolery, Secretary, BMC Software, Inc., 2101 CityWest Blvd., Houston, TX 77042, and should include the recommended candidate’s name, biographical data and qualifications. The Governance Committee’s minimum qualifications and specific qualities and skills required for directors are set forth in Section 12 of our Corporate Governance Guidelines, which can be viewed on our website at www.bmc.com/investors . The Governance Committee screens all potential candidates in the same manner regardless of the source of the recommendation. The Governance Committee’s review is typically based on any written materials provided with respect to the potential candidate. The Governance Committee determines whether the candidate meets our minimum qualifications and specific qualities and skills for directors and whether requesting additional information or an interview is appropriate. In fiscal 2008, the Governance Committee held six meetings.

 

Mergers and Acquisitions Committee.   The Mergers and Acquisitions Committee (the “M&A Committee”) is appointed by the Board to review and assess, and assist the Board in reviewing and assessing, potential acquisitions, strategic investments and divestitures. The duties of the M&A Committee include providing guidance to management and the Board with respect to our acquisition, investment and divestiture strategies, assisting management and the Board with identifying acquisition, investment and divestiture opportunities, and overseeing management’s and the Board’s due diligence process with respect to proposed acquisitions, investments and divestitures. The M&A Committee operates pursuant to a charter, which can be viewed on our website at www.bmc.com/investors . In fiscal 2008, the M&A Committee held nine meetings.

 

Communications from Stockholders to the Board.   The Board is receptive to direct communication with stockholders and recommends that stockholders initiate any communications with the Board in writing and send them in care of the Secretary. Stockholders can send communications by e-mail to directors@bmc.com, by fax to (713) 918-1110 or by mail to Denise M. Clolery, Secretary, BMC Software, Inc., 2101 CityWest Blvd., Houston, Texas 77042. This centralized process will assist the Board in reviewing and responding to stockholder communications in an appropriate manner. The name of any specific intended Board recipient should be noted in the communication. Communications to the Board must include the number of shares owned by the stockholder as well as the stockholder’s name, address, telephone number and email address, if any. The Board has instructed the Secretary, prior to forwarding any correspondence, to review such correspondence and, pursuant to Board policy, not to forward certain items if they are deemed of a commercial or frivolous nature or otherwise inappropriate for the Board’s consideration. In such cases, some of that correspondence may be forwarded elsewhere within our company for review and possible response. A more detailed disclosure regarding our Board Communication Policy is available on our website at www.bmc.com/investors .

Certain Relationships and Related Person Transactions

 

The Board’s Governance Committee is responsible for review, approval, or ratification of “related-person transactions” between us or our subsidiaries and related persons. Under SEC rules, a related person is a director, executive officer, nominee for director, or 5% stockholder of the company since the beginning of the last fiscal year and their immediate family members. We have adopted written policies and procedures that apply to any transaction or series of transactions in which we or a subsidiary are a participant and a related person has a direct or indirect material interest. The Governance Committee will determine, in its discretion, whether to approve or disapprove of a related person transaction. In determining whether to approve or ratify a related person transaction, the Governance Committee will take into account, among other factors it deems appropriate, whether the related person transaction is on terms no less favorable than terms generally available to an unaffiliated third-party under the same or similar circumstances and the extent of the related person’s interest in the transaction. The Governance Committee has determined that, barring additional facts or circumstances, a related person does not have a direct or indirect material interest in the following categories of transactions:

 

 

In fiscal 2008, there were no related person transactions requiring review by the Governance Committee or disclosure.

 

The Board has adopted a Professional Conduct Policy and Code of Ethics for our company. The Board requires all directors, officers and employees to adhere to this policy and code of ethics in addressing the legal and ethical issues encountered in conducting their work. This includes our principal executive officer and principal financial and accounting officers. A copy of this policy and code of ethics can be viewed on our website at www.bmc.com. Among other matters, this policy and code of ethics is designed to deter wrongdoing and to promote:

 

Compensation of Directors

 

It is the general policy of the Board that compensation for directors who are not our employees (“non-employee directors”) should be a mix of cash and equity-based compensation. Any employee director, such as our CEO, is not paid for Board service in addition to his regular employee compensation. Non-employee directors may not receive consulting, advisory or other compensatory fees from us in addition to their Board compensation. With the assistance of outside compensation consultants, the directors and Corporate Governance and Nominating Committee of the Board periodically review our director compensation practices and compare them against the practices of a selected peer group of technology companies (the same peer group as we use for executive compensation benchmarking) as well as against the practices of public company boards generally. The Board believes that compensation for non-employee directors should be competitive and should fairly compensate directors for the time and skills devoted to serving our company but should not be so great as to compromise independence.

 

BMC compensates its directors for their commitment and service in three ways with the following philosophy:

 

 

During fiscal 2008, non-employee directors received an annual retainer of $35,000, and the independent Chairman of the Board received an annual retainer of $105,000. Each non-employee director also received a $3,000 meeting fee for each in-person Board meeting attended. There were five in-person meetings in fiscal 2008. Members of Board committees received annual retainers for their service on committees in fiscal 2008 as set forth in the following chart:

 

 

Each non-employee director is eligible to participate in our Deferred Compensation Plan for Outside Directors (the “director deferral plan”) which permits each participant to defer the receipt of cash compensation for services until a later distribution date. Until distribution, all deferred amounts are deemed invested in our Common Stock. Upon distribution, a participating director will receive a cash payment equal to the accrued balance in his or her deferred account, which will be based on the appreciation or depreciation of our stock price during the time between deferral and distribution.

 

Following the Annual Meeting and assuming that each director is elected to serve as a director for a one-year term at the Annual Meeting, each non-employee director will be granted a stock option to purchase 30,000 shares of Common Stock and the Chairman of the Board will be granted a stock option to purchase 50,000 shares of Common Stock. The exercise price of these options will be the fair market value, which is calculated as the average of the high and low price of the Common Stock on the date of grant (the date of the Annual Meeting), and each option will have a six-year term and will become fully exercisable on the one-year anniversary of the grant date; provided, that in the event the 2009 annual meeting of stockholders is held prior to the one-year anniversary of the grant date and a director who has served continuously since the grant date to the date of such meeting is not re-elected, such director’s option will become fully exercisable on the date of such meeting. Prior to fiscal 2009, the term of these stock option grants was ten years. Upon ceasing to be a member of the Board, each director will be entitled to continue to hold and exercise these stock options until the earlier of three years or the expiration of the six-year option term. Upon joining the Board, a new director appointed to fill a vacancy or elected by the Board will be granted a stock option to purchase the pro rata portion of 30,000 shares of Common Stock based upon the time period to be served prior to the next annual meeting of stockholders at which time the new director would stand for election by our stockholders. In 2002, the Board adopted a requirement that each non-employee director own 5,000 shares of Common Stock by the later of: (i) the fifth anniversary after adoption of this requirement or (ii) a director’s fifth anniversary of joining the Board. For information on the number of shares of Common Stock owned by the members of the Board as of May 27, 2008 see “Security Ownership of Management” on page 20.

Fiscal 2008 Director Compensation Table

 

The following table sets forth the compensation details for each person who served as a non-employee director during fiscal 2008.

 

 

 

 

The following table sets forth the number of stock options held by each non-employee director as of March 31, 2008:

 

The following table sets forth the assumptions used in our calculation of fiscal 2008 option expense and included in the Fiscal 2008 Director Compensation Table above:

 

PROPOSAL TWO: RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS

 

The Audit Committee of the Board has appointed Ernst & Young LLP (“Ernst & Young”) as our independent registered public accountants to audit our consolidated financial statements for fiscal 2009. Ernst & Young has served as our independent registered public accountants since March 19, 2002. As a matter of good corporate governance, the Audit Committee and Board have determined to submit Ernst & Young’s selection to stockholders for ratification. In the event that this selection is not ratified by a majority of the shares of Common Stock entitled to vote at the Annual Meeting, the Audit Committee will review its future selection of independent registered public accountants.

 

The charter of the Audit Committee provides that the committee is responsible for the pre-approval of all audit and permitted non-audit services to be performed by the independent registered public accountants, subject to the requirements of applicable law and the rules and regulations of the SEC and the Public Company Accounting Oversight Board. In accordance with its charter, the Audit Committee has delegated the authority to grant such pre-approvals to the committee chair, which approvals are then reviewed by the full committee at its next regular meeting. Typically, however, the Audit Committee itself reviews the matters to be approved. The procedures for pre-approving all audit and non-audit services provided by the independent registered public accountants include the Audit Committee reviewing a budget for audit services, audit-related services, tax services and other services. The budget includes a description of, and a budgeted amount for, particular categories of audit and non-audit services that are anticipated at the time the budget is submitted. Audit Committee approval is required to exceed the budgeted amount for a particular category of non-audit services or to engage the independent registered public accountants for any services not included in the initial pre-approval. The Audit Committee periodically monitors the services rendered by and actual fees paid to the independent registered public accountants to ensure that such services are within the parameters approved by the Audit Committee. In its review and pre-approval of non-audit

services, the Audit Committee considers among other factors, the possible effect of the performance of such services on Ernst & Young’s independence.

 

To avoid potential conflicts of interest and to maintain auditor independence, SEC rules and regulations prohibit a publicly traded company from obtaining certain non-audit services from its independent registered public accountants. The Audit Committee does not pre-approve, and we do not obtain, any of those prohibited services from Ernst & Young. The Audit Committee does not delegate to management its responsibilities to pre-approve services performed by the independent registered public accountants.

 

Representatives of Ernst & Young are expected to attend the Annual Meeting and be available to respond to questions and, if they desire, to make a statement.

 

Fees Paid to Ernst & Young

 

The following table shows the fees for audit, audit-related, tax and other services provided by Ernst & Young for fiscal years 2008 and 2007, all of which were approved by the Audit Committee:

 

 

Audit Fees.   Fees for audit services include fees associated with the annual audit and quarterly reviews of our consolidated financial statements, including the audit of the effectiveness of internal control over financial reporting, statutory audits required internationally, consents related to documents filed with the SEC, work performed by tax professionals in connection with the audit and quarterly reviews, and accounting and financial reporting consultations and research necessary to comply with generally accepted auditing standards.

 

Audit-Related Fees.   Audit-related fees refer to fees for assurance and related services that are reasonably related to the performance of the audit or review of our financial statements and are not otherwise reported as audit fees. We did not incur any audit-related fees with Ernst & Young during fiscal 2007 or 2008.

 

Tax Fees.   Fees for tax service include tax compliance and tax advice including, but not limited to, international tax compliance and advice, federal and state tax advice, mergers and acquisitions tax advice and assistance with the preparation of foreign tax returns, exclusive of tax services rendered in connection with the audit and quarterly reviews.

 

Recommendation of the Board

 

The Board recommends a vote “FOR” the ratification of the appointment by our Audit Committee of Ernst & Young as our independent registered public accountants for fiscal 2009.

EXECUTIVE OFFICERS

 

Certain information concerning our executive officers as of the date of this proxy statement is set forth below, except that information concerning Mr. Beauchamp is set forth above under “Proposal One: Election of Directors.”

 

 

Mr. Barnea was appointed Senior Vice President, Global Sourcing Practices in February 2008. Mr. Barnea served as Senior Vice President, Strategy and Corporate Development from May 2006 to January 2008. Mr. Barnea joined BMC Software in April 1999 when BMC Software acquired New Dimension Software, Ltd. and served as Senior Vice President, Operations from January 2001 until January 2002 and as Senior Vice President of Research & Development from January 2002 until May 2006. From June 1995 until the acquisition by BMC Software, he served as Chief Executive Officer of New Dimension Software, Ltd.

 

Mr. Chung was appointed Senior Vice President, Business Operations in September 2006. Mr. Chung was a private investor from January 2006 to September 2006. Prior to joining us, Mr. Chung served in various senior management positions, most recently as Senior Executive Vice President with MBNA America and Bank of America from September 1999 to January 2006.

 

Ms. Clolery was appointed Senior Vice President, General Counsel and Secretary in November 2005. Prior to joining us, Ms. Clolery served as a partner in the law firm of Sonnenschein, Nath and Rosenthal, LLP from May 2005 to November 2005 where she practiced in their Intellectual Property & Technology and Corporate & Securities practice groups. From December 2000 to November 2003, Ms. Clolery served as Senior Vice President, General Counsel and Corporate Secretary of Radianz, a leading global network services provider to the financial industry. Prior to joining Radianz, Ms. Clolery was a partner in the international law firm of O’Melveny and Myers LLP.

 

Mr. Grant was appointed Senior Vice President, General Manager, Enterprise Service Management (ESM) in February 2007. Mr. Grant served as Vice President, General Manager, ESM from April 2006 to February 2007. Mr. Grant joined us in March 2003 as the General Manager of our Remedy business unit. In July 2004, he was appointed General Manager of our Service Management business unit. Prior to joining us, Mr. Grant served from July 2002 to March 2003 as Vice President and General Manager of Hewlett Packard’s OpenView software business and served as General Manager for Operations and Marketing (OpenView) from April 2000 to July 2002.

 

Mr. Ittycheria was appointed Senior Vice President, Strategy and Corporate Development in April 2008 when BMC Software acquired BladeLogic, Inc. (BladeLogic). In this position, Mr. Ittycheria is responsible for BMC’s corporate strategy, mergers and acquisitions, corporate marketing and strategic alliances. Mr. Ittycheria held the post of President and CEO and served on the Board of Directors of BladeLogic from August 2001 to April 2008. Prior to founding BladeLogic, Mr. Ittycheria held several management positions in technology companies, including Senior Vice President and General Manager of the ASP division of Breakaway Solution, Co-founder,

President and CEO of Applica, one of the first venture-backed ASPs which was acquired by Breakaway, and various senior positions in the data communications business of AT&T and Teleport Communications Group.

 

Mr. McMahon was appointed Senior Vice President of Worldwide Sales and Services in May 2008. Mr. McMahon joined us with our acquisition of BladeLogic in April 2008, initially serving as Vice President of Sales. Mr. McMahon served as Executive Vice President and Chief Operating Officer of BladeLogic from October 2007 until BMC acquired BladeLogic. He was the Senior Vice President of Worldwide Sales and Customer Services of BladeLogic from August 2005 to October 2007. From 1989 to 1998, Mr. McMahon was employed at Parametric Technology Corporation, where he last served as Executive Vice President of Worldwide Sales. From 1998 to 2000, Mr. McMahon served as Executive Vice President of Worldwide Sales at GeoTel Communications Corporation. Mr. McMahon also served as Executive Vice President of Worldwide Sales of Ariba, Inc. from 2000 to 2001 and President and Chief Operating Officer of HighRoads Inc., formerly known as IE-Engine, Inc. from 2002 to 2004. Mr. McMahon currently serves as a member of the board of directors of SelectMinds, Inc.

 

Mr. Miller was appointed Senior Vice President, General Manager, Mainframe Service Management (MSM) in February 2007. Mr. Miller served as Vice President, General Manager, MSM from April 2006 to February 2007. Mr. Miller joined us in July 2002 and served in various senior management positions in our mainframe business unit, including General Manager from April 2004 to April 2006. Mr. Miller joined Bindview Development as Senior Vice President of Sales and Services in July 2000 and was promoted to Chief Operating Officer in October 2001 before joining us. Mr. Miller left IBM in 2000 after working with IBM for 21 years in various technical and sales positions and was Vice President, EMEA, Industrial Sector for his last assignment at IBM.

 

Mr. Solcher has served as our Senior Vice President and Chief Financial Officer since December 2005. From August 2005 to December 2005, Mr. Solcher served as our interim Chief Financial Officer. Prior to this appointment, Mr. Solcher had served as our Vice President of Finance and Treasurer for more than five years. Mr. Solcher joined us in 1991 as Assistant Treasurer.

 

Mr. Vescuso was appointed Senior Vice President of Administration in January 2006. From February 2004 through January 2006, Mr. Vescuso was Vice President of Human Resources of Brocade Communications Systems, Inc. Prior to joining Brocade, Mr. Vescuso was Senior Vice President, Human Resources of Portal Software from August 2001 through September 2003. Prior to August 2001, Mr. Vescuso was the Vice President, Human Resources at Dell Computer.

 

Mr. Bleuer joined us in August 2006 as Vice President, Controller and Chief Accounting Officer. Prior to joining us, Mr. Bleuer was the Vice President and Controller of EMC Corporation’s Captiva Software group from December 2005 to July 2006 and was Vice President and Corporate Controller of Captiva Software Corporation from February 2005 to December 2005. Prior to joining Captiva Software Corporation, Mr. Bleuer was with Fair Isaac Corporation serving as the Corporate Controller from August 2004 to February 2005 and as Director, Corporate Finance and Accounting from August 2002 to August 2004. From June 2000 to August 2002, Mr. Bleuer served as Corporate Controller of HNC Software Inc.

SECURITY OWNERSHIP OF CERTAIN BENEFICAL OWNERS

 

The following table sets forth, as of May 27, 2008, information with respect to persons or groups owning beneficially (to our knowledge) more than five percent of our Common Stock.

 

 

 

 

The following table sets forth the number of shares of Common Stock beneficially owned, as of May 27, 2008, by each current director, by each Named Executive Officer listed in the summary compensation table on page 36, and by all directors and executive officers as a group. Unless otherwise indicated, all persons listed below have sole voting and investment power over all shares beneficially owned.

 

 

 

 

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our directors and executive officers, among others, to file with the SEC and the NYSE an initial report of ownership of our Common Stock on a Form 3 and reports of changes in ownership on a Form 4 or a Form 5. Persons subject to Section 16 are required by SEC regulations to furnish us with copies of all Section 16(a) forms that they file related to transactions in our Common Stock. Under SEC rules, certain forms of indirect ownership and ownership of our Common Stock by certain family members are covered by these reporting requirements. As a matter of practice, our administrative staff assists our directors and executive officers in preparing initial ownership reports and reporting ownership changes and typically files these reports on their behalf.

 

Based on a review of the copies of such forms in our possession, and on written representations from reporting persons, we believe that during fiscal 2008, all of our executive officers and directors filed the required reports on a timely basis under Section 16(a), except that one late Form 4 report was filed by Stephen B. Solcher on April 14, 2008 to report the withholding by the Company of shares to pay for taxes upon the vesting of a restricted stock award.

 

Introduction

 

Our compensation programs are designed to drive business performance by attracting, retaining and rewarding those who provide leadership and deliver results. This section of the proxy statement explains how our compensation programs are designed and operate in practice with respect to our executives and specifically our Named Executive Officers as defined by the SEC:

 

 

Effective May 23, 2008, Mr. Santullo no longer serves as an executive officer, and his employment with us was terminated effective June 2, 2008.

 

We will explain the philosophy and mechanics of the programs as well as how they work together to motivate and reward performance. The “Executive Compensation” section presents compensation earned by the Named Executive Officers in fiscal 2008.

 

Compensation Philosophy and Objectives

 

The Compensation Committee, Board and management believe that compensation should attract, retain and reward the performance of employees, including executives, who are critical for current and future company success. Our compensation programs:

 

 

Deliver a total compensation package with multiple reward vehicles

 

We have designed multiple pay and reward vehicles that work together to achieve overall objectives. Together, these vehicles deliver a competitive package that focuses on rewarding performance and retaining talent. We consider the nature of the role and set overall compensation levels and the use of each component to reflect the market complexity and required capability of the role. Therefore, the job of the CEO, the most complex and diverse, is compensated at a considerably higher level. However, the tools we use are the same for all executives. Each element and its specific purpose are described in the “Compensation Elements” section. Though the strongest incentive in our total compensation program for executives is performance, we also intend to ensure that our top performing, talented executive team remains with us over the longer term. Continuity in leadership is a critical factor for our success. Therefore, the Compensation Committee considers retention when determining the amounts of awards and which vehicles to utilize. From time to time, we will make pay-related decisions to ensure retention. Time-based restricted stock is one vehicle that is primarily used for retention.

 

Compete in the market for top talent

 

We use a benchmarking approach, described later, to set and evaluate the competitiveness of each program element and the overall compensation package. The table under “Compensation Elements” outlines the strategy of each element of the program and its connection to our compensation philosophy. Target levels of pay programs are set to compete at the median of the market for base and above the market median for performance-related elements.

 

Pay for company and individual performance; delivering top market pay only for top performance

 

Our executive compensation programs are designed so that the majority of targeted pay is performance-based. Twenty percent or less of any executive officer’s target pay is delivered as base pay. Only one-third of total target pay is delivered in base pay and time-based restricted shares, where the outcome of those pay elements is not based on performance. Even in those cases, the award levels are determined based upon individual role and performance. The remaining two-thirds of an executive’s target pay is tied directly to performance, primarily to achievement of financial goals and performance objectives, not just to individual performance. The emphasis on overall performance is designed to focus our executive officers, working as a team, on a common purpose and shared performance standards aligned with stockholder interests.

 

Individual compensation targets and performance objectives are established based on our philosophy that our compensation programs should work as an integrated package to deliver above market pay only for excellent performance. For our performance-based elements, we target paying above market for above market performance. Actual performance against these aggressive performance targets will drive payouts above or below target.

 

Align total compensation programs to support business objectives

 

Our success depends upon the executives being focused on the critical strategic and tactical objectives that lead to company success. This in turn ensures the alignment of compensation programs to the interests of stockholders. Therefore, measures have been developed to align executive compensation with our business objectives. This philosophy cascades throughout our compensation programs for all employees. As previously discussed, performance-based compensation represents two-thirds or more of target compensation for executives. The design of the programs, the selected measures, the performance targets and the timing of awards and payouts are all geared to drive business performance and stockholder return.

Reward short-term and long-term performance

 

The following table illustrates how performance-based compensation elements, each of which is described in greater detail in the next section, link executive compensation to company performance and stockholder return over both short-term and long-term time horizons. It also describes how performance ranges affect payout ranges.

 

 

We typically use non-GAAP EPS as a performance measure for compensation purposes. Non-GAAP EPS excludes severance, exit costs and related charges, amortization of intangible assets, share-based compensation expenses and in-process research and development charges. Non-GAAP EPS is not a financial measure prepared in accordance with generally accepted accounting principles (“GAAP”) and should not be considered as a substitute for performance measures prepared in accordance with GAAP.

 

Align executive goals and rewards with employees and stockholders

 

The role our executives play in leading the execution of our business strategy is critical to delivering stockholder return. To be successful, all employees need to understand and deliver results. We establish goals that are aligned to stockholder interests based on delivery of the business strategy and key financial measures and implement compensation programs such that key employees, including executives, are rewarded for success against those goals.

Compensation Elements

 

The Compensation Committee, with the assistance of management and outside consultants, designs, administers and assesses the effectiveness of all compensation vehicles against the market and our philosophy statements. The table below describes each element and its link to our compensation philosophy.

 

 

The following charts illustrate the percentage of total target compensation for our CEO and our other executive officers, on average, respectively, represented by each major element described in the above table. These percentages represent the target levels for each element approved for fiscal 2008.

 

Base Salary

 

Our goal is to set base salaries for all executive officers at levels that are competitive at the market median (or the 50th percentile) with similar positions of industry peers and across industries where appropriate. While we conduct surveys annually, we usually adjust salaries for those at a senior level either when our surveys show a significant deviation versus the market median or to recognize outstanding individual performance. This is consistent with our philosophy that compensation above competitive levels should come primarily from the variable portion of the compensation package when we are achieving our performance goals.

 

Short-term Incentives

 

For fiscal 2008, the short-term incentive compensation plan had three components:

 

 

The business unit goals are specific to revenue and margin for the respective unit for which each executive is responsible. In the case of top level and “staff” executives such as our CEO and CFO, who are not assigned to a particular business unit, the business unit goal is a blend of all the business units. The targets have all been set and approved by both the Compensation Committee and the Board. Our internal plan performance targets have been set to over-achieve external expectations, and we consider them to be stretch objectives which will not be easily reached. Actual bonus payments may be less than or greater than target amounts depending on whether and to what extent the goals are achieved. The Compensation Committee reserves the right to reduce a payout for any individual based on the Compensation Committee’s view of such individual’s performance and/or our performance during a performance period. The Compensation Committee did not exercise its discretionary authority to reduce any STIP payouts for fiscal 2008. The following charts set forth, for each Named Executive Officer, the fiscal 2008 STIP goals applicable to such officer, the actual targets, the actual performance against such target and the resulting attainment percentages and payout percentages.

 

 

 

Note: actual calculations for most business unit targets are completed on a quarterly basis. Because of variations in our financial plan from quarter to quarter, the quarterly targets and resulting attainments are not equally weighted quarter-to-quarter. All totals do not foot due to rounding.

 

N/M — not measured as a target. For this component, each eligible executive is compensated based on a calculated weighted average of the attainment of the operating business units against their established targets.

 

 

Discretionary cash awards

 

In order to drive and award specific short-term initiatives, the Board authorizes the CEO to use a discretionary cash pool each year. The pool can be used for direct reports or others. Generally, projects or special initiatives are the focus of these special awards. Though not required, by practice, the CEO determines in advance what specific targets or actions will result in an award. The amounts shown in the Bonus Columns on the Summary Compensation table reflect such discretionary awards.

 

Long-term Incentives

 

During 2008, our long-term incentive compensation plan consisted of:

 

 

We utilized these programs to align executives with stockholder interests and to ensure longer term performance and retention. All equity vehicles require the employees to earn the rewards through demonstrated company performance and continued employment with us and provide increased rewards through demonstrated company performance, thus aligning these tools directly with business objectives and our desire to retain top talent.

 

We believe that awards of stock options are in the best interest of our stockholders and that they are highly motivational to deliver healthy, sustained business results. We typically make annual stock option grants to our executive officers; however, the Compensation Committee, with the approval of the Board, can make interim awards when circumstances or events warrant. Grants have an exercise price equal to the fair market value of a share of Common Stock on the grant date. Grants made in fiscal 2008 have a six-year term with vesting occurring monthly over four years, assuming continued employment. These vesting terms were also used for awards for other employees granted stock options in fiscal 2008. Target grant guidelines are developed based on our market compensation benchmarking as described in “Benchmarking and Peer Company Comparisons” below. Actual grants awarded to individuals are determined based on the Compensation Committee’s subjective view of each recipient’s individual performance, role, retention considerations and other special circumstances.

 

We introduced performance-based restricted shares for executives in fiscal 2007. The use of performance-based restricted shares aligns executives with long-term performance goals. The awards made in fiscal 2007 utilize two and three year non-GAAP EPS goals for vesting to motivate executives to achieve sustained performance, thereby driving stockholder return. At the beginning of the fiscal years 2007, 2008 and 2009, awards have been made with the following connection to three-year performance.

 

At the beginning of fiscal 2007, the Board established long-term non-GAAP EPS targets for fiscal 2008 and 2009. The performance-based shares were scheduled to vest according to our actual performance (against these pre-established goals), 50% in fiscal 2008 and 50% in 2009, with accelerated vesting permitted upon the earlier achievement of the fiscal 2009 target. A performance threshold was established for any shares to vest in each year. Our fiscal 2008 performance over-achieved against the original fiscal 2009 goal of $1.80 per share. Since we achieved the full fiscal 2009 goal in 2008, 100% of the full award vested following the certification of the results by the Compensation Committee. Therefore, full vesting was achieved.

 

Additional performance-based restricted shares were awarded in fiscal 2008. The awards are again based on two and three year performance targets for non-GAAP EPS with vesting cycles at the end of fiscal 2009 and fiscal 2010. The awards have a similar structure to those described above without the potential acceleration of 2010 vesting. We determined that there was a greater need to have the retention power over the full three years than to motivate the acceleration of financial performance. Therefore, 50% of the grant will potentially vest according to non-GAAP EPS performance after the certification of results for fiscal years 2009 and 2010.

In fiscal 2009, performance-based restricted shares were awarded with vesting dependent upon achieving a non-GAAP EPS target. With this award, 100% of the shares will vest only if the non-GAAP EPS target is achieved in fiscal 2011.

 

Vesting of
Performance Based Restricted Stock

 

 

In fiscal 2008, we utilized time-based restricted shares for the express purpose of retaining our executives over a longer period of time. These shares have a three-year vesting cycle with 50% of the shares vesting with the executives’ continued employment for 24 months after the grant and 50% vesting after 36 months. In keeping with our philosophy that we use multiple remuneration tools as a whole package, we determined that retention was an objective that had not been sufficiently met without the use of time-based restricted shares. While the vesting is based on time, our executives recognize that there is even greater earning potential if they continue to advance company performance and therefore stock performance.

 

The LTIP is designed to:

 

 

At the beginning of each fiscal year, in its review of total compensation programs, the Compensation Committee considers whether to make an award to each executive, the level of target award and the peer companies to be measured against over a three-year period. The actual LTIP cash award amount for each participant is dependent on our TSR relative to the peer companies over the course of the three-year performance period. If our TSR does not rank at or above the 50th percentile, no payout will occur. If TSR is at the 70th percentile of the peer group, then the resulting award will be paid at 100% of target. If TSR is equal to or greater than the 80th percentile of the peer group, the resulting award will be paid at 150% of target, the maximum amount allowed by the plan. For the first period in which an individual participates (new hires or newly promoted executives), the Compensation Committee establishes two performance periods and divides the total targeted cash amount for such participant into two equal amounts. The first performance period is eighteen months, and the second performance period is three years. Total stockholder return (TSR) is calculated as follows: the adjusted closing price (adjusting for any stock splits or dividends) for each peer company on the last day of the performance period minus the adjusted closing price for each peer company from the first day of the performance period, divided by the adjusted closing price for each peer company from the first day of the performance period. Our TSR over the same period is calculated as above and placed in the peer group in order of TSR performance to determine percentile ranking.

 

Generally, if a participant is no longer employed by us due to disability or death, then targeted cash amounts are prorated. In the event of a change-in-control, targeted cash amounts are prorated based on relative TSR as if the performance period ends on the date of the change-in-control. In the event of terminations other than change-in-control terminations, death or disability, awards are forfeited.

At the conclusion of fiscal 2008, Messrs. Beauchamp, Barnea and Santullo received payouts for LTIP awards that measured our TSR during the three year period April 1, 2005 through March 31, 2008. Messrs. Solcher and Grant received a payout for an LTIP award that measured our TSR during the 18-month period April 1, 2006 through September 30, 2007. These awards are included in the Summary Compensation Table. Each of these awards were paid at 150% of target since BMC’s stock price performance ranked at or above the 80th percentile of the group. The peer group established for the initial LTIP targets included: BEA Systems, Inc., Compuware Corporation, McAfee, Inc., Oracle Corporation, Adobe, Computer Associates, Symantec, Novell, Sybase and Quest Software, Inc. At the beginning of the three-year performance period, Siebel, NetIQ, Mercury Interactive, PeopleSoft and Veritas were included in the peer group. However, each of these companies was acquired during the performance period and was excluded by the terms of the LTIP at the ending measurement date. At the beginning of fiscal 2009 the peer group was expanded to include SAP and Microsoft for new awards. See “Benchmarking and Peer Company Comparisons.”

 

Also in fiscal 2008, awards were granted as outlined in the Grants of Plan-Based Awards in Fiscal 2008 table.

 

For fiscal 2009 we will continue utilizing these four key long-term compensation vehicles — stock options, performance-based restricted shares, time-based restricted shares and the LTIP.

 

Benefits and Perquisites

 

Our executive officers participate in the same benefits programs as all other employees with no differentiation or supplementation except as noted below. We offer health, insurance and retirement benefit coverage to employees around the world according to competitive conditions, local norms and legal requirements. Common benefit programs include:

 

 

The provision of certain benefits may be limited or curtailed by statute or design, allowing only limited levels of protection to executives. To provide the same opportunity to replace income in the event of death or disability, executives may participate in supplemental programs. We provide supplemental disability coverage at our expense for highly compensated employees including executives. This program covers the replacement of variable income such as short-term bonuses in the event of disability.

 

We also provide an employee stock purchase program; however, our executive officers are ineligible to participate.

 

Generally, we have adopted a policy of providing limited personal benefits or perquisites to executives not made available to all employees. Some expenses deemed by the SEC or IRS as “perquisites” are part of our ordinary course of business. Therefore, we provide support to executives for certain expenses that are reported under “other compensation” in the summary compensation table later in this report. These may include: relocation expenses, travel to business related activities including spouses or family members and attendance at business or charity functions representing us.

 

Upon the recommendation of the Compensation Committee, the Board instructed management to develop and implement a perquisites policy which eliminated most perquisites to executive officers of a personal nature, including elimination of reimbursement for tax and financial planning, commuting expenses and company cars. However, the Compensation Committee and Board recognize that there are certain business expenses which may

result in imputed income to the executive officer and/or perquisite disclosure and have determined that continuation of such activities is in our best interest. This policy was created, approved and implemented in fiscal 2008.

 

Deferred Compensation Plan.   We have a non-qualified, deferred compensation plan for a select group of management or highly compensated employees. The Named Executive Officers are eligible to participate. Company contributions are permitted under the plan; however, this is not our typical practice and we have not contributed for any of the Named Executive Officers. Participants may elect to defer up to 50% of their base salary and 100% of their applicable bonuses which is irrevocable for each plan year as of the beginning of each plan year. Participant contributions are directed into a “rabbi trust” (a special form of grantor trust) for the purpose of administering and paying the deferred compensation under this plan. Contributions in the rabbi trust are invested by the Trustee in line with direction provided by participants for long-term return in their hypothetical accounts. The existence of the rabbi trust implies no vested ownership interest of the participant in trust assets but is a vehicle through which we may match the liabilities under the plan resulting from hypothetical accounts with an offsetting asset. The investment choices offered participants in their hypothetical accounts mirror those offered in our 401(k) plan, with the exception of our Common Stock and the self-directed brokerage option, each of which is offered only in our 401(k) plan. Participants’ account values are adjusted up and down in line with investment returns of the selected investment options for their hypothetical accounts. The aggregate “at market” earnings on these investments by each Named Executive Officer who is a participant in the plan, are included in the table titled “Fiscal 2008 Nonqualified Deferred Compensation” on page 42. Participants may change the designation of the investments in their hypothetical accounts in accordance with investments and procedures established by the Employee Benefits Committee. Before any compensation deferral, participants choose when the funds will be distributable. Generally, the aggregate balances of the participants are distributable upon the following events: a specified date or age designated by the participant, the participant’s separation from service, the participant’s unforeseeable emergency, or the participant’s death or disability. The plan provides for distributions to be made in either a lump sum amount or installments payable over 5, 10 or 15 years.

 

Determining Executive Compensation (Roles and Process)

 

Utilizing the philosophy outlined above, the independent members of the Board, upon the recommendation of the Compensation Committee, determines the parameters of the executive compensation program, including appropriate target levels and performance measures. The Compensation Committee then administers the specific executive compensation programs. This section discusses, in greater detail, the roles and process underlying the application of our executive compensation philosophy.

 

Role of the Compensation Committee

 

The Compensation Committee, which is currently composed of four non-employee independent directors, is charged by the Board with the responsibility for overseeing and making recommendations to the independent members of the Board on executive compensation. The Compensation Committee’s duties include: making recommendations to the independent members of the Board with respect to all compensation plans covering executive officers, administering our equity plans, reviewing our employee benefits programs and reviewing our Compensation Discussion and Analysis disclosure. The committee met eleven times during fiscal 2008. The Compensation Committee annually reviews and evaluates company performance against performance metrics set by the Board and makes recommendations to the independent members of the Board with respect to all compensation plans covering executive officers. This includes:

 

a) The annual base salary level;

 

b) The short-term incentive opportunity level along with specific performance measures;

 

c) The long-term incentive opportunity level and the connection to performance measures;

 

d) Employment agreements, severance arrangements, and change-in-control agreements/provisions;

 

e) Any special or supplemental benefits or perquisites; and

 

f) Vesting terms and appropriate stock vehicles.

The Compensation Committee consults with independent advisors to ensure the appropriate information is provided for proper decision-making. A more expansive list of the Compensation Committee’s responsibilities can be found in its charter which can be viewed on our website at www.bmc.com/investors .

 

Role of External Advisors

 

We have developed relationships with several external advisors to validate our compensation philosophy and program design as well as review compensation levels. Our advisors provide research in best practices and advice on the appropriate strategic use of reward vehicles and evaluate the peer company list. In fiscal 2008, the Compensation Committee engaged PricewaterhouseCoopers (“PwC”) to serve as its independent compensation consultants. While PwC, as a firm, provides tax consulting, international tax compliance, global expatriate tax assistance and acquisition due diligence services for us, we reviewed the fees associated with such other services and our Compensation Committee determined that such other fees do not impair PwC’s ability to act as independent compensation consultants to the Compensation Committee. Members of PwC perform research and provide benchmarking data and executive compensation consultations for the Compensation Committee. Specifically, our Compensation Committee engaged PwC to provide compensation benchmarking for our executive officers, to review the overall effectiveness of our compensation programs and to keep the Compensation Committee apprised of trends in executive compensation. From time to time, the Chairman of our Compensation Committee meets with PwC on behalf of the Compensation Committee and assigns PwC additional tasks. In addition, members of PwC interact with our executive compensation staff who are members of our Human Resources department to obtain data from us, assist us with implementing the philosophy and direction of the Compensation Committee and to assist us with compliance and other design elements of our compensation program.

 

Role of Management

 

The CEO makes recommendations for each of his direct reports regarding any pay related decisions. The CEO’s recommendations are based on benchmarking data, his assessment of their capability and job complexity and an overall assessment of performance. The recommendations are a balance of rewarding performance and creating a package that retains key executives over longer time periods. He is also responsible for approving underlying programs that seek to align and deliver performance-related pay for all remaining employees below the executive level. The Board and Compensation Committee have also authorized the CEO, with the concurrence of the Chairman of the Compensation Committee, to award discretionary cash bonuses to executive officers, subject to an aggregate limit. For fiscal 2008, this limit was $500,000. The CEO, as a member of a three-person committee consisting of himself, the Chairman of the Compensation Committee and our Senior Vice President of Administration, is also authorized to award an aggregate pool of stock for the purpose of new hires and ad-hoc retention/performance awards to employees that are not his direct reports. The pool for fiscal 2008 was 500,000 shares. The CEO attends portions of Compensation Committee meetings from time to time. The Compensation Committee solicits his input on compensation philosophy, retention, motivation and goal-setting. From time to time, the Compensation Committee meets in executive session with the CEO to discuss executive compensation issues.

 

The Chief Financial Officer participates with the CEO and Board in establishing the business targets. The Board ultimately approves the measures and targets which are tied to the strategic and financial plans. In determining this, they take into account recommendations and planning related information from the CFO. These business measures are the foundation for pay elements’ connection to performance.

 

The Compensation and Benefits group, under the direction of our Senior Vice President of Administration, works as the key resource to the Compensation Committee, the CEO and management for implementing the philosophy and administering programs. The Compensation and Benefits group provides data compiled from published executive compensation surveys, as well as data gathered from proxy statements and annual reports. In delivering programs, the Compensation and Benefits group relies on external advice along with professional expertise. The Compensation and Benefits group is also responsible for administering the programs under the direction of the Compensation Committee.

Process for Implementing the Philosophy

 

In the first quarter of each fiscal year, the Compensation Committee reviews, approves and recommends to the independent members of the Board:

 

1. The total pay package for the CEO, including base salary, short-term incentives and long-term cash and equity based awards.

 

2. The CEO’s recommendations for changes in any compensation programs for the Named Executive Officers and any other executive officers.

 

3. The performance targets and relationship to payouts of short-term incentives and performance-based restricted shares.

 

Following the end of the fiscal year and at predetermined performance periods, the Compensation Committee certifies performance in its administrative capacity under each of the plans and approves the corresponding payouts. It will also review, approve and recommend to the Board any adjustments to performance measures that result from extraordinary business situations such as material acquisitions.

 

Each of our equity award plans is administered by the Compensation Committee and requires that stock options be granted at no less than fair market value. Absent an express delegation to another person or group, the Compensation Committee is the body which approves the granting of awards under our equity award plans. Prior to the Compensation Committee granting equity to executive officers, the independent members of the Board pre-approve all equity awards for our executive officers. Except in the case of newly hired executives, we generally do not grant stock options to executive officers during a “black-out” period under our Securities Trading Policy. The grant date is either the date the Compensation Committee makes an award or a subsequent date specified in the resolutions adopted by the Compensation Committee or unanimous written consent of the Compensation Committee. In addition, the Compensation Committee has delegated an aggregate pool of shares from which awards can be made to employees who are not executive officers by a three-person committee consisting of our CEO, the Chairman of the Compensation Committee and our Senior Vice President of Administration. Awards made by this group are made on a monthly basis on the first Monday (unless a holiday) of each month, assuming their approvals are received on or prior to such day.

 

Benchmarking and Peer Company Comparisons

 

To assist the Compensation Committee, our Compensation and Benefits group, working with external advisors, annually benchmarks the ongoing competitiveness of our compensation programs against appropriate companies in the market with whom we compete for talent. Market data is compiled from published surveys and other data gathered from annual reports and proxy statements of “peer companies.” Though this is a critical exercise to understand our competitive landscape, we use it primarily to establish base pay as the foundation of our programs. We then apply appropriate strategic judgment in utilizing our programs to drive performance and deliver against our compensation philosophy and objectives.

 

We review, with assistance from our independent consultants, compensation data from several public and independent sources to ensure that each component of executive compensation, as well as the total compensation package, is competitive. We target overall executive compensation to deliver pay levels that are competitive with the comparison group of publicly held software companies paying at the median of the market for base and above the market median for performance-oriented pay.

 

In addition to benchmarking our pay levels, comparisons to peer companies are helpful to determine how we are performing. We define peer companies in three ways for purposes of benchmarking.

 

1. “Peer Companies” (listed below) with whom we compare ourselves for relative business performance are those that are in our direct industry group.

 

2. Software companies offering similar business solutions with $500 million or more in software revenue.

 

3. Companies with whom we compete for talent generally include the peer companies but also include other multinational and local companies.

The specific “Peer Companies” for programs in fiscal 2008 were:

 

 

For fiscal 2009, Microsoft and SAP were added to our Peer Companies list. BEA Systems and Cognos Incorporated were recently removed due to acquisition, and Quest Software was removed due to its relative size.

 

Other Compensation Items

 

Impact of Accounting on Executive Compensation

 

While we work to ensure that all programs are properly accounted and efficient in their treatment, we choose to offer various programs to executives and employees based on their strategic value and connection to our company philosophies. We have historically used stock options and other long-term equity incentives as a fundamental component of our executive and employee compensation packages. As a result of accounting rules adopted at the beginning of fiscal 2007, we record charges to earnings for such equity compensation, which negatively impact earnings. In addition, the NYSE rule requiring stockholder approval for all equity incentive plans could make it more difficult for us to adopt plans to grant options and other equity incentives to employees in the future. We have reduced the number of employees who receive share-based compensation from historic levels of the past. However, we believe that for our executive officers and other key employees equity awards continue to play a significant role in motivation and retention. For a more detailed explanation of the accounting treatment of share-based compensation, please see Footnote 9 “Share-Based Compensation” to our audited financial statements included in our Annual Report on Form 10-K for the year ended March 31, 2008.

 

Stock Ownership Guidelines and Alignment with Stockholders

 

The Board adopted a stock ownership guideline for each non-employee director; however, the Board has not adopted such guidelines for executive officers. Although we do not have a requirement that our executive officers own a certain number of shares, all of our Named Executive Officers own shares in our company, some of which are restricted from resale until certain performance targets are achieved. In addition, as described above, a significant portion of each Named Executive Officer’s compensation is directly tied to our performance over both the short-term and long-term, thereby aligning their individual interests with those of stockholders. Our Securities Trading Policy prohibits employees, including executive officers, from trading in options (such as put or call options) on our Common Stock and from selling our Common Stock short.

 

Severance and Change-in-Control Benefits

 

We believe that severance protections, particularly in the context of a change-in-control transaction, can play a valuable role in attracting and retaining executive officers, are an important part of an executive’s compensation and are consistent with competitive practices. Accordingly, we provide such protections for our Named Executive Officers and other executive officers. We believe that the occurrence, or potential occurrence, of a change-in-control will create uncertainty regarding the continued employment of our executive officers. This uncertainty results from the fact that many change-in-control transactions result in significant organizational changes, particularly at the senior executive level. In order to encourage our executive officers to remain employed with us during an important time when their prospects for continued employment following the transaction are often uncertain, we provide our executive officers, including the Named Executive Officers, with severance benefits if their employment is terminated by us without cause or by the executive for good reason within the first twelve months after a change-in-control. Because we believe that a termination by the executive for good reason is conceptually the same as a termination by us without cause, and because we believe that in the context of a change-in-control, potential acquirers would otherwise have an incentive to constructively terminate the executive’s employment to avoid

paying severance, we believe it is appropriate to provide severance benefits in these circumstances. In the case of our Named Executive Officers, these benefits are provided under employment agreements which are described in more detail under “Potential Payments Upon Termination or Change-in-Control” below.

 

Policy with Respect to Section 162(m)

 

Under Section 162(m) of the Internal Revenue Code, we cannot deduct for federal income tax purposes compensation in excess of $1,000,000 paid to our CEO and three other most highly compensated executive officers, excluding the CFO, unless certain performance and other requirements are met. We generally design and administer executive compensation programs to preserve the deductibility of compensation paid to our executive officers, and we believe that a substantial portion of our current executive compensation program satisfies the requirements for exemption from the $1,000,000 deduction limitation. However, from time to time, certain elements of our executive compensation program do not comply with all the requirements of Section 162(m) and the payouts associated with such elements are subject to the $1,000,000 deduction limit. Awards of time-based restricted stock are subject to the $1,000,000 deduction limit. We reserve the right to design compensation plans that recognize a full range of performance and other criteria important to our success regardless of the federal income tax deductibility of compensation paid under those plans.

 

REPORT OF THE COMPENSATION COMMITTEE

 

The Compensation Committee, which is comprised solely of independent members of the Board, assists the Board in fulfilling its responsibilities with regard to compensation matters. The Compensation Committee has reviewed and discussed the “Compensation Discussion and Analysis” section of this proxy statement with management and with the Board. Based on this review and discussion, the Compensation Committee recommended to the Board that the “Compensation Discussion and Analysis” section be included in BMC Software’s Annual Report on Form 10-K for the year ended March 31, 2008 and in this proxy statement.

 

Compensation Committee

 

Meldon K. Gafner, Chairman
Lew W. Gray
P. Thomas Jenkins
Tom C. Tinsley

EXECUTIVE COMPENSATION

 

The following table sets forth information concerning the compensation paid to or earned by our Chief Executive Officer, our Chief Financial Officer, and our three highest compensated executive officers (collectively, our “Named Executive Officers”) during fiscal 2008.

 

 

 

 

 

 

 

For additional information regarding our philosophy and policies related to perquisites, please see “Compensation Discussion and Analysis — Compensation Elements — Benefits and Perquisites” above.

Short-Term Incentive Plan

 

Under the STIP, the Compensation Committee recommends to the Board, and the Board establishes, short-term performance targets against which actual performance is measured. Payouts against targets are then made based on actual performance, subject to the Compensation Committee certifying attainment. The Compensation Committee reserves the right to reduce a payout for any individual based on the Compensation Committee’s view of such individual’s performance and/or our performance during a performance period. The Compensation Committee did not exercise its discretionary authority to reduce any STIP payouts for fiscal 2008. Please see “Compensation Discussion and Analysis — Short-term Incentives” for a fuller description of the STIP and disclosure of performance during fiscal 2008.

 

Payments made in fiscal 2008 were paid above target because performance against our corporate and business unit measures was exceptional. Performance targets were set at an aggressive level and were still exceeded for non-GAAP EPS.

 

Long-Term Incentive Plan

 

The LTIP is designed to drive value creation through total stockholder return performance measures, to retain top-performing and critical employees, and to reward senior executives for exceptional performance compared to their peers. The targeted LTIP cash award amount for each participant is dependent on our TSR relative to a group of our competitors over the course of the performance period. If we do not achieve a certain threshold TSR relative to the TSR for the competitive group, no payout will occur. Typically, the performance period under the LTIP will be a three-year period. For the first period in which an individual participates, the Compensation Committee establishes two performance periods and divides the total targeted cash amount for such participant into two equal amounts. The first performance period is eighteen months, and the second performance period is three years. Generally, if a participant is no longer employed by us due to disability or death, then targeted cash amounts are prorated. In the event of a change-in-control, targeted cash amounts are prorated as well based on relative TSR as if the performance period ends on the date of the change-in-control. In the event of terminations other than death or disability, awards are forfeited. Please see “Compensation Discussion and Analysis — Long-term Incentives” for a fuller description of the LTIP and disclosure of performance during fiscal 2008.

Option Expense Assumptions

 

The following table sets forth the assumptions used in our calculation of fiscal 2008 option expense and included in the Fiscal 2008 Summary Compensation Table above: