Form PRE 14A CISCO SYSTEMS, INC. For: Dec 10

October 8, 2020 4:32 PM
Table of Contents

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.     )

 

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☐  Soliciting Material Pursuant to § 240.14a-12

 

CISCO SYSTEMS, INC.

 

 

(Name of Registrant as Specified in Its Charter)

 

 

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Table of Contents

LOGO

Notice of

2020 Annual Meeting of Shareholders and Proxy Statement

 

 

 

Date and Time:

December 10, 2020 at 8:00 a.m. Pacific Time

 

Virtual:

Attend the annual meeting online,

    

including submitting questions and voting,

    

at www.virtualshareholdermeeting.com/CSCO2020

 

 


Table of Contents

LOGO

October 19, 2020

Dear Cisco Shareholder:

You are cordially invited to participate in the Annual Meeting of Shareholders of Cisco Systems, Inc., which will be held online on Thursday, December 10, 2020 at 8:00 a.m. Pacific Time. Details of the business to be conducted at the annual meeting are given in the Notice of Annual Meeting of Shareholders and the Proxy Statement. You will find a Proxy Summary starting on the first page of the Proxy Statement.

We are using the Internet as our primary means of furnishing proxy materials to shareholders. Consequently, most shareholders will not receive paper copies of our proxy materials. We will instead send these shareholders a notice with instructions for accessing the proxy materials and voting via the Internet. The notice also provides information on how shareholders may obtain paper copies of our proxy materials if they so choose.

We encourage shareholders to consent to online delivery of shareholder materials via the Cisco website at investor.cisco.com. Navigate to “Resources & FAQs” via the menu at the top left-hand corner, and then to “Personal Investing”. Consent to online delivery of shareholder materials is available under the heading “Electronic Enrollment”. Thank you for your support of our efforts to preserve resources by reducing mail.

Due to the public health impact of the COVID-19 pandemic and to support the health and well-being of our employees and shareholders, we are pleased to provide shareholders with the opportunity to participate in the annual meeting online via the Internet to facilitate shareholder attendance and provide a consistent experience to all shareholders regardless of location. We will provide a live webcast of the annual meeting at www.virtualshareholdermeeting.com/CSCO2020, where you will also be able to submit questions and vote online.

 

 

LOGO

Charles H. Robbins

Chairman and Chief Executive Officer

San Jose, California

 

Your Vote is Important

Whether or not you participate in the Annual Meeting, it is important that your shares be part of the voting process. See the section entitled “Information about the Meeting — Voting via the Internet, by Telephone or by Mail” on page 82 of the Proxy Statement for detailed information regarding voting instructions.


Table of Contents

LOGO

Notice of Annual Meeting of Shareholders

 

Date  

December 10, 2020

Time  

8:00 a.m. Pacific Time

Virtual  

Attend the annual meeting online, including voting and submitting questions, at www.virtualshareholdermeeting.com/CSCO2020

Record date  

October 12, 2020

Items of business  

•  To elect to Cisco’s Board of Directors the following ten nominees presented by the Board of Directors: M. Michele Burns, Wesley G. Bush, Michael D. Capellas, Mark Garrett, Dr. Kristina M. Johnson, Roderick C. McGeary, Charles H. Robbins, Arun Sarin, Brenton L. Saunders and Dr. Lisa T. Su

 

•  To vote upon a proposal to approve the reincorporation of Cisco from California to Delaware by means of a merger with and into a wholly-owned Delaware subsidiary

 

•  To approve the amendment and restatement of the Cisco Systems, Inc. 2005 Stock Incentive Plan (“2005 Stock Incentive Plan”)

 

•  To vote on a non-binding advisory resolution to approve executive compensation

 

•  To ratify the appointment of PricewaterhouseCoopers LLP as Cisco’s independent registered public accounting firm for the fiscal year ending July 31, 2021

 

•  To vote upon a proposal submitted by a shareholder, if properly presented at the annual meeting

 

•  To act upon such other matters as may properly come before the annual meeting or any adjournments or postponements thereof

Proxy voting  

Whether or not you plan to participate in the annual meeting, please vote as soon as possible. Please refer to the section entitled “Information about the Meeting — Voting via the Internet, by Telephone or by Mail” on page 82 of the Proxy Statement for a description of how to vote in advance of the meeting.

By Order of the Board of Directors

 

 

LOGO

Evan Sloves

Secretary

San Jose, California

October 19, 2020


Table of Contents

LOGO

Proxy Statement for

2020 Annual Meeting of Shareholders

Table of Contents

 

 

Proxy Summary

 

           1  
      

Corporate Governance

 

 

 

Corporate Governance Policies and Practices

       3  
 

Board Leadership Structure

       3  
 

Board Performance Evaluation Process

       4  
 

Board Refreshment

       4  
 

Shareholder Engagement

       5  
 

Corporate Social Responsibility

       5  
 

Public Policy Engagements

       6  
 

Proxy Access

       6  
 

Shareholder Communications with the Board of Directors

 

      

 

6

 

 

 

      

Board of Directors

 

 

 

Proposal No. 1 — Election of Directors

       7  
 

Business Experience and Qualifications of Nominees

       7  
 

Independent Directors

       11  
 

The Role of the Board of Directors in Strategy

       11  
 

The Role of the Board of Directors in Risk Oversight

       12  
 

Board Meetings and Committees

       12  
 

Director Compensation

 

      

 

16

 

 

 

      

Delaware Reincorporation

 

 

 

Proposal No.  2 — Approval of the Reincorporation of Cisco from California to Delaware

       20  
 

Overview of the Proposed Reincorporation

       20  
 

Mechanics and Consequences of Reincorporation

       21  
 

Principal Reasons for Reincorporation

       22  
 

Possible Negative Consequences of Reincorporation

       24  
 

Effectiveness of Reincorporation

       24  
 

Significant Differences Between the Charters and Bylaws of Cisco Systems California and Cisco Systems Delaware and Between the Corporate Laws of California and Delaware

       24  
 

Interest of Cisco’s Directors and Executive Officers in the Reincorporation

       29  
 

U.S. Federal Income Tax Consequences

 

      

 

29

 

 

 


Table of Contents

Compensation Committee
Matters

 

  

 

Proposal No.  3 — Approval of the Amendment and Restatement of the 2005 Stock Incentive Plan

       31  
  

Proposal No.  4 — Advisory Vote to Approve Executive Compensation

       40  
  

Compensation Discussion and Analysis

       42  
  

Introduction

       42  
  

Executive Summary

       42  
  

Compensation Philosophy

       45  
  

Compensation Components

       45  
  

Fiscal 2020 Compensation

       45  
  

Fiscal 2021 Compensation Approach

       56  
  

Executive Compensation Governance Components

       57  
  

Compensation Process

       58  
  

Compensation Committee Report

       61  
  

Compensation Committee Interlocks and Insider Participation

       61  
  

Fiscal 2020 Compensation Tables

       62  
  

Summary Compensation Table

       62  
  

Grants of Plan-Based Awards — Fiscal 2020

       65  
  

Outstanding Equity Awards At 2020 Fiscal Year-End

       67  
  

Option Exercises and Stock Vested — Fiscal 2020

       69  
  

Nonqualified Deferred Compensation — Fiscal 2020

       69  
  

Potential Payments upon Termination or Change in Control

       70  
  

Potential Payments — Accelerated Equity Awards

       71  
  

CEO Pay Ratio

       72  
  

Ownership of Securities

 

      

 

73

 

 

 

       

Audit
Committee
Matters

  

 

Proposal No. 5 — Ratification of Independent Registered Public Accounting Firm

       75  
  

Audit Committee Report

       77  
  

Form 10-K

       77  
  

Certain Relationships and Transactions with Related Persons

 

      

 

78

 

 

 

       

Shareholder Proposal

 

 

  

Proposal No. 6 — Shareholder Proposal

       79  
       

Information about the Meeting

 

  

 

General Information

       81  
  

Participating in the Meeting

       81  
  

Voting Rights

       82  
  

Voting via the Internet, by Telephone or by Mail

       82  
  

Revocation of Proxies

       83  
  

Proxy Solicitation and Costs

       83  
  

Internet Availability of Proxy Materials

       83  
  

Shareholders Sharing the Same Address

       84  
  

Shareholder Proposals and Nominations for 2021 Annual Meeting of Shareholders

       84  
  

Other Matters

       86  
  

Appendix A: Agreement and Plan of Merger

       A-1  
  

Appendix B: Delaware Certificate of Incorporation

       B-1  
  

Appendix C: Delaware Bylaws

       C-1  
  

Appendix D: Amended 2005 Stock Incentive Plan

 

      

 

D-1

 

 

 

 


Table of Contents

PROXY SUMMARY

These proxy materials are provided in connection with the solicitation of proxies by the Board of Directors of Cisco Systems, Inc., a California corporation, for the Annual Meeting of Shareholders to be held on December 10, 2020, and at any adjournments or postponements of the annual meeting. These proxy materials were first sent on or about October 21, 2020 to shareholders entitled to vote at the annual meeting.

This summary highlights selected information about the items to be voted on at the annual meeting and information contained elsewhere in this Proxy Statement. This summary does not contain all of the information that you should consider in deciding how to vote, and you should read the entire Proxy Statement carefully before voting. For more complete information about these topics, please review our Annual Report on Form 10-K and the entire Proxy Statement. The information contained on cisco.com or any other website referred to herein is provided for reference only and is not incorporated by reference into this Proxy Statement.

Participating in the Annual Meeting

 

Date and Time

  

Participating online via the Internet

Thursday, December 10, 2020

8:00 a.m. Pacific Time

   Attend the annual meeting online at www.virtualshareholdermeeting.com/CSCO2020

Online check-in starts at 7:45 a.m. Pacific Time

  

Shareholders may vote and submit questions while attending the meeting online via the Internet. For a description of how to participate online via the Internet, see the section entitled “Information about the Meeting — Participating in the Meeting”

Annual Meeting Proposals

 

Proposal

 

Recommendation

of the Board

  Page  

1 — Election of Directors

  FOR each of the nominees     7  

2 — Approval of the Reincorporation of Cisco from California to Delaware

  FOR     20  

3 — Approval of the Amendment and Restatement of the 2005 Stock Incentive Plan

  FOR     31  

4 — Advisory Vote to Approve Executive Compensation

  FOR     40  

5 — Ratification of Independent Registered Public Accounting Firm

  FOR     75  

6 — Shareholder Proposal

  AGAINST     79  

Corporate Governance Highlights

Cisco’s Board of Directors is composed of skilled and diverse directors and has established robust corporate governance practices and policies. The Board believes strongly in the value of an independent board of directors. Cisco has established a Lead Independent Director role with broad authority and responsibility, which is currently filled by Mr. Capellas. See the “Corporate Governance” section for more information on the following:

 

   

Our corporate governance policies and practices and where you can find key information regarding our corporate governance initiatives

 

   

Our balanced Board leadership structure and qualifications, including a Lead Independent Director, with currently 90% of the members being independent

 

   

Our shareholder engagement during fiscal 2020, during which we engaged with shareholders representing approximately 27% of our outstanding shares, including 65% of our top 30 shareholders on a variety of topics, including our business and long-term strategy, corporate governance and risk management practices, board leadership and refreshment, diversity, corporate social responsibility initiatives (including environmental, social, and governance matters), our executive compensation program, and other matters of shareholder interest



 

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Business Overview

As our customers add billions of new connections to their enterprises, and as more applications move to a multicloud environment, the network becomes even more critical. Our customers are navigating change at an unprecedented pace and our mission is to inspire new possibilities for them by helping transform their infrastructure, expand applications and analytics, address their security needs, and empower their teams. We believe that our customers are looking for intent-based networks that provide meaningful business value through automation, security, and analytics across private, hybrid, and multicloud environments. Our vision is to deliver highly secure, software-defined, automated and intelligent platforms for our customers.

We are expanding our research and development (R&D) investments in certain product areas including cloud security, cloud collaboration, and application insights and analytics. We are investing to optimize our product offerings for application to education, healthcare and other specific industries. We are also making investments to enable us to increase automation and support the customer as the workplace changes. In addition, we continue to remain focused on investments around Software-Defined Wide Area Networking, multicloud environments, 5G and WiFi-6, 400G speeds, optical networking, next generation silicon and artificial intelligence (AI). We are also accelerating our efforts to enable the delivery of network functionality as a service.

Executive Compensation Highlights

Our pay practices align with our pay-for-performance philosophy and underscore our commitment to sound compensation and governance practices.

 

   
Our executive compensation
program rewards performance
  

Compensation philosophy designed to attract and retain, motivate performance, and reward achievement

  

Performance measures aligned with shareholder interests

  

Majority of annual total direct compensation is performance-based

  

No dividends paid on unvested awards

We apply leading executive
compensation practices
  

Independent compensation committee

  

Independent compensation consultant

  

Comprehensive annual compensation program risk assessment

  

Caps on incentive compensation

  

None of our executive officers have employment, severance or change in control agreements

  

Stock ownership guidelines

  

Recoupment policy

  

No single-trigger vesting of equity award grants

  

No stock option repricing or cash-out of underwater equity awards

  

“No perks” policy with limited exceptions

  

No supplemental executive retirement plan or executive defined benefit pension plan

  

No golden parachute tax gross-ups

  

Broad anti-pledging and anti-hedging policies



 

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CORPORATE GOVERNANCE

Corporate Governance Policies and Practices

Cisco is committed to shareholder-friendly corporate governance and the Board of Directors has adopted clear corporate policies that promote excellence in corporate governance. We have adopted policies and practices that are consistent with our commitment to transparency and best-in-class practices, as well as to ensure compliance with the rules and regulations of the Securities and Exchange Commission, the listing requirements of Nasdaq, and applicable corporate governance requirements. Key corporate governance policies and practices include:

 

   

The Board of Directors has held annual elections of directors since Cisco’s initial public offering

 

   

The Board of Directors has adopted majority voting for uncontested elections of directors

 

   

A majority of the Board of Directors is independent of Cisco and its management

 

   

The Board of Directors has a robust Lead Independent Director role

 

   

The independent members of the Board of Directors meet regularly without the presence of management

 

   

Shareholders may recommend a director nominee to Cisco’s Nomination and Governance Committee

 

   

Shareholders that meet eligibility requirements may submit director candidates for election in Cisco’s proxy statement through its proxy access bylaw provision

 

   

Shareholders have the right to take action by written consent

 

   

Shareholders have the right to call a special meeting

 

   

No poison pill

 

   

All members of the key committees of the Board of Directors — the Audit Committee, the Compensation Committee, and the Nomination and Governance Committee — are independent

 

   

The charters of the committees of the Board of Directors clearly establish the committees’ respective roles and responsibilities

 

   

Cisco has a clear Code of Business Conduct (“COBC”) that is monitored by Cisco’s ethics office and is annually affirmed by its employees

 

   

Cisco’s ethics office has a hotline available to all employees, and Cisco’s Audit Committee has procedures in place for the anonymous submission of employee complaints on accounting, internal accounting controls, or auditing matters

 

   

Cisco has adopted a code of ethics that applies to its principal executive officer and all members of its finance department, including the principal financial officer and principal accounting officer

 

   

Cisco’s internal audit function maintains critical oversight over the key areas of its business and financial processes and controls, and reports directly to Cisco’s Audit Committee

 

   

Cisco has adopted a compensation recoupment policy that applies to its executive officers

 

   

Cisco has stock ownership guidelines for its non-employee directors and executive officers

Key information regarding Cisco’s corporate governance initiatives can be found on its website, including Cisco’s corporate governance policies, Cisco’s COBC and the charter for each committee of the Board of Directors. The corporate governance page can be found in the Governance section of Cisco’s Investor Relations website at investor.cisco.com.

Board Leadership Structure

Cisco’s Board of Directors believes strongly in the value of an independent board of directors. Independent board members have consistently comprised over 75% of the members of Cisco’s Board of Directors. All members of the key board committees — the Audit Committee, the Compensation Committee, and the Nomination and Governance Committee — are independent. Cisco has established a Lead Independent Director role with broad authority and responsibility, as described further below. The independent members of the Board of Directors also meet regularly without management; the Lead Independent Director chairs those meetings. Mr. Capellas currently serves as Lead Independent Director, and Mr. Robbins currently serves as Cisco’s Board chair and CEO.

 

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The Board of Directors believes that it should maintain flexibility to select Cisco’s board leadership structure from time to time. Our policies do not preclude the CEO from also serving as Board chair. Mr. Robbins, our CEO, also serves as Board chair. The Board of Directors believes that this leadership structure with a strong Lead Independent Director provides balance and currently is in the best interest of Cisco and its shareholders. The role given to the Lead Independent Director helps ensure a strong independent and active Board, while Mr. Robbins’ demonstrated leadership during his tenure at Cisco, and his ability to speak as Board chair and CEO provides strong unified leadership for Cisco. In connection with Mr. Capellas’ appointment as Lead Independent Director, the Board of Directors considered Mr. Capellas’ demonstrated leadership during his tenure as a member of the Board of Directors, and also his leadership during his tenure as chair of both the Finance and Acquisition Committees, and believes that Mr. Capellas’ ability to act as a strong Lead Independent Director provides balance in Cisco’s leadership structure and will be in the best interest of Cisco and its shareholders.

The Lead Independent Director is elected by and from the independent directors. Each term of service in the Lead Independent Director position is one year, and the Lead Independent Director has the following responsibilities:

 

   

authority to call meetings of the independent directors

 

   

presiding at all meetings of the Board of Directors at which the Chairman is not present, including executive sessions of the independent directors (during which Cisco’s strategy is reviewed and other topics are discussed)

 

   

serving as principal liaison between the independent directors and the Chairman and CEO

 

   

communicating from time to time with the Chairman and CEO and disseminating information to the rest of the Board of Directors as appropriate

 

   

providing leadership to the Board of Directors if circumstances arise in which the role of the Board chair may be, or may be perceived to be, in conflict

 

   

reviewing and approving agendas, meeting schedules to assure that there is sufficient time for discussion of all agenda items, and information provided to the Board (including the quality, quantity, and timeliness of such information)

 

   

being available, as appropriate, for consultation and direct communication with major shareholders

 

   

presiding over the annual performance evaluation of the Board of Directors, including the performance evaluation of each Board committee and individual Board members

 

   

facilitating the Board of Directors’ performance evaluation of the CEO in conjunction with the Compensation Committee

Board Performance Evaluation Process

The Board of Directors recognizes that a robust and constructive performance evaluation process is an essential component of Board effectiveness. As such, the Board of Directors conducts an annual Board performance evaluation that is intended to determine whether the Board, each of its committees, and individual Board members are functioning effectively, and to provide them with an opportunity to reflect upon and improve processes and effectiveness. The Nomination and Governance Committee oversees this process, which is led by the Lead Independent Director. The Lead Independent Director, along with outside counsel, conducts one-on-one discussions with each board member and certain members of management to obtain their assessment of the effectiveness and performance of the Board, its committees, and individual Board members. A summary of the results is presented to the Nomination and Governance Committee identifying any themes or issues that have emerged. The results are then reported to the full Board of Directors which considers the results and ways in which Board processes and effectiveness may be enhanced.

Board Refreshment

Cisco regularly evaluates the need for board refreshment. The Nomination and Governance Committee, and the Board of Directors, are focused on identifying individuals whose skills and experiences will enable them to make meaningful contributions to the shaping of Cisco’s business strategy. During fiscal 2020, the Board of Directors appointed Dr. Lisa T. Su to the Board upon the recommendation of the Nomination and Governance Committee. For more information on the skills and experience of Dr. Su, see “Board of Directors — Proposal No. 1 — Election of Directors”.

 

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As part of its consideration of director succession, the Nomination and Governance Committee from time to time reviews the appropriate skills and characteristics required of board members such as diversity of business experience, viewpoints and personal background, and diversity of skills in technology, finance, marketing, international business, financial reporting and other areas that are expected to contribute to an effective Board of Directors. Additionally, due to the global and complex nature of our business, the Board believes it is important that the Board include individuals with diversity of race, ethnicity, gender, sexual orientation, age, education, cultural background, and professional experiences, and those factors are considered in evaluating board candidates in order to provide practical insights and diverse perspectives.

The Nomination and Governance Committee and the Board will regularly evaluate the key qualifications, skills and attributes required in order to effectively refresh the Board with engaged and dynamic leaders with a proven business track record who will bring fresh perspectives to the Board while maintaining the productive working dynamics and collegiality of the Board. The graph below summarizes key qualifications, skills and attributes that we believe are most relevant to the decision to nominate candidates to serve on the Board of Directors and the prevalence of those characteristics on Cisco’s current Board.

 

 

LOGO

 

  1

Categories covered under California law AB 979.

See the “Board of Directors — Proposal No. 1 — Election of Directors — Board Meetings and Committees — Nomination and Governance Committee” section in this Proxy Statement for more information on the process and procedures related to the Board nomination process.

Shareholder Engagement

At Cisco, we recognize the importance of regular and transparent communication with our shareholders. Each year, we continually engage with a significant portion of shareholders that include our top institutional investors. In fiscal 2020, our Chairman and CEO, Secretary, and Investor Relations team held meetings and conference calls with investors representing approximately 27% of our outstanding shares, including 65% of our top 30 shareholders. We engaged with these shareholders on a variety of topics, including our business and long-term strategy, corporate governance and risk management practices, board leadership and refreshment, diversity, corporate social responsibility initiatives (including environmental, social, and governance matters), our executive compensation program, and other matters of shareholder interest.

Corporate Social Responsibility

Cisco’s Corporate Social Responsibility (CSR) efforts are organized into several areas that guide our work to power an inclusive future for all: trust and responsibility, leading a conscious culture, energy and greenhouse gas (GHG) emissions, circular economy, supply chain excellence, and technology for good. For fiscal 2020, we have adjusted our CSR pillars to describe our commitments, goals, and impacts more specifically and to focus on the environmental, social and governance (ESG) topics that are significant to Cisco. During fiscal 2020, we also engaged with shareholders on our CSR and sustainability initiatives.

Cisco Corporate Affairs leads our social investment programs and champions our commitment to CSR performance and transparency. This team engages with internal and external stakeholders and leads CSR assessment and reporting activities, which are aligned with standards set by the Global Reporting Initiative (GRI). Cisco supports the United Nations’ Sustainable Development Goals and aligns its ESG work with them.

 

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The team works cross-functionally to assess and monitor CSR priorities, drive process for CSR management, and provide reporting guidance and coordination across business functions. CSR priorities are owned by business functions and are integrated into ongoing business strategy and planning. Business functions set CSR goals, implement plans, and measure performance. Where a cross-functional approach is needed, teams are established to implement our commitments. The Nomination and Governance Committee of the Board reviews Cisco’s policies and programs concerning corporate social responsibility, including ESG matters.

Cisco has signed the CEO Action for Diversity and Inclusion Pledge. We are delivering on our vision of accelerating full-spectrum diversity — including gender, age, race, ethnicity, orientation, ability, nationality, religion, veteran status, background, culture, experience, strengths and perspectives. It starts at the top in that 40% of our Executive Leadership Team (ELT) are women and 53% are diverse in terms of gender and ethnicity.

For more information about our programs concerning Cisco’s CSR, including ESG matters, see our CSR website at csr.cisco.com. Our 2020 CSR Impact Report and Environmental Technical Review are expected to be published in December 2020.

Public Policy Engagements

Information about Cisco’s public policy engagement approach, including its policy priorities, the limitations it imposes on itself relating to public policy-related activities, and the manner in which it discloses its public policy efforts, is disclosed on Cisco’s public website on a webpage entitled “Government Affairs”: https://www.cisco.com/c/en/us/about/government-affairs.html. In part as a result of proactive engagement with its shareholders, Cisco regularly reviews and updates this webpage. For example, in fiscal 2019 Cisco expanded disclosure to now include its annual payments to trade associations and political action committee contributions.

Proxy Access

Following a robust review of shareholder feedback, corporate governance best practices and trends, and Cisco’s particular facts and circumstances, in July 2016, the Board of Directors adopted amendments to Cisco’s bylaws to allow a shareholder, or a group of up to 20 shareholders, owning continuously for at least three years a number of Cisco shares that constitutes at least 3% of Cisco’s outstanding shares, to nominate and include in Cisco’s proxy materials director nominees constituting up to the greater of two individuals or 20% of the Board of Directors. The amended bylaws specifically allow funds under common management to be treated as a single shareholder, and permit share lending with a five day recall. They do not contain any post-meeting holding requirements, do not have any limits on resubmission of failed nominees, and do not contain restrictions on third-party compensation.

Shareholder Communications with the Board of Directors

Shareholders may communicate with Cisco’s Board of Directors through Cisco’s Secretary by sending an email to bod@cisco.com, or by writing to the following address: Board of Directors, c/o Secretary, Cisco Systems, Inc., 170 West Tasman Drive, San Jose, California 95134. Shareholders also may communicate with Cisco’s Compensation Committee through Cisco’s Secretary by sending an email to compensationcommittee@cisco.com, or by writing to the following address: Compensation and Management Development Committee, c/o Secretary, Cisco Systems, Inc., 170 West Tasman Drive, San Jose, California 95134. Cisco’s Secretary will forward all correspondence to the Board of Directors or the Compensation Committee, except for spam, junk mail, mass mailings, product or service complaints or inquiries, job inquiries, surveys, business solicitations or advertisements, or patently offensive or otherwise inappropriate material. Cisco’s Secretary may forward certain correspondence, such as product-related inquiries, elsewhere within Cisco for review and possible response.

 

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BOARD OF DIRECTORS

Proposal No. 1 — Election of Directors

The names of persons who are nominees for director and their current positions and offices with Cisco are set forth in the table below. The proxy holders intend to vote all proxies received by them for the nominees listed below unless otherwise instructed. Each of the current directors has been nominated for election by the Board of Directors upon recommendation by the Nomination and Governance Committee and has decided to stand for election. The authorized number of directors is ten.

The Board of Directors appointed Dr. Lisa T. Su to the Board in January 2020 upon the recommendation of the Nomination and Governance Committee. Dr. Su was brought to the attention of the Nomination and Governance Committee as a potential candidate by a third-party search firm.

 

Director Nominees

  

Positions and Offices Held with Cisco

   Age    Director
Since
   Other Public
Company
Boards

M. Michele Burns

   Director    62    2003    3

Wesley G. Bush

   Director    59    2019    2

Michael D. Capellas

   Director    66    2006    2

Mark Garrett

   Director    62    2018    3

Dr. Kristina M. Johnson

   Director    63    2012   

Roderick C. McGeary

   Director    70    2003    2

Charles H. Robbins

   Chairman and CEO    54    2015    1

Arun Sarin

   Director    65    2009    3

Brenton L. Saunders

   Director    50    2017    2

Dr. Lisa T. Su

   Director    50    2020    1

Business Experience and Qualifications of Nominees

Ms. Burns, 62, has been a member of the Board of Directors since November 2003. She has served on the Advisory Board of the Center on Longevity at Stanford University since October 2019 and previously served as the Center Fellow and Strategic Advisor from August 2012 to October 2019. She served as the Chief Executive Officer of the Retirement Policy Center sponsored by Marsh & McLennan Companies, Inc. from October 2011 to February 2014. From September 2006 to October 2011, Ms. Burns served as Chairman and Chief Executive Officer of Mercer LLC, a global leader for human resources and related financial advice and services. She assumed that role after joining Marsh & McLennan Companies, Inc. in March 2006 as Chief Financial Officer. From May 2004 to January 2006, Ms. Burns served as Chief Financial Officer and Chief Restructuring Officer of Mirant Corporation, where she successfully helped Mirant restructure and emerge from bankruptcy. In 1999, Ms. Burns joined Delta Air Lines, Inc. assuming the role of Chief Financial Officer in 2000 and holding that position through April 2004. She began her career in 1981 at Arthur Andersen LLP and became a partner in 1991. Ms. Burns also currently serves on the boards of directors of Anheuser-Busch InBev SA/NV, Etsy, Inc. and The Goldman Sachs Group, Inc. She previously served as a director of Alexion Pharmaceuticals, Inc., ending in 2018.

Ms. Burns provides to the Board of Directors expertise in corporate finance, accounting and strategy, including experience gained as the chief financial officer of three public companies. Through her experience gained as chief executive officer of Mercer, she brings expertise in global and operational management, including a background in organizational leadership and human resources. Ms. Burns also has experience serving as a public company outside director.

Mr. Bush, 59, has been a member of the Board of Directors since May 2019. He served as Chief Executive Officer of Northrop Grumman Corporation (“Northrop Grumman”) from January 2010 through December 2018 and served on its board from September 2009 to July 2019 and in the role of chairman from July 2011 to July 2019. Prior to January 2010, he served in various leadership roles, including as Northrop Grumman’s President and Chief Operating Officer, Corporate Vice President and Chief Financial Officer, and President of its Space Technology sector. Mr. Bush also served in various leadership roles at TRW Inc. prior to its acquisition by Northrop Grumman in 2002. Mr. Bush is a member of the National Academy of Engineering. Mr. Bush also currently serves on the board of directors of Dow Inc. and General Motors Corporation. He previously served as a director of Norfolk Southern Corporation and Northrop Grumman Corporation, each ending in 2019.

 

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Mr. Bush brings to the Board of Directors his extensive international business experience, including over 35 years in the aerospace and defense industry. In addition, he brings extensive financial, strategic and operational experience. Mr. Bush also has experience serving as a public company outside director.

Mr. Capellas, 66, has been a member of the Board of Directors since January 2006. He has served as founder and Chief Executive Officer of Capellas Strategic Partners since November 2012. He served as Chairman of the Board of VCE Company, LLC from January 2011 until November 2012 and as Chief Executive Officer of VCE from May 2010 to September 2011. Mr. Capellas was the Chairman and Chief Executive Officer of First Data Corporation from September 2007 to March 2010. From November 2002 to January 2006, he served as Chief Executive Officer of MCI, Inc. (“MCI”), previously WorldCom. From November 2002 to March 2004, he was also Chairman of the Board of WorldCom, and he continued to serve as a member of the board of directors of MCI until January 2006. Mr. Capellas left MCI as planned in early January 2006 upon its acquisition by Verizon Communications Inc. Previously, Mr. Capellas was President of Hewlett-Packard Company from May 2002 to November 2002. Before the merger of Hewlett-Packard and Compaq Computer Corporation in May 2002, Mr. Capellas was President and Chief Executive Officer of Compaq, a position he had held since July 1999, and Chairman of the Board of Compaq, a position he had held since September 2000. Mr. Capellas held earlier positions as Chief Information Officer and Chief Operating Officer of Compaq. Mr. Capellas also currently serves as the chairman of the board of directors of Flex Ltd. and on the board of directors of Vesper Healthcare Acquisition Corp. He previously served as lead independent director of MuleSoft, Inc., ending in 2018.

Mr. Capellas brings to the Board of Directors experience in executive roles and a background of leading global organizations in the technology industry. Through this experience, he has developed expertise in several valued areas including strategic product development, business development, sales, marketing, and finance.

Mr. Garrett, 62, has been a member of the Board of Directors since April 2018. Mr. Garrett served as Executive Vice President and Chief Financial Officer of Adobe Systems Incorporated from February 2007 to April 2018. From January 2004 to February 2007, Mr. Garrett served as Senior Vice President and Chief Financial Officer of the Software Group of EMC Corporation. From August 2002 to January 2004 and from 1997 to 1999, Mr. Garrett served as Executive Vice President and Chief Financial Officer of Documentum, Inc., including throughout its acquisition by EMC in December 2003. Mr. Garrett also currently serves on the boards of directors of GoDaddy Inc., Pure Storage, Inc. and Snowflake Inc. He previously served as a director of Informatica Corporation, ending in 2015 and Model N, Inc., ending in 2016.

Mr. Garrett brings to the Board of Directors extensive history of leadership in finance and accounting in the technology industry, including experience in product and business model transition and transformation to the cloud. Mr. Garrett also has experience serving as a public company outside director.

Dr. Johnson, 63, has been a member of the Board of Directors since August 2012. Dr. Johnson has served as the President of The Ohio State University since September 1, 2020. Previously Dr. Johnson served as the chancellor of the State University of New York from September 2017 to August 2020. From January 2014 to September 2017, Dr. Johnson served as the Chief Executive Officer of Cube Hydro Partners, LLC, a clean energy company, and a joint venture between Enduring Hydro, a company she founded in January 2011 and I Squared Capital, a private equity firm. From May 2009 to October 2010, Dr. Johnson served as Under Secretary of Energy at the U.S. Department of Energy. Prior to this, Dr. Johnson was Provost and Senior Vice President for Academic Affairs at The Johns Hopkins University from 2007 to 2009 and Dean of the Pratt School of Engineering at Duke University from 1999 to 2007. Previously, she served as a professor in the Electrical and Computer Engineering Department, University of Colorado and as director of the National Science Foundation Engineering Research Center for Optoelectronics Computing Systems at the University of Colorado, Boulder. She holds 119 U.S. and international patents and has received the John Fritz Medal, widely considered the highest award given in the engineering profession. Dr. Johnson was inducted into the National Inventors Hall of Fame in 2015 and she is also a member of the National Academy of Engineering. She previously served as a director of Boston Scientific Corporation, ending in 2017 and The AES Corporation, ending in 2019.

Dr. Johnson brings to the Board of Directors an engineering background as well as expertise in science, technology, business, education and government. In addition, she has leadership and management experience, both in an academic context as chancellor, provost and dean of nationally recognized academic institutions and in a corporate context as a board member of public technology companies.

 

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Mr. McGeary, 70, has been a member of the Board of Directors since July 2003. He served as Chairman of Tegile Systems, Inc. from June 2010 to June 2012. From November 2004 to December 2009, he served as Chairman of the Board of BearingPoint, Inc. and also was interim Chief Executive Officer of BearingPoint from November 2004 to March 2005. Mr. McGeary served as Chief Executive Officer of Brience, Inc. from July 2000 to July 2002. From April 2000 to June 2000, he served as a Managing Director of KPMG Consulting LLC, a wholly owned subsidiary of BearingPoint, Inc. (formerly KPMG Consulting, Inc.). From August 1999 to April 2000, he served as Co-President and Co-Chief Executive Officer of BearingPoint, Inc. From January 1997 to August 1999, he was employed by KPMG LLP as its Co-Vice Chairman of Consulting. Prior to 1997, he served in several capacities with KPMG LLP, including audit partner for technology clients. Mr. McGeary is a Certified Public Accountant and holds a B.S. degree in Accounting from Lehigh University. Mr. McGeary also currently serves on the boards of directors of PACCAR Inc. and Raymond James Financial, Inc.

Mr. McGeary brings to the Board of Directors a combination of executive experience in management and technology consulting. He also has expertise in leading talented teams as well as skills in finance, accounting and auditing with technology industry experience.

Mr. Robbins, 54, has served as Chief Executive Officer since July 2015, as a member of the Board of Directors since May 2015 and as Chairman of the Board since December 2017. He joined Cisco in December 1997, from which time until March 2002 he held a number of managerial positions within Cisco’s sales organization. Mr. Robbins was promoted to Vice President in March 2002, assuming leadership of Cisco’s U.S. channel sales organization. Additionally, in July 2005 he assumed leadership of Cisco’s Canada channel sales organization. In December 2007, Mr. Robbins was promoted to Senior Vice President, U.S. Commercial, and in August 2009 he was appointed Senior Vice President, U.S. Enterprise, Commercial and Canada. In July 2011, Mr. Robbins was named Senior Vice President, Americas. In October 2012, Mr. Robbins was promoted to Senior Vice President, Worldwide Field Operations, in which position he served until assuming the role of CEO. Mr. Robbins also currently serves on the board of directors of BlackRock, Inc.

Mr. Robbins brings to the Board of Directors extensive industry, company and operational experience acquired from having served as Cisco’s CEO since 2015, and prior to that from having led Cisco’s global sales and partner teams. He has a thorough knowledge of Cisco’s segments, technology areas, geographies and competition. He has a proven track record of driving results and played a key role in leading and executing many of Cisco’s investments and strategy shifts to meet its growth initiatives.

Mr. Sarin, 65, has been a member of the Board of Directors since September 2009 and previously served on the Board of Directors from September 1998 to July 2003. In April 2003, he became CEO designate of Vodafone Group Plc and served as its Chief Executive Officer from July 2003 to July 2008. He also served as a member of the board of directors of that company from 1999 to 2008. From July 2001 to January 2003, he was Chief Executive Officer of Accel-KKR Telecom. He was the Chief Executive Officer of InfoSpace, Inc., and a member of its board of directors from April 2000 to January 2001. He was the Chief Executive Officer of the USA/Asia Pacific Region for Vodafone AirTouch Plc from July 1999 to April 2000. From February 1997 to July 1999, he was the President of AirTouch Communications, Inc. Prior to that, from April 1994 to February 1997, he served as President and Chief Executive Officer of AirTouch International. Mr. Sarin joined AirTouch Communications, Inc. in 1994 as Senior Vice President Corporate Strategy and Development upon its demerger from Pacific Telesis Group, which he joined in 1984. Mr. Sarin also currently serves on the boards of directors of Accenture plc, Cerence Inc. and The Charles Schwab Corporation. Mr. Sarin served as a Senior Advisor at Kohlberg Kravis Roberts & Co. from October 2009 to October 2014. He previously served as a director of Safeway, Inc., ending in 2015 and Blackhawk Network Holdings, Inc., ending in 2018. In 2010, Mr. Sarin was named an Honorary Knight of the British Empire for services to the communications industry.

Mr. Sarin provides to the Board of Directors a telecommunications industry and technology background, as well as leadership skills, including his global chief executive experience at Vodafone Group Plc. He also provides an international perspective as well as expertise in general management, finance, marketing and operations. In addition, Mr. Sarin has experience as a director, including service as an outside board member of companies in the information technology, banking, financial services, and retail industries.

Mr. Saunders, 50, has been a member of the Board of Directors since March 2017. Mr. Saunders has served as President, Chief Executive Officer and Chairman of the Board of Directors of Vesper Healthcare Acquisition Corp. since July 2020. Previously he served as CEO and President of Allergan plc (“Allergan”) from July 2014

 

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to May 2020 when Allergan was acquired by AbbVie, Inc. He was a board member of Allergan from July 2014 to May 2020 and served as its Chairman from October 2016 to May 2020. He previously served as Chief Executive Officer and President of Forest Laboratories, Inc. from October 2013 until July 2014 and had served as a board member of Forest Laboratories, Inc. beginning in 2011. In addition, Mr. Saunders served as Chief Executive Officer of Bausch + Lomb Incorporated, a leading global eye health company, from March 2010 until August 2013. From 2003 to 2010 Mr. Saunders also held a number of leadership positions at Schering-Plough, including the position of President of Global Consumer Health Care and was named head of integration for Schering-Plough’s merger with Merck & Co. and for its acquisition of Organon BioSciences. Before joining Schering-Plough, Mr. Saunders was a Partner and Head of Compliance Business Advisory Group at PricewaterhouseCoopers LLP from 2000 to 2003. Prior to that, he was Chief Risk Officer at Coventry Health Care, Inc. and Senior Vice President, Compliance, Legal and Regulatory at Home Care Corporation of America. Mr. Saunders began his career as Chief Compliance Officer for the Thomas Jefferson University Health System. Mr. Saunders also currently serves on the board of directors of BridgeBio Pharma, Inc.

Mr. Saunders brings to the Board of Directors his extensive leadership experience, including his role as chief executive officer of two global healthcare companies, as well as his financial, strategic and operational experience. He is a natural innovator and leader with a deep understanding of business transformation.

Dr. Su, 50, has been a member of the Board of Directors since January 2020. Dr. Su joined Advanced Micro Devices, Inc. (“AMD”) in 2012 and has held the position of President and Chief Executive Officer since October 2014. She also serves on AMD’s Board of Directors. Previously, Dr. Su served as Senior Vice President and General Manager, Networking and Multimedia at Freescale Semiconductor, Inc., and was responsible for global strategy, marketing and engineering for the company’s embedded communications and applications processor business. Dr. Su joined Freescale in 2007 as Chief Technology Officer, where she led the company’s technology roadmap and research and development efforts. Dr. Su spent the previous 13 years at IBM in various engineering and business leadership positions, including Vice President of the Semiconductor Research and Development Center responsible for the strategic direction of IBM’s silicon technologies, joint development alliances and semiconductor R&D operations. Prior to IBM, she was a member of the technical staff at Texas Instruments Incorporated from 1994 to 1995. Dr. Su has a Bachelor of Science, Master of Science and Doctorate degrees in Electrical Engineering from the Massachusetts Institute of Technology (MIT). Dr. Su previously served as a director of Analog Devices, Inc., ending in 2020.

Dr. Su brings to the Board of Directors her extensive business leadership experience, including her role as president and chief executive officer of a global semiconductor company, as well as her technology and semiconductor expertise. Dr. Su also provides expertise in global strategy, marketing and engineering, and has experience serving as a public company outside director.

The table below summarizes key qualifications, skills and attributes most relevant to the decision to nominate the candidates to serve on the Board of Directors. A mark indicates a specific area of focus or experience on which the Board relies most. The lack of a mark does not mean the director nominee does not possess that qualification or skill. Each director nominee biography above in this section describes each nominee’s qualifications and relevant experience in more detail.

 

Director Nominees

  Leadership   Technology   Financial
Experience
  Global
Business
  Gender/
Ethnic/
Racial/Sexual
Orientation

Diversity1
  Sales and
Marketing
  Academia   Public
Company
Board
Experience

M. Michele Burns

 

  LOGO

 

      LOGO

 

  LOGO

 

  LOGO

 

          LOGO

 

Wesley G. Bush

 

  LOGO

 

  LOGO

 

  LOGO

 

  LOGO

 

              LOGO

 

Michael D. Capellas

 

  LOGO

 

  LOGO

 

  LOGO

 

  LOGO

 

      LOGO

 

      LOGO

 

Mark Garrett

 

  LOGO

 

  LOGO

 

  LOGO

 

  LOGO

 

              LOGO

 

Dr. Kristina M. Johnson

 

  LOGO

 

  LOGO

 

          LOGO

 

      LOGO

 

  LOGO

 

Roderick C. McGeary

 

  LOGO

 

  LOGO

 

  LOGO

 

  LOGO

 

              LOGO

 

Charles H. Robbins

 

  LOGO

 

  LOGO

 

      LOGO

 

      LOGO

 

      LOGO

 

Arun Sarin

 

  LOGO

 

  LOGO

 

  LOGO

 

  LOGO

 

  LOGO

 

  LOGO

 

      LOGO

 

Brenton L. Saunders

 

  LOGO

 

      LOGO

 

  LOGO

 

      LOGO

 

      LOGO

 

Dr. Lisa T. Su

 

  LOGO

 

  LOGO

 

      LOGO

 

  LOGO

 

  LOGO

 

      LOGO

 

 

1 

Categories covered under California law AB 979.

 

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Cisco policy also provides that the Board will take into consideration the age of any current or prospective Board member whose age would be 72 or older when elected, re-elected or appointed to the Board and, before nominating or appointing such Board member, the Board will make an affirmative determination that it is in the best interests of Cisco and its shareholders for that individual to serve on the Board. The average tenure of the director nominees is approximately 7.8 years.

 

LOGO

Independent Directors

Upon recommendation of the Nomination and Governance Committee, the Board of Directors has affirmatively determined that each member of the Board of Directors other than Mr. Robbins is independent under the criteria established by Nasdaq for director independence. All members of each of Cisco’s Audit, Compensation and Management Development, and Nomination and Governance committees are independent directors. In addition, upon recommendation of the Nomination and Governance Committee, the Board of Directors has determined that the members of the Audit Committee and the members of the Compensation Committee meet the additional independence criteria required for membership on those committees under applicable Nasdaq listing standards.

The Nasdaq criteria include a subjective test and various objective standards, such as that the director is not an employee of Cisco. Mr. Robbins is not deemed independent because he is a Cisco employee. The subjective test under Nasdaq criteria for director independence requires that each independent director not have a relationship that, in the opinion of the Board of Directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. The subjective evaluation of director independence by the Board of Directors was made in the context of the objective standards referenced above. In making its independence determinations, the Board of Directors generally considers commercial, financial services, charitable, and other transactions and other relationships between Cisco and each director or nominee and his or her family members and affiliated entities. For example, the Nomination and Governance Committee reviewed, for each independent director and nominee, the amount of all transactions between Cisco and other organizations where such directors serve as executive officers or directors, none of which exceeded 1% of the recipient’s annual revenues during the relevant periods, except as described below.

For each of the independent directors, the Board of Directors determined based on the recommendation of the Nomination and Governance Committee that none of the transactions or other relationships exceeded Nasdaq objective standards and none would otherwise interfere with the exercise of independent judgment in carrying out the responsibilities of a director. In making this determination, the Board of Directors considered certain relationships that did not exceed Nasdaq objective standards but were identified by the Nomination and Governance Committee for further consideration under the subjective test. The Board of Directors determined that none of these relationships would interfere with the exercise of independent judgment by the director in carrying out is responsibilities as a director.

The following is a description of the two relationships in which a director serves as an outside board member of other companies and in which payments by Cisco exceeded 1% of the recipient’s annual revenues:

 

   

Mr. Capellas is a member of the board of directors of Flex Ltd. Cisco has ordinary course commercial relationships with Flex Ltd., including design, manufacturing and after-market services.

 

   

Mr. Garrett is a member of the board of directors of Snowflake Inc. Cisco has purchased cloud data warehouse platform services from Snowflake Inc.

The Role of the Board of Directors in Strategy

One of the Board’s key responsibilities is overseeing management’s formulation and execution of Cisco’s strategy. Throughout the year, our CEO, the executive leadership team, and other leaders from across the company provide detailed business and strategy updates to the Board. During these reviews, the Board engages

 

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with the executive leadership team and other business leaders regarding various topics, including business strategy and initiatives, capital allocation, portfolio updates, the competitive landscape, talent and culture including inclusion and diversity, ESG concerns including human rights implications of Cisco product development and sales, and regulatory developments. Additionally, on an annual basis, the Board reviews and approves Cisco’s financial plan. The Lead Independent Director also chairs regularly scheduled executive sessions of the independent directors, without Cisco management present, during which Cisco’s strategy is reviewed and other topics are discussed.

The Role of the Board of Directors in Risk Oversight

We believe that risk is inherent in innovation and the pursuit of long-term growth opportunities. Cisco’s management is responsible for day-to-day risk management activities. The Board of Directors, acting directly and through its committees, is responsible for the oversight of Cisco’s risk management. With the oversight of the Board of Directors, Cisco has implemented practices, processes and programs designed to help manage the risks to which we are exposed in our business and to align risk-taking appropriately with our efforts to increase shareholder value.

Cisco’s management has implemented an enterprise risk management (“ERM”) program, managed by Cisco’s internal audit function, that is designed to work across the business to identify, assess, govern and manage risks and Cisco’s response to those risks. Cisco’s internal audit function performs an annual risk assessment which is utilized by the ERM program. The structure of the ERM program includes both an ERM operating committee that focuses on risk management-related topics, as well as, an ERM executive committee consisting of members of executive management. The ERM operating committee conducts global risk reviews and provides regular updates to the ERM executive committee.

The Audit Committee, which oversees our financial and risk management policies, including data protection (comprising both privacy and security), receives regular reports on ERM from the chair of the ERM operating committee and regular reports on cybersecurity from Cisco’s Chief Security and Trust Officer. As part of its responsibilities and duties, the Audit Committee reviews Cisco’s policies and programs for addressing data protection, including both privacy and security, including with respect to (a) Cisco’s products and services, (b) Cisco’s servers, data centers and cloud based solutions on which Cisco’s data, and data of its customers, suppliers and business partners are stored and/or processed, and (c) the cloud-based services provided by or enabled by Cisco. The Committee provides updates to the Board of Directors, at least annually, on such review.

As part of the overall risk oversight framework, other committees of the Board of Directors also oversee certain categories of risk associated with their respective areas of responsibility. For example, the Finance Committee oversees matters related to risk management policies and programs addressing currency, interest rate, equity, and insurance risk, as well as Cisco’s customer and channel partner financing activities, investment policy and certain risk management activities of Cisco’s treasury function. The Compensation Committee oversees compensation-related risk management, as discussed in the “Board of Directors — Proposal No. 1 — Election of Directors — Board Meetings and Committees — Compensation and Management Development Committee” and “Compensation Committee Matters — Compensation Discussion and Analysis” (“CD&A”) sections in this Proxy Statement.

Each committee reports regularly to the full Board of Directors on its activities. In addition, the Board of Directors participates in regular discussions with Cisco’s executive management on many core subjects, including strategy, operations, information systems, finance, legal and public policy matters, in which risk oversight is an inherent element. The Board of Directors believes that the leadership structure described above in the “Corporate Governance — Board Leadership Structure” section facilitates the Board’s oversight of risk management because it allows the Board, with leadership from the Lead Independent Director and working through its committees, including the independent Audit Committee, to participate actively in the oversight of management’s actions.

Board Meetings and Committees

During fiscal 2020, the Board of Directors held 10 meetings. During this period, all of the incumbent directors attended at least 75% of the aggregate of the total number of meetings of the Board of Directors and the total number of meetings held by all committees of the Board of Directors on which each such director served, during the period for which each such director served. Cisco’s directors are strongly encouraged to attend the annual meeting of shareholders. Seven of Cisco’s directors who were then serving on the Board of Directors attended last year’s annual meeting.

 

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Cisco has five standing committees: the Audit Committee, the Compensation Committee, the Nomination and Governance Committee, the Acquisition Committee, and the Finance Committee. Each of these committees has a written charter approved by the Board of Directors. A copy of each charter can be found on the “Committees” page, which is located in the Governance section of Cisco’s Investor Relations website at investor.cisco.com.

The members of the committees and their independence status, as of the date of this Proxy Statement, and the number of committee meetings during fiscal 2020 are identified in the following table.

 

   Directors

  Independent (1)   Audit
Committee
  Compensation
Committee
  Nomination
and
Governance
Committee
  Acquisition
Committee
  Finance
Committee

   M. Michele Burns

 

 

LOGO

 

 

LOGO

 

              Chair

 

   Wesley G. Bush

 

 

LOGO

 

     

LOGO

 

         

LOGO

 

   Michael D. Capellas

 

 

LOGO

 

          Chair

 

  Chair

 

   

   Mark Garrett

 

 

LOGO

 

  Chair

 

     

LOGO

 

       

   Dr. Kristina M. Johnson

 

 

LOGO

 

     

LOGO

 

         

LOGO

 

   Roderick C. McGeary

 

 

LOGO

 

 

LOGO

 

  Chair

 

 

LOGO

 

       

   Charles H. Robbins

 

                       

   Arun Sarin

 

 

LOGO

 

     

LOGO

 

     

LOGO

 

   

   Brenton L. Saunders

 

 

LOGO

 

     

LOGO

 

     

LOGO

 

   

   Dr. Lisa T. Su

 

 

LOGO

 

             

LOGO

 

   

Number of Committee Meetings

 

      15

 

  7

 

  6

 

  11

 

  10

 

 

  (1)

Mr. Capellas currently serves as Lead Independent Director.

Audit Committee

The Audit Committee is directly responsible for the appointment, retention and oversight of the independent accountants. The Audit Committee is also responsible for reviewing the financial information which will be provided to shareholders and others, including the quarterly and year-end financial results, reviewing the system of internal controls which management and the Board of Directors have established, reviewing Cisco’s financial and risk management policies, including data protection (comprising both privacy and security), appointing, retaining and overseeing the performance of the independent registered public accounting firm, overseeing Cisco’s accounting and financial reporting processes and the audits of Cisco’s financial statements, pre-approving audit and permissible non-audit services provided by the independent registered public accounting firm, overseeing and reviewing related party transactions, and establishing procedures for the receipt, retention, and treatment of complaints received by Cisco regarding accounting, internal accounting controls, or auditing matters, and the confidential, anonymous submission by employees of concerns regarding questionable accounting or auditing matters.

The Audit Committee reviews the responsibilities and activities of each of the Governance, Risk and Controls Department, and the Compliance Office. The Audit Committee also meets separately in periodic executive sessions with each of management, the head of Cisco’s internal audit function, and the independent registered public accounting firm. The Board of Directors has determined that each of Ms. Burns, Mr. Garrett and Mr. McGeary is an “audit committee financial expert” as defined in Item 407(d) of Regulation S-K. Each member of this committee is an independent director and meets each of the other requirements for audit committee members under applicable Nasdaq listing standards.

Compensation and Management Development Committee

The Compensation Committee’s responsibility is to review the performance and development of Cisco’s management in achieving corporate goals and objectives and to assure that Cisco’s executive officers are compensated effectively in a manner consistent with Cisco’s strategy, competitive practice, sound corporate governance principles and shareholder interests. Toward that end, this committee reviews and approves Cisco’s

 

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compensation to executive officers. The Compensation Committee also reviews matters related to succession planning, including review and approval of CEO succession planning. Each member of this committee is an independent director under applicable Nasdaq listing standards, including the additional independence requirements specific to compensation committee membership, an “outside director” as defined in Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”), and a “non-employee director” as defined in Rule 16b-3 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

The Compensation Committee’s responsibilities and duties include an annual review and approval of Cisco’s compensation strategy to help ensure that it promotes shareholder interests and supports Cisco’s strategic and tactical objectives, and that it provides appropriate rewards and incentives for management and employees, including review of compensation-related risk management. For fiscal 2020, the Compensation Committee performed these oversight responsibilities and duties by, among other things, conducting an evaluation of the design of our executive compensation program, in light of our risk management policies and programs. For additional information regarding the Compensation Committee’s risk management review, see the “Executive Compensation Governance Components” section of the CD&A.

The Compensation Committee has the exclusive authority and responsibility to determine all aspects of executive compensation packages for executive officers. The Compensation Committee has retained Frederic W. Cook & Co., Inc. (“FWC”) as its independent compensation consultant to help the Compensation Committee establish and implement its compensation philosophy, to evaluate compensation proposals recommended by management, and to provide advice and recommendations on competitive market practices and specific compensation decisions for executive officers. The Compensation Committee retains and does not delegate any of its exclusive power to determine all matters of executive compensation and benefits, although the CEO and the People and Communities Department present compensation and benefit proposals to the Compensation Committee. FWC works directly with the Compensation Committee (and not on behalf of management) to assist the Compensation Committee in satisfying its responsibilities and will undertake no projects for management except at the request of the Compensation Committee chair and in the capacity of the Compensation Committee’s agent. FWC performs no other consulting or other services for Cisco management and, to date, has not undertaken any projects for management. For additional description of the Compensation Committee’s processes and procedures for consideration and determination of executive officer compensation, see the CD&A.

Nomination and Governance Committee

The Nomination and Governance Committee is responsible for overseeing, reviewing and making periodic recommendations concerning Cisco’s corporate governance policies, for reviewing Cisco’s policies and programs concerning CSR (including ESG matters), for reviewing and assessing director independence, for making recommendations regarding the size, structure and composition of the Board and its committees, for overseeing the annual Board evaluation process, for recommending to the full Board of Directors candidates for election to the Board of Directors, and for reviewing and recommending compensation for non-employee members of the Board. Each member of this committee is an independent director under applicable Nasdaq listing standards.

In connection with reviewing and recommending compensation for non-employee directors, the Nomination and Governance Committee has retained FWC as its independent compensation consultant. The Nomination and Governance Committee makes recommendations to the Board of Directors regarding compensation for non-employee directors using a process similar to the one used by the Compensation Committee for determining compensation for Cisco’s executive officers. Generally, the Nomination and Governance Committee annually reviews the market practice for non-employee director compensation for companies in Cisco’s Peer Group (as defined in the CD&A) in consultation with FWC and assesses whether Cisco’s non-employee director compensation program continues to be competitive with the market for qualified directors, incorporates best practices and aligns the interests of our non-employee directors with the long-term interests of our shareholders.

As part of its consideration of director succession, the Nomination and Governance Committee from time to time reviews, including when considering potential candidates, the appropriate skills and characteristics required of board members, including factors that it seeks in board members such as diversity of business experience, viewpoints and personal background, and diversity of skills in technology, finance, marketing, international business, financial reporting and other areas that are expected to contribute to an effective Board of Directors. In evaluating potential candidates for the Board of Directors, the Nomination and Governance Committee considers

 

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these factors in the light of the specific needs of the Board of Directors at that time. Additionally, due to the global and complex nature of our business, the Board believes it is important to consider diversity of race, ethnicity, gender, sexual orientation, age, education, cultural background, and professional experiences in evaluating board candidates in order to provide practical insights and diverse perspectives. The brief biographical description of each nominee and the matrix set forth in the “Board of Directors — Proposal No. 1 — Election of Directors — Business Experience and Qualifications of Nominees” section includes the primary individual experience, qualifications, attributes and skills of each of our directors that led to the conclusion that each director should serve as a member of the Board of Directors at this time.

Shareholders may recommend a director nominee to Cisco’s Nomination and Governance Committee. In recommending candidates for election to the Board of Directors, the Nomination and Governance Committee considers nominees recommended by directors, officers, employees, shareholders and others, using the same criteria to evaluate all candidates. The Nomination and Governance Committee reviews each candidate’s qualifications, including whether a candidate possesses any of the specific qualities and skills desirable in certain members of the Board of Directors. Evaluations of candidates generally involve a review of background materials, internal discussions and interviews with selected candidates as appropriate. Upon selection of a qualified candidate, the Nomination and Governance Committee would recommend the candidate for consideration by the full Board of Directors. The Nomination and Governance Committee may engage consultants or third-party search firms to assist in identifying and evaluating potential nominees.

To recommend a prospective nominee for the Nomination and Governance Committee’s consideration, submit the candidate’s name and qualifications to Cisco’s Secretary in writing to the following address: Cisco Systems, Inc., Attention: Secretary, 170 West Tasman Drive, San Jose, California 95134, with a copy to Cisco Systems, Inc., Attention: General Counsel at the same address. When submitting candidates for nomination to be elected at Cisco’s annual meeting of shareholders, shareholders must also follow the notice procedures and provide the information required by Cisco’s bylaws. In particular, for the Nomination and Governance Committee to consider a candidate recommended by a shareholder for nomination at the 2021 Annual Meeting of Shareholders, the recommendation must be delivered or mailed to and received by Cisco’s Secretary between July 23, 2021 and August 22, 2021 (or, if the 2021 annual meeting is called for a date that is not within 30 calendar days of the anniversary of the date of the 2020 Annual Meeting, within 10 calendar days after Cisco’s public announcement of the date of the 2021 annual meeting). The recommendation must include the same information as is specified in Cisco’s bylaws for shareholder nominees to be considered at an annual meeting, including the following:

 

   

The shareholder’s name and address and the beneficial owner, if any, on whose behalf the nomination is proposed;

 

   

The shareholder’s reason for making the nomination at the annual meeting, and the signed consent of the nominee to serve if elected;

 

   

The number of shares owned by, and any material interest of, the record owner and the beneficial owner, if any, on whose behalf the record owner is proposing the nominee;

 

   

A description of any arrangements or understandings between the shareholder, the nominee and any other person regarding the nomination; and

 

   

Information regarding the nominee that would be required to be included in Cisco’s proxy statement by the SEC rules, including the nominee’s age, business experience for the past five years and any directorships held by the nominee, including directorships held during the past five years.

Pursuant to the proxy access provisions of Cisco’s bylaws, an eligible shareholder or group of shareholders may nominate one or more director candidates to be included in Cisco’s proxy materials. The nomination notice and other materials required by these provisions must be delivered or mailed to and received by Cisco’s Secretary in writing between May 24, 2021 and June 23, 2021 (or, if the 2021 annual meeting is called for a date that is not within 30 calendar days of the anniversary of the date of the 2020 Annual Meeting, by the later of the close of business on the date that is 180 days prior to the date of the 2021 annual meeting or within 10 calendar days after Cisco’s public announcement of the date of the 2021 annual meeting) at the following address: Cisco Systems, Inc., Attention: Secretary, 170 West Tasman Drive, San Jose, California 95134, with a copy to Cisco Systems, Inc., Attention: General Counsel at the same address. When submitting nominees for inclusion in Cisco’s proxy materials pursuant to the proxy access provisions of Cisco’s bylaws, shareholders must follow the

 

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notice procedures and provide the information required by Cisco’s bylaws. Notwithstanding the foregoing, if “Delaware Reincorporation — Proposal No. 2 — Approval of the Reincorporation of Cisco from California to Delaware” is approved by the shareholders at the 2020 annual meeting, Cisco’s shareholders will become stockholders under Delaware law and Cisco’s 2021 annual meeting shall be an Annual Meeting of Stockholders. The requirements for notice shall otherwise remain unchanged following the Reincorporation.

For more detailed information on how to recommend a prospective nominee for the Nomination and Governance Committee’s consideration or to submit a nominee for inclusion in Cisco’s proxy materials pursuant to the proxy access provisions of Cisco’s bylaws, see the “Information About the Meeting — Shareholder Proposals and Nominations for 2021 Annual Meeting of Shareholders” section.

Acquisition Committee

The Acquisition Committee reviews acquisition strategies and opportunities with management. The Acquisition Committee also approves certain acquisitions and investment transactions, and makes recommendations to the Board of Directors.

Finance Committee

The Finance Committee reviews and approves Cisco’s global investment policy; oversees Cisco’s stock repurchase programs; and reviews minority investments, fixed income assets, insurance risk management policies and programs, tax programs, currency, interest rate and equity risk management policies and programs, and capital structure and capital allocation strategy. This committee is also authorized to approve the issuance of debt securities, certain real estate acquisitions and leases, and charitable contributions made on behalf of Cisco.

Director Compensation

This section provides information regarding the compensation policies for non-employee directors and amounts paid and equity awards granted to these directors in fiscal 2020. Non-employee directors typically do not receive forms of remuneration or benefits other than those described below, but are reimbursed for their expenses in attending meetings. Cisco’s non-employee director compensation policy is designed to provide the appropriate amount and form of compensation to our non-employee directors.

Director Compensation Highlights

 

   

Meeting fees for committee service to differentiate individual pay based on workload.

 

   

Emphasis on equity in the overall compensation mix.

 

   

Full-value equity grants under a fixed-value annual grant policy with immediate vesting.

 

   

A robust stock ownership guideline set at five times the annual cash retainer to support shareholder alignment.

 

   

Flexible deferral provisions to facilitate stock ownership.

 

   

Governance limit of $800,000 on the total value of cash and equity compensation that may be paid or granted to a non-employee director each fiscal year, which allows Cisco to stay within reasonable bands of what the market requires.

 

   

Each non-employee director is eligible to participate in Cisco’s charitable matching gifts program to the same extent as all Cisco employees. For calendar year 2019, the maximum match amount under this program was $10,000, and during April 2020, the maximum match amount was increased to $25,000. Additional $10,000 matches may be available for disaster relief campaigns.

Fiscal 2020 Cash Compensation

Our non-employee director cash compensation program during fiscal 2020 consisted of the following:

 

   

Annual retainer of $80,000 for each non-employee director;

 

   

Additional annual retainer fee of $50,000 for serving as Lead Independent Director;

 

   

Additional annual retainer fee of $25,000 for serving as chair of the Audit Committee;

 

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Additional annual retainer fee of $20,000 for serving as chair of the Compensation Committee;

 

   

Additional annual retainer fee of $15,000 for serving as chair of the Nomination and Governance Committee, as chair of the Acquisition Committee or as chair of the Finance Committee; and

 

   

Additional fee of $2,000 to each committee member for each standing committee meeting attended.

A non-employee director may instead elect to receive his or her regular annual cash retainer in fully vested shares of Cisco common stock, fully vested deferred stock units or a deferred cash payment under the Cisco Systems, Inc. Deferred Compensation Plan (the “Deferred Compensation Plan”). Dividend equivalents accrue on fully vested deferred stock units and are subject to the same conditions and restrictions as the deferred stock units to which they attach and will settle in shares after the non-employee director leaves the board. The annual retainers are pro-rated for non-employee directors who are appointed after an annual meeting.

Fiscal 2020 Equity Compensation

Non-employee directors receive annual grants under the 2005 Stock Incentive Plan pursuant to an equity grant policy. The 2005 Stock Incentive Plan currently provides that grants to any non-employee director may not exceed 50,000 shares for any fiscal year.

The Board of Directors’ policy regarding initial equity grants for new non-employee directors and annual equity grants for elected non-employee directors provides for the following:

 

   

An initial equity grant for non-employee directors consisting of fully vested shares of Cisco common stock with a fair value equal to a pro rata portion of $230,000 based on the portion of the year of the new non-employee director’s board service.

 

   

An annual equity grant for elected non-employee directors consisting of fully vested shares of Cisco common stock with a fair value equal to $230,000.

A non-employee director may elect to receive his or her initial and annual grants in the form of fully vested deferred stock units that are settled in shares after the non-employee director leaves the board. Dividend equivalents accrue on the fully vested deferred stock units and are subject to the same conditions and restrictions as the deferred stock units to which they attach and will settle in shares after the non-employee director leaves the board.

Fiscal 2020 Total Director Compensation

The following table provides information as to compensation earned by the non-employee directors during fiscal 2020.

Director Compensation

 

Name

   Fees Earned or
Paid in Cash
($)
    Stock Awards
($) (1)
     All Other
Compensation

($)
    Total
($)
 

M. Michele Burns

   $   145,000     $   229,982      $ 9,792 (2)    $   384,774  

Wesley G. Bush

   $ 96,000 (3)    $ 229,982      $ —       $ 325,982  

Michael D. Capellas

   $ 194,000     $ 229,982      $ —       $ 423,982  

Mark Garrett

   $ 147,000     $ 229,982      $ —       $ 376,982  

Dr. Kristina M. Johnson

   $ 114,000     $ 229,982      $   10,000 (2)    $ 353,982  

Roderick C. McGeary

   $ 156,000     $ 229,982      $ —       $ 385,982  

Arun Sarin

   $ 114,000     $ 229,982      $ 10,000 (2)    $ 353,982  

Brenton L. Saunders

   $ 116,000     $ 229,982      $ —       $ 345,982  

Dr. Lisa T. Su

   $ 69,508 (3)    $ 199,801      $ —       $ 269,309  

Carol B. Tomé (4)

   $ 86,000     $ 229,982      $ —       $ 315,982  

Steven M. West (4)

   $ 28,000     $ —        $ —       $ 28,000  

 

(1)

The amounts in the Stock Awards column represent the aggregate grant date fair values, computed in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718, Compensation — Stock Compensation (“FASB ASC Topic 718”), of the shares issued pursuant to the 2005 Stock Incentive Plan.

 

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Each non-employee director who had served as a non-employee director prior to the 2020 annual meeting or who was elected at the 2020 annual meeting received 5,215 fully vested shares on December 10, 2019. Mr. Bush, Dr. Johnson, Mr. Sarin, Mr. Saunders and Ms. Tomé each elected to receive their annual equity award in the form of fully vested deferred stock units.

In connection with her appointment to the board on January 27, 2020, Dr. Su received an initial equity award covering 4,209 fully vested shares in the form of deferred stock units. None of the non-employee directors held any unvested stock awards as of July 25, 2020.

No stock options were awarded to non-employee directors in fiscal 2020, and there were no outstanding stock options held by non-employee directors as of July 25, 2020.

 

(2)

Represents the non-employee director’s match under Cisco’s charitable matching gifts program.

 

(3)

Includes the value of fully vested shares of Cisco common stock received in lieu of the non-employee director’s regular annual cash retainer based on the fair market value of the shares on the date the regular annual cash retainer would otherwise have been paid. Based on the prior election, Mr. Bush received 1,814 shares with a value of $79,997 based on the closing share price of Cisco common stock on December 10, 2019. In connection with her appointment to the Board on January 27, 2020, Dr. Su received 1,464 shares with a value of $69,496 based on the closing share price of Cisco common stock on January 27, 2020.

 

(4)

Mr. West served on the Board of Directors through December 10, 2019. Ms. Tomé resigned from the Board effective March 12, 2020.

Non-Employee Director Stock Ownership

Cisco’s corporate governance policies include stock ownership guidelines for non-employee directors. These guidelines call for each non-employee director to own shares of Cisco’s common stock having a value equal to at least five times the non-employee director’s regular annual cash retainer, with a five-year period from the date of his or her appointment to attain that ownership level. To facilitate share ownership, non-employee directors may elect to receive, in lieu of all or a specified portion of their regular annual cash, either fully vested shares of Cisco common stock or deferred stock units that would be settled in shares after the non-employee director leaves the board, based on the fair market value of the shares on the date any regular annual cash retainer would otherwise be paid. Any shares (or shares subject to deferred stock units) received in lieu of any portion of a regular annual cash retainer do not count against the limit on the total number of shares that may be granted to a non-employee director during any fiscal year. The shares issued are granted under the 2005 Stock Incentive Plan.

For information on non-employee director elections to receive fully vested shares (or shares subject to deferred stock units) in lieu of cash with respect to the fiscal 2020 annual cash retainer, please see the table above entitled “Director Compensation” and the accompanying footnotes.

Fiscal 2021 Director Compensation

For fiscal 2021, FWC conducted an independent review of Cisco’s non-employee director compensation program on behalf of the Nomination and Governance Committee. FWC determined that Cisco’s non-employee director compensation program continues to be competitive with the market, incorporates best practices and aligns the interests of our non-employee directors with the long-term interest of our shareholders. Based on this assessment, and the recommendation of the Nomination and Governance Committee, the Board of Directors did not make any changes to the amount or types of compensation that non-employee directors could earn for fiscal 2021. The Board, however, effective for payments related to board service on and after the date of the 2021 Annual Meeting of Shareholders, expanded the cash compensation elections for non-employee directors to allow for non-employee directors to elect to receive deferred cash, stock grants or deferred stock units in lieu of any retainer paid in connection with service on any committee of the Board or other cash fees (not limited to his or her regular annual cash retainer).

Vote Required

Cisco’s bylaws and corporate governance policies provide for a majority voting standard in uncontested elections of directors. As such, in an election where the Board of Directors has determined that the number of nominees for director does not exceed the number of directors to be elected, a nominee for director will be elected to the Board of Directors to serve until the next annual meeting of shareholders, and until his or her

 

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successor has been duly elected and qualified, if the number of shares voted for the nominee exceeds the number of shares voted against the nominee and also represents the affirmative vote of a majority of the required quorum. The required quorum for a meeting of Cisco shareholders is a majority of the outstanding shares of common stock. The majority voting standard would not apply, however, if the Board of Directors determines that the number of nominees for director exceeds the number of directors to be elected. In that case, the nominees receiving the highest number of affirmative votes of the shares entitled to vote at the meeting would be elected.

The majority voting standard will apply to the election taking place at the meeting. Consequently, in order to be elected, a nominee must receive more votes “for” than “against” and the number of votes “for” must be at least a majority of the required quorum. Proxies may not be voted for more than ten directors, and shareholders may not cumulate votes in the election of directors. In the event that any nominee is unable or declines to serve as a director at the time of the meeting, the proxies will be voted for any nominee, if any, who may be designated by the Board of Directors to fill the vacancy. As of the date of this Proxy Statement, the Board of Directors is not aware that any nominee is unable or will decline to serve as a director. If you hold shares through a bank, broker or other holder of record, you must instruct your bank, broker or other holder of record how to vote so that your vote can be counted on this proposal.

Should any of the nominees fail to receive the vote required to be elected in accordance with Cisco’s bylaws, the term of his or her service as a director will end on the date that is the earlier of 90 days after the date on which the voting results are determined pursuant to California law or the date on which the Board of Directors selects a person to fill the office held by that director, unless he or she has earlier resigned.

Recommendation of the Board of Directors

The Board of Directors recommends that the shareholders vote FOR the election of each of the nominees listed herein.

 

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DELAWARE REINCORPORATION

Proposal No. 2 — Approval of the Reincorporation of Cisco from California to Delaware

Overview of the Proposed Reincorporation

On October 7, 2020, the Board of Directors approved a proposal to change the state of incorporation of Cisco from California to Delaware (the “Reincorporation”), subject to the approval of Cisco’s shareholders.

If approved by Cisco’s shareholders, the Reincorporation will be effected through the merger of Cisco with and into a newly formed wholly-owned subsidiary of Cisco incorporated in the State of Delaware solely for the purpose of effecting the Reincorporation (“Cisco Systems Delaware”). The name of Cisco after the Reincorporation will remain Cisco Systems, Inc. For purposes of the discussion below, Cisco as it currently exists as a corporation organized under the laws of the State of California is sometimes referred to as “Cisco Systems California”.

The Board of Directors considered several factors in reaching this decision, including corporate governance, Cisco’s commitment to transparency and best-in-class practices, attracting and retaining board members, the differences between California and Delaware state corporate laws, and other advantages and disadvantages of Reincorporation.

The Board of Directors believes that the choice of state domicile is important because state corporate law governs the internal affairs of a corporation. Management and boards of directors of corporations look to state corporate law and judicial interpretations of state law to guide their decision-making on many key issues, including appropriate governance policies and procedures, satisfaction of fiduciary obligations to shareholders, compliance with financial and legal requirements in the corporation’s business operations, and consideration of key strategic transactions for the corporation, including financings, mergers, acquisitions, and divestitures.

The Board of Directors believes that it is essential for Cisco to be able to draw upon the well-established principles of corporate governance of Delaware law in making legal and business decisions while helping to preserve the shareholder rights that our shareholders are accustomed to, in the interest of maximizing long-term shareholder value. The prominence, breadth, depth and predictability of Delaware corporate law, including its extensive body of case law, provide a reliable foundation on which Cisco’s governance decisions can be based, and the Board of Directors believes that Cisco’s shareholders will benefit from the responsiveness of Delaware corporate law to their needs. In addition to the benefits of being a Delaware corporation, the Board of Directors has proposed as part of the Reincorporation to preserve certain key rights that are currently held by its shareholders as a matter of California law and under the California Incorporation Documents.

The Board of Directors also recognizes that our existing shareholder-friendly governance structure has served Cisco well for years as a public company. Accordingly, the Board of Directors determined, in connection with approval of the Reincorporation, to maintain the following shareholder-friendly provisions of our governance structure even though they would not be required under Delaware law:

 

   

Election of Directors: Cisco would continue to have annual election of all members of its Board of Directors rather than have a classified or staggered board.

 

   

Removal of Directors: Stockholders would have the ability to remove directors with or without cause.

 

   

Director Vacancies: Only the stockholders and not the Board of Directors may fill a director vacancy created by a removal of a director by the stockholders.

 

   

Majority Standard for Director Elections: Require that in any uncontested director election, a candidate must receive a majority, rather than merely a plurality, of votes cast to be elected.

 

   

Special Meeting of Stockholders: Retain the ability of 10% or greater stockholders to call a special meeting of stockholders.

 

   

Action by Consent: Retain the ability of stockholders of Cisco to act by written consent with respect to any action that could otherwise be taken at a meeting of stockholders.

 

   

Proxy Access: Retain “proxy access” for certain stockholder director nominations.

 

   

Amendment of Bylaws: Retain the ability of stockholders to amend Cisco’s bylaws by simple majority.

 

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Opt Out of Delaware General Corporation Law Section 203: In the Reincorporation, Cisco would elect to not apply to Cisco Section 203 of the Delaware General Corporation Law (“DGCL”), a statute that prohibits certain business combinations with interested stockholders for a period of three years unless certain requirements are met.

Shareholders are urged to read this proposal carefully, including all of the related appendices attached to this Proxy Statement, before voting on the Reincorporation. The following discussion summarizes material provisions of the Reincorporation and is subject to and qualified in its entirety by the Merger Agreement in substantially the form attached hereto as Appendix A, the Delaware Certificate of Incorporation in substantially the form attached hereto as Appendix B; and the Delaware Bylaws in substantially the form attached hereto as Appendix C. Copies of the California Articles and California Bylaws have been filed with the SEC as exhibits to Cisco’s periodic or current reports and will be sent to shareholders free of charge upon written request to Cisco Systems, Inc., Attention: Investor Relations, 170 West Tasman Drive, San Jose, California 95134.

After careful consideration of these factors, the Board of Directors believes that it is in the best interests of Cisco and its shareholders to effectuate the Reincorporation.

Mechanics and Consequences of Reincorporation

The Reincorporation will be effected by means of a merger (the “Merger”) pursuant to the terms and conditions of an Agreement and Plan of Merger (the “Merger Agreement”), the form of which is attached hereto as Appendix A between Cisco and Cisco Systems Delaware, a newly formed Delaware corporation and wholly-owned subsidiary of Cisco. Under the Merger Agreement, Cisco will merge with and into Cisco Systems Delaware, Cisco will cease to exist as a separate entity and Cisco Systems Delaware will become the surviving entity following the effectiveness of the Merger (the “Effective Date”), succeeding to and assuming all of the rights and obligations of both Cisco and Cisco Systems Delaware. The existing holders of Cisco’s common stock will own all of the outstanding shares of common stock of Cisco Systems Delaware, and no change in ownership will result from the Reincorporation. If the Reincorporation is approved, at the Effective Date each outstanding share of Cisco’s common stock will automatically be converted into one share of common stock of Cisco Systems Delaware. Each of the equity compensation plans currently maintained by Cisco immediately prior to the Reincorporation will be assumed and continued by Cisco Systems Delaware, and each pre-Reincorporation equity award to purchase or receive shares of Cisco’s common stock under such plans will convert into an equity award to purchase or receive an equivalent number of shares of Cisco Systems Delaware common stock with no other changes in the terms and conditions of such award. Cisco’s other employee benefit arrangements in effect immediately prior to the Reincorporation would also be continued by Cisco Systems Delaware upon the terms and subject to the conditions of such plans in effect immediately prior to the Reincorporation.

Other than the change in corporate domicile, the Reincorporation will not result in any change in Cisco’s business operations, Board of Directors composition or term, or physical location, nor will it result in any change of our current employees, including management, or in their title, responsibilities or compensation. Upon consummation of the Reincorporation, our daily business operations will continue as they are presently conducted at Cisco’s current principal executive offices located at 170 West Tasman Drive, San Jose, California 95134, and our telephone number will remain (408) 526-4000. The consolidated financial condition and results of operations of Cisco Systems Delaware immediately after consummation of the Reincorporation will be substantially similar as those of Cisco immediately prior to the consummation of the Reincorporation. Cisco believes that there will be no material accounting impact as a result of the Reincorporation. If the Reincorporation is approved, at the Effective Date, Cisco Systems Delaware will be the successor-in-interest to Cisco and the shareholders of Cisco will become stockholders of Cisco Systems Delaware.

SHARE CERTIFICATES CURRENTLY ISSUED FOR CISCO’S SHARES WILL AUTOMATICALLY REPRESENT SHARES IN CISCO SYSTEMS DELAWARE UPON COMPLETION OF THE MERGER, AND SHAREHOLDERS WILL NOT BE REQUIRED TO SURRENDER OR EXCHANGE SHARE CERTIFICATES AS A RESULT OF THE REINCORPORATION.

If the Reincorporation is approved, at the Effective Date, Cisco will be governed by the Cisco Systems, Inc. Certificate of Incorporation (the “Delaware Certificate”), and the Cisco Systems, Inc. Bylaws (the “Delaware Bylaws”, and together with the “Delaware Certificate,” the “Delaware Incorporation Documents”) which will replace the Restated Articles of Incorporation of Cisco Systems, Inc. (the “California Articles”) and the

 

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Amended and Restated Bylaws of Cisco Systems, Inc. (the “California Bylaws”, and together with the California Articles, the “California Incorporation Documents”).

Cisco’s common stock is currently listed for trading on Nasdaq under the ticker symbol “CSCO”. If the Reincorporation is approved, at the Effective Date, Cisco’s registration statements on file with the SEC immediately prior to the Reincorporation will be assumed by Cisco Systems Delaware, and the shares of common stock of Cisco Systems Delaware would continue to be traded on Nasdaq without interruption, under the same symbol.

Principal Reasons for Reincorporation

The State of Delaware has been a leader in adopting a comprehensive and coherent set of corporate laws that are responsive to the evolving legal and business needs of corporations organized under Delaware law. The Board of Directors’ decision to reincorporate in the State of Delaware was driven primarily by Delaware’s history of comprehensiveness and flexibility of its corporate laws and its tradition of promoting stockholder-friendly corporate governance. Specifically, the Board of Directors believes that there are several benefits in the Reincorporation, as summarized below.

Predictability, Flexibility and Responsiveness of Delaware Law

Delaware courts have, over many years, established a jurisprudence that is significantly more thorough, predictable, and broadly applied with respect to principles of corporate governance than most, if not all, other jurisdictions. The DGCL is generally acknowledged to be the most advanced and flexible statutory corporation code in the United States. The Delaware legislature is particularly responsive to developments in modern corporate law and Delaware has proven sensitive to changing needs of corporations and their stockholders. The Delaware General Assembly each year considers and adopts statutory amendments in an effort to ensure that the DGCL continues to be responsive to the changing legal and business needs of corporations and their stockholders. The office of the Delaware Secretary of State is viewed as particularly user-friendly, flexible and responsive (as compared to other states) in its administration of the filings and interactions required for mergers, acquisitions and other corporate transactions, thereby reducing complications and delays that can arise in time-sensitive transactions.

Consequently, Delaware has become the preferred state of incorporation for most publicly-traded companies in the United States and, as a result of the large number of major corporations being domiciled in Delaware, Delaware courts have developed a broad and deep body of relevant case law, and are often the first and most influential to address important new issues relating to corporate governance and rights and obligations of stockholders and corporations. As a result, courts of and corporations organized under the laws of other states, including California, have often looked to Delaware law for guidance for such issues, and the DGCL and Delaware administrative practices have become comparatively well-known and widely understood. Corporations domiciled in Delaware are often at an advantage over their peers that are organized under the laws of other states, including many California corporations, in that Delaware corporations can draw upon these well-developed, firmly established and consistently interpreted principles of corporate law when making business and legal decisions. The Board of Directors therefore anticipates that the DGCL will provide greater efficiency, clarity, predictability and flexibility in Cisco’s legal affairs and corporate governance decisions than is presently available under California law. In addition, Delaware case law provides a body of law defining the proper duties and decision-making processes expected of boards of directors in evaluating potential or proposed corporate transactions, which will further benefit Cisco’s shareholders.

Access to Specialized Courts

Delaware’s court system also provides swift and efficient resolutions in corporate litigation involving complex corporate issues. Delaware has a specialized court of equity called the Court of Chancery that hears and decides corporate law cases. The Delaware Court of Chancery operates under rules that are intended to ensure litigation of disputes in a timely and effective way, keeping in mind the timelines and constraints of business decision-making and market dynamics, and routinely handles cases involving complex corporate issues with a level of experience and a degree of sophistication and understanding unmatched by other courts in the country. The appellate process on decisions emanating from the Court of Chancery is similarly streamlined and highly responsive in cases involving complex corporate issues, and the justices of Delaware appellate courts tend to have substantial experience with corporate cases because of the relatively higher volume of these cases in the

 

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Delaware court system. The fact that issues of corporate governance are frequently addressed first in Delaware contributes to an efficient and expert court system and bar. In contrast, California does not have a similar specialized court established to hear only corporate law cases. Rather, disputes involving questions of California corporate law are either heard by the California Superior Court, the general trial court in California that hears all manner of cases, or, if federal jurisdiction exists, a federal district court. These courts hear many different types of cases, and the cases may be heard before judges or juries with limited corporate law experience. As a result, corporate law cases brought in California may not proceed as expeditiously as cases brought in Delaware and the outcomes in such courts may be less consistent or predictable. The highly specialized nature of the Delaware court system is therefore widely believed to result in more consistent and timely rulings.

Enhanced Ability to Attract and Retain Qualified Candidates for Board of Directors and Management

We experience increasing competition in recruiting and retaining talented individuals to serve on our management team and Board of Directors. The Board of Directors believes that the comparatively stable and predictable corporate environment afforded by Delaware would enable Cisco to compete more effectively with other public companies, most of whom are domiciled in Delaware, in the recruitment and retention of talented and experienced directors and officers. Delaware law is more familiar to investors and advisors, and offers greater certainty and stability from the perspective of those who serve as corporate officers and directors in part because the parameters of director and officer liability, including protection for stockholders from possible abuses by directors and officers, are more extensively addressed in Delaware court decisions and are therefore better defined and better understood than under California law. It should also be noted that directors’ personal liability is not, and cannot be, eliminated under Delaware law for intentional misconduct, bad faith conduct, unlawful dividend payments or unlawful stock purchases or redemptions, or any transaction from which the director derives an improper personal benefit. The Board of Directors therefore believes that the comparatively stable and predictable corporate environment afforded by Delaware would not only enhance its ability to recruit and retain directors and officers in the future, but also provide appropriate protection for stockholders from possible abuses by directors and officers, encouraging directors and officers to continue to make independent decisions in good faith on behalf of Cisco.

Ability to Have the Federal District Courts of the United States and Delaware Courts Serve as the Exclusive Forum for the Adjudication of Certain Legal Matters

To ensure that we get the full benefits of Delaware’s corporate legal framework, the Board of Directors has provided in the proposed Delaware Bylaws that the federal district courts of the United States and Delaware courts are the exclusive forum for the adjudication of certain legal actions.

Under the exclusive forum provision contained in the Delaware Bylaws, (i) the federal district courts of the United States shall serve as the exclusive jurisdiction for any litigation arising under the Securities Act of 1933, as amended (the “Securities Act”) unless we consent to an alternative forum, and (ii) the Court of Chancery in the state of Delaware will be the exclusive forum for certain actions involving Cisco unless we consent to an alternative forum. Based on the proposed language in the Delaware Bylaws, the Court of Chancery would be the exclusive forum for (a) derivative actions brought on behalf of Cisco, and (b) any action asserting a claim of breach of a fiduciary duty owed by, or other wrongdoing by, any director, officer, stockholder, employee or agent of Cisco to Cisco or Cisco’s stockholders; (c) any action asserting a claim against Cisco arising pursuant to any provision of the DGCL, the Delaware Incorporation Documents or as to which the DGCL confers jurisdiction on the Court of Chancery of the State of Delaware; (d) any action to interpret, apply, enforce or determine the validity of the Delaware Incorporation Documents; or (e) any action asserting a claim against Cisco governed by the internal affairs doctrine.

We believe that the exclusive forum provision in the Delaware Bylaws will reduce the risk that we could become subject to duplicative litigation in multiple forums, as well as the risk that the outcome of cases in multiple forums could be inconsistent, even though each forum purports to follow Delaware law or federal securities law. Any of these could expose the Company to increased expenses or losses.

Although the Board of Directors believes that the designation of the Delaware Court of Chancery as the exclusive forum for intra-corporate disputes and the federal district courts of the United States for Securities Act claims serves the best interests of the Company and our shareholders as a whole, the Board of Directors also believes that we should retain the ability to consent to an alternative forum on a case-by-case basis. Specifically, where the Board of Directors determines that our interests and those of our stockholders are best served by

 

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permitting a dispute to proceed in a forum other than the Delaware Court of Chancery or the federal district courts of the United States, the exclusive forum provision in the Delaware Bylaws permits us to consent to the selection of such alternative forum. Neither of these choice of forum provisions would affect suits brought to enforce any liability or duty created by the Exchange Act or any other claim for which the federal courts have exclusive jurisdiction.

Possible Negative Consequences of Reincorporation

Notwithstanding the belief of the Board of Directors in the benefits to Cisco’s shareholders of the Reincorporation, it should be noted that Delaware law has been criticized by some commentators on the grounds that it does not afford minority shareholders the same substantive rights and protections as are available in a number of other states, including California. In addition, franchise taxes payable by Cisco in Delaware may be greater than the equivalent or other similar taxes currently payable by Cisco in California. The Board of Directors has considered the possible disadvantages of the Reincorporation and has concluded that the potential benefits outweigh the possible disadvantages.

It should also be noted that the interests of our directors and executive officers in voting on the Reincorporation proposal may be different from, or in addition to, those of shareholders generally because, for example, some substantive provisions of California and Delaware law apply only to directors and officers. See “Interest of Cisco’s Directors and Executive Officers in the Reincorporation” below. For a comparison of shareholders’ rights and the material substantive provisions that apply to the Board of Directors and executive officers under Delaware and California law, see “Significant Differences Between the Charters and Bylaws of Cisco Systems California and Cisco Systems Delaware and Between the Corporate Laws of California and Delaware” below. The Board of Directors has considered these interests, among other matters, in reaching its decision to approve the Reincorporation and to recommend that our shareholders vote in favor of this proposal.

Effectiveness of Reincorporation

If the shareholders approve the Reincorporation at the annual meeting, we currently intend to cause the Reincorporation to become effective as soon as reasonably practicable following the annual meeting, subject to the completion of certain legal formalities, including obtaining certain consents and approvals by third parties with respect to certain contracts to which Cisco is a party and providing certain notices to regulatory authorities. The Merger Agreement also provides that the Merger Agreement may be terminated and the Merger may be abandoned at any time before the Effective Date and for any reason by the Board of Directors of either Cisco or Cisco Systems Delaware or both, notwithstanding the approval, if obtained, of the principal terms of the Merger Agreement by the shareholders of Cisco, or the adoption of the Merger Agreement by the sole stockholder of Cisco Systems Delaware, or both. Furthermore, the Merger Agreement may be amended at any time prior to the Effective Date, either before or after the shareholders have voted to adopt this proposal, subject to applicable law. Cisco will re-solicit shareholder approval of the Reincorporation if the terms of the Merger Agreement are changed in any material respect that requires shareholder approval.

Significant Differences Between the Charters and Bylaws of Cisco Systems California and Cisco Systems Delaware and Between the Corporate Laws of California and Delaware

The following summarizes a comparison of certain key provisions between the California Incorporation Documents and Delaware Incorporation Documents, as well as certain provisions of California and Delaware corporate laws. The comparison highlights important differences, but is not intended to list all differences, and is qualified in its entirety by reference to such documents and to the respective General Corporation Laws of the States of California and Delaware. Shareholders are encouraged to read the Delaware Certificate, the Delaware Bylaws, the California Articles and the California Bylaws in their entirety. The Delaware Certificate and Delaware Bylaws are attached to this Proxy Statement, and the California Bylaws and California Articles are filed publicly as exhibits to our periodic reports with the SEC.

 

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Provision   Current California Provision    Proposed Change for Reincorporation
Authorized Shares  

20 billion shares of common stock, par value $0.001; 5 million shares of “blank check” preferred stock, including 1.2 million shares of Series A Junior Participating Preferred Stock that were previously designated for a “poison pill” rights plan.

 

  

20 billion shares of common stock, par value $0.001; 5 million shares of “blank check” preferred stock, par value $0.001, none of which are designated.

Annual Election of Directors  

Under California law, at each annual meeting of shareholders, directors shall be elected to hold office until the next annual meeting and until a successor has been elected and qualified, unless the corporation permits staggered terms in the articles of incorporation or bylaws.

 

Cisco has not opted for staggered director terms, so its directors are subject to election at each annual meeting of directors.

 

  

No change. Although Delaware law permits the staggered election of directors, the default rule is that directors are elected annually at each meeting of its stockholders. The Delaware Bylaws provide for the annual election of directors.

Number of Directors  

California law requires that board size be specified in the bylaws and that the maximum number of directors may be no more than two times minus one the stated minimum number of directors.

 

The California Bylaws provide that the number of directors will be between 8 and 15, with the exact number of directors to be fixed by the Board of Directors.

 

  

Under Delaware law, the number of directors is fixed by or in the manner provided in the bylaws, unless the certificate of incorporation fixes the number of directors.

 

The Delaware Certificate does not fix a number of directors. The Delaware Bylaws maintain the existing 8 to 15 permitted range for the number of directors, with the exact number of directors to be fixed by the Board of Directors.

 

Vote Required to Elect Directors  

Under California law, cumulative voting for election of directors is permitted if the shareholder provides advance notice of the intent to exercise cumulative voting. California law also permits public companies to eliminate cumulative voting by the approval of shareholders.

 

The California Articles provide that there is no cumulative voting in director elections. The California Bylaws also provide for a majority voting standard for uncontested elections, and provide that in contested elections directors shall be elected by the plurality of the votes cast.

  

No change. Under Delaware law, cumulative voting is not permitted unless the corporation provides for cumulative voting rights in its certificate of incorporation. The default voting standard for the election of directors under Delaware law is a plurality vote; however, the certificate of incorporation or bylaws may specify a different standard for the election of directors, such as a majority of the votes cast.

 

The Delaware Certificate also provides that there is no cumulative voting in director elections. The Delaware Bylaws maintain the majority voting standard for uncontested elections and the plurality voting standard for contested director elections.

 

Removal of Directors  

Under California law, directors may be removed by the board of directors if they are of unsound mind or convicted of a felony. A majority of shareholders may remove directors without cause, provided that the removal of less than all of the directors on the board of directors requires calculating the votes against removal cumulatively.

 

The California Bylaws allow directors to be removed by the Board of Directors if they are of unsound mind or have been convicted of a felony, and allow a majority of shareholders to remove directors without cause. The California Bylaws further provide that removal of less than all of the directors on the Board of Directors requires calculating the votes against removal cumulatively.

 

  

Under Delaware law, any director, or the entire board, may be removed, with or without cause, with the approval of a majority of the outstanding shares entitled to vote at an election of directors.

 

The Delaware Bylaws conform to Delaware law, permitting an unclassified director to be removed at any time with or without cause. The Delaware Bylaws do not provide for cumulative voting, which is not required under Delaware law and will not be utilized in voting on director removal.

Filling a Vacancy on the Board of Directors  

Consistent with California law, Board of Directors’ vacancies may be filled by the majority of remaining directors, other than vacancies created by the removal of a director by the vote of the shareholders, which may only be filled by a vote of the shareholders.

 

If an incumbent director fails to receive the required majority vote to be re-elected in an uncontested election, then unless such director has earlier resigned, his or her term will expire on the earlier of 90 days following the determination of the results or the date on which the Board selects the person to fill the office held by that director.

  

Under Delaware law, vacancies and newly created directorships may be filled by a majority of the directors then in office (even though less than a quorum) or by a sole remaining director, unless otherwise provided in the certificate of incorporation or bylaws. We have retained in the Delaware Bylaws that a vacancy created by the removal of a director by the vote of the stockholders may only be filled by a vote of the stockholders.

 

The Delaware Bylaws provide that if an incumbent director fails to receive the required majority vote to be re-elected in an uncontested election, then such director shall tender his or her resignation to the Board to be effective on the earlier of 90 days following the determination of the results or the date on which the Board selects the person to fill the office held by that director.

 

 

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Provision   Current California Provision    Proposed Change for Reincorporation
Lead Independent Director  

Under California law, a corporation may create a position of lead independent director.

 

The California Bylaws do not specifically provide for a lead independent director.

 

  

Under Delaware law, a corporation may create a position of lead independent director.

 

The Delaware Bylaws provide for a lead independent director.

Proxy Access  

Under California law, corporations may provide for “proxy access” for shareholders in a corporation’s bylaws.

 

The California Bylaws implement “proxy access” by permitting stockholders holding 3% or greater ownership of Cisco’s common stock for three years the opportunity to elect the greater of 2 and 20% of the Board of Directors.

 

  

No change. Delaware law permits corporations to adopt “proxy access” in their bylaws.

 

The Delaware Bylaws retain the same proxy access provisions as the California Bylaws.

Advance Notice of Stockholder Proposals and Director Nominations  

Under California law, corporations may set the time period required for shareholders to provide advance notice to the corporation of director nominees and business to be put to vote at the annual meeting of shareholders.

 

Under the California Bylaws for shareholder business or director nomination to be timely, they must be delivered to Cisco between 60 and 90 days prior to the anniversary of the mailing of the proxy statement for the prior year’s annual meeting of shareholders.

 

  

No change. Delaware also permits corporations to set the advance notice time period in the corporation’s bylaws for stockholder director nominations and proposals of business at the annual meeting.

 

The Delaware Bylaws set the advance notice period for stockholder notification to the Cisco to be between 60 and 90 days prior to the anniversary of the mailing of the proxy statement for the prior year’s annual meeting of stockholders.

Ability of Shareholders to Call Special Meetings  

Under California law, a special meeting of shareholders may be called by the board of directors, the board chair, the president, or the holders of shares entitled to cast not less than 10% of the votes at such meeting and such persons as are authorized by the articles of incorporation or bylaws.

 

The California Bylaws allow a special meeting to be called by the Board chair, the Chief Executive Officer, a President, the Board of Directors or by shareholders holding at least 10% of the outstanding stock.

 

  

Under Delaware law, a special meeting of stockholders may be called by the board of directors or by any person authorized in the certificate of incorporation or the bylaws.

 

The Delaware Bylaws also allow a special meeting to be called by the Board chair, the Chief Executive Officer, the Board of Directors or by stockholders holding at least 10% of the outstanding stock.

Stockholder Action by Consent  

California law provides that shareholder action by written consent is available unless otherwise provided in a company’s articles of incorporation. Cisco has not opted out of this default rule, and therefore the California Articles permit shareholders may act by written consent without a meeting. Pursuant to the California Bylaws and California law, the election of directors must be by unanimous stockholder consent; provided that the shareholders may elect a director to fill a vacancy, other than a vacancy created by removal, by the consent of a majority of the outstanding shares entitled to vote.

 

  

Under Delaware law the right of stockholders to take action by consent without a meeting must be contained in the certificate of incorporation.

 

The Delaware Certificate retains the right of stockholders to take action through consent on any action that may be taken at any meeting of the stockholders. However, the California law requirement that directors be elected by unanimous consent if action is taken without a meeting was not retained in the Delaware Bylaws.

Dividends, Repurchases and Redemption  

Under California law, a corporation may not pay dividends or otherwise make other distributions to its shareholders unless either: (i) the corporation’s retained earnings immediately prior to the proposed distribution equal or exceed the amount of the proposed distribution plus the preferential dividends arrears amount; or (ii) immediately after the distribution, the value of its assets equals or exceeds the sum of (a) its total liabilities plus (b) the liquidation preference of any shares which have a preference upon dissolution over the rights of shareholders receiving the distribution. These tests are applied to California corporations on a consolidated basis.

  

Delaware law is generally more flexible than California law with respect to payment of dividends and implementing share repurchase programs. Delaware law generally provides that a corporation may redeem or repurchase its shares out of its surplus. In addition, Delaware law generally provides that a corporation may declare and pay dividends out of surplus, or if there is no surplus, out of net profits for the fiscal year in which the dividend is declared and/or for the preceding fiscal year. Surplus is defined as the excess of a corporation’s net assets (i.e., its total assets minus its total liabilities) over its statutory capital. Moreover, Delaware permits a board of directors to reduce its capital (but not below than the aggregate par value of its outstanding shares of stock) and transfer such amount to its surplus.

 

Amendment of Bylaws  

Under California law, the board of directors may amend the California Bylaws by default. Therefore, the California Articles do not specify that the Board of Directors may amend the California Bylaws. The California Bylaws specify that they may be adopted, amended, or repealed by majority shareholder vote. The right of the Board of Directors to amend the California Bylaws is subject to the shareholder right.

  

Under Delaware law, the power of the board of directors to amend the Delaware Bylaws must be expressly contained in the Certificate of Incorporation. Therefore, the Delaware Certificate provides that the Board of Directors may amend the Delaware Bylaws, and the Delaware Bylaws provide that the right of the Board of Directors to amend the Delaware Bylaws is concurrent with the stockholders’ right. The Delaware Bylaws maintain that they may be adopted, amended, or repealed by majority stockholder vote.

 

 

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Provision   Current California Provision    Proposed Change for Reincorporation
Restrictions on Transactions with Interested Shareholders  

Section 1203 of the California Corporations Code, which applies to mergers or corporate acquisition transactions with interested shareholders or their affiliates, makes it a condition to the consummation of a merger or other acquisition transaction with an interested shareholder that an affirmative opinion be obtained in writing as to the fairness of the consideration be received by the shareholders of the corporation being acquired.

  

Under DGCL Section 203, a Delaware corporation is prohibited from engaging in a “business combination” with an “interested stockholder” (generally as a person with 15% or more of the corporation’s outstanding voting stock) for three years, unless certain conditions are met. Delaware corporations may opt out of DGCL Section 203 only by express provision in a certificate of incorporation. The Delaware Certificate includes a provision opting out from DGCL Section 203.

 

Stockholder Vote Required to Approve Merger or Sale of Company  

Except in limited circumstances, California law requires the affirmative vote of a majority of the outstanding shares entitled to vote in order to approve a merger of the corporation or a sale of all or substantially all the assets of the corporation, including, in the case of a merger, the affirmative vote of each class of outstanding stock.

 

The California Articles do not include any voting requirements with respect to the approval of a merger or sale.

 

  

Delaware law requires the affirmative vote of a majority in voting power of the outstanding shares entitled to vote to approve a merger of the corporation or a sale of all or substantially all the assets of the corporation, except in limited circumstances.

Restrictions on Cash Mergers  

Under California law, a merger may not be consummated for cash if the purchaser owns more than 50% but less than 90% of the then outstanding shares unless either: (i) all of the shareholders consent, or (ii) the California Commissioner of Corporations approves the merger.

 

  

Delaware law does not have a provision similar to this California rule.

Exclusive Forum Provisions  

Under California law, a corporation may designate certain jurisdictions as the exclusive forum for certain claims.

 

The California Incorporation Documents do not make any exclusive forum designation.

  

Under Delaware law, a corporation may designate certain jurisdictions as the exclusive forum for certain claims.

 

The Delaware Bylaws designate the federal district courts of the United States to serve as the exclusive jurisdiction for any litigation arising under the Securities Act, and designates the Chancery Court of the State of Delaware to be the exclusive forum for certain actions involving Cisco, including for (a) derivative actions brought on behalf of Cisco, and (b) any action asserting a claim of breach of a fiduciary duty owed by, or other wrongdoing by, any director, officer, stockholder, employee or agent of Cisco to Cisco or Cisco’s stockholders; (c) any action asserting a claim against Cisco arising pursuant to any provision of the DGCL, the Delaware Incorporation Documents or as to which the DGCL confers jurisdiction on the Court of Chancery of the State of Delaware; (d) any action to interpret, apply, enforce or determine the validity of the Delaware Incorporation Documents; or (e) any action asserting a claim against Cisco governed by the internal affairs doctrine. Notwithstanding the foregoing, Cisco may consent to an alternative forum at its discretion. Neither of these choice of forum provisions would affect suits brought to enforce any liability or duty created by the Exchange Act or any other claim for which the federal courts have exclusive jurisdiction.

 

 

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Provision   Current California Provision    Proposed Change for Reincorporation
Indemnification and Advancement of Expenses  

Indemnification of corporate officers and directors is permitted by California law, provided the requisite standard of conduct is met. California law requires indemnification when the indemnitee has defended the action successfully on the merits. Indemnification is permitted under California law only for acts taken in good faith and believed to be in the best interests of the company and its shareholders.

 

Expenses incurred by an officer or director in defending an action may be paid in advance, if the director or officer undertakes to repay such amounts if it is ultimately determined that he or she is not entitled to indemnification. California law authorizes a corporation to purchase indemnity insurance for the benefit of its officers, directors, employees and agents whether or not the corporation would have the power to indemnify against the liability covered by the policy.

 

California law permits a corporation to provide rights to indemnification beyond those provided therein to the extent such additional indemnification is authorized in the corporation’s articles of incorporation. Thus, if so authorized, rights to indemnification may be provided pursuant to agreements or bylaw provisions which make mandatory the permissive indemnification provided by California law.

 

The California Articles and California Bylaws authorize indemnification to the fullest extent permissible under California law. The California Bylaws also specify that any expenses reasonably incurred by an agent defending a claim resulting from such person serving at Cisco’s request as a director or officer of another corporation shall be paid by Cisco.

  

Substantially similar. Delaware law permits corporations to indemnify its directors, officers, employees and agents from expenses and losses arising out of litigation arising by reason of the person’s service to the corporation or to another entity at its request, including, in certain circumstances, litigation by or in the right of the corporation so long as the person acted in good faith and in a manner reasonably believed to be in or not opposed to the best interests of the corporation and, in the case of criminal proceedings, had no reasonable cause to believe that his or her conduct was unlawful. A corporation must indemnify a person “to the extent” the person is successful on the merits or otherwise in defense of an action, suit or proceeding. Unless judicially authorized, corporations may not indemnify a person in connection with a proceeding by or in the right of the corporation in which the person was adjudged liable to the corporation.

 

Expenses incurred by a director, officer, employee or agent in defending an action may be paid in advance, if the person undertakes to repay such amounts if it is ultimately determined that he or she is not entitled to indemnification. Delaware law authorizes a corporation to purchase indemnity insurance for the benefit of its directors, officers, employees and agents whether or not the corporation would have the power to indemnify against the liability covered by the policy.

 

Delaware law permits a Delaware corporation to provide indemnification in excess of that provided by statute.

 

The Delaware Certificate authorizes indemnification to the fullest extent permissible under Delaware law and the Delaware Bylaws mandate indemnification for directors and officers, as well as others that are acting, at the request of Cisco, as directors, officers, authorized signatories or trustees of other entities, in each case, to the fullest extent permissible under Delaware law. The Delaware Bylaws also mandate advancement of defense expenses for directors and officers to the fullest extent permissible under Delaware.

 

Elimination of Director Personal Liability for Monetary Damages  

California law permits a corporation to eliminate the personal liability of directors for monetary damages, except where such liability is based on:

 

(i) Intentional misconduct or knowing and culpable violation of law;

 

(ii)  Acts or omissions that a director believes to be contrary to the best interests of the corporation or its shareholders or that involve the absence of good faith on the part of the director;

 

(iii) Any transaction from which a director derived an improper personal benefit;

 

(iv) Acts or omissions that show reckless disregard for the director’s duty to the corporation or its shareholders, where the director in the ordinary course of performing a director’s duties is, or should be, aware of a risk of serious injury to the corporation or its shareholders;

 

(v)   Acts or omissions that constitute an unexcused pattern of inattention that amounts to an abdication of the director’s duty to the corporation and its shareholders;

 

(vi) Transactions between the corporation and a director who has a material financial interest in such transaction; or

 

(vii) Liability for improper distributions, loans or guarantees.

 

The California Articles eliminate the liability of directors for monetary damages to the fullest extent permissible under California law.

  

Substantially similar. Delaware law permits a corporation to eliminate the personal liability of directors for monetary damages, except where such liability is based on:

 

(i) Breaches of the director’s duty of loyalty to the corporation or its stockholders;

 

(ii)  Acts or omissions not in good faith or involving intentional misconduct or knowing violations of law;

 

(iii) The payment of unlawful dividends or unlawful stock repurchases or redemption; or

 

(iv) Transactions in which the director received an improper personal benefit.

 

Such a limitation of liability provision also may not limit a director’s liability for violation of, or otherwise relieve the company or directors from the necessity of complying with, federal or state securities laws, or affect the availability of non-monetary remedies such as injunctive relief or rescission.

 

To the fullest extent permitted by Delaware statutory or decisional law, the Delaware Certificate eliminates the liability of directors to Cisco or its stockholders for monetary damages for breach of duty as a director.

 

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Interest of Cisco’s Directors and Executive Officers in the Reincorporation

The shareholders should be aware that Cisco’s directors and executive officers in voting on the Reincorporation proposal may have interests in the transaction that are different from, or in addition to, the interests of the shareholders generally. For example, the Reincorporation may provide officers and directors of Cisco with more clarity and certainty in the reduction of their potential personal liability and strengthen the ability of directors to resist takeover bids. The Board of Directors has considered these interests, among other matters, in reaching its decision to approve the Reincorporation and to recommend that our shareholders vote in favor of this proposal.

U.S. Federal Income Tax Consequences

The following discussion summarizes certain U.S. federal income tax consequences of the Reincorporation to holders of our common stock. The discussion is based on the Code, regulations promulgated under the Code by the U.S. Treasury Department (including proposed and temporary regulations), rulings, current administrative interpretations and official pronouncements of the Internal Revenue Service (IRS), and judicial decisions, all as currently in effect and all of which are subject to differing interpretations or to change, possibly with retroactive effect. Such change could materially and adversely affect the tax consequences described below. No assurance can be given that the IRS would not assert, or that a court would not sustain, a position contrary to any of the tax consequences described herein.

This discussion is for general information only, and does not purport to discuss all aspects of U.S. federal income taxation that may be important to a particular holder in light of its investment or tax circumstances or to holders subject to special tax rules, such as partnerships, subchapter S corporations or other pass-through entities, banks, financial institutions, tax-exempt entities, insurance companies, regulated investment companies, real estate investment trusts, trusts and estates, dealers in stocks, securities or currencies, traders in securities that have elected to use the mark-to-market method of accounting for their securities, persons holding our common stock as part of an integrated transaction, including a “straddle,” “hedge,” “constructive sale,” or “conversion transaction,” persons whose functional currency for tax purposes is not the U.S. dollar and persons subject to the alternative minimum tax provisions of the Code. This discussion does not include any description of the tax laws of any state or local governments, or of any foreign government, that may be applicable to a particular holder.

This discussion is directed solely to holders that hold our common stock as capital assets within the meaning of Section 1221 of the Code, which generally means as property held for investment. In addition, the following discussion only addresses “U.S. persons” for U.S. federal income tax purposes, generally defined as beneficial owners of our common stock who are:

 

   

Individuals who are citizens or residents of the United States;

 

   

Corporations (including an entity treated as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of the United States or of any state of the United States or the District of Columbia;

 

   

Estates, the income of which is subject to U.S. federal income taxation regardless of its source;

 

   

Trusts, if a court within the United States is able to exercise primary supervision over the administration of any such trust and one or more U.S. persons have the authority to control all substantial decisions of such trust; or

 

   

Trusts in existence on August 20, 1996 that have valid elections in effect under applicable Treasury regulations to be treated as U.S. persons.

If an entity or arrangement treated as a partnership for U.S. federal income tax purposes holds our common stock, the U.S. federal income tax treatment of a partner generally will depend on the status of the partner and the activities of the partnership. A partner of a partnership holding our common stock should consult its own tax adviser regarding the U.S. federal income tax consequences to the partner of the Reincorporation.

This discussion does not purport to be a complete analysis of all of the tax consequences of the Reincorporation that may be relevant to holders. We urge you to consult your own tax adviser regarding your particular circumstances and the U.S. federal income and other federal tax consequences to you of the Reincorporation, as well as any tax consequences arising under the laws of any state, local, foreign or other tax jurisdiction and the possible effects of changes in U.S. federal or other tax laws.

 

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We have not requested a ruling from the IRS or an opinion of counsel regarding the U.S. federal income tax consequences of the Reincorporation. However, we believe:

 

   

The Reincorporation will constitute a tax-free reorganization under Section 368(a) of the Code;

 

   

No gain or loss will be recognized by holders of Cisco Systems California common stock on receipt of Cisco Systems Delaware common stock pursuant to the Reincorporation;

 

   

The aggregate tax basis of Cisco Systems Delaware common stock received by each holder will equal the aggregate tax basis of the Cisco Systems California common stock surrendered by such holder in exchange therefor; and

 

   

The holding period of the Cisco Systems Delaware common stock received by each holder will include the period during which such holder held the Cisco Systems California common stock surrendered in exchange therefor.

Vote Required

The affirmative vote of a majority of the shares of Cisco’s outstanding common stock is required to effect the Reincorporation. Consequently, broker non-votes and abstentions shall have the same effect as a vote against the Reincorporation. If you own shares through a bank, broker or other holder of record, you must instruct your bank, broker or other holder of record how to vote in order for them to vote your shares so that your vote can be counted on this proposal.

Recommendation of the Board of Directors

The Board of Directors recommends that the shareholders vote FOR approval of the Reincorporation.

 

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COMPENSATION COMMITTEE MATTERS

Proposal No. 3 — Approval of the Amendment and Restatement of the 2005 Stock Incentive Plan

Cisco is requesting that shareholders approve, in its entirety, the Cisco Systems, Inc. 2005 Stock Incentive Plan as amended and restated by the Board of Directors, subject to shareholder approval (as amended and restated, the “Amended Stock Plan”). If the amendment and restatement is not approved by shareholders at the 2020 Annual Meeting, awards shall continue to be granted under the 2005 Stock Incentive Plan until the 2005 Stock Incentive Plan expires on the date of the 2021 Annual Meeting. A summary of the Amended Stock Plan follows.

General

Under its terms, the 2005 Stock Incentive Plan will expire on the date of the 2021 Annual Meeting if not approved by shareholders. The Amended Stock Plan that is being submitted to our shareholders for approval:

 

   

Provides that the term of the 2005 Stock Incentive Plan be extended for nine years and expire on the date of the 2030 Annual Meeting;

 

   

Increases the number of shares authorized for issuance under the 2005 Stock Incentive Plan by 95,975,000 shares to 789,975,000 shares;

 

   

Expands the ability of the Compensation Committee to set appropriate performance goals under the Amended Stock Plan since an itemized list and specific time limits are no longer required by Section 162(m) of the Code;

 

   

Clarifies that dividends, dividend equivalents, and other distributions on unvested awards will be paid or settled only after the underlying awards have been earned and are vested and not during the performance/service vesting period; and

 

   

Expands cash compensation elections for non-employee directors to allow for non-employee directors to elect to receive stock grants or deferred stock units in lieu of any retainer paid in connection with service on any committee of the Board or other cash fees (not limited to his or her regular annual cash retainer).

Except for the changes set forth above, the terms of the 2005 Stock Incentive Plan will remain unchanged. After the amendment and restatement, the Amended Stock Plan will continue to contain the following important corporate governance features:

 

   

Caps on the annual amount of awards that participants can be granted.

 

   

Repricing of stock options and stock appreciation rights is prohibited unless shareholder approval is obtained.

 

   

Stock options and stock appreciation rights must be granted with an exercise price that is not less than 100% of the fair market value on the date of grant.

 

   

Automatic replacement of stock options when a stock option is exercised with previously acquired shares of Cisco common stock or so-called “stock option reloading” is not permitted.

 

   

No single-trigger change in control vesting.

Request for Additional Shares, Dilution and Overhang

In order to give Cisco the flexibility to responsibly address its future equity compensation needs, Cisco is requesting that shareholders approve the Amended Stock Plan, which increases the number of shares authorized for issuance under the plan by 95.975 million shares. As of July 25, 2020, there were approximately 183 million shares available for grant under the 2005 Stock Incentive Plan. The 2005 Stock Incentive Plan contains a fungible share reserve feature. Under this feature, a distinction is made between the number of shares in the reserve attributable to (i) stock options and stock appreciation rights and (ii) “full value” awards (i.e., stock grants and stock units). Currently, shares granted pursuant to full value awards are counted against authorized shares under the 2005 Stock Incentive Plan on a 1.5-to-1 ratio, the fungible share ratio. Recent annual grant levels for the preceding three fiscal years have averaged at approximately 47 million full value shares (or approximately 70 million shares counted against authorized shares) for an average annual burn rate of

 

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approximately 1.04%. The “burn rate” is the ratio of the number of shares underlying awards, including performance-based awards valued at 100% of target, granted under the 2005 Stock Incentive Plan during a fiscal year to the number of Cisco’s weighted average common shares outstanding for the corresponding fiscal year.

A total of 350 million shares were originally authorized under the 2005 Stock Incentive Plan in 2005, an additional 209 million shares were authorized in 2007, and an additional 135 million shares were authorized in 2013. Set forth below is the number of shares available for issuance pursuant to outstanding and future equity awards under all stock incentive plans as of July 25, 2020:

 

Shares subject to outstanding stock option awards

     1 million  

Shares subject to outstanding restricted share/unit awards (assuming outstanding performance-based stock unit awards are earned at maximum)

     101 million  

Shares available for issuance pursuant to future equity awards (assuming outstanding performance-based stock unit awards are earned at maximum)

     183 million  
  

 

 

 

Total shares available for future issuance

     285 million  
  

 

 

 

Note: As of July 25, 2020, Cisco had under the Amended Stock Plan no outstanding options, approximately 93 million shares subject to outstanding RSUs, and approximately 8 million shares subject to outstanding PRSUs based on an assumed maximum performance, unless performance is otherwise known. As of July 25, 2020, Cisco had under assumed stock plans approximately 476 thousand shares subject to outstanding RSUs and 1 million shares subject to outstanding options with a weighted average exercise price of $6.71 per share and a weighted average life of 4.1 years.

The above total of 285 million shares represents an overhang of approximately 7% based on outstanding common shares as of July 25, 2020. If this amendment and restatement is approved, the additional 95.975 million shares available for issuance under the Amended Stock Plan would increase the overhang to 9%. Cisco calculates “overhang” as the total of (a) shares underlying outstanding awards plus shares available for issuance under future equity awards, divided by (b) the total number of shares outstanding, shares underlying outstanding awards and shares available for issuance under future equity awards. As of September 30, 2020, the fair market value of a share of Cisco common stock was $39.39.

When considering the number of additional shares to add to the Amended Stock Plan, the Compensation Committee reviewed, among other things, the potential dilution to Cisco’s current shareholders as measured by burn rate and overhang, projected future share usage and projected future forfeitures. The projected future usage of shares for long-term incentive awards under the Amended Stock Plan was reviewed under scenarios based on a variety of assumptions. Depending on assumptions, the 95.975 million shares to be added to the Amended Stock Plan pursuant to this amendment and restatement, in combination with the remaining authorized shares and shares added back to the plan from forfeitures of awards granted under the Amended Stock Plan and added to the plan from forfeitures of awards granted under certain previous plans, is expected to satisfy Cisco’s equity compensation needs through at least the 2024 Annual Meeting. However, while this forecast is based on current operating assumptions, there can be no guarantee that future events, including changes in future business conditions and Cisco’s stock price, will not require Cisco to grant equity awards more rapidly or slowly than currently expected. The Compensation Committee is committed to effectively managing the number of shares reserved for issuance under the Amended Stock Plan while minimizing shareholder dilution.

Material Features of the Amended Stock Plan

The following is a summary of the material features of the Amended Stock Plan. This summary does not purport to be a complete description of all of the provisions of the Amended Stock Plan and is qualified in its entirety by the Amended Stock Plan in substantially the form attached hereto as Appendix D. A copy of the Amended Stock Plan has been filed with the SEC with this Proxy Statement and will be sent to shareholders free of charge upon written request to Cisco Systems, Inc., Attention: Investor Relations, 170 West Tasman Drive, San Jose, California 95134.

Purpose of the Amended SIP

The purpose of the Amended Stock Plan is to promote the long-term success of Cisco and the creation of shareholder value by offering employees, consultants and board members an opportunity to share in such long-term success by acquiring a proprietary interest in Cisco. The Amended Stock Plan seeks to achieve this purpose

 

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by providing for discretionary long-term incentive awards in the form of incentive stock options or nonstatutory stock options, stock appreciation rights (“SARs”), stock grants, and stock units.

Share Reserve

The shares issuable under the Amended Stock Plan are authorized but unissued shares of Cisco common stock. The aggregate number of shares reserved for awards under the Amended Stock Plan must not exceed 789,975,000 shares, subject to adjustment in the event of a capitalization event as described below in “Capitalization Adjustments.”

If awards issued under the Amended Stock Plan are forfeited or terminated for any reason before being exercised or settled, then the shares underlying such awards, plus the number of additional shares, if any, that counted against shares available for issuance under the Amended Stock Plan at the time of grant as a result of the application of the fungible share ratio described above, will become available again for issuance under the Amended Stock Plan. SARs will be counted in full against the number of shares available for issuance under the Amended Stock Plan regardless of the number of shares issued upon settlement of the SARs. In the event that withholding tax liabilities arising from an award other than a stock option or SAR are satisfied by the withholding of shares by Cisco, then the shares so withheld, plus the number of additional shares, if any, that counted against the shares available for issuance under the Amended Stock Plan in respect thereof at the time of grant, will again be available for issuance under the Amended Stock Plan. Shares withheld by Cisco to satisfy any tax withholding obligation with respect to a stock option or SAR will not be added to the shares available for issuance under the Amended Stock Plan. Further, shares that are exchanged by a participant or withheld by Cisco as full or partial payment in connection with the exercise or settlement of a stock option or SAR will not be available for subsequent awards under the Amended Stock Plan and shares repurchased on the open market with the proceeds of an option exercise will not be made available again for issuance under the Amended Stock Plan.

The following table provides certain information regarding the share reserve of the Amended Stock Plan:

 

Shares originally authorized under the 2005 Stock Incentive Plan on November 15, 2005

     350 million  

Additional shares authorized under the amendment and extension of the 2005 Stock Incentive Plan in 2007

     209 million  

Additional shares authorized under the amendment of the 2005 Stock Incentive Plan in 2013

     135 million  

Additional shares requested pursuant to this proposal

     95.975 million  

Shares granted from November 15, 2005 through July 25, 2020 from the 2005 Stock Incentive Plan, less allowable cancellations from the 2005 Stock Incentive Plan and the previous plans

     (511 million
  

 

 

 

Total shares available for grant under the Amended Stock Plan as of July 25, 2020 (inclusive of the shares requested pursuant to this proposal)

     279 million  
  

 

 

 

Note: As of July 25, 2020, Cisco had under the Amended Stock Plan no outstanding options, approximately 93 million shares subject to outstanding RSUs and approximately 8 million shares subject to outstanding PRSUs based on an assumed maximum performance, unless performance is otherwise known.

Plan Limits

No participant in the Amended Stock Plan may be granted awards during any fiscal year in excess of any of the following limits: options covering in excess of 5,000,000 shares; SARs covering in excess of 5,000,000 shares; or stock grants or stock units in the aggregate covering in excess of 5,000,000 shares. The maximum value of stock awards granted during a single fiscal year under the Amended Stock Plan, taken together with any cash fees paid during such fiscal year for services on the Board of Directors, will not exceed $800,000 in total value for any non-employee director, calculating the value of any such awards based on the grant date fair value of such awards under applicable financial accounting standards. Such limit includes the value of any stock awards that are received in lieu of payment of all or a portion of the non-employee director’s regular annual retainer, additional retainer paid in connection with service on any committee of the Board of Directors, or other cash fees. For the avoidance of doubt, neither awards granted or compensation paid to a non-employee director for services rendered as an employee or consultant of Cisco nor any amounts paid to a non-employee director as a reimbursement of an expense will count against the foregoing limitation.

 

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Administration

Under the terms of the Amended Stock Plan, the Board of Directors or a committee appointed by the Board of Directors has the authority to administer the Amended Stock Plan (the “Plan Administrator”). The Compensation Committee has been designated as the Plan Administrator. The Board of Directors may, however, at any time terminate the functions of the Compensation Committee and reassume all powers and authority previously delegated to the Compensation Committee.

Subject to the terms of the Amended Stock Plan, the Plan Administrator, among other things, determines the recipients, dates of grant, the numbers and types of stock awards to be granted and the terms and conditions of such stock awards. Notwithstanding the foregoing, only the full Board of Directors may grant and administer awards under the Amended Stock Plan to non-employee directors.

Eligibility and Types of Awards under the Amended Stock Plan

The Amended Stock Plan permits the granting of stock options, stock grants, stock units and SARs by the Plan Administrator as further described below. Employees (including employee directors and executive officers) and consultants of Cisco and its subsidiaries and affiliates and non-employee directors of Cisco are eligible to participate in the Amended Stock Plan. Accordingly, each non-employee member of the Board of Directors, each executive officer and each person who previously served as an executive officer during fiscal 2020 and remains employed by Cisco has an interest in Proposal No. 3. As of July 25, 2020, approximately 77,500 employees (including executive officers) are eligible to participate in the Amended Stock Plan. All non-employee directors (9 persons) are eligible to participate in the Amended Stock Plan.

 

   

Stock Units

The Plan Administrator may award stock units under the Amended Stock Plan. Participants are not required to pay any consideration to Cisco at the time of grant of a stock unit. The number of shares covered by each stock unit award will be determined by the Plan Administrator.

The Plan Administrator may provide for time-based vesting or vesting upon satisfaction of performance goals, or both, and/or other conditions. Unless a deferral election is made, when the participant satisfies the vesting conditions of the stock unit award, Cisco will pay the participant cash or shares of Cisco common stock or any combination of both to settle the vested stock units. Conversion of the stock units into cash may be based on the average of the fair market value of a share of Cisco common stock over a series of trading days or on other methods. The holders of stock units have no voting rights. Awards may be granted with or without dividend equivalents, which, prior to distribution, are subject to the same terms and conditions (including, without limitation, any forfeiture conditions) as the stock units to which they relate. Any dividend equivalents awarded with respect to stock units will be settled only if, when and to the extent such stock units vest and are settled. Dividend equivalents payable with respect to stock units that do not vest will be forfeited. Currently, dividend equivalents are only credited on vested deferred stock units.

 

   

Stock Options

The Plan Administrator may grant nonstatutory stock options or incentive stock options under the Amended Stock Plan. However, the Plan Administrator does not have the authority to grant stock options that automatically provide for the grant of new stock options upon their exercise. The number of shares covered by each stock option granted to a participant will be determined by the Plan Administrator.

The Plan Administrator may provide for time-based vesting or vesting upon satisfaction of performance goals, or both, and/or other conditions. The stock option exercise price is established by the Plan Administrator and must be at least 100% of the per share fair market value (110% for incentive stock option grants to 10% shareholders) of Cisco common stock on the date of grant. Repricing of stock options is prohibited unless shareholder approval is obtained. The maximum term for stock options may not exceed ten years from the date of grant, but the Plan Administrator may provide for earlier expiration. Since fiscal 2009, the Plan Administrator has determined that stock options granted will expire seven years after the date of grant. Unless otherwise provided by the Plan Administrator, unvested stock options will expire upon termination of the participant’s service with Cisco and vested stock options will expire three months following a termination for any reason other than death, disability, or cause; eighteen months following a termination for death or disability; and immediately following a termination for cause. Stock options may not be granted with rights to dividends or dividend equivalents.

 

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Under the Amended Stock Plan, the stock option exercise price must be paid at the time the shares are purchased. Consistent with applicable laws, regulations and rules, payment of the exercise price of a stock option may be made in cash, (including by check, wire transfer or similar means), by cashless exercise, by surrendering or attesting to previously acquired shares of Cisco common stock, or by any other legal consideration.

 

   

Stock Grants

The Plan Administrator may award stock grants under the Amended Stock Plan. Except for non-employee directors, stock grants are not typically awarded to employees. At the time of the stock grant, participants may be required to pay cash or other legal consideration approved by the Plan Administrator, but the Amended Stock Plan does not establish a minimum purchase price for shares awarded as stock grants. Stock grants are comprised of shares of Cisco common stock. The number of shares associated with each stock grant will be determined by the Plan Administrator.

The Plan Administrator may provide for time-based vesting or vesting upon satisfaction of performance goals, or both, and/or other conditions. When the stock grant award conditions are satisfied, then the participant is vested in the shares and has complete ownership of the shares. The holder of a stock grant awarded under the Amended Stock Plan will have the same voting, dividend and other rights as Cisco’s other shareholders, except that in the case of any unvested shares, the holder will not be entitled to any dividends and other distributions paid or distributed by Cisco on the equivalent number of vested shares. Notwithstanding the foregoing, at the Plan Administrator’s discretion, the holder of unvested shares may be credited with such dividends and other distributions provided that such dividends and other distributions will be distributed to the holder only if, when and to the extent such shares vest. The value of dividends and other distributions payable or distributable with respect to any shares that do not vest shall be forfeited.

 

   

Stock Appreciation Rights

The Plan Administrator may grant SARs under the Amended Stock Plan. However, the Plan Administrator does not have the authority to grant SARs that automatically provide for the grant of new SARs upon their exercise. The number of shares covered by each SAR will be determined by the Plan Administrator.

The Plan Administrator may provide for time-based vesting or vesting upon satisfaction of performance goals and/or other conditions. The SAR exercise price is established by the Plan Administrator and must be at least 100% of the per share fair market value of Cisco common stock on the date of grant. Repricing of SARs is prohibited unless shareholder approval is obtained. SARs may not be granted with rights to dividends or dividend equivalents.

The maximum term for SARs may not exceed ten years from the date of grant, but the Plan Administrator may provide for earlier expiration. Unless otherwise provided by the Plan Administrator, unvested SARs expire upon termination of the participant’s service with Cisco and vested SARs expire three months following a termination for any reason other than death, disability, or cause; eighteen months following a termination for death or disability; and immediately following a termination for cause. Upon exercise of a SAR, the participant receives payment from Cisco in an amount determined by multiplying (a) the difference between (i) the fair market value of a share on the date of exercise and (ii) the exercise price times (b) the number of shares with respect to which the SAR is exercised. SARs may be paid in cash, shares of Cisco common stock or any combination of both, as determined by the Plan Administrator.

Performance Conditions

Awards under the Amended Stock Plan may be made subject to performance conditions as well as time-vesting conditions. Such performance conditions may be based on an objective formula or standard, which include, but are not limited to, one or more of the following factors, whether or not calculated in accordance with GAAP, and any objectively verifiable adjustment(s) thereto permitted and pre-established by the Plan Administrator: (i) operating income, operating cash flow and operating expense; (ii) earnings before interest, taxes, depreciation and amortization; (iii) earnings; (iv) cash flow; (v) market share; (vi) sales; (vii) revenue; (viii) profits before interest and taxes; (ix) expenses; (x) cost of goods sold; (xi) profit/loss or profit margin; (xii) working capital; (xiii) return on capital, equity or assets; (xiv) earnings per share; (xv) economic value added; (xvi) stock price; (xvii) price/earnings ratio; (xviii) debt or debt-to-equity; (xix) accounts receivable; (xx) write-offs; (xxi) cash; (xxii) assets; (xxiii) liquidity; (xxiv) operations; (xxv) intellectual property (e.g., patents); (xxvi) product development; (xxvii) regulatory activity; (xxviii) manufacturing, production or

 

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inventory; (xxix) mergers and acquisitions or divestitures; (xxx) financings; (xxxi) customer satisfaction; and/or (xxxii) total shareholder return, each with respect to Cisco and/or one or more of its affiliates or operating units.

Capitalization Events

In the event of a subdivision of the outstanding shares of Cisco common stock, a declaration of a dividend payable in shares, a declaration of a dividend payable in a form other than shares in an amount that has a material effect on the price of shares, a combination or consolidation of the outstanding shares (by reclassification or otherwise) into a lesser number of shares, a recapitalization, a spin-off or a similar occurrence, the Plan Administrator will make appropriate adjustments to the number of shares and kind of shares or securities issuable under the Amended Stock Plan (on both an aggregate and per-participant basis) and under each outstanding award, to the award limits as described above in “Plan Limits”, and to the exercise price of outstanding options and SARs.

Corporate Transactions

In the event that Cisco is acquired by merger or asset sale or consolidated into another entity, outstanding awards will be subject to the applicable agreement of merger, sale of assets or reorganization. Such agreement may provide, without limitation, for the assumption or substitution of outstanding options, SARs, or stock units by the surviving corporation or its parent, for the assumption of outstanding stock grants by the surviving corporation or its parent, for the replacement of outstanding options, SARs, and stock units with a cash incentive program of the surviving corporation which preserves the spread existing on the unvested portions of such outstanding awards at the time of the transaction and provides for subsequent payout in accordance with the same vesting provisions applicable to those awards, for accelerated vesting of outstanding awards, or for the cancellation of outstanding options, SARs, and stock units, with or without consideration, in all cases without the consent of the participant.

Vesting Acceleration

Unless otherwise provided in the applicable award agreement, outstanding stock options, SARs, and stock units will vest and, if applicable, become immediately exercisable in full in the event that Cisco is acquired by merger or asset sale or consolidated into another entity, unless such awards are assumed, substituted or replaced by the acquiring entity (or in the case of outstanding stock grants, the related stock grant agreements are assumed). The Plan Administrator may also provide, at the time of grant of such awards or any time thereafter, that such awards will vest in full and, if applicable, become immediately exercisable in the event that Cisco is acquired by merger or asset sale, or consolidated into another entity, or in the event there is a hostile takeover of Cisco, whether through a tender or exchange offer for more than 35% of Cisco’s outstanding voting securities which the Board of Directors does not recommend the shareholders accept, or a change in the majority of the members of the Board of Directors as a result of one or more contested elections for board membership. In addition, Cisco currently has a vesting acceleration policy for outstanding and unvested equity awards up to a specified limit upon the death or terminal illness of an employee.

Dissolution

To the extent not previously exercised or settled, options, SARs and stock units will terminate immediately prior to the dissolution or liquidation of Cisco.

Amendment and Termination

The Board of Directors may amend the Amended Stock Plan at any time and for any reason, provided that any such amendment will be subject to shareholder approval to the extent shareholder approval is required by applicable laws, regulations, or rules. The Board of Directors may terminate the Amended Stock Plan at any time and for any reason, and the Amended Stock Plan will terminate at the 2030 Annual Meeting unless re-adopted or extended by the shareholders prior to or on such date. The termination or amendment of the Amended Stock Plan will not impair the rights or obligations of any participant under any award previously made under the Amended Stock Plan without the participant’s consent, unless such modification is necessary or desirable to comply with any applicable law, regulation or rule.

New Plan Benefits

The Amended Stock Plan does not provide for set benefits or amounts of awards and we have not approved any awards that are conditioned on shareholder approval of the Amended Stock Plan. However, as discussed in

 

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further detail in the section entitled “Director Compensation”, each of our current non-employee directors is entitled to receive a grant of fully vested shares every year on the date of our Annual Meeting of Shareholders with a grant date fair value of $230,000. As of the date of the Annual Meeting, such awards will be granted under the Amended Stock Plan. The following table summarizes the aggregate value of the shares that our current non-employee directors as a group will receive if they remain a director following the 2020 Annual Meeting and highlights the fact that none of our executive officers (including our named executive officers) or employees will receive any set benefits or awards that are conditioned upon shareholder approval of the Amended Stock Plan. All other future awards to directors, executive officers, employees and consultants of Cisco under the Amended Stock Plan are discretionary and cannot be determined at this time.

 

Name and Principal Position

   Dollar Value      Number of Shares

Charles H. Robbins

     —       

Chairman and Chief Executive Officer

     

Kelly A. Kramer

     —       

Executive Vice President and Chief Financial Officer

     

Gerri Elliott

     —       

Executive Vice President, Chief Sales and Marketing Officer

     

Maria Martinez

     —       

Executive Vice President and Chief Customer Experience Officer

     

Irving Tan

     —       

Executive Vice President and Chief of Operations

     

David Goeckeler

     —       

Former Executive Vice President and General Manager,

Networking and Security Business

     

All current executive officers as a group (6 persons)

     —       

All current non-employee directors as a group (9 persons)

   $ 2,070,000      — (1)

Non-executive officer employee group

     —       

 

  (1)

Number of shares will not be determinable until the grant date. See the section entitled “Director Compensation” for more information.

Historical Plan Benefits

The following table sets forth, for each of the individuals and groups indicated, the number of shares subject to stock options granted under the 2005 Stock Incentive Plan since the 2005 Stock Incentive Plan became effective through July 25, 2020. No stock options have been granted under the 2005 Stock Incentive Plan to any associate of any of our directors (including nominees) or executive officers. No person received 5% or more of the total stock options granted under the 2005 Stock Incentive Plan since its inception.

 

Name and Principal Position

   Number of Shares
Underlying Stock
Options Granted
 

Charles H. Robbins (1)

     212,000  

Chairman and Chief Executive Officer

  

Kelly A. Kramer

      

Executive Vice President and Chief Financial Officer

  

Gerri Elliott

      

Executive Vice President, Chief Sales and Marketing Officer

  

Maria Martinez

      

Executive Vice President and Chief Customer Experience Officer

  

Irving Tan

     10,000  

Executive Vice President and Chief of Operations

  

David Goeckeler

     21,000  

Former Executive Vice President and General Manager,

Networking and Security Business

  

All current executive officers as a group (6 persons)

     717,145  

All current non-employee directors as a group (9 persons) (2)

     45,000  

Non-executive officer employee group

     230,751,029  

 

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  (1)

Mr. Robbins is also a nominee for election as a director.

 

  (2)

Each of the current non-employee directors is also a nominee for election as a director.

U.S. Federal Income Tax Consequences

The following is a brief summary of the federal income tax consequences applicable to awards granted under the Amended Stock Plan based on federal income tax laws in effect on the date of this Proxy Statement.

This summary is not intended to be exhaustive and does not address all matters that may be relevant to a particular participant based on his or her specific circumstances. The summary expressly does not discuss the income tax laws of any state, municipality, or non-U.S. taxing jurisdiction, or the gift, estate, excise (including the rules applicable to deferred compensation under Code Section 409A), or other tax laws other than federal income tax law. The following is not intended or written to be used, and cannot be used, for the purposes of avoiding taxpayer penalties. Because individual circumstances may vary, Cisco advises all participants to consult their own tax advisors concerning the tax implications of awards granted under the Amended Stock Plan.

A recipient of a stock option or SAR will not have taxable income upon the grant of the stock option or SAR. For nonstatutory stock options and SARs, the participant will recognize ordinary income upon exercise in an amount equal to the difference between the fair market value of the shares and the exercise price on the date of exercise. Any gain or loss recognized upon any later disposition of the shares generally will be a capital gain or loss.

The acquisition of shares upon exercise of an incentive stock option will not result in any taxable income to the participant, except, possibly, for purposes of the alternative minimum tax. The gain or loss recognized by the participant on a later sale or other disposition of such shares will either be long-term capital gain or loss or ordinary income, depending upon whether the participant holds the shares for the legally-required period (currently more than two years from the date of grant and more one year from the date of exercise). If the shares are not held for the legally-required period, the participant will recognize ordinary income equal to the lesser of (i) the difference between the fair market value of the shares on the date of exercise and the exercise price, or (ii) the difference between the sales price and the exercise price. Any additional gain recognized on the sale generally will be a capital gain.

For stock grant awards, unless vested or the participant elects under Code Section 83(b) to be taxed at the time of grant, the participant will not have taxable income upon the grant, but upon vesting will recognize ordinary income equal to the fair market value of the shares at the time of vesting less the amount paid for such shares (if any). Any gain or loss recognized upon any later disposition of the shares generally will be a capital gain or loss.

A participant is not deemed to receive any taxable income at the time an award of stock units is granted. When vested stock units (and dividend equivalents, if any) are settled and distributed, the participant will recognize ordinary income equal to the amount of cash and/or the fair market value of shares received less the amount paid for such stock units (if any).

At the discretion of the Plan Administrator, the Amended Stock Plan allows a participant to satisfy his or her tax withholding requirements under federal and state tax laws in connection with the exercise or receipt of an award by electing to have shares withheld, and/or by delivering or attesting to Cisco already-owned shares of Cisco common stock.

If the participant is an employee or former employee, the amount the participant recognizes as ordinary income in connection with an award is subject to withholding taxes (generally not applicable to incentive stock options) and Cisco is generally allowed a tax deduction equal to the amount of ordinary income recognized by the participant.

Equity Compensation Plan Information

The following table provides information as of July 25, 2020 with respect to the shares of Cisco common stock that may be issued under existing equity compensation plans. The category “Equity compensation plans

 

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approved by security holders” in the table below consists of the 2005 Stock Incentive Plan and the Cisco Systems, Inc. Employee Stock Purchase Plan (the “Purchase Plan”).

 

Plan Category

   Number of Securities to
be Issued Upon Exercise
of Outstanding Options,
Warrants and Rights (1)
    Weighted Average
Exercise Price of
Outstanding Options,
Warrants and Rights ($)
     Number of Securities Remaining
Available for Future Issuance
Under Equity Compensation
Plans (Excluding Securities
Reflected in Column (a))
 
     (a)     (b)      (c)  

Equity compensation plans
approved by security holders

     99,354,811 (2)      —          324,607,945 (3) 

Equity compensation plans not
approved by security holders

     —   (4)      —          —    
  

 

 

      

 

 

 

Total

     99,354,811       —          324,607,945 (5) 
  

 

 

      

 

 

 

 

  (1)

Excludes purchase rights accruing as of July 25, 2020 under the Purchase Plan.

 

  (2)

Includes 92,635,036 shares subject to outstanding RSUs and 6,719,775 shares issuable under outstanding PRSUs based on an assumed target performance, unless performance is otherwise known.

 

  (3)

Includes shares available for future issuance under the Purchase Plan. As of July 25, 2020, as reported in Cisco’s 2020 Annual Report on Form 10-K, an aggregate of 141,794,842 shares of common stock were available for future issuance under the Purchase Plan, including shares subject to purchase during the current purchase period. Under the 2005 Stock Incentive Plan, each share issued as a stock grant (or pursuant to the vesting of a stock unit) will reduce the share reserve by 1.5 shares. Further, each share issued upon the settlement of a dividend equivalent will reduce the shares reserved by 1.5 shares. Under the 2005 Stock Incentive Plan, non-employee directors may also elect to receive fully vested shares of common stock (or RSUs that would be settled in shares after the non-employee director left the Board of Directors) in lieu of all or a specified portion of their regular annual cash retainer based on the fair market value of the shares on the date any regular annual cash retainer would otherwise be paid.

 

  (4)

Excludes options, warrants and other equity rights assumed by Cisco in connection with mergers and acquisitions. As of July 25, 2020, a total of 1,280,810 shares of common stock were issuable upon exercise of outstanding options and 477,631 shares were issuable upon the vesting of RSUs under those other assumed arrangements. The weighted average exercise price of those outstanding options is $6.71 per share. No additional awards may be granted under those assumed arrangements.

 

  (5)

As of July 25, 2020, 182,813,103 shares and 141,794,842 shares were available for future issuance under the 2005 Stock Incentive Plan and the Purchase Plan, respectively, as reported in Cisco’s 2020 Annual Report on Form 10-K.

Vote Required

The affirmative vote of a majority of the shares of Cisco common stock present or represented by proxy and voting at the annual meeting, together with the affirmative vote of a majority of the required quorum, is required for approval of this proposal. If you own shares through a bank, broker or other holder of record, you must instruct your bank, broker or other holder of record, how to vote in order for your vote to be counted on this proposal.

Recommendation of the Board of Directors

The Board of Directors recommends that the shareholders vote FOR the approval of the amendment and restatement of the 2005 Stock Incentive Plan.

 

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Proposal No. 4 — Advisory Vote to Approve Executive Compensation

Under Section 14A of the Exchange Act, Cisco shareholders are entitled to cast an advisory vote to approve the compensation of Cisco’s named executive officers, known as a “Say on Pay” vote. The shareholder vote is an advisory vote only and is not binding on Cisco or its Board of Directors. Although the vote is non-binding, the Board of Directors and the Compensation Committee value the opinions of our shareholders and will consider the outcome of the vote when making future compensation decisions for our named executive officers.

The core of Cisco’s executive compensation philosophy and practice continues to align real pay delivery with performance. Cisco’s executive officers are compensated in a manner consistent with Cisco’s business strategy, competitive practice, sound corporate governance principles, and shareholder interests and concerns. We believe our compensation program is strongly aligned with the long-term interests of our shareholders. We urge you to read the CD&A, the compensation tables and the narrative discussion set forth on pages 42 to 72 for additional details on Cisco’s executive compensation program. Below are a few highlights of our pay-for-performance philosophy.

Fiscal 2020 Pay and Performance

During fiscal 2020, the decrease in total direct compensation (“TDC”) for our CEO of 4% reflects our achievement of below median total shareholder return (“TSR”) during fiscal 2020, relative to the component companies of the S&P 500 Index, and below target annual financial performance, as measured in our incentive plans, as illustrated below:

 

Absolute Total Shareholder Return1

     -15

Financial Performance2

  

Revenue Growth

     -5

Operating Income Growth

     0

Operating Cash Flow Growth

     -3

EPS Growth

     4

 

  1 

TSR represents cumulative stock price appreciation with dividends reinvested. The 1-Year TSR is measured based on the fiscal year period ending July 25, 2020.

 

  2 

Revenue and Operating Income as determined pursuant to the Cisco Systems, Inc. Executive Incentive Plan (“EIP”), and EPS as determined pursuant to the PRSUs, as set forth in the CD&A below.

Long-term incentives continue to be the largest element of named executive officer compensation, consistent with market practice. For Cisco’s named executive officers, approximately 75% of long-term grant value is in performance shares earned for operating cash flow, earnings per share (“EPS”), and relative TSR performance measured over three years. Also, to demonstrate the Compensation Committee’s overriding objective of aligning real pay delivery with performance, PRSUs for fiscal 2018 — 2020 were earned at 125.3% of target as operating cash flow and EPS performance were at 100.7% of target over the three-year period, while relative TSR for the three-year period was at the 79th percentile of the companies comprising the S&P 500 Index.

The payouts for PRSUs with a three-year performance period granted in fiscal 2018, 2017, and 2016 were as follows:

 

 

LOGO

At the annual meeting, we are asking shareholders to vote on the following advisory resolution:

RESOLVED, that the shareholders approve the compensation of Cisco’s named executive officers as disclosed pursuant to the SEC’s compensation disclosure rules, including the CD&A, the compensation tables and narrative discussion.

 

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Vote Required

The affirmative vote of a majority of the shares of Cisco common stock present or represented by proxy and voting at the annual meeting, together with the affirmative vote of a majority of the required quorum, is required for approval of this proposal. If you own shares through a bank, broker or other holder of record, you must instruct your bank, broker or other holder of record how to vote in order for them to vote your shares so that your vote can be counted on this proposal.

Recommendation of the Board of Directors

The Board of Directors recommends that the shareholders vote FOR approval of the non-binding advisory resolution to approve executive compensation.

 

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Compensation Discussion and Analysis

Introduction    

The following discussion describes and analyzes Cisco’s compensation program for its named executive officers. Cisco’s named executive officers for fiscal 2020 are the CEO, the Chief Financial Officer (“CFO”), the three most highly compensated executive officers (other than the CEO and CFO) who were serving as executive officers at the end of fiscal 2020, and a former executive officer who departed during fiscal 2020. The named executive officers are: Charles H. Robbins, Chairman and CEO; Kelly A. Kramer, Executive Vice President and CFO; Gerri Elliott, Executive Vice President and Chief Sales and Marketing Officer; Maria Martinez, Executive Vice President and Chief Customer Experience Officer; Irving Tan, Executive Vice President and Chief of Operations, and David Goeckeler, former Executive Vice President and General Manager, Networking and Security Business.

Executive Summary

We continue to operate in a challenging macroeconomic and highly competitive environment. We saw broad-based weakening in the global macroeconomic environment during the fiscal year which impacted our commercial and enterprise markets. We also experienced continuing weakness in the service provider market and emerging countries. During this extraordinary time, our priority has been supporting our employees, customers, partners, and communities, while positioning Cisco for the future. While there continues to be uncertainty, we believe our role and responsibility have never been greater as businesses around the world are running on Cisco’s technology to stay connected, secure, and productive. The following are performance and compensation highlights for fiscal 2020 at a glance:

 

Performance and Compensation Highlights

 

Company Performance

In fiscal 2020, we executed well in a challenging environment. We remain focused on providing the technology and solutions our customers need to digitize their operations and support the safety of their remote workforce at a faster speed and greater scale than ever before during this extraordinary time. Our financial performance as measured for purposes of our incentive plans1 was as follows:

 

Revenue Growth:

     -5

Operating Income Growth:

     0

Operating Cash Flow Growth:

     -3

EPS Growth:

     4

Our strategy to transform our business model continues to resonate with customers as they digitize their organizations. In fiscal 2020, we achieved our goal of more than half of our revenue coming from software and services. Revenue from subscriptions was 74% of our software revenue in fiscal 2020, exceeding our target of 66%. Remaining performance obligations continued to grow strongly, reflecting the strength of our portfolio of software and services. We are also focused on the entire customer lifecycle to drive expansion and renewals. During fiscal 2020, we completed six acquisitions and we are seeing returns on investments in our key strategic areas which drive our innovation and competitive differentiation, and position Cisco for long-term growth and shareholder value.

Shareholder Value Creation

We maintained our historical practice of paying dividends and making share repurchases. We returned $8.6 billion to shareholders in fiscal 2020:

 

   

$2.6 billion in share repurchases

 

   

$6.0 billion in dividends

Absolute TSR2

 

1-Year

-15%

  

3-Year

61%

Strong Say-On-Pay Support

Even though last year’s say-on-pay proposal was approved by approximately 95% of shareholder votes, we continued to engage with shareholders to enhance our compensation program in fiscal 2020. For fiscal 2020, we continued to implement an objective individual performance factor (IPF) scorecard under our EIP based on the achievement of goals in the four areas of leadership, innovation/strategic planning, execution, and contribution to financial goals. In addition, we re-designed the EIP for the named executive officers to move from a formula with equal Company Performance Factor (CPF) and IPF multipliers to a more prevalent additive formula in which 80% of the bonus is leveraged and based on the risk and reward of Cisco’s financial performance while only 20% is based on a participant’s individual performance.

Annual Executive Incentive Plan

Our revenue and operating income under the EIP resulted in a CPF of 0.48 for fiscal 2020, down from 1.08 in fiscal 2019, reflecting below target achievement of

financial performance goals. The fiscal 2020 targets for revenue and operating income exceeded fiscal 2019 performance by 2% and 4%, respectively.

 

Performance Criteria   Pay for
Performance
Results
     Fiscal 2020 Goals ($ billions)   Fiscal 2020
Results
($ billions)
     Threshold     Target     Maximum
   

 Revenue

  $  47.7   $  53.0   $  54.6   $  49.3

 

  (90% of target)     (103% of target)   (93% of target)
   

 Operating

 Income

  $  15.6   $  17.4   $  18.8   $  16.7
  (90% of target)       (108% of target)    (96% of target) 

2018-2020 PRSU Plan

The payout under our three-year PRSU plan for fiscal 2018-2020 was 125.3% of target (versus 119.3% for fiscal 2017-2019), representing achievement of 100.7% of our cash flow and EPS goals and 150% for the goal of TSR relative to the component companies of the S&P 500 Index over the three-year period.

 

Performance Criteria   Pay-for-Performance Results

Earned PRSUs = Target
PRSUs x

((50% x Average
Financial Goal
Multiplier) + (50% x
Relative TSR
Multiplier))

 

Fiscal 2018    

Grant    

 

Cash Flow /    

EPS3    

 

Relative    

TSR4    

  Fiscal 2020       84%       150%    
  Fiscal 2019       115%    
  Fiscal 2018       103%    
  Result       100.7%       150%    
  PRSUs Earned   125.3% of Target

Fiscal 2020 CEO Pay

During fiscal 2020, the decrease in Mr. Robbins’ TDC reflects our below target performance, as measured in our executive incentive plan and illustrated in this Executive Summary.

 

    Fiscal 2020
($)
    Fiscal 2019
($)
    Year
over
Year
Change
 

CEO Total Direct Compensation

     

Reported Earned Base Salary

  $ 1,390,000     $ 1,325,000    

Reported Earned Bonus

    2,471,976       5,795,550    

Target LTI Value5

    19,518,092       17,306,352    
 

 

 

   

 

 

   

Total6

  $   23,380,068     $   24,426,902       -4
 

 

 

   

 

 

   
 

 

1 

Revenue and Operating Income as determined pursuant to the EIP and EPS as determined pursuant to the PRSUs, in each case as set forth below.

 

2 

TSR represents cumulative stock price appreciation with dividends reinvested. 1-Year and 3-Year TSR are measured based on the fiscal year periods ending July 25, 2020.

 

3 

This is the Financial Goal Multiplier. EPS is determined pursuant to the PRSUs as set forth in the CD&A below.

 

4 

This is the Relative TSR Multiplier.

 

5 

Represents the target value of equity awards granted in fiscal 2019 and fiscal 2020. For a more detailed description, see “Fiscal 2020 Compensation — Long-Term, Equity-Based Incentive Awards” section in the CD&A.

 

6 

This table does not include certain amounts which appear in the Summary Compensation Table, and the Target LTI Value for fiscal 2019 and fiscal 2020 is different from the amounts reported in the “Stock Awards” column of the Summary Compensation Table for such fiscal years. The amounts reported in the “Stock Awards” column are based on the accounting values of PRSUs (see the “Fiscal 2020 Compensation — Long-Term, Equity-Based Incentive Awards — Target Values versus Accounting Values” section in the CD&A).

 

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Listening to Our Shareholders

Cisco’s Compensation Committee relies on our regular shareholder outreach and engagement activities as well as more formal channels to communicate with shareholders, including the opportunity for shareholders to cast a non-binding advisory vote regarding executive compensation at Cisco’s annual meeting of shareholders. See the “Corporate Governance — Shareholder Engagement” section for a discussion of our fiscal 2020 shareholder outreach and engagement. See also the “Corporate Governance — Shareholder Communications with the Board of Directors” section.

The Compensation Committee is very interested in the ideas and feedback of our shareholders regarding executive compensation. In fiscal 2020, we engaged with shareholders representing approximately 27% of our outstanding shares, including 65% of our top 30 shareholders, on a variety of topics, including our executive compensation program.

In evaluating our compensation practices in fiscal 2020, the Compensation Committee was mindful of the support our shareholders expressed for Cisco’s philosophy and practice of linking compensation to operational objectives and the enhancement of shareholder value. In fiscal 2020, the Compensation Committee continued to monitor our executive compensation programs to ensure compensation is aligned with company performance.

The Compensation Committee will continue to seek out and consider shareholder feedback in the future.

Cisco’s Fiscal 2020 Financial Performance Compared to Fiscal 2019

Our actual results and targets for fiscal 2020 compared to fiscal 2019 as follows:

 

     Fiscal 20201      Fiscal 20191      Results as a
Percentage of Target
 
     Actual      Target      Actual      Target      Fiscal
2020
    Fiscal
2019
 

Revenue2 Under the EIP (in billions)

   $   49.3      $   53.0      $   51.7      $   51.2        93     101

Operating Income2 Under the EIP (in billions)

   $ 16.7      $ 17.4      $ 16.7      $ 15.6        96     107

Operating Cash Flow for PRSUs (in billions)

   $ 15.4      $ 15.8      $ 15.8      $ 14.7        98     108

EPS2 for PRSUs

   $ 3.21      $ 3.29      $ 3.10      $ 2.90        98     107

 

1 

All numbers are rounded for purposes of this table.

 

2 

For a description of how Cisco’s revenue and operating income are calculated, see the “Fiscal 2020 Compensation — Variable Cash Incentive Awards” section in the CD&A. For a description of how EPS is calculated, see the “Fiscal 2020 Compensation — Long-Term, Equity-Based Incentive Awards” section in the CD&A.

Executive Compensation Pay-for-Performance Philosophy

The chart below illustrates how the three-year historical compensation for our CEO and the average for our other continuing named executive officers, as reported in the Compensation Committee Matters — Fiscal 2020 Compensation Tables — Summary Compensation Table in our annual proxy statements, compares to our absolute TSR during the same period.

 

 

LOGO

 

  1 

CEO and average other continuing named executive officer total compensation for the three fiscal years is measured against fiscal 2017 total compensation. TSR is measured against the stock price as of the end of fiscal 2017 and includes the reinvestment of all dividends.

 

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Our Compensation Practices Benefit our Shareholders

Our executive compensation programs have strong governance components that further strengthen our pay-for-performance compensation philosophy, including the following:

 

Compensation Practice

         

Independent Compensation Committee

 

Our Compensation Committee consists entirely of independent directors.

   

Independent Compensation Consultant

 

Our Compensation Committee utilizes an independent compensation consultant, FWC, which is retained directly by the Compensation Committee and provides no other services to Cisco’s management.

   

Risk Assessment

 

Our Compensation Committee performs an annual review of the risks related to our compensation programs.

   

Pay for Performance

 

74% of target annual TDC for the CEO was performance-based and approximately 72% of target annual TDC for the other named executive officers was performance-based. See the “Compensation Components” section for a discussion of our named executive officers’ TDC.

   

Annual Cash Incentive

 

Payment is primarily leveraged and based on Cisco’s achievement of rigorous pre-established revenue and operating income measures (80%) with a small portion based on the individual performance of our executive officers determined pursuant to an objective scorecard (20%).

   

Annual Long-Term Equity Incentive

 

Approximately 75% of our named executive officers’ target equity award value is in PRSUs. 50% of the PRSUs may be earned based on relative TSR performance measured over a three-year period. 50% of the PRSUs may be earned based on consecutive annual goals, namely operating cash flow and EPS, over a three-year period, pre-established at the beginning of each fiscal year.

   

Caps on Incentive Compensation

 

There is a maximum limit on the amount of annual cash incentives and PRSUs that may be paid.

   

No SERP or Pension Plan

 

We do not sponsor a supplemental executive retirement plan or a defined benefit pension plan for our executive officers.

   

No Employment Agreements

 

None of our executive officers have employment, severance or change in control agreements.

   

Stock Ownership Guidelines

 

We have meaningful stock ownership guidelines for our executive officers and non-employee directors.

   

Recoupment Policy

 

We have a Recoupment Policy related to our cash awards and PRSUs in the event of certain financial restatements, and our equity plans provide for the forfeiture of awards if an executive officer participates in activities detrimental to Cisco or is terminated for misconduct.

   

No Change-in-Control Vesting Acceleration Provisions

 

No equity awards are subject to single-trigger change in control vesting.

   

No Repricing

 

Our 2005 Stock Incentive Plan expressly prohibits repricing or repurchasing equity awards that are underwater without shareholder approval.

   

No Gross-Ups

 

We do not provide tax gross-ups in connection with any “golden parachute” excise taxes.

   

“No Perks” Policy

 

We have a “no perks” policy with limited exceptions.

   

No Hedging

 

Under our insider trading policy, all employees (including officers) and members of the Board of Directors are prohibited from engaging in any speculative transactions in Cisco securities, including engaging in short sales, transactions involving put options, call options or other derivative securities, or any other forms of hedging transactions, such as collars or forward sale contracts.

   

No Pledging

 

Executive officers and members of the Board of Directors are prohibited from pledging Cisco securities in margin accounts or as collateral for loans.

   

No Dividends or Dividend Equivalents Paid on Unvested Equity Awards

 

We do not provide for payment of dividends or dividend equivalents on unvested awards.

   

Compensation decisions and other details are discussed in the remainder of this CD&A.

 

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Compensation Philosophy

 

Attract and Retain While Changing

  

Motivate Performance

Attract and retain key executives with the proper background and experience required to drive our future growth and profitability by offering a total compensation program that flexibly adapts to changing economic, regulatory and social conditions, and takes into consideration the compensation practices of peer companies based on an objective set of criteria.

  

Provide a significant portion of compensation through variable, performance-based components that are at-risk and based on Cisco’s achievement of designated financial and non-financial objectives.

Reward Actual Achievement

  

Align Interests

Compensate for achievement of short-term and long-term company financial and operating goals, and refrain from providing special benefits, “golden parachute” excise tax gross-ups, or accelerated equity vesting except in limited circumstances.

  

Align the interests of our executives with our shareholders by tying a significant portion of total compensation to our overall financial and operating performance and the creation of long-term shareholder value.

Compensation Components

The three major elements of our executive officers’ regular TDC are: (i) base salary, (ii) variable cash incentive awards, and (iii) long-term, equity-based incentive awards. For fiscal 2020, 74% of target annual TDC for the CEO was performance-based and approximately 72% of the target annual TDC for the other named executive officers was performance-based, reflecting Cisco’s pay-for-performance philosophy.

 

 

LOGO

Fiscal 2020 Compensation

Annual Base Salary

We provide base salaries to our executive officers to compensate them for their services rendered during the year and to provide them with a level of stable fixed compensation. Consistent with our philosophy of linking pay to performance, our executives receive a small percentage of their overall compensation in the form of base salary.

 

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The Compensation Committee, when establishing base salaries, considers each executive officer’s individual performance, the breadth, scope, and complexity of his or her role, internal equity, and whether his or her base salary is appropriately positioned relative to similarly situated executives in our Peer Group. Effective as of the beginning of fiscal 2020 and based on the recommendation of FWC regarding competitive pay, Mr. Robbins’ base salary increased from $1,325,000 to $1,390,000. Effective as of the beginning of fiscal 2020 and based on the performance of Ms. Elliott and Ms. Martinez in their first full year with Cisco, their base salaries increased from $750,000 to $825,000 and from $675,000 to $700,000, respectively.

 

Named Executive Officer

   Fiscal 2020
Base Salary
     Fiscal 2019
Base Salary
 

Charles H. Robbins

   $   1,390,000      $   1,325,000  

Kelly A. Kramer

   $ 850,000      $ 850,000  

Gerri Elliott

   $ 825,000      $ 750,000  

Maria Martinez

   $ 700,000      $ 675,000  

Irving Tan

   $ 625,000        N/A  

David Goeckeler

   $ 825,000      $ 825,000  

Variable Cash Incentive Awards

The objective of Cisco’s annual cash incentive program is to reward achievement of our annual financial performance goals, and to establish appropriate company performance expectations to ensure that our executives are accountable for our continued growth and profitability. Performance measures and goals for determining our named executive officers’ fiscal 2020 annual incentive awards were pre-established under Cisco’s EIP. The pre-established performance goals were based on Cisco’s achievement of financial performance goals, expressed as a company performance factor (“CPF”), and an individual performance factor (“IPF”) that is initially determined based on the achievement of objective individual performance in the areas of leadership, innovation/strategic planning, execution, and contribution to financial goals. The Compensation Committee established such performance measures and goals based on an informed review of Cisco’s targeted financial performance for fiscal 2020 and the pay practices of the companies in our Peer Group.

How Variable Cash Incentive Awards Work

Cisco re-designed the EIP for the named executive officers for fiscal 2020 to move from a formula with equal CPF and IPF multipliers to a more prevalent additive formula in which 80% of the bonus is leveraged and based on the risk and reward of Cisco’s financial performance while only 20% is based a participant’s individual performance. Considering this new design, the individual target awards were increased to competitive levels from 225% to 260% of base salary for Mr. Robbins, and from 135% to 160% of base salary for the other named executive officers.

The financial performance metrics for awards under the EIP for fiscal 2020 are based on the same one-year financial performance metrics as were used in fiscal 2019, and the specific financial targets are the same as those used under the company-wide bonus plan. For fiscal 2020, the target bonus was based on a CPF of 1.0 and Cisco’s financial performance must exceed its fiscal 2020 financial plan established by the Board of Directors for the CPF to exceed 1.0.

For each named executive officer, the fiscal 2020 EIP awards were calculated by multiplying an individual’s annual base salary for fiscal 2020 by the individual’s target award percentage, and multiplying the result by the sum of 80% of the CPF and 20% of the IPF, as follows:

BONUS = BASE x TARGET x ((CPF x 0.80) + (IPF x 0.20))

The Compensation Committee does not have the discretion to award bonuses under the EIP if the applicable performance criteria have not been met.

 

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The fiscal 2020 cash incentive awards for each named executive officer participant were as follows:

 

Named Executive Officer1

   Base Salary      Target Award
Percentage
  Company
Performance
Factor
   Individual
Performance
Factor
   EIP
Payment
 

Charles H. Robbins

   $   1,390,000      260%   0.48    1.50    $   2,471,976  

Kelly A. Kramer

   $ 850,000      160%   0.48    1.45    $ 916,640  

Gerri Elliott

   $ 825,000      160%   0.48    1.50    $ 902,880  

Maria Martinez

   $ 700,000      160%   0.48    1.45    $ 754,880  

Irving Tan

   $ 625,000      160%   0.48    1.40    $ 664,000  

 

1

Mr. Goeckeler resigned from Cisco effective March 8, 2020 and did not receive an EIP payment for fiscal 2020.

How Fiscal 2020 EIP Targets were Established and Actual Results

At the beginning of fiscal 2020, the Compensation Committee established a target EIP award for each of the named executive officer participants based on a percentage of their base salaries. The target awards were determined by the Compensation Committee after considering a number of factors, including the executive’s title and responsibility, whether the target annual incentive is competitive with similarly situated executives in the Peer Group, and our recent and projected financial performance.

 

   

Company Performance Factor (CPF)

The CPF for fiscal 2020 could range from 0.0 to 2.0 with target at 1.0. The formula for fiscal 2020 was constructed with upside potential so that if we exceeded our revenue and operating income targets, the CPF could be greater than 1.0.

The Compensation Committee selected revenue and operating income as the financial performance measures because these measures most directly align with Cisco’s growth strategy and generally have the best correlation with shareholder value. Operating income is weighted on a 4-to-1 basis compared to revenue in calculating the outcome under the CPF. Revenue and operating income at or below the threshold levels set forth below results in a CPF of 0.0. Revenue and operating income at or above the maximum levels set forth below results in a CPF of 2.0.

The Compensation Committee established the annual financial performance goals based on Cisco’s fiscal 2020 financial plan approved by the Board of Directors. In approving the financial plan, the Board took into account the uncertainty in the macro economic environment, potential tariff impacts, challenges in service provider spending, and continued competitive and pricing pressure. The fiscal 2020 financial plan and the corresponding financial goals set by the Compensation Committee under the EIP were challenging given the above-mentioned factors. Compared to fiscal 2019, the revenue and operating income targets for fiscal 2020 exceeded actual fiscal 2019 performance by 2% and 4%, respectively.

The revenue and operating income goals and results for fiscal 2020 as well as our fiscal 2019 performance relative to fiscal 2020 are set forth below:

 

   

Fiscal 2020 Goals

($ billions)

 

Fiscal 2020
Results

($ billions)

 

Fiscal 2019
Results

($ billions)

    Threshold   Target     Maximum
 

 

 

 

 

   

 

 

 

 

 

Revenue

 

$  47.7

(90% of target)

  $   53.0    

$  54.6

(103% of target)

 

$  49.3

(93% of target)

  $  51.7

Operating Income

 

$  15.6

(90% of target)

  $ 17.4    

$  18.8

(108% of target)

 

$  16.7

(96% of target)

  $  16.7

 

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The above resulted in a total fiscal 2020 CPF of 0.48, as further illustrated in the table below, reflecting below target achievement of the financial performance goals under the EIP.

 

     Fiscal 2020 Financial Performance Calculations  
     Funding
(% of Target)
    Weighting     Contribution  

Revenue

     0.0     20     0.00  

Operating Income

     60.1     80     0.48  
      

 

 

 
         0.48  
      

 

 

 

The revenue and operating income goals and results were calculated for purposes of the EIP in accordance with pre-established rules. Revenue was Cisco’s GAAP revenue excluding the effects of the impact of changes in GAAP and the effects of business combinations and divestitures subject to pre-established criteria and thresholds. Operating income was Cisco’s GAAP operating income excluding the following: share-based compensation expense; compensation expense related to acquisitions and divestitures; changes in estimates of contingent consideration related to acquisitions; gains or losses on acquisitions and divestitures; amortization or impairment of acquired intangible assets including in-process research and development; all external acquisition and divestiture-related costs such as finder’s fees, advisory, legal, accounting, valuation, hedging or other professional or consulting fees directly associated with acquisitions; gains or losses resulting from resolving all pre-acquisition or divestiture contingencies; and each of the following subject to pre-established thresholds: the impact of any cumulative effect of changing to newly adopted accounting principles; operating income of acquired and divested entities and their subsidiaries as reflected on the financial records thereof; losses due to impairments or gain/loss contingencies; gains or losses on the sale of fixed assets; direct losses on Cisco’s tangible assets from natural catastrophe, war, insurrection, riot, terrorism, confiscation, expropriation, nationalization, deprivation, or seizure; and restructuring charges. Cisco did not make any subsequent adjustments in response to the COVID-19 pandemic.

 

   

Individual Performance Factor (IPF)

For fiscal 2020, each named executive officer participant’s IPF could range from 0 to 2.0. In determining the appropriate IPF for each individual executive officer participant, the Compensation Committee considered individual performance in the areas of leadership, innovation/strategic planning, execution, and contributions to Cisco’s achievement of its financial goals. Below are the fiscal 2020 goals for the various categories.

 

Leadership

(1 to 5 Points)

 

Innovation / Strategic
Planning

(1 to 5 Points)

 

Execution

(1 to 5 Points)

 

Contribution to
Financial Goals

(1 to 5 Points)

•  Establish and maintain a high-performing leadership team known for delivering exceptional results and modeling Cisco’s culture

 

•  Attract top critical talent focused on Cisco’s current and future needs including succession plans. Create and maintain followership resulting in retention of critical employees and leaders

 

•  Continue to lead Cisco’s culture change. Create an environment of trust, modeling Cisco’s principles and behaviors

 

•  Accelerate innovation and solutions that address current and future customer/partner priorities. Drive innovation across all functions with specific focus in fiscal 2020 on (1) Customer Experience, (2) Go-to-Market, (3) Development, (4) Operations, and (5) People and Culture

 

•  Continue to bring industry leading innovation to all aspects of the portfolio

 

•  Identify and build business plans to lead the company into new market opportunities

 

•  Accelerate delivery of cloud-based solutions

 

•  Oversee the execution of the most critical transitions for the company

 

•  Ensure the organization is aligned to meet strategic, workforce and financial goals and plans

 

•  Drive value creation through M&A and R&D

 

•  Increase market share in networking, security, and collaboration

 

•  Achieve or exceed the approved Cisco fiscal 2020 financial plan

 

•  Deliver on market guidance

 

•  Deliver TSR increase above peers

 

•  Achieve Cisco gross margins in-line with or exceeding approved targets

 

•  Achieve Cisco operating margins in-line with or exceeding targets

At the end of fiscal 2020, the CEO assessed each continuing named executive officer’s performance for each individual goal, other than his own, and recommended to the Compensation Committee the number of points per category. The Compensation Committee determined the number of points for the CEO and each other

 

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continuing named executive officer after considering the CEO’s recommendations. The total number of points for all categories was then used to determine each continuing named executive officer’s IPF based on the below objective IPF Scorecard.

 

IPF Scorecard

Total Score

  

IPF Range

  

Low

  

Midpoint

  

High

20-17

   1.45    1.70    2.00

16-13

   1.10    1.30    1.50

12-9

   0.85    1.00    1.15

8-5

   0.00    0.75    0.85

4-1

   —      —      —  

Based on the Total Score, the Compensation Committee determined each continuing named executive officer’s IPF within the above IPF range. When assigning the IPF, the Compensation Committee also considered each continuing named executive officer’s contribution to Cisco’s strong financial performance, the named executive officer’s performance relative to peers, the named executive officer’s total target cash and total direct compensation relative to the market, and the expectation that Cisco’s named executive officers operate as a high-performing and cohesive team.

After considering the factors listed above, the Compensation Committee assigned IPFs based on each continuing named executive officer’s performance. The chart below sets forth each continuing named executive officer participant’s actual IPF.

 

Named Executive Officer

   Fiscal 2020
Individual
Performance
Factor
 

Charles H. Robbins

     1.50  

Kelly A. Kramer

     1.45  

Gerri Elliott

     1.50  

Maria Martinez

     1.45  

Irving Tan

     1.40  

 

Named Executive Officer

     

Key Performance Achievements

Charles H. Robbins

   

•  Built a high-performing leadership team of individuals aligned to Cisco’s cultural mission by modeling compassion, inclusion, opportunity, transparency, accountability, and action. He created a culture in which employees are proud to work for Cisco and one which other companies seek to replicate, with others in the industry looking to Cisco for guidance and stewardship through challenge, including the COVID-19 pandemic.

 

•  Led a smooth transition of Engineering leadership as well as a transformation and restructuring of the Engineering and Collaboration functions.

 

•  Continued to elevate Cisco’s brand and relationship with customers, partners, communities, governments, and other industry leaders. Customer feedback indicates strong experiences of support and value received from Cisco, as well as seeing Cisco as a strategic partner. He has a Glassdoor CEO approval rating of 95%, up from 2019.

 

 

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Named Executive Officer

     

Key Performance Achievements

Kelly A. Kramer

   

•  Consistently and clearly articulates Cisco’s business model to drive understanding of Cisco’s strategy, challenges, and opportunities. In the challenging environment created by the COVID-19 pandemic, she drove quarterly results. Despite revenue challenges, she drove both gross and operating margin percentages above plan.

 

•  Partnered with her cross-functional peers in Operations, IT, Customer Experience, Sales, and Engineering to enable process improvement in several areas, including a) the renewal process, b) an enhanced customer experience data structure to map contracts to orders, c) defined a process and enriched the metrics used for product reporting, and d) prioritized the Engineering portfolio. In addition, she worked closely with the Supply Chain and Customs teams to minimize tariffs with pricing actions.

 

•  Led the successful closure of six acquisitions and the remote due diligence process on the ThousandEyes acquisition. The fiscal 2020 acquisitions are intended to strategically position Cisco in Collaboration and intent-based networking platforms, adding to Cisco’s software assets.

Gerri Elliott

   

•  Invested in the Sales and Marketing leadership team and organization through strategic senior leadership hires, delivering a leadership program for senior leadership and key talent, and first line manager training and other programs increasing seller confidence.

 

•  Effectively led the Sales and Marketing organization through the COVID-19 pandemic by hosting frequent employee and leadership meetings.

 

•  Delivered increases in global deals for service provider and whole portfolio agreements, and successfully managed a substantial increase in subscription as a percentage of software.

Maria Martinez

   

•  Achieved significant progress in the digital transformation for Customer Experience, enabling new orders and improving on-time renewal rates. Developed and launched Customer Experience demand generation programs and implemented customer success programs for Digital Networking Architecture, Security, Webex, and Software conformance.

 

•  Launched a program to optimize our partners’ ability to resell, build additional value into their solutions, and invested in partners’ success via specialization, certification programs, and a continuous release of enablement assets, training, and insights.

 

•  Advanced Cisco’s Inclusion & Collaboration agenda by increasing the hiring and promoting of women, African American, and Hispanic talent in the Customer Experience organization by hiring a diversity leader who authored and delivered a diversity plan, becoming the executive sponsor of The Multiplier Effect sponsorship program, and increasing the focus on utilizing diverse interview panels.

Irving Tan

   

•  Led and implemented an effective global Work-From-Home initiative, inclusive of a return to office framework with successful execution, focused on the safety of Cisco employees during the COVID-19 pandemic.

 

•  Established the Cloud analytics platform, leveraged to power new seller opportunities and generate bookings.

 

•  Managed a complex supply chain environment during the COVID-19 pandemic, optimized financial outcomes across revenue and margins, and drove cost savings.

 

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Long-Term, Equity-Based Incentive Awards

The objective of Cisco’s equity-based incentive awards program is to align the interests of executive officers with shareholders, and to provide executive officers with a long-term incentive to manage Cisco from the perspective of an owner. PRSUs support the objectives of linking realized value to the achievement of critical financial and operational objectives and delivering superior long-term shareholder returns. Time-based RSUs support retention and align the interests of our executive officers with those of our shareholders since they promote shareholder value creation and a culture of ownership.

The Compensation Committee determines the size of an executive officer’s equity awards according to each executive officer’s position within Cisco and sets targets at levels intended to create a meaningful opportunity for reward predicated on increasing shareholder value and delivering on key long-term financial performance objectives. In addition to considering competitive market data, the Compensation Committee considers an individual’s performance history, an individual’s potential for future advancement and promotions, the CEO’s recommendations for awards other than his own, and the value of existing vested and unvested outstanding equity awards. The relative weight given to each of these factors varies among individuals at the Compensation Committee’s discretion.

Fiscal 2020 Awards

In September 2019, the Compensation Committee approved fiscal 2020 equity awards for each named executive officer to be comprised of approximately 75% PRSUs and 25% time-based RSUs (based on grant date target value) as set forth in the table below.

 

Named Executive Officer

   Target
PRSUs
     Max.
PRSUs
     Target Value
of PRSUs
     Time-
Based
RSUs
     Grant
Value of
Time-Based
RSUs
     Total
Target Value of
Fiscal 2020
Annual
Equity Awards1
 

Charles H. Robbins

     353,743        530,614      $   14,566,920        107,718      $   4,951,172      $   19,518,092  

Kelly A. Kramer

     181,407        272,110      $ 7,470,228        55,240      $ 2,539,062      $ 10,009,290  

Gerri Elliott

     181,407        272,110      $ 7,470,228        55,240      $ 2,539,062      $ 10,009,290  

Maria Martinez

     145,126        217,689      $ 5,976,201        44,192      $ 2,031,250      $ 8,007,451  

Irving Tan

     131,520        197,280      $ 5,415,915        40,049      $ 1,840,820      $ 7,256,735  

David Goeckeler

     181,407        272,110      $ 7,470,228        55,240      $ 2,539,062      $ 10,009,290  

 

1 

See the “Fiscal 2020 Compensation — Long-Term, Equity-Based Incentive Awards — Target Values versus Accounting Values” section in the CD&A for information about how this value is calculated.

How PRSUs Work

The fiscal 2020 PRSUs maintained the same metrics and design as those granted in fiscal 2018 and 2019, other than the July 2018 portion of Mr. Goeckeler’s fiscal 2018 grant. The formula to determine the number of earned PRSUs is set forth below:

Earned PRSUs = Target PRSUs x

((50% x Average Financial Goal Multiplier) + (50% x Relative TSR Multiplier))

 

   

Average Financial Goal Multiplier

The Average Financial Goal Multiplier is based on the average of Cisco’s operating cash flow and EPS over a three-year period as measured against annual performance goals that are set by the Compensation Committee at the beginning of each fiscal year. For example, in the case of the fiscal 2020 PRSU grants, at the beginning of each of fiscal 2020, 2021, and 2022, the Compensation Committee will approve certain operating cash flow and EPS goals for the applicable fiscal year. Following the completion of each fiscal year, the Compensation Committee will certify the financial goal multiplier that was earned for such year and following the completion of the 2022 fiscal year, the Compensation Committee will determine the Average Financial Goal Multiplier for the three-year period.

Operating cash flow can range from a threshold of 85% of target to a maximum of 123% of target, while EPS can range from a threshold of 85% of target to a maximum of 124% of target. EPS is weighted on a 2-to-1

 

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basis compared to operating cash flow in calculating the outcome under the Financial Goal Multiplier. Operating cash flow and EPS at or below the threshold levels set forth below results in a Financial Goal Multiplier of 0%. Operating cash flow and EPS at or above the maximum levels set forth below results in a Financial Goal Multiplier of 150%.

 

   

2020 Financial Results

The operating cash flow and EPS goals for fiscal 2020 as well as our fiscal 2019 performance relative to fiscal 2020 are set forth below:

 

     Fiscal 2020 Goals    Fiscal 2020
Results
   Fiscal 2019
Results
     Threshold    Target    Maximum

Operating Cash Flow

   $  13.4 billion

(85% of target)

   $  15.8 billion    $  19.5 billion

(123% of target)

   $  15.4 billion

(98% of target)

   $  15.8 billion

EPS

   $  2.80

(85% of target)

   $  3.29    $  4.08

(124% of target)

   $  3.21

(98% of target)

   $  3.10

The above resulted in a Financial Goal Multiplier for fiscal 2020 of 84% as further illustrated in the table below, reflecting achievement below target levels. This multiplier will be included as part of the three-year average for the relevant PRSUs (i.e., the Year 3 Financial Goal Multiplier for the fiscal 2018 PRSUs, the Year 2 Financial Goal Multiplier for the fiscal 2019 PRSUs, and the Year 1 Financial Goal Multiplier for the fiscal 2020 PRSUs).

 

     Fiscal 2020 Financial Performance Calculations
     Funding (% of Target)     Weighting      Contribution

Operating Cash Flow

     83.6%           33.3%      0.28

EPS

     83.8%           66.7%      0.56
       

 

        0.84
       

 

For the fiscal 2020 PRSUs, operating cash flow is Cisco’s GAAP operating cash flow. EPS was calculated from Cisco’s GAAP diluted EPS excluding all of the items excluded from the calculation of operating income for purposes of the EIP as well as gains and losses on equity investments, while taking into account the related income tax effects and the effects of certain tax matters. The effect of planned share repurchases is included in the EPS calculation. The design of the PRSUs balances the effect, and limits any extraordinary impact, of EPS because it is averaged over a three-year period and is only one of three metrics.

 

   

Relative TSR Multiplier

Following the completion of the three-year performance period, the Relative TSR Multiplier is determined and certified by the Compensation Committee by comparing Cisco’s TSR at the end of the three-year performance period to the TSR of a pre-established group of comparator companies. In the case of the fiscal 2020 PRSU grants, the performance metric for the remaining 50% of the PRSUs is Cisco’s TSR relative to the companies comprising the S&P 500 Index over a three-year period covering fiscal years 2020 through 2022.

The Relative TSR Multiplier is calculated as follows:

 

Relative TSR

   Relative TSR Multiplier1

75th Percentile or Above

   150%

50th Percentile

   100%

25th Percentile

     50%

Below 25th Percentile

       0%

 

  1

To the extent Cisco’s relative TSR falls between two discrete points in the chart above, linear interpolation shall be used to determine the Relative TSR Multiplier.

 

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Determining Earned PRSU Values for Fiscal 2020 PRSUs

At the end of the three-year performance period and in connection with the settlement of the shares, the Compensation Committee will certify results and 50% of the Relative TSR Multiplier will be added to 50% of the Average Financial Goal Multiplier (the average of the Financial Goal Multipliers for fiscal 2020, 2021, and 2022) to determine the shares awarded to each named executive officer. As fiscal 2020 was the first year of the applicable performance period for fiscal 2020 PRSUs, no shares were earned. However, the one-year TSR for fiscal 2020 was at the 31st percentile of the S&P 500 Index which would have resulted in a TSR Multiplier of 61% had the three-year performance period been a one-year performance period.

Earned Fiscal 2018 Awards (Fiscal 2018 — 2020)

The table below summarizes the applicable Financial Goal Multipliers, Average Financial Goal Multiplier and Relative TSR Multiplier for the PRSUs granted during fiscal 2018 and the percentage of PRSUs earned:

 

 

LOGO

 

1

Earned PRSUs = Target PRSUs x ((50% x Average Financial Goal Multiplier) + (50% x Relative TSR Multiplier)).

Based on the multipliers as set forth in the table above, the fiscal 2018 PRSUs (for which the three-year performance cycle has been completed) were earned as follows reflecting our commitment to pay for performance:

 

Named Executive Officer

   Target
PRSUs
     Fiscal 2018
PRSUs
Earned1
 

Charles H. Robbins

     358,000        448,691  

Kelly A. Kramer

     209,500        262,572  

Irving Tan

     42,200        52,888  

David Goeckeler

     184,800        231,616  

 

  1

The fiscal 2018 earned PRSUs remain subject to continued employment (other than Mr. Goeckeler who resigned from Cisco and was eligible for retirement vesting) and the Compensation Committee’s discretion to further review and reduce the number of earned PRSUs until they settle on November 10, 2020.

The payouts for PRSUs with a three-year performance period granted in fiscal 2018, 2017, and 2016 were as follows:

 

 

LOGO

 

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Other Awards

Award to Irving Tan. On January 30, 2018, Mr. Tan was granted PRSUs in connection with his promotion, which were based on the same multipliers as the fiscal 2018 PRSUs described above. This PRSU grant was earned as follows:

 

Named Executive Officer

   Target
PRSUs
     PRSUs
Earned1
 

Irving Tan

     23,530        29,489  

 

  1 

The earned PRSUs remained subject to Mr. Tan’s continued employment and the Compensation Committee’s discretion to further review and reduce the number of earned PRSUs until they settle on November 10, 2020.

Awards to Gerri Elliott and Maria Martinez. In March 2018, Ms. Elliott and Ms. Martinez were granted new hire inducement PRSUs that are earned based on Cisco’s TSR relative to the companies comprising the S&P 500 Index with the performance period covering the two-year period from the beginning of fiscal 2019 to the end of fiscal 2020. The number of PRSUs that are earned based on each measurement period is determined by multiplying the target PRSUs by a Relative TSR Multiplier that was calculated in the same manner as the Relative TSR Multiplier for our other PRSUs, but with reference to the two-year period from the beginning of fiscal 2019 to the end of fiscal 2020. These PRSU grants were earned as follows based on relative TSR at the 59th percentile for the period from the beginning of fiscal 2019 to the end of fiscal 2020:

 

Named Executive Officer

   Total
Target
PRSUs
     24-Month
TSR
Multiplier
    PRSUs
Earned1
 

Gerri Elliott

     113,980        119     135,636  

Maria Martinez

     140,190        119     166,826  

 

  1 

The earned PRSUs remained subject to continued employment and the Compensation Committee’s discretion to further review and reduce the number of earned PRSUs until they settle on November 10, 2020.

Target Values versus Accounting Values

Because the fiscal 2020 PRSUs include annual Financial Goal Multipliers and a three-year Relative TSR Multiplier, the values reported in the Summary Compensation Table are different than the target values set forth in the tables above. Because 50% of the value of the fiscal 2020 PRSUs are based on the Relative TSR Multiplier, FASB ASC Topic 718 requires that the value of the fiscal 2020 PRSUs reported in the Compensation Committee Matters — Fiscal 2020 Compensation Tables — Summary Compensation Table include the full value of the TSR component based on the probable outcome of the Relative TSR Multiplier. However, because the remaining 50% of the value of the fiscal 2020 PRSUs is based on separate measurements of our financial performance for each year in the three-year performance period, FASB ASC Topic 718 requires that the grant date fair value to be calculated at the commencement of each separate year of the performance cycle when the respective performance measures are approved. As a result, for the fiscal 2020 PRSUs, the Summary Compensation Table does not include the value of the PRSUs based on the annual financial metric goals for fiscal 2021 or fiscal 2022. Such amounts will be included as equity compensation in the Summary Compensation Table for fiscal 2021 and fiscal 2022, respectively, when the financial metrics are established. However, the Summary Compensation Table for fiscal 2020 does include a portion of the value of the fiscal 2018 PRSUs and the fiscal 2019 PRSUs based on the annual operational performance metrics set for those awards during fiscal 2020. The table below illustrates the difference between target values and accounting values for our CEO over the last three fiscal years.

 

     Target Value      Accounting Value
Disclosed in Summary
Compensation Table
 

Fiscal 2020

   $ 19,518,092      $ 19,215,141  

Fiscal 2019

   $ 17,306,352      $ 18,576,568  

Fiscal 2018

   $ 14,691,830      $ 14,940,771  

 

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Vesting of RSUs and PRSUs

25% of the time-based RSUs will generally vest subject to a one-year cliff and quarterly vesting thereafter. Subject to continued employment and the Compensation Committee’s discretion to further review and reduce the number of earned PRSUs until the settlement date, any earned PRSUs will be settled following the completion of the performance period and final certification of the Compensation Committee. All outstanding unvested equity awards under Cisco’s 2005 Stock Incentive Plan will vest in full (at target levels for PRSUs), and, if applicable, become immediately exercisable in the event of the named executive officer’s death, terminal illness, or if Cisco is acquired by merger or asset sale, unless the award or related agreement is assumed or replaced by the acquiring entity.

Retirement

In the event of the retirement of a named executive officer, and to the extent the named executive officer meets certain retirement eligibility criteria described in the award agreement and complies with certain post-retirement assistance requirements and covenants, all PRSUs will continue to vest and any earned PRSUs, based on the satisfaction of the performance metrics, will be settled in Cisco shares at the end of the applicable three-year performance period.

Cisco believes that the retirement vesting feature of all PRSUs is appropriate and motivating because it provides protection to long-tenured named executive officers in light of the three-year PRSU performance period and is a prevalent practice among the companies within the Peer Group that grant similar equity awards with multi-year performance periods. Further, PRSUs will be forfeited and provide no value to its holder to the extent a named executive officer violates specific post-retirement covenants.

See the “Compensation Committee Matters — Fiscal 2020 Compensation Tables — Grants of Plan-Based Awards — Fiscal 2020” table for additional information regarding these equity grants to the named executive officers and the “Potential Payments upon Termination or Change in Control” section for additional information regarding these grants to the named executive officers and all other outstanding equity awards previously granted to the named executive officers.

 

Cisco does not provide for any single-trigger golden parachute arrangements or golden parachute excise tax gross-up arrangements for its named executive officers, nor does it provide employment agreements with cash severance provisions.

Perquisites

Consistent with our pay-for-performance compensation philosophy, we believe perquisites for executive officers should be limited in scope and value, and should only be offered when they provide necessities or conveniences that allow our executive officers to focus on and optimally perform in their role with Cisco. Consequently, under Cisco’s “no perks” policy, Cisco’s executive officers generally will not be entitled to receive any special benefits, except as provided below:

 

   

Health Benefits — Executive officers may choose to have an annual executive health screening and other benefits at Cisco’s expense. Executive health physicals and related benefits assist both the executive officer and Cisco by ensuring health risks are minimized.

 

   

Aircraft Policy — Our CEO and our other executive officers may occasionally use our corporate aircraft for personal use, subject to availability, provided they reimburse Cisco for the incremental cost of the flight. Because the leased corporate aircraft is used primarily for business travel, Cisco requires reimbursement for the incremental cost of the flight (these costs do not include fixed costs that do not change based on usage). The reimbursable incremental cost for personal use includes, when applicable, the following costs: fuel, landing/parking fees, crew fees and expenses, custom fees, flight services/charts, variable maintenance costs, inspections, catering, aircraft supplies, telephone usage, trip-related hangar rent and parking costs, plane repositioning costs (deadhead flights), occupied variable fees, and other miscellaneous expenses. Cisco does not seek reimbursement of fixed costs such as monthly management fees, lease payments, crew salaries, maintenance costs not related to trips, training, home hangaring, general taxes and insurance, and services support, as these costs are generally incurred for business purposes. In addition, occasionally, guests of named executive officers are permitted to ride

 

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along on Cisco’s leased corporate aircraft when the aircraft is already going to a specific destination for a business purpose, provided there is no more than de minimis incremental cost. On such occasions, the named executive officer will be subject to imputed income at the applicable Standard Industrial Fare Level (SIFL) rates for any personal passengers on that flight, and Cisco does not provide tax gross-ups for such imputed income.

 

   

Personal Security — Consistent with prevalent practices among large, multinational companies, and based on an independent third-party security study, Cisco provides security personnel for the CEO and his family members for business travel and certain non-business travel. The Compensation Committee must pre-approve security for the CEO and his family members on non-business trips when the aggregate cost for such trips per fiscal year will equal or exceed $25,000. The Chair of the Compensation Committee must pre-approve any security recommended by Cisco Security or a third-party security vendor for families traveling with executive officers other than the CEO on business trips and for such executive officers and, if applicable, their families on non-business trips. In addition, Cisco security practices provide that the CEO may be driven to and from work by an authorized car service and personal security driver. The incremental cost of security expenses for Cisco security personnel is their meals, lodging, and travel, but generally not their compensation because Cisco already incurs that cost for business purposes. The incremental cost of third-party security vendors is their actual cost. The incremental cost for the authorized car service and personal security driver is the actual cost. Cisco does not consider the provision of such security to be a perquisite since the need for security arises from the nature of the executive officer’s employment by Cisco, the provision of such security is provided to mitigate risks to Cisco’s business, and the provision of such security is excludable from income under IRS rules. Pursuant to SEC guidance, we have reported the aggregate incremental costs in the “All Other Compensation” column of the Summary Compensation Table.

 

   

Relocation Benefits — Executive officers who are relocating may be entitled to the benefits determined with reference to Cisco’s international and domestic assignment, transfer, and relocation policies for Vice Presidents and above, as amended from time to time. These relocation benefits are market competitive benefits and enable an orderly transition for Vice Presidents relocating within the United States or to another country.

 

   

Required Business Trips Where Spouses/Partners are Expected to Attend — Cisco will pay for or reimburse spousal/partner travel and personal expenses only in connection with business-related events where Cisco executive officers are required to attend and where the presence of spouses/partners is expected; provided however, for each named executive officer, the aggregate amount of spousal/partner travel and personal expenses paid for by Cisco in a fiscal year must be less than $10,000. If a named executive officer’s spousal/partner travel and personal expenses are in excess of such limit, the named executive officer will be responsible for such excess amounts and will reimburse Cisco.

 

   

Gross-UpsCisco does not provide for tax gross-ups in connection with any of the foregoing items except in the case of tax equalization and tax adjustments under Cisco’s international and domestic assignment, transfer, and relocation policies.

Deferred Compensation Plan

The Deferred Compensation Plan is available to all U.S. employees with the title of director or above, including the named executive officers. The Deferred Compensation Plan provides an opportunity for individual retirement savings on a tax- and cost-effective basis on compensation above the Code limits under the Cisco Systems, Inc. 401(k) Plan (the “401(k) Plan”). Cisco does not sponsor a supplemental executive retirement plan or a defined benefit pension plan. Cisco matches deferrals at the same percentage as made under the 401(k) Plan. Those matching contributions are described in footnote 2 to the “Compensation Committee Matters — Fiscal 2020 Compensation Tables — Nonqualified Deferred Compensation — Fiscal 2020” table below.

Fiscal 2021 Compensation Approach

 

   

Base Salaries — The Compensation Committee does not intend at this time to make any adjustments to the annual base salaries for the named executive officers.

 

   

Variable Cash Incentive Awards — Similar to fiscal 2020, awards under the EIP for the named executive officers are based on a prevalent additive formula in which 80% of the bonus is leveraged

 

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and based on the risk and reward of Cisco’s financial performance while only 20% is based a participant’s individual performance. The individual target awards remain at competitive levels of 260% of base salary for Mr. Robbins and 160% of base salary for the other named executive officers.

 

   

Long-Term, Equity-Based Incentive Awards — On September 18, 2020, the Compensation Committee granted the following equity awards to the named executive officers below (60% PRSUs/40% RSUs) and the PRSUs were granted using a three-year performance period and the same performance metrics (but not goals) that were used in fiscal 2020. The Compensation Committee changed the weighting of the fiscal 2021 equity awards from 75% PRSUs/25% RSUs to 60% PRSUs/40% RSUs as a better balance between retention and performance, and risk and leverage, and better alignment with the Peer Group. Ms. Kramer was not granted any equity awards since she will be leaving the company.

 

Named Executive Officer

   Performance-
Based
Restricted
Stock Units
     Time-Based
Restricted
Stock Units
 

Charles H. Robbins

     300,861        195,931  

Gerri Elliott

     154,288        100,478  

Maria Martinez

     123,431        80,382  

Irving Tan

     115,716        75,358  

Executive Compensation Governance Components

Our Culture of Ownership

As noted above, a core element of Cisco’s compensation philosophy is to align the interests of executive officers with those of shareholders by providing appropriate long-term incentives. To further this goal, Cisco has a long-standing policy regarding minimum ownership of shares by Cisco’s executive officers.

Until August 2019, these minimum ownership requirements called for Cisco’s CEO to own shares of Cisco’s common stock having a value equal to at least five times the CEO’s annual base salary and for each other executive officer to own shares of Cisco’s common stock having a value equal to at least three times the executive officer’s annual base salary. The CEO and each other executive officer had five years from the date of their respective appointment to attain their minimum ownership level. In August 2019, the minimum ownership requirements were increased to six times for the CEO and four times for the other executive officers. The CEO and each other executive officer were provided an additional year to meet the increased minimum ownership requirements.

 

Position  

Required Share Ownership

(Multiple of Base Salary)

CEO   6x
Executive Officers   4x

As of September 30, 2020, all of our executive officers were either exceeding the minimum stock ownership requirements or were on track to comply in the relevant timeframe.

Recoupment (or “clawback”) Policy

Cisco has a long-standing recoupment policy for cash incentive awards paid to executive officers under Cisco’s annual cash incentive plan, the EIP, and in June 2019, this policy was extended to include PRSUs. In the event of a restatement of incorrect financial results, this policy enables the Compensation Committee, if it determines appropriate and subject to applicable laws, to seek reimbursement from executive officers of:

 

   

the incremental portion of EIP awards paid to executive officers in excess of the EIP awards that would have been paid based on the restated financial results; and

 

   

the incremental shares of Cisco’s common stock settled for any PRSUs in excess of the shares of Cisco’s common stock that would have been settled for such PRSUs based on the restated financial results, or the value of such incremental shares to the extent an executive officer sells any incremental shares.

 

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Cisco’s long-term, equity-based incentive award plans also generally provide for forfeiture if a named executive officer participates in activities detrimental to Cisco (including during a retirement-vesting period) or is terminated for misconduct. We are monitoring the proposed SEC rules on recoupment and plan to modify our recoupment policy in accordance with any applicable final SEC or other rules.

Compensation Risk Management

The Compensation Committee’s annual review and approval of Cisco’s compensation philosophy and strategy includes the review of compensation-related risk management. In this regard, the Compensation Committee reviews Cisco’s compensation programs for employees and executives, including the variable cash incentive plans and long-term, equity-based incentive awards, and does not believe that the compensation program creates risks that are reasonably likely to have a material adverse effect on Cisco.

As part of this review, the Compensation Committee evaluates the need to engage independent consultants for specific assignments and engaged FWC during fiscal 2020 to deliver a report and assist with the risk assessment of Cisco’s executive compensation program.

 

FWC advised that Cisco’s executive compensation program:

 

   

maintains an appropriate pay philosophy,

 

 

   

uses an appropriate, objectively selected peer group to support decision-making,

 

 

   

reflects best-in-class design and governance practices in key areas,

 

 

   

supports business objectives,

 

 

   

mitigates compensation-related risk through a balanced structure and related policies such as stock ownership guidelines, pledging prohibitions, etc., and

 

 

   

reviews actual pay delivery from performance-based incentives to confirm the rigor of goal setting and the alignment with performance.

 

The Compensation Committee also determined that Cisco’s commission and sales incentive plans for employees at all levels are based on measurable and verifiable sales goals that are aligned with Cisco’s company-wide revenue and operating income goals for its bonus plan for executives. In addition, total target incentive compensation for all employees is a small percentage of total sales and revenue, and incentive opportunities under these plans are capped. The plans are monitored to ensure that internal controls are in place to mitigate risk. Management also retains discretion to reduce incentive amounts in appropriate circumstances.

Compensation Process

The Compensation Committee begins its process of deciding how to compensate Cisco’s named executive officers by considering the competitive market data provided by its independent compensation consultant and the People and Communities Department. The Compensation Committee engaged FWC to provide advice and recommendations on competitive market practices and specific compensation decisions. For purposes of evaluating competitive practices, the Compensation Committee, with assistance from FWC, identified criteria to select a list of companies that comprise Cisco’s peer group.

Peer Group and Benchmarking

The Compensation Committee approved a peer group in March 2019, which was used to establish compensation targets and guide decisions prior to March 2020. FWC subsequently prepared a peer group study, and the same peer group was approved in March 2020. The Compensation Committee may also decide to use data accumulated by management regarding compensation practices of companies where Cisco regularly competes for talent as an additional point of reference.

How the Peer Group was Selected

The members of the Peer Group are generally based on the following objective criteria, recommended by FWC:

 

   

Major information technology companies with related Global Industry Classification Standard (GICS) codes 4510, 4520, 4530, and 5020;

 

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A three-year rolling average market capitalization greater than $30 billion (based on the trailing 12-quarter average); and

 

   

Revenues greater than $10 billion (based on the trailing four quarter averages).

Peer Group Members

 

Accenture

  

Facebook

  

Microsoft

ADP

  

Hewlett-Packard Enterprise

  

Oracle

Alphabet

  

HP Inc.

  

Qualcomm

Apple

  

IBM

  

Texas Instruments

Broadcom

  

Intel

  

Visa

Dell      

How We Use the Peer Group

The positions of Cisco’s named executive officers were compared to their counterpart positions in the Peer Group, and the compensation levels for comparable positions in the Peer Group were examined for guidance in determining:

 

   

base salaries;

 

   

variable cash incentive awards; and

 

   

the amount and mix of long-term, equity-based incentive awards.

The Compensation Committee establishes base salaries, variable cash incentive awards, and long-term, equity-based incentive awards on a case-by-case basis for each named executive officer taking into account, among other things, company and individual performance, role expertise, experience, and the competitive market, advancement potential, recruiting needs, internal equity, retention requirements, unrealized equity gains, succession planning, and best compensation governance practices. The Compensation Committee does not tie individual compensation to specific target percentiles.

 

How the Compensation Committee Makes Decisions and Policies

 

The Compensation Committee retains and does not delegate any of its exclusive power to determine all matters of executive compensation and benefits, although from time to time it seeks input and recommendations from the CEO and the People and Communities Department. Our CEO does not make recommendations with respect to his own compensation or participate in the deliberations regarding the setting of his own compensation. The Compensation Committee reports to the Board of Directors on the major items covered at each Compensation Committee meeting. FWC has worked directly with and on behalf of the Compensation Committee to assist the Compensation

 

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Committee in satisfying its responsibilities; and will undertake no projects for management except at the request of the Compensation Committee chair, and in the capacity of the Compensation Committee’s agent where such projects are in direct support of the Compensation Committee’s charter. The Compensation Committee assessed the independence of FWC during fiscal 2020 and believes that there are no conflicts of interest. In reaching this conclusion, the Compensation Committee considered applicable SEC rules and regulations and the corresponding Nasdaq independence factors regarding compensation advisor independence.

In determining executive compensation, the Compensation Committee also considers, among other factors, the possible tax consequences to Cisco and to its executives. To maintain maximum flexibility in designing compensation programs, the Compensation Committee, while considering company tax deductibility as one of its factors in determining compensation, will not limit compensation to those levels or types of compensation that

 

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are intended to be deductible. The Tax Cuts and Jobs Act repealed the exemption for performance-based compensation under Code Section 162(m) for tax years commencing after December 31, 2017. However, certain compensation is specifically exempt from the deduction limit under a transition rule to the extent that it is “performance-based” as defined in Code Section 162(m) and subject to a written binding contract under applicable law in effect as of November 2, 2017 that is not later modified in any material respect.

In reviewing and establishing CEO compensation, the Compensation Committee also considers our CEO pay ratio. Cisco has always been committed to paying its people fairly and equitably, and we have strived to develop and execute robust policies to evaluate pay levels throughout the organization. We are a founding signer of the White House Equal Pay Pledge and the Parity.org pledge, and we are leading the charge to make fair pay a reality for all employees through the Employers for Pay Equity Consortium.

The Compensation Committee considers the accounting consequences to Cisco of different compensation decisions and the impact on shareholder dilution; however, neither of these factors by themselves will compel a particular compensation decision.

The Compensation Committee annually grants long-term, equity-based incentive awards to executive officers after the close of the prior fiscal year and the review and evaluation of each executive officer’s performance. The Compensation Committee’s policy is to generally grant equity awards only during open trading windows and to establish grant dates in advance, generally establishing those dates near the beginning of each fiscal year.

 

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Compensation Committee Report

The information contained in this report shall not be deemed to be “soliciting material,” to be “filed” with the SEC, or to be subject to Regulation 14A or Regulation 14C (other than as provided in Item 407 of Regulation S-K) or to the liabilities of Section 18 of the Securities Exchange Act of 1934, and shall not be deemed to be incorporated by reference in future filings with the SEC except to the extent that Cisco specifically incorporates it by reference into a document filed under the Securities Act of 1933 or the Securities Exchange Act of 1934.

The Compensation and Management Development Committee has reviewed and discussed the “Compensation Discussion and Analysis” section of this Proxy Statement with Cisco’s management. Based on that review and those discussions, the Compensation and Management Development Committee recommended to the Board of Directors that the “Compensation Discussion and Analysis” section be included in this Proxy Statement and incorporated by reference into Cisco’s Annual Report on Form 10-K for its 2020 fiscal year.

Submitted by the Compensation and Management Development Committee

Roderick C. McGeary, Chairperson

Wesley G. Bush

Kristina M. Johnson

Arun Sarin

Brenton L. Saunders

Compensation Committee Interlocks and Insider Participation

The members of the Compensation Committee during fiscal 2020 were Roderick C. McGeary (Chairperson), Dr. Kristina M. Johnson, Arun Sarin and Brenton L. Saunders for all of fiscal 2020, and Wesley G. Bush beginning in December 2019. No member of this committee was at any time during fiscal 2020 or at any other time an officer or employee of Cisco, and no member of this committee had any relationship with Cisco requiring disclosure under Item 404 of Regulation S-K. No executive officer of Cisco has served on the board of directors or compensation committee of any other entity that has or has had one or more executive officers who served as a member of the Compensation Committee during fiscal 2020.

 

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Fiscal 2020 Compensation Tables

The following table, footnotes and related narrative sets forth the “total compensation” earned by the named executive officers for services rendered in all capacities to Cisco and its subsidiaries for each of the last three or fewer fiscal years during which such individuals were designated as named executive officers. The salary, bonus and non-equity incentive plan compensation columns set forth below reflect the actual amounts paid for the relevant fiscal years, while the stock awards column reflects accounting values. For the actual amounts of compensation related to long-term equity incentives, see the “Option Exercises and Stock Vested — Fiscal 2020” table below. Cisco’s named executive officers for fiscal 2020 include Cisco’s CEO, CFO, the three most highly compensated executive officers (other than CEO and CFO) who were serving as executive officers at the end of fiscal 2020, and a former executive officer who departed during fiscal 2020.

Summary Compensation Table

 

Name and Principal Position (1)

  Fiscal
Year (1)
    Salary
($)
    Bonus
($)
    Stock
Awards

($) (2)
    Non-Equity
Incentive Plan
Compensation

($) (3)
    All Other
Compensation

($) (4)
    Total
($)
 

Charles H. Robbins

    2020     $   1,390,000       —          $ 19,215,141     $   2,471,976     $ 86,593     $   23,163,710  

Chairman and Chief

    2019     $ 1,325,000       —          $ 18,576,568     $ 5,795,550     $   132,715     $ 25,829,833  

Executive Officer

    2018     $ 1,231,250       —          $ 14,940,771     $ 4,990,711     $ 121,732     $ 21,284,464  

Kelly A. Kramer

    2020     $ 850,000       —          $ 10,185,929     $ 916,640     $ 67,500     $ 12,020,069  

Executive Vice President and

    2019     $ 850,000       —          $ 10,610,100     $ 2,106,810     $ 67,500     $ 13,634,410  

Chief Financial Officer

    2018     $ 763,750       —          $ 8,751,410     $ 1,857,206     $ 91,005     $ 11,463,371  

Gerri Elliott

    2020     $ 825,000       —          $ 8,267,815     $ 902,880     $ 11,672     $ 10,007,367  

Executive Vice President and

    2019     $ 750,000     $ 4,000,000 (5)    $ 6,161,149     $ 1,968,300     $ 58,002     $ 12,937,451  

Chief Sales and Marketing

    2018     $ 187,500     $ 6,000,000 (5)    $   10,001,614     $ 385,941     $ 273,369     $ 16,848,424  

Officer

             

Maria Martinez

    2020     $ 700,000       —          $ 6,809,059     $ 754,880     $ 19,510     $ 8,283,449  

Executive Vice President and

    2019     $ 675,000     $   6,500,000 (6)    $ 6,161,149     $ 1,574,640     $ 70,631     $ 14,981,420  

Chief Customer Experience Officer

    2018     $ 194,712     $ 6,500,000 (6)    $ 12,003,070     $ 400,569     $ 246,554     $ 19,344,905  

Irving Tan

    2020     $ 625,000       —          $ 6,340,993     $ 664,000     $ 47,701     $ 7,677,694  

Executive Vice President and Chief of Operations

             

David Goeckeler

    2020     $ 618,036 (7)      —          $ 9,988,440       —          $ 12,819     $ 10,619,295  

Former Executive Vice

    2019     $ 825,000       —          $ 9,374,159     $ 2,044,845     $ 84,969     $ 12,328,973  

President and General Manager,
Networking and Security
Business

    2018     $ 748,077       —          $ 8,458,949     $ 1,823,312     $ 53,816     $ 11,084,154  
             

 

(1)

Mr. Goeckeler resigned from Cisco effective March 8, 2020. Mr. Tan was not a named executive officer in fiscal 2018 and 2019.

 

(2)

The amounts in the “Stock Awards” column represent the aggregate grant date fair values, computed in accordance with FASB ASC Topic 718, of PRSUs and RSUs granted during the applicable fiscal year under the 2005 Stock Incentive Plan. See below for more information on, and assumptions used for, the grant date fair value of the PRSUs. For time-based awards, the grant date fair value was determined using the closing share price of Cisco common stock on the date of grant, adjusted for the present value of expected dividends.

The PRSUs awarded in fiscal 2020, 2019 and 2018 are generally based on the three-year performance cycle of (i) fiscal 2020 through fiscal 2022, (ii) fiscal 2019 through fiscal 2021, and (iii) fiscal 2018 through fiscal 2020, respectively. The performance metrics for 50% of the PRSUs are based on operating goal performance, and the performance metric for the remaining 50% of the PRSUs is Cisco’s relative TSR, except that the performance metric for the PRSUs awarded to Mr. Goeckeler in July 2018, Ms. Martinez in April 2018, and Ms. Elliott in April 2018, respectively, was based 100% on Cisco’s relative TSR. The metrics used to determine the number of PRSUs earned relative to operating goal performance are operating cash flow and EPS based on annual goals, pre-established at the beginning of each applicable fiscal year, which was intended to comply with the exemption for performance-based compensation under Code Section 162(m); provided that, as described above, only the grandfathered portion will continue to qualify for such exemption due to the repeal of the exemption and the corresponding transition rule. These operating goal performance metrics are reviewed at the end of each fiscal year and any PRSUs are earned based on the average performance over the three applicable fiscal years, subject to the Compensation Committee’s approval. The probable and maximum values are based upon achieving the target or maximum level of performance as of the date the goals were set. The performance periods for the PRSUs

 

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earned based on Cisco’s relative TSR are described in the “Compensation Committee Matters — Grants of Plan-Based Awards — Fiscal 2020” table. See the “Fiscal 2020 Compensation” section in the CD&A for a more complete description of the PRSUs.

The table below sets forth the grant date fair value for PRSUs awarded in fiscal 2020, 2019 and 2018.

 

Name

   Fiscal
Year
     Probable Outcome of
Performance
Conditions Grant Date
Fair Value

($) (a)
     Maximum Outcome of
Performance
Conditions Grant Date
Fair Value

($) (a)
     Market-Related
Component Grant
Date Fair Value

($) (b)
 

Charles H. Robbins

     2020      $ 7,640,113      $ 11,460,170      $ 6,623,856  
     2019      $ 7,013,562      $ 10,520,343      $ 7,133,895  
     2018      $ 5,424,368      $ 8,136,552      $ 5,810,340  

Kelly A. Kramer

     2020      $ 4,250,001      $ 6,375,002      $ 3,396,865  
     2019      $ 4,002,641      $ 6,003,961      $ 4,076,519  
     2018      $ 3,182,404      $ 4,773,606      $ 3,400,185  

Gerri Elliott

     2020      $ 2,331,888      $ 3,497,832      $ 3,396,865  
     2019      $ 875,170      $ 1,312,755      $ 3,261,236  
     2018      $ —           $ —           $ 5,000,303  

Maria Martinez

     2020      $ 2,060,324      $ 3,090,487      $ 2,717,484  
     2019      $ 875,170      $ 1,312,755      $ 3,261,236  
     2018      $ —           $ —           $ 6,000,132  

Irving Tan

     2020      $ 2,037,461      $ 3,056,192      $ 2,462,712  

David Goeckeler

     2020      $ 4,052,513      $ 6,078,770      $ 3,396,865  
     2019      $ 2,766,700      $ 4,150,050      $ 4,076,519  
     2018      $ 1,289,969      $ 1,934,955      $ 4,691,704  

 

  (a)

Because the performance-related component for PRSUs that contain operating goals is based on separate measurements of our financial performance for each year in the three-year performance cycle, FASB ASC Topic 718 requires the grant date fair value to be calculated at the commencement of each separate year of the performance cycle when the respective performance measures are approved as follows:

 

  (i)

the amounts for fiscal 2020 represent the grant date fair value for the operating goal performance-related component of the PRSUs awarded in fiscal 2020, 2019 and 2018 based upon the probable or target outcome of the fiscal 2020 operating goal performance-related component as of the date the goals were set and based upon achieving the maximum level of performance under the fiscal 2020 operating goal performance-related component as of the date the goals were set;

 

  (ii)

the amounts for fiscal 2019 represent the grant date fair value for the operating goal performance-related component of the PRSUs awarded in fiscal 2019, 2018 and 2017 based upon the probable or target outcome of the fiscal 2019 operating goal performance-related component as of the date the goals were set and based upon achieving the maximum level of performance under the fiscal 2019 operating goal performance-related component as of the date the goals were set; and

 

  (iii)

the amounts for fiscal 2018 represent the grant date fair value for the operating goal performance-related component of the PRSUs awarded in fiscal 2018, 2017 and 2016 based upon the probable or target outcome of the fiscal 2018 operating goal performance-related component as of the date the goals were set and based upon achieving the maximum level of performance under the fiscal 2018 operating goal performance-related component as of the date the goals were set.

 

      

For additional description of the actual amounts earned for the fiscal 2018 PRSUs, see the “Fiscal 2020 Compensation — Long-Term, Equity-Based Incentive Awards — Earned Fiscal 2018 Awards (Fiscal 2018 — 2020)” section in the CD&A above.

 

  (b)

Represents the grant date fair value for the market-related TSR component, which is not subject to probable or maximum outcome assumptions. The metric used to determine the number of PRSUs earned with respect to the TSR component is Cisco’s TSR compared to the S&P 500 Index for the fiscal 2018, 2019 and 2020 grants, in each case, over a three fiscal year period. Consistent with FASB ASC Topic 718, the full grant date fair value for the market-related TSR component for the entire performance cycle is included in the amounts shown for the year of grant and was determined using a Monte Carlo simulation model.

 

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The following table includes the assumptions used to calculate the grant date fair value of PRSU awards reported for fiscal 2020, 2019 and 2018.

 

          Assumptions
(Operating Goal)
          Assumptions
(TSR Goal)
 

PRSU Award

  Fair
Value
($)
    Range of Risk
Free Interest
Rate (%)
    Dividend
Yield (%)
    Fair
Value ($)
    Cisco
Volatility
(%)
    Risk Free
Interest Rate

(%)
    Dividend
Yield
(%)
 

Fiscal 2020

             

9/18/2019 PRSUs

    44.91       1.68 - 1.93       2.84       37.45       21.75       1.71       2.84  

Year 2 of 9/18/2018 PRSUs

    46.25       1.74 - 1.93       2.84       N/A       N/A       N/A       N/A  

Year 3 of 9/20/2017 PRSUs

    47.96       1.88 - 1.93       2.84       N/A       N/A       N/A       N/A  

Fiscal 2019

             

9/18/2018 PRSUs

    41.55       2.31 - 2.99       2.91       51.61       20.82       2.86       2.78  

Year 2 of 9/20/2017 PRSUs

    42.77       2.31 - 2.92       2.91       N/A       N/A       N/A       N/A  

Year 3 of 9/21/2016 PRSUs

    44.04       2.31 - 2.67       2.91       N/A       N/A       N/A       N/A  

Fiscal 2018

             

7/25/2018 PRSUs

    N/A       N/A       N/A       42.31       20.61       2.73       3.06  

4/30/2018 PRSUs

    N/A       N/A       N/A       43.87       19.74       2.51       2.98  

4/16/2018 PRSUs

    N/A       N/A       N/A       42.80       20.49       2.41       3.05  

9/20/2017 PRSUs

    28.91       0.98 - 1.60       3.56       32.46       20.60       1.58       3.56  

Year 2 of 9/21/2016 PRSUs

    30.03       0.98 - 1.45       3.56       N/A       N/A       N/A       N/A  

Year 3 of 9/9/2015 PRSUs

    31.45       0.98 - 1.32       3.56       N/A       N/A       N/A       N/A  

 

(3)

The amounts listed in the “Non-Equity Incentive Plan Compensation” column for fiscal 2020, 2019 and 2018 reflect the cash awards paid under the EIP for performance in the applicable fiscal year. See the “Fiscal 2020 Compensation” section in the CD&A for a more complete description of how the variable cash incentive awards were determined for fiscal 2020.

 

(4)

The amounts listed in the “All Other Compensation” column for fiscal 2020 include actual and estimated matching contributions by Cisco under the Deferred Compensation Plan, matching contributions that Cisco made under the 401(k) Plan, and other perquisites and personal benefits, and details about these amounts are set forth in the table below.

 

Name

   Matching Contributions
under Deferred
Compensation Plan ($) (a)
     Matching
Contributions under
401(k) Plan ($)
     Other ($) (b)     Total ($)  

Charles H. Robbins

   $   54,675      $   12,825      $   19,093 (c)    $   86,593  

Kelly A. Kramer

   $ 54,675      $ 12,825      $ —         $ 67,500  

Gerri Elliott

   $ —          $ 11,672      $ —         $ 11,672  

Maria Martinez

   $ —          $ 12,076      $ 7,434 (d)    $ 19,510  

Irving Tan

   $ 16,767      $ 16,598      $ 14,336 (e)    $ 47,701  

David Goeckeler

   $ —          $ 12,819      $ —         $ 12,819  

 

  (a)

This includes matching contributions related to fiscal 2020 salary and non-equity incentive plan compensation deferred during calendar year 2019 as well as fiscal 2020 salary and non-equity incentive plan compensation deferred during calendar year 2020 that is expected to be credited at the end of calendar year 2020. See the “Compensation Committee Matters — Fiscal 2020 Compensation Tables — Nonqualified Deferred Compensation — Fiscal 2020” section for more information.

 

  (b)

In fiscal 2020, occasionally, guests of the named executive officers were permitted to ride along on Cisco’s leased corporate aircraft when the aircraft was already going to a specific destination for a business purpose, provided there was no more than a de minimis incremental cost. In fiscal 2020, the named executive officers were also permitted to use the aircraft occasionally for non-business travel, subject to availability and reimbursing Cisco for the incremental cost of the flight. On such occasions, the named executive officer will be subject to imputed income at the applicable SIFL rates for any personal passengers on that flight, and Cisco does not provide tax gross-ups for such imputed income. See the “Fiscal 2020 Compensation — Perquisites” section in the CD&A for the method Cisco used in determining the reimbursable incremental cost for personal use.

 

  (c)

The amount listed in the All Other Compensation column for fiscal 2020 for Mr. Robbins includes security expenses relating to non-business travel and guest travel while accompanying Mr. Robbins on a business trip. In addition, Cisco security practices provide that the CEO may be driven to and from work by an authorized car service and personal security driver. Cisco does not consider these security expenses to be personal benefits since these expenses arise from the nature of Mr. Robbins’ employment by Cisco. However, the disclosure regulations require certain security expenses to be reported as personal benefits. The amount reported for such security expenses is the incremental cost to Cisco of providing security personnel employed by Cisco and third-party security vendors. For Cisco security personnel, the incremental cost includes meals, lodging and travel. Compensation is not included because Cisco already incurs that cost for business purposes. For third-party security vendors, the incremental cost is their actual cost. The incremental cost for the authorized car service and personal security driver is the actual cost. The amount listed for

 

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Mr. Robbins also includes executive health physicals and other benefits, and reimbursement for personal expenses in connection with a business trip to recognize sales personnel achievements where the presence of spouses/partners was expected.

 

  (d)

The amount listed in the “All Other Compensation” column for Ms. Martinez for fiscal 2020 includes $7,434 for tax restoration benefits pursuant to Cisco’s policy for domestic partner health benefits.

 

  (e)

Mr. Tan was reassigned to the U.S. from Singapore in January 2018. The amount listed in the “All Other Compensation” column for Mr. Tan for fiscal 2020 includes fees for his tax preparation services, $850 for related tax restoration benefits, and reimbursement for personal expenses in connection with a business trip to recognize sales personnel achievements where the presence of spouses/partners was expected.

 

(5)

As part of her new hire compensation package, the Compensation Committee approved the payment to Ms. Elliott of a $10 million new hire cash bonus payment with $6 million paid in May 2018 and the balance paid in May 2019.

 

(6)

As part of her new hire compensation package and as consideration for the compensation she forfeited when she left Salesforce, the Compensation Committee approved the payment to Ms. Martinez of a $13 million new hire cash bonus payment with $6.5 million paid in June 2018 and the balance paid in May 2019.

 

(7)

Includes $100,825 for the payout of accrued vacation.

The following table provides information on cash-based performance awards and stock unit awards in fiscal 2020 to each of Cisco’s named executive officers. There can be no assurance that the Grant Date Fair Value, as listed in this table, of the Stock Awards will ever be realized. These Grant Date Fair Value amounts also are included in the “Stock Awards” column of the Summary Compensation Table.

Grants of Plan-Based Awards — Fiscal 2020

 

   

 

Estimated Future Payouts Under

Non-Equity Incentive
Plan Awards

   

 

Estimated Future Payouts
Under Equity Incentive Plan
Awards

    All
Other
Stock
Awards:

Number
of
Shares of

Stock or
Units
(#) (1)
    Grant
Date

Fair Value
of Stock
Awards
($) (2)
 

Name

  Grant
Date
    Threshold
($)
  Target
($)
    Maximum
($)
    Threshold
(#)
  Target
(#) (1)
    Maximum
(#)
 

Charles H. Robbins

        (3)       $ 3,614,000     $ 7,228,000            
    9/18/19(4)               353,743       530,614       $ 9,271,544  
    9/18/19(5)                   107,718     $ 4,951,172  

Kelly A. Kramer

        (3)       $ 1,360,000     $ 2,720,000            
    9/18/19(4)               181,407       272,110       $ 4,754,638  
    9/18/19(5)                   55,240     $ 2,539,062  

Gerri Elliott

        (3)       $ 1,320,000     $ 2,640,000            
    9/18/19(4)               181,407       272,110       $ 4,754,638  
    9/18/19(5)                   55,240     $ 2,539,062  

Maria Martinez

        (3)       $ 1,120,000     $ 2,240,000            
    9/18/19(4)               145,126       217,689       $ 3,803,693  
    9/18/19(5)                   44,192     $ 2,031,250  

Irving Tan

        (3)       $ 1,000,000     $ 2,000,000            
    9/18/19(4)               131,520       197,280       $ 3,447,113  
    9/18/19(5)                   40,049     $ 1,840,820  

David Goeckeler

        (3)       $ 1,320,000     $ 2,640,000            
    9/18/19(4)               181,407       272,110       $ 4,754,638  
    9/18/19(5)                   55,240     $ 2,539,062  

 

(1)

Each of the awards will vest in full (at target levels for PRSUs) in the event that Cisco is acquired by merger or asset sale, unless the award or related agreement is assumed or replaced by the acquiring entity. In addition, pursuant to a Compensation Committee policy which can be revoked or changed at any time, if the holder of an award dies or becomes terminally ill, his or her award will generally vest in an amount equal to the greater of 100% of the unvested shares subject to the award (at target levels for PRSUs) up to a total value of $10 million, net of aggregate exercise or purchase price, or up to one year of vesting from the date of death or determination of terminal illness. For purposes of this policy, shares subject to the award are valued based on the closing share price of Cisco common stock on the date of death or determination of terminal illness.

 

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In the event of the retirement of a named executive officer, and to the extent the named executive officer meets certain retirement eligibility criteria described in the award agreement and complies with certain post-retirement covenants, all PRSUs will continue to vest and any earned PRSUs, based on the satisfaction of the performance metrics, will be settled in Cisco shares at the end of the three-year performance period. Further, PRSUs will be forfeited and provide no value to its holder to the extent the holder violates specific post-retirement covenants.

 

(2)

Excludes the grant date fair value for the operating goal performance-related component of the fiscal 2019 and fiscal 2018 awards based on the probable or target outcome of the fiscal 2020 operating goal performance-related component because these PRSUs were not awarded in fiscal 2020. The amounts included in the “Stock Awards” column of the Summary Compensation Table for fiscal 2020 related to the PRSUs awarded in fiscal 2019 and 2018 in aggregate are as follows: $4,992,425 for Mr. Robbins; $2,892,229 for Ms. Kramer; $974,115 for Ms. Elliott; $974,115 for Ms. Martinez; $1,053,061 for Mr. Tan; and $2,694,741 for Mr. Goeckeler.

 

(3)

These rows represent possible payouts pursuant to the annual cash incentive awards under the EIP for fiscal 2020. The EIP did not contain any threshold value for fiscal 2020. For more information about these payments, see the CD&A.

 

   

For Mr. Robbins, the target and maximum values are calculated by multiplying 260% (target) and 520% (maximum), respectively, by his annual base salary in effect during fiscal 2020.

 

   

For Ms. Kramer, Ms. Elliott, Ms. Martinez, Mr. Tan and Mr. Goeckeler, the target and maximum values are calculated by multiplying 160% (target) and 320% (maximum), respectively, by his or her annual base salary during fiscal 2020.

 

(4)

The amounts shown in these rows reflect, in share amounts, the target and maximum potential awards of PRSUs for the fiscal 2020 performance period, as further described in the CD&A. In September 2019, each named executive officer was awarded PRSUs under the 2005 Stock Incentive Plan, which are subject to the satisfaction of pre-determined performance metrics based on operating cash flow, EPS and relative TSR over the three fiscal year performance cycle starting with fiscal 2020, with a maximum award equal to 150% of the target grant. There was no threshold number for these PRSUs for fiscal 2020. The potential awards were performance-based and were completely at risk. For additional detail on the grant date fair value of the PRSUs, see footnote 2 to the Summary Compensation Table above.

 

(5)

Granted under the 2005 Stock Incentive Plan and vests 25% on November 10, 2020, and 6.25% quarterly thereafter. Each award is settled in shares on each vesting date.

 

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The following table shows the number of Cisco unvested restricted stock units held by Cisco’s named executive officers as of July 25, 2020.

Outstanding Equity Awards At 2020 Fiscal Year-End

 

     Stock Awards  

Name

   Number of
Shares or
Units of
Stock That
Have Not
Vested (#)
       Market Value
of Shares or
Units of
Stock That
Have Not
Vested ($) *
     Number of
Unearned
Shares, Units or
Other Rights
That Have Not
Vested (#)
    Market or Payout
Value of
Unearned Shares,
Units or Other
Rights That Have
Not Vested ($) *
 

Charles H. Robbins

     29,650(2)          $ 1,375,760       
     46,650(3)          $ 2,164,560       
     448,691(4)          $ 20,819,262       
     62,463(11)        $ 2,898,283       
     107,718(13)        $ 4,998,115       
             414,681 (12)    $ 19,241,198  
             353,743 (14)    $ 16,413,675  

Kelly A. Kramer

     16,475(2)          $ 764,440       
     27,300(3)          $ 1,266,720       
     262,572(4)          $ 12,183,341       
     35,694(11)        $ 1,656,202       
     55,240(13)        $ 2,563,136       
             236,961 (12)    $ 10,994,990  
             181,407 (14)    $ 8,417,285  

Gerri Elliott

     135,636(9)          $ 6,293,510       
     28,555(11)        $ 1,324,952       
     55,240(13)        $ 2,563,136       
             189,568 (12)    $ 8,795,955  
             181,407 (14)    $ 8,417,285  

Maria Martinez

     74,175(7)          $ 3,441,720       
     166,826(8)          $ 7,740,726       
     28,555(11)        $ 1,324,952       
     44,192(13)        $ 2,050,509       
             189,568 (12)    $ 8,795,955  
             145,126 (14)    $ 6,733,846  

Irving Tan

     7,500(1)          $ 348,000       
     8,113(2)          $ 376,443       
     15,825(3)          $ 734,280       
     52,888(4)          $ 2,454,003       
     8,824(5)          $ 409,434       
     29,489(6)          $ 1,368,290       
     46,401(11)        $ 2,153,006       
     40,049(13)        $ 1,858,274       
             102,684 (12)    $ 4,764,538  
             131,520 (14)    $ 6,102,528  

David Goeckeler

     231,616(4)          $   10,746,982       
             60,000 (10)    $ 2,784,000  
             236,961 (12)    $   10,994,990  

 

*

The market values of the RSUs that have not vested and the unearned PRSUs are calculated by multiplying the number of units shown in the table by the fiscal 2020 year-end closing price of Cisco common stock of $46.40.

 

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Vesting Schedule for Unvested Restricted Stock Units

 

Note

   Grant   

Incremental Vesting Date

(1)

  

7/27/16

  

25% on 9/11/17; 25% annually for next 3 years

(2)

  

9/21/16

  

25% on 11/20/17; 25% annually for next 3 years

(3)

  

9/20/17

  

25% on 11/10/18; 6.25% quarterly thereafter

(4)

  

9/20/17

  

Represents shares earned under fiscal 2018 PRSUs based on Cisco’s performance through the end of the three-year performance period covering fiscal 2018, fiscal 2019 and fiscal 2020. These shares were earned following certification of the operating and TSR performance goals by the Compensation Committee. The earned fiscal 2018 PRSUs remain subject to the executive officer’s continued employment (other than Mr. Goeckeler who resigned from Cisco and was eligible for retirement vesting) and the Compensation Committee’s discretion to further review and reduce the number of earned PRSUs until they settle on November 10, 2020.

(5)

  

1/30/18

  

25% on 11/10/18; 6.25% quarterly thereafter

(6)

  

1/30/18

  

Represents shares earned under fiscal 2018 PRSUs based on Cisco’s performance through the end of the three-year performance period covering fiscal 2018, fiscal 2019 and fiscal 2020. These shares were earned following certification of the operating and TSR performance goals by the Compensation Committee. The earned fiscal 2018 PRSUs remain subject to the executive officer’s continued employment and the Compensation Committee’s discretion to further review and reduce the number of earned PRSUs until they settle on November 10, 2020.

(7)

  

4/16/18

  

25% on 6/10/19; 6.25% quarterly thereafter

(8)

  

4/16/18

  

Represents shares earned under fiscal 2018 PRSUs based on Cisco’s TSR relative to the S&P 500 Index over a two-year period covering fiscal 2019 and fiscal 2020. These shares were earned following certification of TSR performance goals by the Compensation Committee. The earned fiscal 2018 PRSUs remain subject to the executive officer’s continued employment and the Compensation Committee’s discretion to further review and reduce the number of earned PRSUs until they settle on November 10, 2020.

(9)

  

4/30/18

  

Represents shares earned under fiscal 2018 PRSUs based on Cisco’s TSR relative to the S&P 500 Index over a two-year period covering fiscal 2019 and fiscal 2020. These shares were earned following certification of TSR performance goals by the Compensation Committee. The earned fiscal 2018 PRSUs remain subject to the executive officer’s continued employment and the Compensation Committee’s discretion to further review and reduce the number of earned PRSUs until they settle on November 10, 2020.

(10)

  

7/25/18

  

PRSUs that are earned and settled on 11/10/21 subject to (i) Cisco’s TSR relative to the S&P 500 Index over a three-year period covering fiscal 2019, fiscal 2020 and fiscal 2021; and (ii) Mr. Goeckeler’s retirement vesting eligibility through the settlement date. The number of shares and the payout value for the PRSUs reflect payout at maximum since Cisco’s relative TSR performance for the first two years of the three-year performance period exceeds target levels. Each PRSU is subject to the Compensation Committee’s negative discretion when approving the settlement thereof.

(11)

  

9/18/18

  

25% on 11/10/19; 6.25% quarterly thereafter

(12)

  

9/18/18

  

PRSUs that are earned and settled on 11/10/21 subject to (i) the achievement of two operating goal performance metrics, operating cash flow and EPS, subject to annual goals that are pre-established at the beginning of each of fiscal 2019, fiscal 2020 and fiscal 2021; (ii) Cisco’s TSR relative to the S&P 500 Index over a three-year period covering fiscal 2019, fiscal 2020 and fiscal 2021; and (iii) the executive officer’s employment (other than Mr. Goeckeler who resigned from Cisco and is eligible for retirement vesting) through the settlement date. The number of shares and the payout value for the PRSUs reflect payout at maximum since Cisco’s operating performance and relative TSR performance for the first two years of the three-year performance period exceeds target levels. Each PRSU is subject to the Compensation Committee’s negative discretion when approving the settlement thereof.

(13)

  

9/18/19

  

25% on 11/10/20; 6.25% quarterly thereafter

(14)

  

9/18/19

  

PRSUs that are earned and settled on 11/10/22 subject to (i) the achievement of two operating goal performance metrics, operating cash flow and EPS, subject to annual goals that are pre-established at the beginning of each of fiscal 2020, fiscal 2021 and fiscal 2022; (ii) Cisco’s TSR relative to the S&P 500 Index over a three-year period covering fiscal 2020, fiscal 2021 and fiscal 2022; and (iii) the executive officer’s employment through the settlement date. The number of shares and the payout value for the PRSUs reflect payout at target since Cisco’s operating performance and relative TSR performance for the first year of the three-year performance period did not exceed target levels. Each PRSU is subject to the Compensation Committee’s negative discretion when approving the settlement thereof.

 

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The following table shows the number of shares acquired by each of the named executive officers during fiscal 2020 through vesting of restricted stock units (including restricted stock units granted upon the satisfaction of a performance condition). The table also presents the value realized upon such vesting, as calculated based on the closing share price of Cisco’s common stock on the Nasdaq Global Select Market on the vesting date. No stock options were exercised by the named executive officers during fiscal 2020, and there were no outstanding stock options held by the named executive officers as of July 25, 2020.

Option Exercises and Stock Vested — Fiscal 2020

 

     Stock Awards (1)  

Name

   Number of Shares
Acquired on Vesting
(#)
     Value Realized
on Vesting
($)
 

Charles H. Robbins

     543,862      $ 24,877,304  

Kelly A. Kramer

     305,588      $ 13,989,907  

Gerri Elliott

     76,182      $ 3,620,148  

Maria Martinez

     54,220      $ 2,496,467  

Irving Tan

     147,858      $ 7,014,549  

David Goeckeler

     215,950      $ 10,317,804  

 

(1)

Includes 60,750 shares subject to fully vested deferred stock units for Mr. Robbins and 4,283 shares subject to fully vested deferred stock units for Ms. Elliott. As elected by the named executive officer, these shares will be deferred until either (i) the employee’s separation from service with Cisco or (ii) the earlier of an elected future settlement date or the employee’s separation from service with Cisco, in each case in accordance with Code Section 409A. For the values realized on vesting of the deferred stock units, see the “Nonqualified Deferred Compensation — Fiscal 2020” table below.

The following table shows the contributions and earnings during fiscal 2020, and account balance as of July 25, 2020, for named executive officers under the Deferred Compensation Plan or the 2005 Stock Incentive Plan, as the case may be.

Nonqualified Deferred Compensation — Fiscal 2020

 

Name

 

                     Plan                    

   Executive
Contributions
in Last Fiscal
Year

($) (1)
     Registrant
Contributions
in Last Fiscal
Year

($) (2)
     Aggregate
Earnings
in Last
Fiscal
Year

($) (3)
    Aggregate
Withdrawals/
Distributions
($)
     Aggregate
Balance at
Last
Fiscal
Year-End

($) (4)
 

Charles R. Robbins

  Deferred Compensation Plan    $ 193,098      $   54,675      $ 99,373            $   1,108,390  
  2005 Stock Incentive Plan    $   2,838,130      $        $  (1,092,604          $ 7,734,880  

Kelly A. Kramer

  Deferred Compensation Plan    $ 55,249      $ 54,675      $ 46,767            $ 617,338  

Gerri Elliott

  Deferred Compensation Plan    $      $      $            $  
  2005 Stock Incentive Plan    $ 204,998      $      $ (6,266          $ 198,732  

Maria Martinez

  Deferred Compensation Plan    $      $      $            $  

Irving Tan

  Deferred Compensation Plan    $ 16,767      $ 16,767      $ 1,041            $ 34,575  

David Goeckeler

  Deferred Compensation Plan    $ 8,329      $      $ 32,300            $ 2,556,986  

 

(1)

The executive contribution amounts under the Deferred Compensation Plan were included in fiscal 2020 compensation in the “Salary” and “Non-Equity Incentive Plan Compensation” columns of the Summary Compensation Table, as applicable. The executive contribution amount under the 2005 Stock Incentive Plan represents the value of fully vested deferred stock units based on the closing share price of Cisco’s common stock on the Nasdaq Global Select Market on the vesting date and is included in the “Value Realized on Vesting” column of the Option Exercises and Stock Vested — Fiscal 2020 table.

 

(2)

These amounts were included in the “All Other Compensation” column of the Summary Compensation Table. Matching contributions under the Deferred Compensation Plan are made to eligible participants following the end of each calendar year. Generally, the matching contribution rate for calendar year 2020 will be, and the matching contribution rate for calendar year 2019 was, 4.5% of eligible compensation over the Code Section 401(a)(17) limit for each calendar year ($285,000 for 2020 and $280,000 for 2019), with a $1,500,000 cap on eligible compensation for each calendar year. The matching contribution rate for calendar years 2020 and 2019 is the same as in the 401(k) Plan for both years. Participants must be actively employed by Cisco on the last day of a calendar year to receive a matching contribution under the Deferred Compensation Plan. The amounts in this column reflect the sum of (i) actual calendar year 2019 matching

 

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contributions, excluding the portion of those contributions related to deferrals of fiscal 2019 salary and non-equity incentive plan compensation, and (ii) estimated calendar year 2020 matching contributions related to deferrals of fiscal 2020 salary and non-equity incentive plan compensation during calendar year 2020 that are expected to be credited to the accounts of the named executive officers at the end of calendar year 2020.

 

(3)

None of the amounts in this column is included in the Summary Compensation Table because plan earnings were not preferential or above-market.

 

(4)

The following amounts included in this column for the Deferred Compensation Plan also have been reported in the Summary Compensation Table as compensation for fiscal 2020 or a prior fiscal year: Mr. Robbins, $981,321; Ms. Kramer, $544,941; Mr. Tan, $33,534; and Mr. Goeckeler, $305,283. The aggregate grant date fair value of the fully vested deferred stock units under the 2005 Stock Incentive Plan included in this column that has been reported in the Summary Compensation Table as compensation for fiscal 2020 or a prior fiscal year: Mr. Robbins, $4,854,433; and Ms. Elliott, $203,271. The deferred equity amounts included in this column are valued using the fiscal 2020 year-end closing share price of Cisco common stock of $46.40.

The Deferred Compensation Plan, which became effective on June 25, 2007, is an unfunded and unsecured deferred compensation arrangement that is designed to allow the participants to defer a specified percentage of their base salary (up to 75%), commissions and/or eligible bonuses (up to 100%) in a manner similar to the way in which the 401(k) Plan operates, but without regard to the maximum deferral limitations imposed on 401(k) plans by the Code. The Deferred Compensation Plan is designed to comply with Code Section 409A. As required by applicable law, participation in the Deferred Compensation Plan is limited to a group of Cisco’s management employees, which group includes each of Cisco’s named executive officers.

Amounts deferred by each participant pursuant to the Deferred Compensation Plan are credited to a bookkeeping account maintained on behalf of that participant. Amounts credited to each participant under the Deferred Compensation Plan are periodically adjusted for earnings and/or losses at a rate that is equal to one or more of the measurement funds selected by the 401(k) Plan Committee and elected by a participant. Currently, the measurement funds consist of the following: Fidelity Money Market Fund; iShares Core Total U.S. Bond Market ETF Trust; SPDR S&P 500 ETF Trust; SPDR S&P MidCap 400 ETF Trust; iShares Russell 2000 Index Fund; iShares MSCI EAFE Index Fund; BlackRock LifePath Index Retirement Fund; BlackRock LifePath Index 2030 Fund; BlackRock LifePath Index 2040 Fund; and BlackRock LifePath Index 2050 Fund.

In addition, Cisco may credit additional matching amounts to a participant’s account for any plan year as determined by the Compensation Committee. For calendar years 2020 and 2019, there are matching contributions on deferrals over the IRS limitation on compensation that may be taken into account under the 401(k) Plan ($285,000 for 2020 and $280,000 for 2019). Generally, the matching contribution rate for calendar year 2020 will be, and the matching contribution rate for calendar year 2019 was, 4.5% of eligible compensation over the Code Section 401(a)(17) limit, with a $1,500,000 cap on eligible compensation for each calendar year. The matching contribution rate for calendar years 2020 and 2019 is the same as in the 401(k) Plan for both years. Participants must be actively employed by Cisco on the last day of a calendar year to receive a matching contribution under the Deferred Compensation Plan.

Distributions are made in accordance with elections filed by participants at the time of their deferral elections and distributions are expected to occur on specified future distribution dates or after participant’s separation of service.

Under the 2005 Stock Incentive Plan, at the election of an eligible employee, the settlement of vested shares underlying RSUs may be deferred until either (i) the employee’s separation from service with Cisco or (ii) the earlier of an elected future settlement date or the employee’s separation from service with Cisco, in each case in accordance with Code Section 409A. Commencing with the fiscal 2016 annual equity grants, vested and deferred time-based RSUs shall be credited with dividend equivalents.

Potential Payments upon Termination or Change in Control

Acceleration of Equity Awards

As described above in the CD&A, each outstanding award to all employees under the 2005 Stock Incentive Plan that is subject to vesting provisions, and each PRSU awarded from time to time, will vest in full (at target levels for PRSUs) and, if applicable, become immediately exercisable in the event that Cisco is acquired by merger or asset sale, unless the award or related agreement is assumed or replaced by the acquiring entity. The Plan Administrator may also provide that each outstanding award will vest in full and, if applicable, become

 

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immediately exercisable in the event Cisco is acquired by merger or asset sale, or there is a hostile change in control or ownership of Cisco, whether through a tender or exchange offer for more than 35% of Cisco’s outstanding voting securities which the Board of Directors does not recommend the shareholders to accept, or a change in the majority of the members of the Board of Directors as a result of one or more contested elections for board membership. However, we eliminated single-trigger change in control vesting (which only existed in the case of a hostile change in control) for equity awards granted beginning July 2016.

The Compensation Committee has adopted a policy (the “Death and Terminal Illness Policy”) that applies to each outstanding award to all employees (other than as described in this paragraph) and that can be revoked or changed at any time. Pursuant to this policy, if the holder of such an award dies or becomes terminally ill, his or her aggregate awards will generally vest in an amount (at target levels for PRSUs) equal to the greater of (a) 100% of the unvested shares subject to the awards up to a total value of $10 million, net of aggregate exercise or purchase price, or (b) up to one year of vesting from the date of death or determination of terminal illness. For purposes of this policy, shares subject to each award are valued based on the closing share price of Cisco common stock on the date of death or determination of terminal illness.

In the event of the retirement of a named executive officer, and to the extent the named executive officer meets certain retirement eligibility criteria described in the award agreement and complies with certain post-retirement covenants, all PRSUs will continue to vest and any earned PRSUs, based on the satisfaction of the performance metrics, will be settled in Cisco shares at the end of the three-year performance period. Further, PRSUs will be forfeited and provide no value to its holder to the extent a named executive officer violates specific post-retirement covenants.

The table below sets forth the values that the continuing named executive officers would derive in the event of (a) a hostile change in control of Cisco, (b) a change in control in which the awards are not assumed or replaced by the acquiror, (c) the death or terminal illness of the named executive officer, or (d) the retirement of the named executive officer, that in each case hypothetically occurred on the last business day of fiscal 2020. For RSUs and PRSUs, the value is based upon the fiscal 2020 year-end closing share price of Cisco common stock of $46.40.

Potential Payments — Accelerated Equity Awards

 

     Change in Control                

Name

   Hostile
($)
     Awards are
not Assumed
or Replaced
by Acquiror

($) (1)
     Death or
Terminal
Illness

($) (2)
     Retirement
($)
 

Charles H. Robbins

          $   57,289,059      $   22,463,586         

Kelly A. Kramer

          $ 31,718,576      $ 12,953,395         

Gerri Elliott

          $ 23,458,030      $ 10,000,000         

Maria Martinez

          $ 25,919,829      $ 10,000,000         

Irving Tan

          $ 18,208,195      $ 10,000,000         

 

(1)

Represents the value of accelerated RSUs and PRSUs.

 

(2)

Represents the greater of (i) the value of full acceleration of unvested RSUs and PRSUs, up to the limit of $10 million, assuming those awards were to be accelerated under the Death and Terminal Illness Policy or (ii) up to one year of vesting of unvested stock awards from the date of death or determination of terminal illness. These values have not been, and may never be, realized.

 

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CEO Pay Ratio

Presented below is the ratio of annual total compensation of our CEO to the annual total compensation of our median employee. The ratio is a reasonable estimate calculated in a manner consistent with Item 402(u) of Regulation S-K under the Exchange Act. SEC rules for identifying the median employee allow companies to apply various methodologies and assumptions and, as a result, the pay ratio reported by us may not be comparable to the pay ratio reported by other companies.

As determined in accordance with SEC rules, the fiscal 2020 annual total compensation was $23,163,710 for our CEO as reported in the Summary Compensation Table and $127,236 for our median employee, and the ratio of these amounts is 182 to 1. The Compensation Committee considers our CEO pay ratio in reviewing and establishing CEO compensation.

As permitted by SEC rules, to identify our median employee, we elected to use the target annual total cash compensation of each employee as of the end of fiscal 2020. For these purposes, target annual total cash compensation included annual base salary or hourly wages, target cash incentives, target commissions, and comparable cash elements of compensation in non-U.S. jurisdictions and was calculated using internal human resources records with all foreign currencies converted to U.S. dollars. All amounts were annualized for permanent employees who did not work for the entire year.

We selected the median employee from among our global population of employees as of the end of fiscal 2020. As permitted by SEC rules, we excluded 261 employees, representing approximately 0.3% of our global population of employees, who joined Cisco during fiscal 2020 as part of our acquisitions of 42Hertz, CloudCherry, Exablaze, Fluidmesh Networks, Sentryo, and Voicea when making this determination. Except for the employees excluded on the basis of these acquisitions completed in fiscal 2020, we did not exclude any other employees whether pursuant to the de minimis exemption for foreign employees or any other permitted exclusion.

 

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Ownership of Securities

The following table sets forth information known to Cisco with respect to beneficial ownership of Cisco common stock as of July 25, 2020 for (i) each director and nominee, (ii) each holder of 5.0% or greater of Cisco common stock, (iii) Cisco’s CEO, CFO, and the other named executive officers listed in the “Summary Compensation Table” section, and (iv) all executive officers and directors as a group.

Beneficial ownership is determined under the rules of the SEC and generally includes voting or investment power with respect to securities. Except as indicated in the footnotes to this table and pursuant to applicable community property laws, to Cisco’s knowledge the persons named in the table below have sole voting and investment power with respect to all shares of common stock beneficially owned. The number of shares beneficially owned by each person or group as of July 25, 2020 includes shares of common stock that such person or group had the right to acquire on or within 60 days after July 25, 2020, including, but not limited to, upon the exercise of options or the vesting of RSUs. References to RSUs in the footnotes of the table below include only RSUs outstanding as of July 25, 2020 that would vest or could settle on or within 60 days after July 25, 2020. For each individual and group included in the table below, percentage ownership is calculated by dividing the number of shares beneficially owned by such person or group by the sum of the 4,237,208,289 shares of common stock outstanding on July 25, 2020 plus the number of shares of common stock that such person or group had the right to acquire on or within 60 days after July 25, 2020.

 

Name

   Number of Shares
Beneficially Owned
     Percent
Owned
 

The Vanguard Group (1)

     352,956,930        8.3  

BlackRock, Inc. (2)

     317,188,524        7.5  

M. Michele Burns (3)

     79,261        *  

Wesley G. Bush (4)

     20,323        *  

Michael D. Capellas

     146,225        *  

Gerri Elliott (5)

     72,928        *  

Mark Garrett (6)

     14,165        *  

David Goeckeler

     20,371        *  

Dr. Kristina M. Johnson (7)

     49,026        *  

Kelly A. Kramer (8)

     150,343        *  

Maria Martinez (9)

     53,198        *  

Roderick C. McGeary (10)

     99,622        *  

Charles H. Robbins (11)

     57,775        *  

Arun Sarin (12)

     70,197        *  

Brenton L. Saunders (13)

     22,153        *  

Dr. Lisa T. Su (14)

     11,764        *  

Irving Tan (15)

     24,142        *  

All executive officers, directors and nominees as a group (16 Persons) (16)

     934,158        *  

 

    *

Less than one percent.

 

  (1)

Based on information set forth in a Schedule 13G filed with the SEC on February 12, 2020 by The Vanguard Group and certain related entities. The Vanguard Group reported that it has sole voting power with respect to 6,592,297 shares of common stock, sole dispositive power with respect to 345,504,855 shares of common stock, shared voting power with respect to 1,248,998 shares of common stock, and shared dispositive power with respect to 7,452,075 shares of common stock. The address of The Vanguard Group is 100 Vanguard Blvd., Malvern, Pennsylvania 19355.

 

  (2)

Based on information set forth in a Schedule 13G filed with the SEC on February 5, 2020 by BlackRock, Inc. and certain related entities. BlackRock, Inc. reported that it has sole voting power with respect to 271,952,079 shares of common stock and sole dispositive power with respect to all shares beneficially owned. The address of BlackRock, Inc. is 55 East 52nd Street, New York, New York 10055.

 

  (3)

Includes 6,904 shares subject to fully vested deferred stock units.

 

  (4)

Represents 10,000 shares held by a trust and 10,323 shares subject to fully vested deferred stock units.

 

  (5)

Includes 2,142 shares subject to RSUs.

 

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  (6)

Represents 13,266 held by a trust and 899 shares held by family limited partnerships.

 

  (7)

Includes 33,531 shares subject to fully vested deferred stock units.

 

  (8)

Includes 8,120 shares subject to RSUs.

 

  (9)

Includes 1,276 shares held by a trust and 12,127 shares subject to RSUs.

 

  (10)

Includes 49,460 shares subject to fully vested deferred stock units.

 

  (11)

Includes 6,246 shares subject to RSUs.

 

  (12)

Represents 70,197 shares subject to fully vested deferred stock units.

 

  (13)

Includes 21,713 shares subject to fully vested deferred stock units.

 

  (14)

Represents 6,000 shares held by spouse and 5,764 shares subject to fully vested deferred stock units.

 

  (15)

Includes 16,247 shares subject to RSUs.

 

  (16)

Includes 197,892 shares subject to fully vested deferred stock units and 48,896 shares subject to RSUs.

 

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AUDIT COMMITTEE MATTERS

Proposal No. 5 — Ratification of Independent Registered Public Accounting Firm

Cisco is asking the shareholders to ratify the Audit Committee’s appointment of PricewaterhouseCoopers LLP (“PwC”) as Cisco’s independent registered public accounting firm for the fiscal year ending July 31, 2021. In the event the shareholders fail to ratify the appointment, the Audit Committee will reconsider this appointment. Even if the appointment is ratified, the Audit Committee, in its discretion, may direct the appointment of a different independent registered public accounting firm at any time during the year if the Audit Committee determines that such a change would be in Cisco’s and its shareholders’ best interests.

The Audit Committee is directly responsible for the appointment, determination of the compensation for, retention and oversight of the work of the independent registered public accounting firm retained to audit Cisco’s consolidated financial statements. The Audit Committee has appointed PwC as Cisco’s independent registered public accounting firm for fiscal 2020 and is responsible for pre-approving all audit and permissible non-audit services to be provided by PwC. PwC has audited Cisco’s consolidated financial statements annually since fiscal 1988. In order to assure continuing auditor independence, the Audit Committee considers non-audit fees and services when assessing auditor independence and periodically considers whether there should be a regular rotation of the independent registered public accounting firm. Further, in conjunction with the mandated rotation of the audit firm’s lead engagement partner, the committee chair and other members of the Audit Committee are directly involved in the selection of PwC’s new lead engagement partner, including the most recent selection of PwC’s lead engagement partner for the period of service beginning with fiscal 2019. The members of the Audit Committee and the Board believe that the continued retention of PwC to serve as Cisco’s independent registered public accounting firm is in the best interests of Cisco and its shareholders. Representatives of PwC are expected to be present at the annual meeting and will have the opportunity to make a statement if they desire to do so. It is also expected that those representatives will be available to respond to appropriate questions.

Principal Accountant Fees and Services

The following is a summary of the fees billed to Cisco by PwC for professional services rendered for the fiscal years ended July 25, 2020 and July 27, 2019:

 

Fee Category

   Fiscal 2020 Fees      Fiscal 2019 Fees  

Audit Fees

   $   23,765,000      $   25,040,000  

Audit-Related Fees

     1,015,000        1,980,000  

Tax Fees

     3,475,000        3,730,000  

All Other Fees

     10,000        50,000