Form DEF 14A RED HAT INC For: Aug 09

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

(Rule 14a-101)

INFORMATION REQUIRED IN PROXY STATEMENT

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the Securities

Exchange Act of 1934 (Amendment No.              )

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RED HAT, INC.

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June 22, 2017
Dear Red Hat Stockholders,
It is my pleasure to invite you to Red Hat’s 2017 Annual Meeting of Stockholders. This year’s meeting will be held on Thursday, August 10, 2017, at 8:30 a.m. Eastern time, at our corporate headquarters, located at 100 East Davie Street, Raleigh, North Carolina 27601. I hope you will be able to attend.
This year we are again pleased to furnish our proxy materials via the Internet. Providing our materials to stockholders electronically allows us to conserve natural resources and reduce our printing and mailing costs for the distribution of the proxy materials. We will mail to stockholders a Notice of Internet Availability of Proxy Materials for the 2017 Annual Meeting which contains instructions on how to access those documents over the Internet. Stockholders who wish to receive paper copies of the proxy materials may do so by following the instructions on the Notice of Internet Availability of Proxy Materials.
Your vote is important to us. Whether or not you plan to attend the 2017 Annual Meeting, we hope you will vote as soon as possible. You may vote in person, by telephone, over the Internet or, if you received paper copies of the proxy materials, by mail.
Thank you for your ongoing support of Red Hat.
Sincerely,
James M. Whitehurst
President and Chief Executive Officer

NOTICE OF 2018 ANNUAL MEETING OF STOCKHOLDERS

TABLE OF CONTENTS

June 25, 2018

Fellow Stockholders,

Thank you for choosing to invest in Red Hat.

This year, Red Hat celebrates its 25^th anniversary. From the outset, the Company saw how open source development and licensing unlocked the potential to create better software, and its culture was rooted in open source principles. Today, Red Hat is the world’s leading provider of open source solutions for the enterprise.

As we look ahead to the next 25 years, Red Hat’s commitment to being the open source leader means that it must attract people who will help to sustain and scale this culture and remain focused on transparency, sharing and collaboration. As the Company’s directors, we remain focused on working with management to build upon this open source leadership to provide long-term, sustainable value for stockholders.

We continue to review the composition of the Board in an effort to provide a thoughtful balance of skills, tenure and experience that best serves the Company and its stockholders. Over the past four years, we have added three new directors, deepening our diversity of composition, thought and experience with fresh perspectives.

To enhance the Board’s effectiveness, we look for opportunities to hear from customers about their use of Red Hat solutions and from a broad range of Company employees. During this past year, members of the Board visited Red Hat’s engineering facility in Brno, Czech Republic, participated in a regional sales kick-off conference, attended Red Hat Summit, our annual customer conference, and met informally with Red Hat employees in a number of settings. These interactions deepen our understanding of the Company, its business and its culture, in addition to supporting our oversight of management’s employee development and succession planning efforts.

We also believe that stockholder engagement is an important part of a robust corporate governance program. Red Hat regularly meets with stockholders at conferences and one-on-one meetings to discuss the Company’s financial performance, corporate governance practices, executive compensation programs and other matters. These conversations with stockholders provide us with important perspective and we encourage you to share your viewpoints and suggestions with us. You can contact us at Investor Relations, Red Hat, Inc., 100 E. Davie Street, Raleigh, NC 27601, United States.

We appreciate your support as Red Hat continues on its journey to drive innovation with open source-based technologies.

Respectfully submitted,

Red Hat, Inc. Board of Directors

This Proxy Summary provides general information about Red Hat, Inc., referred to as “Red Hat,” “the Company,” “we,” “us,” and “our” in this Proxy Statement, and highlights certain information contained elsewhere in this Proxy Statement. As it is only a summary, please refer to the entire Proxy Statement and the 2018 Annual Report to Stockholders before you vote. Our fiscal year ends on the last day of February, and we identify our fiscal years by the calendar years in which they end. For example, we refer to the fiscal year ended February 28, 2018 as “Fiscal 2018.” “GAAP” means U.S. generally accepted accounting principles.

PROXY SUMMARY OUR BOARD

INDEPENDENT

BOARD CHAIR AND COMMITTEE MEMBERS

DIRECTOR NOMINEES
NAME		AGE		PRIMARY OCCUPATION		COMMITTEE MEMBERSHIP		EXPERIENCE & EXPERTISE		INDEPENDENT
Sohaib Abbasi		61		Chairman, Chief Executive Officer and President (Retired), Informatica Corporation		Compensation (Chair), Audit
W. Steve Albrecht		71		Professor of Accounting (Retired), Brigham Young University, Marriott School of Management		Audit (Chair), Nominating and Corporate Governance
Charlene T. Begley		51		Senior Vice President and Chief Information Officer (Retired), General Electric Company		Audit, Nominating and Corporate Governance
Narendra K. Gupta (Board Chair)		69		Managing Director, Nexus Venture Partners		Compensation
Kimberly L. Hammonds		51		Former Group Chief Operating Officer, Deutsche Bank AG		Compensation, Nominating and Corporate Governance
William S. Kaiser		62		Partner, Greylock Partners		Nominating and Corporate Governance (Chair)
James M. Whitehurst		50		President and CEO, Red Hat, Inc.
Alfred W. Zollar		64		Executive Partner, Siris Capital Group, LLC

OUR BOARD PROXY SUMMARY

DIRECTOR NOMINEES

GOVERNANCE HIGHLIGHTS

PROXY SUMMARY PERFORMANCE

Red Hat Performance and Executive Compensation

FINANCIAL PERFORMANCE (U.S. DOLLARS IN MILLIONS, EXCEPT STOCK PRICE)

In Fiscal 2018, Red Hat achieved over $2.9 billion in total revenue and delivered growth in revenue, operating income, operating margin, operating cash flow and stock price at fiscal year end.

PAY AND PERFORMANCE AT A GLANCE

Red Hat’s Fiscal 2018 financial and stock price performance drove over 80% of the compensation earned by our executives during Fiscal 2018, reflecting the linkage between pay and performance built into our executive compensation program design. Payouts for Fiscal 2018 performance reflect:

GOVERNANCE

NOMINEES FOR ELECTION TO THE BOARD OF DIRECTORS

Our Board of Directors (the “Board”) currently consists of nine directors. All of our incumbent directors except Donald H. Livingstone, who has reached the mandatory retirement age set forth in our Corporate Governance Guidelines and will not stand for re-election at the 2018 Annual Meeting of Stockholders (“Annual Meeting”), are nominees for re-election to the Board. Mr. Livingstone will continue to serve as a director until his term expires at the Annual Meeting. We believe that our director nominees, individually and together as a whole, possess the requisite skills, experience and qualifications necessary to maintain an effective Board to serve the best interests of the Company and its stockholders.

Set forth below is a brief biography for each nominee and a description of certain key attributes that the Board considered in recommending each nominee for re-election.

NOMINEES FOR ELECTION TO THE BOARD OF DIRECTORS

NOMINEES FOR ELECTION TO THE BOARD OF DIRECTORS

BOARD COMPOSITION

BOARD COMPOSITION

CRITERIA FOR EVALUATING CANDIDATES FOR SERVICE ON OUR BOARD

The Nominating and Corporate Governance Committee of our Board is responsible for identifying and evaluating candidates for service on our Board and recommending proposed director nominees to the full Board for consideration. Our Corporate Governance Guidelines describe the criteria used to select candidates for service on our Board. These include:

In addition, the Nominating and Corporate Governance Committee believes it is important to select directors from various backgrounds and professions in an effort to ensure that the Board as a group has a broad range of experiences to enrich discussion and inform its decisions. Consistent with this philosophy, the Nominating and Corporate Governance Committee believes that each director should possess at least two of the following attributes:

DIVERSITY

As stated in our Corporate Governance Guidelines, the Nominating and Corporate Governance Committee’s review of a nominee’s qualifications includes consideration of diversity, age, skills and professional experience in the context of the needs of the Board, and nominees shall not be discriminated against on the basis of race, religion, national origin, gender, sexual orientation, disability or other basis proscribed by law. While the Company has no formal diversity policy that applies to the consideration of director candidates, the Nominating and Corporate Governance Committee believes that diversity includes not just race and gender but differences of viewpoint, experience, education, skill and other qualities or attributes that contribute to Board heterogeneity.

BOARD COMPOSITION

BOARD INDEPENDENCE

The Board affirmatively determined that all of our directors, except for Mr. Whitehurst, our President and CEO, are independent according to the criteria of the New York Stock Exchange (“NYSE”) and our Corporate Governance Guidelines and in the judgment of our Board. The Board makes its independence determination on an annual basis at the time it approves director nominees for inclusion in the annual proxy statement and, if a director joins the Board in the interim, at such time as the director joins the Board. For a director to be considered independent under the NYSE rules, the Board must determine that a director does not have a direct or indirect material relationship with Red Hat (other than as a director) that would interfere with the director’s exercise of independent judgment in carrying out his or her responsibilities. On an annual basis, we require each member of our Board to complete a questionnaire designed to provide information to assist the Board in determining whether the director is independent. The Board makes independence determinations on a case-by-case basis in light of all relevant facts and circumstances. The Board had previously determined that General H. Hugh Shelton (U.S. Army Retired), a former director who served on our Board for a portion of Fiscal 2018, was independent.

ELECTION OF DIRECTORS

At all meetings of stockholders for the election of directors at which a quorum is present, each director nominee shall be elected to the Board by the vote of the majority of the votes cast with respect to the director nominee; provided, however, that if, as of a date that is five business days in advance of the date that the Company files its definitive proxy statement (regardless of whether or not thereafter revised or supplemented) with the U.S. Securities and Exchange Commission (“SEC”), the number of director nominees exceeds the number of directors to be elected, the directors (not exceeding the authorized number of directors as fixed by the Board in accordance with the Company’s Certificate of Incorporation) shall be elected by a plurality of the voting power of the shares of stock entitled to vote who are present, in person or by proxy at any such meeting and entitled to vote on the election of directors. For purposes of the election of directors, a “majority of the votes cast” means that the number of shares voted “For” a director nominee must exceed the number of shares voted “Against” that director nominee. Abstentions and broker non-votes are not considered votes cast for this purpose and will have no effect on the election of director nominees.

PROCESS FOR NOMINATING CANDIDATES FOR SERVICE ON OUR BOARD

The Nominating and Corporate Governance Committee will consider candidates proposed or suggested by other members of the Board, members of executive management and stockholders and candidates identified by third-party search firms retained by the Nominating and Corporate Governance Committee. Mr. Zollar was identified as a potential director nominee by a third-party search firm.

Stockholders who wish to recommend individuals to the Nominating and Corporate Governance Committee for consideration as potential director candidates may do so by submitting candidate names, together with appropriate biographical information and background materials and a statement as to whether the stockholder or group of stockholders making the recommendation beneficially owned more than 5% of our common stock for at least one year as of the date the recommendation is made, to the Nominating and Corporate Governance Committee, c/o Corporate Secretary, Red Hat, Inc., 100 East Davie Street, Raleigh, North Carolina 27601. Assuming the appropriate biographical information and background materials have been provided on a timely basis, the Committee will evaluate any such stockholder-recommended candidates by following the same process, and applying the same criteria, as it follows for candidates submitted by others.

By following the procedures set forth under “Other Matters—Stockholder Proposals and Nominations,” stockholders also have the right under our By-Laws to nominate director candidates.

COMMITTEES OF THE BOARD

Our Board has established three standing committees—Audit, Compensation and Nominating and Corporate Governance—each of which operates under a written charter approved by the Board and available on our website at www.redhat.com under “About Red Hat—Investor Relations—Corporate Governance.” Our Board delegates substantial responsibilities to the committees, which then report their activities and actions back to the full Board. Each committee may form one or more subcommittees and delegate its authority to such subcommittees. The Board has determined that all of the members of the Audit, Compensation and Nominating and Corporate Governance Committees, including committee chairpersons, are independent in accordance with the standards set forth in our Corporate Governance Guidelines and applicable SEC and NYSE rules.

COMMITTEES OF THE BOARD

COMMITTEES OF THE BOARD

During Fiscal 2018, Mr. Abbasi joined the Audit Committee in August 2017, Dr. Gupta served on the Nominating and Corporate Governance Committee until August 2017, and General Shelton served on the Compensation Committee until his term ended at the 2017 Annual Meeting of Stockholders (“2017 Annual Meeting”). General Shelton did not stand for re-election to the Board at the 2017 Annual Meeting.

BOARD OPERATIONS

LEADERSHIP STRUCTURE

Currently, the roles of Board Chair and Chief Executive Officer are held by two different individuals. We believe this structure represents an appropriate allocation of roles and responsibilities for the Company at this time. This arrangement allows our Board Chair, who is an independent director, to lead the Board in its fundamental role of providing independent advice to and oversight of management, and allows our CEO to focus on our day-to-day business and strategy and convey the management perspective to other directors.

BOARD OPERATIONS

RISK OVERSIGHT

Management is responsible for the day-to-day management of the risks the Company faces and our Board has responsibility for the oversight of risk management, including strategic risk, risk to our brand and reputation and cybersecurity risk. The Board and its committees regularly receive information and reports from members of senior management on areas of material risk. In addition, the Board regularly discusses our strategic direction and the risks and opportunities facing the Company in light of trends and developments in the software industry and general business environment.

BOARD OF DIRECTORS

PRIMARY RISK OVERSIGHT

RED HAT AND ITS STOCKHOLDERS

Our Board and management focus on creating long-term, sustainable stockholder value. Key to this goal is regular stockholder engagement through meetings with stockholders at conferences and in one-on-one meetings to discuss our financial performance, corporate governance practices, executive compensation programs and other matters. Additionally, from time to time, we invite investors to attend roadshows and visit Red Hat facilities and provide periodic e-mail communications about developments of interest, such as acquisitions. A variety of financial, investor and corporate governance information is available on our website.

Our conversations with stockholders allow us to better understand our stockholders’ perspectives and provide us with useful feedback to calibrate our priorities. Stockholders and other interested parties who wish to communicate with the Board, the Board Chair, independent members of the Board as a group, or any committee chair may do so by following the process set forth on our website at www.redhat.com under “About Red Hat—Investor Relations—Corporate Governance—Contact the Board.”

KEY BOARD PRACTICES

BOARD MEETINGS AND ATTENDANCE

Directors are responsible for attending all meetings of the Board, the Board committees on which they serve and the annual meeting of stockholders. The Board met 11 times during Fiscal 2018, either in person or by teleconference. During Fiscal 2018, each member of our Board attended at least 75% of the aggregate of the meetings of the Board and the committees on which he or she served. All of the then-serving members of our Board attended our 2017 Annual Meeting.

EXECUTIVE SESSIONS

Our independent directors meet in separate regularly scheduled executive sessions, without management. Our practice is for our Board Chair or the applicable committee chair to preside over any executive session.

KEY BOARD PRACTICES

SUCCESSION PLANNING

On an annual basis, the Nominating and Corporate Governance Committee, the Board and our CEO review the Company’s long-term plan for developing, retaining and replacing senior management and assess Board composition.

KEY GOVERNANCE POLICIES

Copies of our current corporate governance documents and policies, including our Code of Business Conduct and Ethics, Corporate Governance Guidelines, and committee charters, are available at www.redhat.com under “About Red Hat—Investor Relations—Corporate Governance.”

CODE OF BUSINESS CONDUCT AND ETHICS

The Board has adopted a written Code of Business Conduct and Ethics that applies to our directors, officers and employees. Our Code of Business Conduct and Ethics is posted on our website www.redhat.com under “About Red Hat—Investor Relations—Corporate Governance.” In addition, we intend to post on our website all disclosures that are required by law or by NYSE listing standards with respect to amendments to, or waivers from, any provision of the Code of Business Conduct and Ethics.

CORPORATE GOVERNANCE GUIDELINES

The Board has adopted written Corporate Governance Guidelines, which provide a framework for the conduct of the Board’s business.

POLICIES AND PROCEDURES FOR RELATED PERSON TRANSACTIONS

We have a written Related Person Transaction Policy that provides for the review of certain transactions, arrangements or relationships between Red Hat and parties including our directors, director nominees, executive officers and 5% stockholders (or their immediate family members), who we refer to as “related persons,” in which the amount involved exceeds $120,000 and such related person has or will have a direct or indirect material interest. Any related person transaction proposed to be entered into by the Company must be reported to the Company’s General Counsel and shall be reviewed and approved by our Audit Committee. If review and approval is not practicable prior to entry into the transaction, the Audit Committee will review, and in its discretion, may ratify the related person transaction.

In reviewing the proposed transactions, the Audit Committee shall review and consider, as appropriate:

KEY GOVERNANCE POLICIES

The Audit Committee may approve or ratify the transaction if it determines that, under all of the circumstances, the transaction is in, or is not inconsistent with, the Company’s best interests. The Audit Committee may impose any conditions on the related person transaction that it deems appropriate. The Related Person Transaction Policy provides that transactions involving compensation of executive officers will be reviewed and approved by the Compensation Committee of the Board in accordance with its charter.

RELATED PERSON TRANSACTIONS FOR FISCAL 2018

Since March 1, 2017, there has not been, nor is there currently proposed, any transaction, arrangement or relationship in which Red Hat is a party, the amount involved exceeds $120,000 and any related person had or will have a direct or indirect material interest, except for Red Hat’s employment of M. W. Vincent, the brother-in-law of DeLisa K. Alexander, our Executive Vice President and Chief People Officer. In Fiscal 2018, Mr. Vincent’s total compensation, including salary, commissions and stock awards, was $233,874.

BOARD COMPENSATION

OVERVIEW

Our Non-Employee Director Compensation Plan (the “Director Compensation Plan”) provides for a combination of cash and equity compensation for our non-employee directors. The Compensation Committee believes that a combination of cash and equity is the best way to attract and retain directors with the attributes, experience and skills necessary for a company such as Red Hat. Due to the unique nature of our open source development model and the constantly evolving environment in which we operate, the Company needs directors who are knowledgeable about the Company’s business environment and are willing to make a significant commitment to the Company and its stockholders for the long term.

In Fiscal 2018, the Board approved a $10,000 increase to the annual cash retainers for Board service and service as Board Chair. The cash retainer for board service had not been increased since 2008, and the cash retainer for service as board chair was last increased in 2011. Peer company benchmarking data provided by FW Cook, the Compensation Committee’s independent compensation consultant (the “Consultant”), indicated that these cash retainer amounts were no longer competitive. No other elements of our non-employee director compensation program were changed.

Our current compensation program for non-employee directors includes:

The cash retainer and annual RSA for any new director who serves only a portion of a year will be pro-rated.

CASH COMPENSATION

Each non-employee director receives cash payments, paid in equal quarterly amounts, as compensation for the time and effort spent in connection with service on the Board and its committees. We do not pay meeting fees. A director may elect to receive all or a portion of the quarterly cash payments in the form of deferred stock units (“DSUs”).

BOARD COMPENSATION

The following table sets out annual cash compensation amounts for Board and committee service during Fiscal 2018:

(1) A Board Chair or Lead Director who also serves as a committee chair receives both the Board Chair or Lead Director retainer, as applicable, and the retainer payable for service on the committee rather than the applicable committee chair retainer.

(2) Committee chairs receive the applicable committee chair retainer in lieu of the retainer payable for service on the committee.

EQUITY COMPENSATION

In Fiscal 2018, our non-employee directors were entitled to receive equity compensation in order to align their interests with stockholder interests.

ADDITIONAL COMPENSATION

Directors are reimbursed for reasonable out-of-pocket expenses incurred in attending meetings of the Board and meetings of any committee on which they serve, Company business meetings and approved educational seminars. The Company funds no retirement or pension plan for non-employee directors.

BOARD COMPENSATION

SUMMARY COMPENSATION TABLE FOR NON-EMPLOYEE DIRECTORS

The following table summarizes the compensation awarded to our directors other than Mr. Whitehurst during Fiscal 2018:

(1) Compensation paid to Mr. Whitehurst, our President and CEO, is described in the section entitled “Executive Compensation.” Mr. Zollar was elected to our Board in May 2018 and received no compensation from Red Hat in Fiscal 2018.

(2) This column reflects the amount of cash compensation paid to each director for Board and committee service after accounting for DSU elections. As described in the section entitled “Cash Compensation” above, non-employee directors may elect to receive fully vested DSUs in lieu of all or a portion of their cash compensation.

(3) Amounts in this column represent the aggregate grant date fair value of equity compensation issued to directors determined in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 718. For the assumptions made in determining these values, see Notes 2 and 17 to the Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for Fiscal 2018. Equity compensation that our non-employee directors are eligible to receive is described in the section entitled “Equity Compensation” above.

(4) As of February 28, 2018, our non-employee directors had DSUs and unvested RSAs representing the right to receive the following number of shares of common stock: Mr. Abbasi—29,435, Dr. Albrecht—16,220, Ms. Begley—2,538, Dr. Gupta—44,574, Ms. Hammonds—3,827, Mr. Kaiser—9,728, Mr. Livingstone—31,210 and General Shelton—0.

(5) During Fiscal 2018, Mr. Abbasi was eligible to receive $85,000 in cash compensation and an annual RSA valued at $250,000. Mr. Abbasi elected to receive DSUs in lieu of his cash compensation and annual RSA. The stock awards total in the table includes $291 of value realized as a result of issuing grants rounded up to the nearest whole share.

(6) During Fiscal 2018, Dr. Albrecht received $100,000 in cash compensation and an annual RSA valued at $250,000. The stock awards total in the table includes $69 of value realized as a result of issuing a grant rounded up to the nearest whole share.

(7) During Fiscal 2018, Ms. Begley received $80,000 in cash compensation and an annual RSA valued at $250,000. The stock awards total in the table includes $69 of value realized as a result of issuing a grant rounded up to the nearest whole share.

(8) During Fiscal 2018, Dr. Gupta received $99,429 in cash compensation and an annual RSA valued at $250,000. Dr. Gupta elected to receive DSUs in lieu of his annual RSA. The stock awards total in the table includes $69 of value realized as a result of issuing a grant rounded up to the nearest whole share.

(9) During Fiscal 2018, Ms. Hammonds received $75,000 in cash compensation and an annual RSA valued at $250,000. The stock awards total in the table includes $69 of value realized as a result of issuing a grant rounded up to the nearest whole share.

(10) During Fiscal 2018, Mr. Kaiser received $67,500 in cash compensation and an annual RSA valued at $250,000. The stock awards total in the table includes $69 of value realized as a result of issuing a grant rounded up to the nearest whole share.

(11) During Fiscal 2018, Mr. Livingstone received $87,500 in cash compensation and an annual RSA valued at $250,000. Mr. Livingstone elected to receive DSUs in lieu of his annual RSA. The stock awards total in the table includes $69 of value realized as a result of issuing a grant rounded up to the nearest whole share.

(12) During Fiscal 2018, General Shelton received $55,938 in cash compensation and an annual RSA valued at $250,000. The stock awards total in the table includes $69 of value realized as a result of issuing a grant rounded up to the nearest whole share. General Shelton’s annual RSA was forfeited when his term on the Board ended in August 2017.

PROCESS FOR SETTING DIRECTOR COMPENSATION

The Compensation Committee reviews our non-employee director compensation program annually and works with the Consultant to design and update the Director Compensation Plan to keep our compensation levels competitive so that the Company may attract and retain directors with the combination of attributes, experience and skills needed for the Board to operate effectively. In making decisions regarding non-employee director compensation, the Compensation Committee considers data provided by the Consultant about non-employee director compensation at the companies in our compensation peer group (the composition of our compensation peer group is described in “Executive Compensation-Compensation Discussion and Analysis-Process for Determining Named Officers’ Compensation-Compensation Peer Group”).

The Compensation Committee adopted a new Director Compensation Plan in December 2017. The mix of cash and equity provided under the plan is consistent with the mix provided by our compensation peer group companies.

INDEMNIFICATION

Each director has entered into an indemnification agreement with the Company. The indemnification agreements are on substantially the same terms as the indemnification agreements that the Company has entered into with the Named Officers, as described in the section entitled “Executive Compensation—Employment and Indemnification Arrangements with Named Officers—Indemnification.”

BOARD COMPENSATION

DIRECTOR STOCK OWNERSHIP REQUIREMENTS

We have a Stock Ownership Policy that applies to our non-employee directors. During Fiscal 2018 this Stock Ownership Policy set the stock ownership level for each non-employee director at 4,000 shares, an ownership level based on a multiple of the cash retainer for service as a Board member in place at the beginning of Fiscal 2018. As of the end of Fiscal 2018, each of our non-employee directors was in compliance with the Stock Ownership Policy. Our Stock Ownership Policy is described in the section entitled “Executive Compensation—Compensation Discussion and Analysis—Compensation Policies and Practices—Stock Ownership Requirements.”

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The Compensation Committee is composed entirely of independent directors, as was the case at all times during Fiscal 2018. At the beginning of Fiscal 2018, Mr. Abbasi, Dr. Gupta, Ms. Hammonds, Mr. Livingstone and General Shelton were members of the Compensation Committee. General Shelton did not stand for re-election at the 2017 Annual Meeting and left the committee when his term ended in August 2017. No member of the Compensation Committee (i) was during Fiscal 2018 or is currently an employee of the Company, (ii) has ever been an officer of the Company, (iii) is or was a participant in a “related person” transaction as described in the section entitled “Key Governance Policies—Policies and Procedures for Related Person Transactions—Related Person Transactions for Fiscal 2018” or (iv) is an executive officer of another entity, at which one of our executive officers serves on the compensation committee or the board of directors. None of our executive officers serves as a member of the board of directors or on the compensation committee, or other committee serving an equivalent function, of any entity that has one or more executive officers who serve as members of our Board or our Compensation Committee.

ITEM NO. 1—ELECTION OF DIRECTORS

The Board has nominated eight directors for one-year terms expiring at the 2019 Annual Meeting of Stockholders. Each nominee has indicated an intention to serve if elected and will hold office for his or her term and until a successor has been elected and qualified or until his or her earlier resignation or removal. In the event that any of the nominees should be unable or unwilling to serve, proxies may be voted for the election of some other person or for fixing the number of directors at a lesser number. Proxies cannot be voted for a greater number of persons than the number of nominees named.

EXECUTIVE COMPENSATION

EXECUTIVE SUMMARY OF COMPENSATION DISCUSSION AND ANALYSIS

This executive summary is only a summary. You should refer to the more detailed information about our compensation program in the section of this Proxy Statement entitled “Compensation Discussion and Analysis” and in the Summary Compensation Table and other related compensation tables before you vote.

The Compensation Discussion and Analysis focuses on the Named Officers listed below.

JAMES M. WHITEHURST		ERIC R. SHANDER		PAUL J. CORMIER		ARUN OBEROI		MICHAEL R. CUNNINGHAM
President and Chief Executive Officer		Executive Vice President and Chief Financial Officer		Executive Vice President and President, Products and Technologies		Executive Vice President, Global Sales and Services		Executive Vice President and General Counsel

In Fiscal 2018, the Compensation Committee approved an executive compensation program designed to focus our executive team on growing our business and building long-term stockholder value. Our program provided compensation opportunities based on achievement against revenue, non-GAAP operating margin, non-GAAP cash flow from operations and TSR metrics, which the Compensation Committee believes are key contributors to our long-term profitability and growth, and the executive team’s ability to develop and implement strategies to drive Red Hat’s evolution beyond our traditional core infrastructure products.

Consistent with our long-standing practice, our executive compensation program was weighted heavily toward equity compensation (which represented approximately 75% of target compensation opportunities) because the committee believes performance-based, long-term equity compensation aligns the interests of our executives with stockholder interests, rewards executives for delivering long-term value and performance, serves as an important retention tool and provides a meaningful way to align executives’ contributions with the Company’s future success. Additionally, approximately 90% of target compensation opportunities included one or more performance elements in order to maintain a clear link between executive and Company performance and compensation received.

Payouts earned in Fiscal 2018 under the incentive compensation elements of our program reflected this pay and performance link. Our Named Officers’ contribution to the Company’s strong operating performance led to above-target payouts under our annual cash bonus plan and operating performance share units (“Operating PSUs”), while strong stock price growth over the past three fiscal years relative to our compensation peer companies yielded an above-target payout under the TSR performance share units (“TSR PSUs”). After evaluating the performance of the Company and the individual executives under our standard executive compensation program, the Compensation Committee approved:

EXECUTIVE SUMMARY OF COMPENSATION DISCUSSION AND ANALYSIS

Performance-based compensation payouts earned by our Named Officers in respect of performance in Fiscal 2018, as approved by the Compensation Committee, and the percentage change from payouts earned in Fiscal 2017, are presented below. Shares delivered are based on target award amounts granted in Fiscal 2016 and Fiscal 2017 (Operating PSUs) and Fiscal 2016 (TSR PSUs).

(1) Mr. Shander began participating in our standard executive compensation program in Fiscal 2018, and as a result he will be eligible to receive a PSU payout for the first time in Fiscal 2019.

The Compensation Committee made no changes to our executive compensation program design or compensation mix for Fiscal 2019 because the committee believes that the current program continues to pay for performance, align management interests with our stockholders’ interests and motivate, attract and retain the key executive talent needed to succeed in the technology industry. More detail about the Fiscal 2019 executive compensation program is provided in the section entitled “Executive Compensation—Compensation Discussion and Analysis—Fiscal 2019 Key Compensation Decisions.”

We have adopted a number of practices that we believe benefit our stockholders by helping to align the interests of our management team with the interests of our stockholders, mitigate potential risks and promote effective oversight of our compensation program. These practices include:

EXECUTIVE SUMMARY OF COMPENSATION DISCUSSION AND ANALYSIS

The following table summarizes the principal components of our standard executive compensation program in Fiscal 2018.

COMPENSATION DISCUSSION AND ANALYSIS

COMPENSATION DISCUSSION AND ANALYSIS

OUR COMPENSATION PHILOSOPHY

Our executive compensation program is designed to:

Our program emphasizes long-term equity awards and annual performance-based cash bonuses so that a substantial portion of the value of each executive’s total compensation opportunity is derived from Company business and stock price performance and the achievement of Company and individual performance goals established by the Compensation Committee. The selected performance metrics emphasize overall Company performance, reflecting the Compensation Committee’s belief that the Named Officers, led by our CEO, are a team, sharing responsibility for Company performance and for execution of Company strategies. The relatively uniform compensation mix for each Named Officer reinforces this view, and in the committee’s view also promotes team cohesion and internal equity. However, the Compensation Committee considers it appropriate for the CEO, who is responsible for developing the overall strategy and direction for the Company, to receive a greater portion of his compensation (in comparison to the other Named Officers) in performance-based compensation. Goals are derived from the Company’s operating plan and business strategy. Performance levels are intended to be challenging and require effective execution in order to obtain a target level payout. The program is designed to have the flexibility to reward superior performance by providing for total earned compensation substantially above the target level and to provide compensation below the target level if performance goals are not met. In making its compensation decisions for individual executives, the Compensation Committee seeks to provide a competitive level of compensation for a position.

PROCESS FOR DETERMINING NAMED OFFICERS’ COMPENSATION

The process for determining the Named Officers’ compensation is outlined below along with a description of the role in the process of each of the Compensation Committee, our annual stockholder say-on-pay vote, the Consultant, our management and our compensation peer group.

ROLE OF THE COMPENSATION COMMITTEE

The Compensation Committee oversees and approves all compensation arrangements for the Named Officers. Each year, the Compensation Committee:

COMPENSATION DISCUSSION AND ANALYSIS

In determining the appropriate level and compensation mix for each Named Officer, the Compensation Committee takes into account:

No pre-determined weighting is assigned to any factor, and the emphasis placed on a specific factor may vary among Named Officers, reflecting market conditions, business needs and retention and succession considerations at the time compensation decisions are made.

ROLE OF STOCKHOLDER SAY-ON-PAY VOTE

The Compensation Committee considers the results of our annual say-on-pay advisory vote and other feedback received from stockholders on executive compensation matters in determining executive compensation decisions and policies. These forms of stockholder feedback provide useful input to the committee in its work to design and oversee an executive compensation program that serves the long-term interests of our stockholders. At our 2017 Annual Meeting, approximately 98% of the votes cast were voted “FOR” approval of our executive compensation program as described and disclosed in the Compensation Discussion and Analysis section, compensation tables and narrative discussion in our 2017 Proxy Statement, and over the past five years, at least 97% of the votes cast each year were voted “FOR” our annual say-on-pay vote. The Compensation Committee believes such results affirm stockholders’ support of the Company’s approach to, and structure of, executive compensation. At our 2017 Annual Meeting, our stockholders also reaffirmed their preference for an annual say-on-pay vote.

ROLE OF THE COMPENSATION CONSULTANT

The Consultant provides services at the direction and under the supervision of the Compensation Committee, which has the sole authority to hire or fire the Consultant. From time to time at the request of the Compensation Committee, the Consultant:

The Consultant provided executive compensation-related data used in preparing the Company’s Annual Report on Form 10-K for Fiscal 2018 and this Proxy Statement. The Consultant provided no other services in Fiscal 2018 and is not otherwise retained by, and does not otherwise advise, the Company on compensation matters.

After considering information provided by the Consultant and any other factors the Compensation Committee considered relevant to the Consultant’s independence or felt were relevant to a conflict of interest between the Consultant and the Compensation Committee or the Company, the Compensation Committee assessed the independence of the Consultant pursuant to SEC and NYSE rules in the first quarter of Fiscal 2018 and concluded that the Consultant’s work for the Compensation Committee did not present a conflict of interest.

COMPENSATION DISCUSSION AND ANALYSIS

ROLE OF MANAGEMENT

Management helps the Compensation Committee fulfill its responsibilities by:

From time to time, members of management are invited to attend Compensation Committee meetings. No executive officer participates in deliberations by the Compensation Committee or the Board regarding his or her compensation. In addition, at the request of the Compensation Committee, the CEO provides input regarding the performance and compensation recommendations for his direct reports, including the other Named Officers. The Compensation Committee believes this process is both orderly and fair and preserves the CEO’s ability to have an appropriate impact on compensation for his direct reports. Management did not retain a separate compensation consultant for the compensation of our Named Officers.

COMPENSATION PEER GROUP

The Compensation Committee annually reviews and approves a peer group composed of companies in our industry considered to be our peers. This peer group data is used:

The Consultant recommends peer companies for the Compensation Committee’s consideration. In developing its recommendation, the Consultant identifies companies with similar Global Industrial Classification System (“GICS”) industry codes and with comparable levels of market capitalization, revenues, operating income, number of employees and revenue and operating income growth rates, in an effort to populate the group with companies that have attributes appropriate to compare to Red Hat. The Fiscal 2018 compensation peer group consisted of 18 peer companies from the Software, Internet Software and Services, Computers & Peripherals and IT Services GICS industry codes and includes several companies with which we compete for talent.

For Fiscal 2019, after review and discussion with the Consultant, the Compensation Committee decided to remove Nuance Communications, Inc. and Verint Systems, Inc. from our peer group because it believed that these companies no longer met the Company’s identification criteria, including market capitalization. The committee added CA, Inc., a provider of enterprise and mainframe software solutions services, ServiceNow, Inc., a provider of cloud-based solutions to automate workflow, and Workday, Inc., a provider of enterprise cloud applications for finance and human resources, in order to provide a peer group composed of size-relevant companies within our industry.

COMPENSATION DISCUSSION AND ANALYSIS

The table below lists selected financial data (in millions) and other relevant information derived from public sources for each Fiscal 2018 peer group company. This table is intended to illustrate the types of information used by the Compensation Committee to evaluate whether selected peers are reasonably comparable with Red Hat and should not be relied upon for any other purpose.

MOST RECENT FOUR QUARTERS AS OF

FEBRUARY 28, 2018

Data presented in above table was compiled by the Consultant. Operating income may include adjustments made by the Consultant to publicly disclosed results in an effort to increase consistency in the method of calculating peer companies’ operating income.

(1) As of the end of the most recently completed fiscal year.

(2) As of February 28, 2018.

(3) Represents point-to-point growth, not annualized.

COMPENSATION DISCUSSION AND ANALYSIS

EXECUTIVE COMPENSATION PROGRAM STRUCTURE

The principal components of our Fiscal 2018 executive compensation program—Base Salary, Annual Cash Bonus and Equity Compensation—are described in more detail below.

CASH COMPENSATION

CEO TARGET BONUS PERCENTAGE

Our CEO’s target bonus opportunity is 150% of his base salary and is higher than the targets for the other Named Officers. The Compensation Committee sets a higher target bonus opportunity for the CEO to reflect his greater responsibility for developing and directing Company strategy to remain competitive in the rapidly changing technology industry. The higher target bonus opportunity also serves to place a greater portion of the CEO’s total annual cash compensation at risk, which the committee intends to further support his greater accountability to stockholders.

PERFORMANCE GOALS AND PAYOUTS

COMPENSATION DISCUSSION AND ANALYSIS

Payouts are earned based on Company performance against financial goals and each Named Officer’s performance against individual goals, in each case approved by the Compensation Committee. The maximum possible cash bonus payment for a Named Officer is 200% of that officer’s annual target amount. The final payout is calculated according to the formula below.

CALCULATION OF PAYOUT AMOUNT

COMPANY FINANCIAL GOALS

For Fiscal 2018, the Compensation Committee selected Company performance metrics of total revenue, non-GAAP cash flow from operations, and non-GAAP operating margin because management uses these metrics as a component of its internal reporting to evaluate performance of the business, to make operating decisions, including internal budgeting and the calculation of incentive compensation for all employees, and to forecast future performance. Additionally, the Compensation Committee, taking into account the Consultant’s recommendations, believes these performance metrics drive long-term stockholder value. The total revenue metric reflects management’s effectiveness at selling our products and services and is a critical measurement of the growth of our business used by management and market analysts. Non-GAAP cash flow from operations reflects management’s effectiveness in generating cash and providing the capital resources necessary for the business to grow. Non-GAAP operating margin demonstrates how efficiently management runs the business and controls costs. We use non-GAAP performance metrics for cash flow from operations and operating margin because we seek to compensate our executive team based on how effectively they build stockholder value through operating the Company business and the Compensation Committee believes that both of these non-GAAP metrics eliminate the impact of items that are unrelated to business operations and outside of management’s control, such as tax rates.

The range of performance levels for each metric is determined following a review of internal projections, analyst expectations and our annual business plan. The annual cash bonus plan provides that financial results be adjusted for specified items that may occur during the performance period, but that were not contemplated at the time the Company performance goals were set, including, but not limited to, volatility in foreign exchange and interest rates, unanticipated acquisitions, litigation settlements, the cumulative effect of changes in tax laws or accounting procedures, and substantial changes in general macroeconomic conditions. The calculation of the financial performance metrics is described in the following table.

INDIVIDUAL PERFORMANCE GOALS

The Compensation Committee establishes individual performance goals for our CEO and, in consultation with the CEO, establishes individual performance goals for each of the other Named Officers. These individual performance goals focus on qualitative strategic and operational considerations and the businesses or functions that the Named Officer leads. At the end of the fiscal year, each Named Officer provides the CEO with an individual self-assessment with respect to performance on individual performance goals. The CEO reviews each self-assessment and evaluates for each Named Officer’s individual goals, the relative impact of each performance goal to the Company’s success and the effort required to achieve each goal. Then the CEO provides the Compensation Committee with an assessment of the performance of, and recommendation for individual

COMPENSATION DISCUSSION AND ANALYSIS

bonus amounts for, the other Named Officers. The Compensation Committee discusses the CEO’s performance on the individual performance goals and then assesses his performance, which the committee provides to the Board. The independent directors then evaluate the CEO’s overall performance during the fiscal year, certify his performance against his individual goals and approve his payout.

EQUITY COMPENSATION

GRANT VALUES

In determining target equity grant values for each Named Officer, including the CEO, the committee considers performance, current amount of unvested equity, relative ability to impact the Company’s future success, and retention and succession considerations, taking into account the Consultant’s peer company data for that individual’s position and the CEO’s recommendations. The Compensation Committee sets a target equity value to deliver to each Named Officer, and that value is converted into a target number of shares (based on the closing stock price on the approval date) which the committee approves when making the equity awards.

TIMING OF EQUITY AWARDS

Under the stockholder-approved 2004 Long-Term Incentive Plan, awards to employees are authorized by the Compensation Committee before or on the grant date. It is the Company’s general practice to make recurring equity award grants (other than grants of PSUs and RSAs) during the Company’s open trading window after a quarterly earnings announcement, although the Company has the authority to make grants at other times of the year under certain circumstances. The committee’s general practice has been to approve grants of PSUs and RSAs within the earlier of the first 90 days or the first 25% of the applicable performance period in an effort to maximize deductibility of the related share-based compensation expense under Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”). While this deduction will no longer be available with the passage of the Tax Cuts and Jobs Act, the committee intends to continue to follow this practice in order to establish performance metrics for executives at the beginning of the performance period as a matter of good compensation governance. Other than as described above, the Company has no program, plan or practice to coordinate its award grants with the release of material non-public information.

In addition to achievement of performance goals, our equity awards require that a Named Officer maintain a relationship with the Company as an employee, officer, director and/or consultant (a “Business Relationship”) until the end of the performance period (Operating and TSR PSUs) or vesting date (TSR Hurdle PSUs and RSAs) in order to earn a payout.

COMPENSATION DISCUSSION AND ANALYSIS

PERFORMANCE SHARE UNITS

The Compensation Committee believes that PSUs provide significant incentives for senior management to focus on specific growth metrics that contribute to long-term stockholder value and help align management and stockholder interests. Since the awards are denominated and distributed in shares of common stock, a strong linkage to stockholder return is maintained. The committee grants a target number of PSUs. Executives may earn up to 200% of the target number of PSUs (the “Maximum”) for superior performance over the performance period, or may earn nothing if the Company does not out-perform at least 30% of the peer companies (as shown in the table below). Payouts for PSUs are based upon how well the Company performs for specified metrics (discussed below) relative to the other companies in the relevant compensation peer group.