Item 5.02 - Departure of Directors or Certain Officers; Election
of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers
On December 14, 2022, the Board of Directors (the “Board”)
of Workday, Inc. (“Workday”) appointed Carl M. Eschenbach as co-Chief Executive Officer (“co-CEO”) of Workday,
effective December 20, 2022 (the “Effective Date”). Mr. Eschenbach will remain a member of the Board and continue to sit on
the Investment Committee of the Board. He resigned from the Compensation Committee, effective as of the Effective Date. Mr. Eschenbach
will serve as co-CEO alongside Aneel Bhusri, Workday’s co-CEO, co-founder, and chair, through January 2024, Workday's fiscal year end. At that
time, Mr. Bhusri and the Board expect that Mr. Eschenbach will assume sole CEO responsibilities, with Mr. Bhusri assuming a full-time role
as executive chair and continuing as chair of the Board.
On December 14, 2022, Luciano G. Fernandez
informed the Board of his intention to resign from his position as Workday’s co-CEO and a member of the Board, effective as of
the Effective Date. Mr. Fernandez’s decision to resign as a director was not due to any disagreements with Workday on any
matter relating to Workday’s operations, policies, or practices. Mr. Fernandez is expected to remain active with the company
through April 2023, at which point he will transition towards retiring from Workday.
Mr. Eschenbach, 52, has served as a member of the Board since February
2018. Mr. Eschenbach served as a general partner at Sequoia Capital Operations, LLC, a venture capital firm, from April 2016 to December
2022, where he will continue in a venture partner capacity. Prior to that, Mr. Eschenbach spent 14 years at VMware, Inc., a leading innovator
in enterprise software, where he held a number of leadership roles in operations, most recently as its President and Chief Operating Officer.
Prior to that, Mr. Eschenbach held various sales management positions with Inktomi Corporation, 3Com Corporation, Lucent Technologies,
Inc., and EMC Corporation. He has served as a director of Aurora Innovation, Inc. since March 2019, UiPath, Inc. since December 2020,
Snowflake Inc. since May 2019, Zoom Video Communications, Inc. since November 2016, and Palo Alto Networks, Inc. since May 2013, and is
also a director of several private companies. After a transition period, Mr. Eschenbach is expected to resign as a member of all outside
for-profit boards of directors, except for two public company boards. Mr. Eschenbach received an electronics technician diploma from DeVry
University.
Mr. Eschenbach is not a party to any transaction required to be disclosed
pursuant to Item 404(a) of Regulation S-K.
In connection with his appointment, Mr. Eschenbach entered into an
employment agreement with Workday dated December 20, 2022 (the “Employment Agreement”).
The Employment Agreement provides for, among other things, (i) an initial
annual base salary of $1,000,000, (ii) eligibility for an annual target cash bonus up to 150% of the amount of his then-current base salary
beginning in Workday’s fiscal year 2024, and (iii) certain equity awards as described below.
Pursuant to the Employment Agreement, Mr. Eschenbach will be granted
the equity awards described below under Workday’s 2022 Equity Incentive Plan. He will not be eligible for additional equity awards
until April 2024.
| ● | A restricted stock unit award to acquire a number of shares
of Workday’s Class A Common Stock equal to $50,000,000, divided by the trailing simple moving average stock price of Workday’s
Class A Common Stock on The Nasdaq Global Select Market for the twenty (20) trading days ending on December 20, 2022, the day that the
Employment Agreement was signed (such average, the “20-day Average”), rounded up to the nearest whole share (the “New
Hire RSU”). The New Hire RSU will be granted on the fifth trading day following the public announcement of his appointment (the
“Grant Date”). The New Hire RSU will vest as to 1/16th of the shares underlying the New Hire RSU on each quarterly anniversary
of the 5th day of the month during which the Grant Date occurs (the “Vesting Start Date”), subject to Mr. Eschenbach’s
continued service on each time-based vesting date. |
| ● | A performance-based restricted stock unit award to acquire such number of shares of Workday’s Class A Common Stock equal to
the same number of shares as are subject to the New Hire RSU (the “PVU Award”), which will be divided into three equal tranches
(each, a “Tranche”) each of which will require achievement of a stock price target (each a “Price
Hurdle”) as described below during such Tranche’s specific performance period, as well as Mr. Eschenbach’s continued
service on each time-based vesting date of the PVU Award. |
The PVU Award performance metrics are subject to an overall
five (5) year performance period commencing on the Grant Date. Tranche 1 requires a 25% increase from the Baseline Price (as defined below)
during years 1 through 3; Tranche 2 requires a 50% increase from the Baseline Price during years 2 through 4; and Tranche 3 requires a
75% increase from the Baseline Price during years 3 through 5.
Testing for achievement of each Price
Hurdle will be measured monthly by calculating the percentage increase of (i) the trailing simple moving average stock price of
Workday’s Class A Common Stock over the 45 consecutive trading days (the “45-day Average Stock Price”) ending on
the 20th of each month over (ii) the 45-day Average Stock Price ending on December 20, 2022, the day that the Employment Agreement
was signed (the “Baseline Price”).
A Tranche’s Price Hurdle may not be achieved prior
to such Tranche’s performance period, other than as a result of a change in control transaction as described below. If unachieved
during its applicable performance period, Tranche 1 and/or Tranche 2 may be earned in a later performance period, but only if the higher
Price Hurdle for such later performance period is also achieved.
If a Tranche’s Price Hurdle is achieved during such
Tranche’s performance period, 1/60th of such Tranche’s PVU shares will vest on each of the monthly anniversaries
of the Vesting Start Date, subject to Mr. Eschenbach’s continued service to Workday.
| ● | A restricted stock unit award to acquire such number of shares of Workday’s Class A Common Stock equal to $10,000,000, divided
by the 20-day Average, rounded up to the nearest whole share (the “Special RSU”), which will vest and settle over one (1)
year in equal installments on each quarterly anniversary of the Vesting Start Date, subject to Mr. Eschenbach’s continued service
to Workday. Notwithstanding the foregoing, if Mr. Eschenbach is terminated by Workday for Cause (as defined in the Employment Agreement)
or resigns without Good Reason (as defined in Workday’s Change in Control Policy) prior to the second anniversary of the Effective
Date, he will be required to repay to Workday a cash amount equal to the grant date value of the Special RSU. |
| ● | A restricted stock unit award to acquire such number of shares of Workday’s Class A Common Stock equal to $5,000,000 divided
by the 20-day Average, rounded up to the nearest whole share (the “Additional Special RSU”); provided, however, that such
Additional Special RSU will not vest unless Mr. Eschenbach purchases $2,000,000 worth of shares of Workday’s Class A Common Stock
on the public market within twelve (12) months following the Effective Date (the “Stock Purchase Requirement”). The Additional
Special RSU will vest over one (1) year in equal installments on each quarterly anniversary of the Vesting Start Date (each, a “Quarterly
Vest Date”); provided that (i) no portion of the Additional Special RSU will vest until after the completion of the Stock Purchase
Requirement; and (ii) continual vesting will be subject to Mr. Eschenbach’s continued service to Workday on the applicable Quarterly
Vesting Date. Notwithstanding the foregoing, if Mr. Eschenbach is terminated by Workday for Cause or resigns without Good Reason prior
to the second anniversary of the Effective Date, he will be required to repay to Workday a cash amount equal to the grant date value of
the Additional Special RSU. |
If Mr. Eschenbach’s employment is terminated without Cause within
two years following the Effective Date, other than in connection with a Change in Control (as defined in the Change in Control Policy),
and Mr. Eschenbach delivers a release of claims in favor of Workday, he will be entitled to receive: (i) 12 months of his base salary;
(ii) a cash incentive plan payout equal to 150% of his base salary; and (iii) accelerated vesting of such number of shares subject to
each of the New Hire RSU, the PVU Award (provided that the PVU Award will accelerate only to the extent an applicable Price Hurdle has
previously been achieved or is achieved as of the date of his termination), the Special RSU, the Additional Special RSU (if the Stock
Purchase Requirement has been satisfied), and any future annual RSUs, if any, that would have vested in the 12 months following such termination.
In addition, Mr. Eschenbach will participate in Workday’s Change
in Control Policy, as modified by the Employment Agreement, such that in the event that Mr. Eschenbach’s employment is terminated
without Cause or he resigns for Good Reason in connection with a Change in Control, and Mr. Eschenbach delivers a release of claims in
favor of Workday, he will be entitled to receive: (i) 12 months of his base salary; (ii) full acceleration of all then-outstanding equity
incentive awards that are subject to time-based vesting (and for the PVU Award, provided that the PVU Award will accelerate only to the
extent that any previously unachieved Price Hurdles are achieved based on the price per share paid in such Change in Control and for the
Additional Special RSU, provided that the Stock Purchase Requirement has been satisfied), and (iii) a cash payment in an amount equal
to an estimate of the aggregate premiums for continuation “COBRA” coverage for 12 months. In addition, in the event of a Change
in Control and Mr. Eschenbach’s employment terminates such that he becomes entitled to the acceleration benefits described above,
then if requested by Workday, he will enter into a non-competition agreement of reasonable scope and duration upon the closing of a Change
in Control, as a condition to the receipt of such acceleration.
If the New Hire RSU, the PVU Award, the Special RSU, and/or the Additional
Special RSU (if the Stock Purchase Requirement has been satisfied) are not assumed in a Change in Control (as defined in the Employment
Agreement), then the vesting of each such award will accelerate in full; provided that the PVU Award will accelerate to the extent that
any previously unachieved Price Hurdles are achieved based on the price per share paid in such Change in Control.
The foregoing description of the Employment Agreement is qualified
in its entirety by reference to the full text of the Employment Agreement, which will be filed as an exhibit to Workday’s Annual
Report on Form 10-K for the fiscal year ending January 31, 2023.
Mr. Eschenbach has entered into Workday’s standard form of indemnity
agreement filed as Exhibit 10.1 to Workday’s Registration Statement on Form S-1 (File No. 333-183640) filed with the Securities
and Exchange Commission on August 30, 2012.