JUNIPER NETWORKS, INC.
1194 North Mathilda Avenue
Sunnyvale, California 94089
www.juniper.net
(408) 745-2000

 

 

 

This notice of annual meeting and proxy statement and form of proxy are being
distributed on or about April 18, 2007.

 

By Order of the Board of Directors,

 

Mitchell L. Gaynor

Vice President, General Counsel and Secretary

 

2007 ANNUAL MEETING OF STOCKHOLDERS

 

NOTICE OF ANNUAL MEETING AND PROXY STATEMENT

 

TABLE OF CONTENTS

 

 

 

Juniper Networks, Inc.
Attn: Investor Relations
1194 North Mathilda Avenue
Sunnyvale, CA 94089
(408) 745-2000

 

 

http://www.juniper.net/company/investor

 

 

Juniper Networks, Inc.
Attn: Investor Relations
1194 North Mathilda Avenue
Sunnyvale, CA 94089
(408) 745-2000
http://www.juniper.net/company/investor

 

 

 

Juniper Networks, Inc.
Attn: Corporate Secretary
1194 North Mathilda Avenue
Sunnyvale, CA 94089
Fax: (408) 745-2100

 

 

 

Juniper Networks is committed to having sound corporate governance principles. Having such principles is essential to running our business efficiently and to maintaining our integrity in the marketplace. Juniper Networks’ Corporate Governance Standards and Worldwide Code of Business Conduct and Ethics applicable to all Juniper Networks employees, officers, directors, contractors and agents are available at http://www.juniper.net/company/investor. Our Worldwide Code of Business Conduct and Ethics complies with the rules of the SEC, the listing standards of the NASDAQ Global Select Market and Rule 406 of the Sarbanes-Oxley Act of 2002. Juniper Networks has also adopted procedures for accounting and auditing matters in compliance with the listing standards of the NASDAQ Global Select Market. Concerns relating to accounting, internal controls or auditing matters may be brought to the attention of either the Company’s Concerns Committee (comprised of the Company’s Chief Financial Officer, General Counsel, Executive Vice President of Human Resources, Corporate Controller and the Director of Audit Services), or to the Audit Committee directly. Concerns are reviewed by the Audit Committee and handled in accordance with procedures established by the Audit Committee with respect to such matters. For information on how to contact the Audit Committee directly, please see the section entitled “Stockholder Communications with the Board” below.

 

Our Board of Directors (the “Board”) has determined that, except for Scott Kriens and Pradeep Sindhu, each of whom is an executive officer of the company, each of the current directors has no material relationship with Juniper Networks (either directly or as a partner, stockholder or officer of an organization that has a material relationship with Juniper Networks) and is independent within the meaning of the NASDAQ Stock Market, Inc. (“NASDAQ”) director independence standards. Furthermore, the Board has determined that each of the members of each of the committees of the Board has no material relationship with Juniper Networks (either directly or as a partner, stockholder or officer of an organization that has a material relationship with Juniper Networks) and is “independent” within the meaning of the NASDAQ director independence standards, including in the case of the members of the Audit Committee, the heightened “independence” standard required for such committee members set forth in the applicable SEC rules. In making the determination of the independence of our directors, the Board considered all transactions in which Juniper Networks and any director had any interest, including transactions involving Juniper Networks and payments made to or from companies in the ordinary course of business where our directors serve on the board of directors or as a member of the executive management of the other company.

 

As of December 31, 2006, our Board had 9 directors divided into three classes — Class I, Class II and Class III — with each class being equal in number and with a three-year term for each class. As of December 31, 2006, the classes were comprised as follows:

 

 

In February 2007, the Board appointed Michael Lawrie as a Class III director to replace Mr. Marshall, who resigned from the Board. Mr. Marshall’s decision to resign was not because of any disagreement with Juniper Networks on any matters relating to its operations, policies or practices.

 

In addition, in February 2007, Mr. Levy informed the Board that he will retire from the Board effective upon the expiration of his current term in 2007. As such, he will not stand for re-election at the 2007 annual meeting.

 

The Board has a standing Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee. The membership during the last fiscal year and the function of each of the committees are described below. Each of these committees operates under a written charter adopted by the Board. All of those committee charters are available on Juniper Networks’ website at http://www.juniper.net/company/investor. In

addition, the Board has a Stock Committee comprised of the Chief Executive Officer, Chief Financial Officer and, beginning in February 2007, a non-employee director. Mr. Stensrud was appointed to serve as the non-employee director on the Stock Committee. The Stock Committee has authority to grant stock options and restricted stock awards to employees who are not executive officers. During 2006, the Stock Committee held no meetings, and took action only by written consent. The Board has also established special litigation and securities pricing committees for specific purposes, such as oversight of securities litigation matters or the issuance of securities. None of the special committees met during 2006. During 2006, each director attended at least 75% of all Board and applicable committee meetings, except Mr. Sclavos, who attended 10 meetings, or 69% of the applicable meetings. Several of the meetings that he was unable to attend were special telephonic meetings that were scheduled relatively close to the meeting date.

 

 

 

X = Committee member

 

 

Audit Committee

 

The Audit Committee assists the Board in fulfilling its responsibilities for general oversight of the integrity of Juniper Networks’ financial statements, Juniper Networks’ compliance with legal and regulatory requirements, the independent registered public accounting firm’s qualifications and independence, the performance of Juniper Networks’ internal audit function and independent registered public accounting firm, and risk assessment and risk management. The Audit Committee works closely with management as well as our independent registered public accounting firm. The Audit Committee has the authority to obtain advice and assistance from, and receive appropriate funding from Juniper Networks for, outside legal, accounting or other advisors as the Audit Committee deems necessary to carry out its duties.

 

The report of the Audit Committee is included herein on page 39. The charter of the Audit Committee is available at http://www.juniper.net/company/investor.

 

Compensation Committee

 

The Compensation Committee discharges the Board’s responsibilities relating to compensation of our executive officers, including evaluation of the CEO; produces an annual report on executive compensation, including compensation discussion and analysis, for inclusion in Juniper Networks’ proxy statement; and has overall responsibility for approving and evaluating executive officer compensation plans. The report of the Compensation Committee is included herein beginning on page 32. The charter of the Compensation Committee is available at http://www.juniper.net/company/investor.

 

Nominating and Corporate Governance Committee

 

The Nominating and Corporate Governance Committee identifies individuals qualified to become Board members, consistent with criteria approved by the Board; oversees the organization of the Board to discharge the Board’s duties and responsibilities properly and efficiently; and identifies best practices and recommends corporate governance principles, including giving proper attention and making effective responses to stockholder concerns regarding corporate governance. The charter of the Nominating and Governance Committee is available at http://www.juniper.net/company/investor.

 

The Nominating and Corporate Governance Committee’s criteria and process for evaluating and identifying the candidates that it selects, or recommends to the full Board for selection, as director nominees, are as follows:

 

 

Michael Lawrie was appointed to the Board as a Class III director in 2007 to replace Mr. Marshall. The recommendation that Mr. Lawrie be considered for appointment to the Board was submitted to the Nominating and Corporate Governance Committee by our Chief Executive Officer.

 

Each of the nominees for re-election at the 2007 Annual Meeting was evaluated by the Nominating and Corporate Governance Committee, recommended by the Committee to the Board for nomination and nominated by the Board for re-election. In February 2007, Mr. Levy informed the Board that he will retire from the Board upon the expiration of his current term and will not stand for re-election at the 2007 annual meeting.

 

Stockholders of Juniper Networks, Inc. and other parties interested in communicating with the Board may contact any of our directors by writing to them by mail or express mail c/o Juniper Networks, Inc., 1194 North Mathilda Avenue, Sunnyvale, California 94089-1206. The Nominating and Corporate Governance Committee of the Board has approved a process for handling stockholder communications received by the Company. Under that process, the General Counsel receives and logs stockholder communications directed to the Board and, unless marked “confidential”, reviews all such correspondence and regularly (not less than quarterly) forwards to the Board a summary of such correspondence and copies of such correspondence. Communications marked “confidential” will be logged as received by the General Counsel and then will be forwarded to the addressee(s).

 

Although we do not have a formal policy regarding attendance by members of the Board at our annual meetings of stockholders, directors are encouraged to attend annual meetings of Juniper Networks stockholders. Eight of our nine directors attended the 2006 annual meeting of stockholders.

 

Non-Employee Director Meeting Fee and Retainer Information

 

The following table provides information on Juniper Networks’ compensation and reimbursement practices during fiscal 2006 for non-employee directors.

 

 

 

The following table shows compensation information for our current and former non-employee directors for fiscal 2006. Neither Mr. Kriens nor Dr. Sindhu received any separate compensation for their Board activities.

 

Non-Employee Director Compensation for Fiscal 2006

 

 

 

 

There are two nominees for election to Class II of the Board this year — Robert M. Calderoni and Pradeep Sindhu. Each of the nominees is presently a member of the Board. Information regarding the business experience of each nominee and the other members of the Board is provided below. Each of the Class II directors are elected to serve a three-year term until the Company’s annual meeting in 2010 and until their respective successors is elected. There are no family relationships among our executive officers and directors.

 

In February 2007, Mr. Kenneth Levy informed the Board that he will retire from the Board upon the expiration of his current term and will not stand for re-election at the 2007 annual meeting. As of the date of this proxy statement, we had not identified a suitable nominee to replace Mr. Levy on the Board. Accordingly, at the 2007 annual meeting there will be fewer persons nominated for election as Class II directors than are authorized to be elected under our current bylaws. Votes may not be cast in person or by proxy at the 2007 annual meeting for greater than two nominees to the Board.

 

If you sign your proxy or voting instruction card but do not give instructions with respect to the voting of directors, your shares will be voted for the two persons recommended by the Board. If you wish to give specific instructions with respect to the voting of directors, you may do so by indicating your instructions on your proxy or voting instruction card.

 

Our Board recommends a vote FOR the election to the Board of each of the following nominees.

 

Vote Required

 

The two persons receiving the highest number of “FOR” votes represented by shares of Juniper Networks common stock present in person or represented by proxy and entitled to be voted at the annual meeting will be elected.

 

Nominees for Election

 

 

Continuing Directors

 

 

The Audit Committee of the Board has appointed Ernst & Young LLP, an independent registered public accounting firm, to audit Juniper Networks’ consolidated financial statements for the fiscal year ending December 31, 2007. During fiscal 2006, Ernst & Young served as Juniper Networks’ independent registered public accounting firm and also provided certain tax and other audit related services. See “Principal Accountant Fees and Services” on page 38. Representatives of Ernst & Young are expected to attend the annual meeting, where they are expected to be available to respond to appropriate questions and, if they desire, to make a statement.

 

Our Board recommends a vote FOR the ratification of the appointment of Ernst & Young LLP, an independent registered public accounting firm, as Juniper Networks’ auditors for the 2007 fiscal year.  If the appointment is not ratified, the Audit Committee will consider whether it should select other independent auditors. Even if the appointment is ratified, the Audit Committee, in its discretion, may direct the appointment of a different independent registered public accounting firm as Juniper Networks’ independent auditors at any time during the year if the Audit Committee determines that such a change would be in the Company’s and its stockholders’ best interests.

 

Vote Required

 

Ratification of the appointment of Ernst & Young LLP, an independent registered public accounting firm, as auditors for fiscal 2007 requires the affirmative vote of a majority of the shares of Juniper Networks common stock present in person or represented by proxy and entitled to be voted at the meeting.

 

The following table sets forth information, as of March 1, 2007, concerning:

 

 

The information provided in the table is based on Juniper Networks’ records, information filed with the Securities and Exchange Commission and information provided to Juniper Networks, except where otherwise noted.

 

The number of shares beneficially owned by each entity, person, director or executive officer is determined under rules of the Securities and Exchange Commission, and the information is not necessarily indicative of beneficial ownership for any other purpose. Under such rules, beneficial ownership includes any shares as to which the individual has the sole or shared voting power or investment power and also any shares that the individual has the right to acquire as of April 30, 2007 (60 days after March 1, 2007) through the exercise of any stock option or other right. Unless otherwise indicated, each person has sole voting and investment power (or shares such powers with his spouse) with respect to the shares set forth in the following table. In addition, unless otherwise indicated, all persons named below can be reached at Juniper Networks, Inc., 1194 N. Mathilda Avenue, Sunnyvale, California 94089.

 

 

 

 

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our directors, executive officers and holders of more than 10% of Juniper Networks Common Stock to file with the Securities and Exchange Commission reports regarding their ownership and changes in ownership of our securities. We believe that, during fiscal 2006, our directors, executive officers and 10% stockholders complied with all Section 16(a) filing requirements. In making this statement, we have relied upon examination of the copies of Forms 3, 4 and 5,

and amendments thereto, provided to Juniper Networks and the written representations of its directors and executive officers.

 

The Company’s Worldwide Code of Business Conduct and Ethics (the “Code”) requires that the Company’s employees, officers and directors should avoid conducting Company business with a relative or significant other, or with a business in which a relative or significant other is associated in any significant role (as used in the Code, a “related party transaction”). If the related party transaction involves the Company’s directors or executive officers or is determined by the Company’s Chief Financial Officer to be material to the Company (or if applicable SEC or NASDAQ rules require approval by the Audit Committee), the Audit Committee of the Board must review and approve the matter in writing in advance of any such related party transactions.

 

The Company reimburses Mr. Kriens for ordinary operating costs relating to his use of his aircraft for business purposes up to a maximum amount of $650,000 per year. In 2006 Mr. Kriens received $401,400 in reimbursements.

 

Compensation Discussion and Analysis

 

Executive Compensation Philosophy and Objectives

 

The Compensation Committee of the Board of Directors (the “Committee”) recognizes that in order for the Company to successfully develop, introduce, market and sell products, the Company must be able to attract, retain and reward qualified executive officers who will be able to operate effectively in a high growth, complex environment. In that regard, the Company must offer compensation that (a) is competitive in the industry; (b) motivates executive officers to achieve the Company’s strategic business objectives; and (c) aligns the interests of executive officers with the long-term interests of stockholders.

 

The Committee’s intention is to adopt compensation programs that encourage creation of long-term value for stockholders, employee retention, and equity participation. The Committee’s approach is based on the philosophy that a substantial portion of aggregate annual compensation for executive officers should be contingent upon the Company’s overall performance and an individual’s contribution to the Company’s success in meeting certain critical objectives. In this regard, the Committee historically targeted base salary at approximately the 50th percentile relative to competitive market practices, although actual base salaries may be higher or lower than this targeted positioning. Incentive compensation and long term equity awards were intended to target overall compensation at approximately the 75th percentile, although the financial performance of the Company and changes in the market price of the Company’s Common Stock can result in total compensation above or below the target.

 

Overview of Executive Compensation

 

Under the charter of the Compensation Committee, the Committee is comprised entirely of independent directors and has the responsibility for approving compensation for those officers who are designated as reporting officers under Section 16 of the Securities Exchange Act of 1934 (“Section 16 officers”). Generally, the types of compensation and benefits provided to the Section 16 officers are also provided to other non-Section 16 officers reporting to the Chief Executive Officer. Throughout this proxy statement, the individuals who served as the Company’s Chief Executive Officer and Chief Financial Officer during 2006, as well as the other individuals included in the Summary Compensation Table on page 33, are referred to as the “named executive officers”. All of the named executive officers are Section 16 officers.

 

The Committee approves all compensation decisions for the Section 16 officers. The Committee has the authority to engage its own advisors to assist it in carrying out its responsibilities. In 2005 and 2006, the Committee retained Towers Perrin as its advisor. The Committee is free to replace its compensation advisors or retain additional advisors at any time. The advisors assist the Committee by providing compensation information, analyzing various compensation alternatives and data, and helping to develop recommendations regarding all awards to Section 16 officers.

 

In 2006, the Committee also received analysis, advice and guidance from Mercer Human Resource Consulting (“Mercer”) with respect to compensation for 2007. Mercer was retained by Juniper Networks to review the Company’s pay programs and make recommendations for 2007 to the Committee. Mercer and Mercer affiliates also provide other services to the Company, including U.S. benefits administration, consulting services related to generally available Company benefit plans, and brokerage services for U.S. and international benefit plans.

 

The advisors generally work with the Company’s Executive Vice President responsible for Human Resources and the Company’s Senior Director of Compensation and Benefits. The advisors provide analysis to the Company and the Committee regarding the Section 16 officer’s compensation relative to external market benchmarks. The advisors also provide information to the Company and the Committee regarding compensation trends, compensation strategy and structure of incentive programs. The Chief Executive Officer annually reviews the performance of each Section 16 officer (other than the Chief Executive Officer whose performance is reviewed by the Committee). As Chief Executive Officer, Mr. Kriens is responsible for making a recommendation regarding the salary, incentive target and equity awards for each individual Section 16 officer other than himself, based on the

analysis and guidance provided by the advisors and on his assessment of the performance of the individuals. He is assisted by the Executive Vice President, Human Resources and the Senior Director of Compensation and Benefits in these recommendations to the Committee regarding compensation for Section 16 officers. The Executive Vice President, Human Resources and the Senior Director of Compensation and Benefits make the recommendation regarding the Chief Executive Officer’s compensation with the input and advice of the advisors. Mr. Kriens takes an active part in the discussions at Committee meetings at which compensation of his direct reports and the other Section 16 officers are discussed. All decisions regarding Mr. Kriens compensation are made by the Committee in executive session, without Mr. Kriens present. The Committee considers, but is not in any way bound by, and frequently changes recommendations made by company management. Similarly, the conclusions reached and recommendations made by the outside advisors can also be accepted, rejected or modified by the Committee.

 

Benchmarking Data

 

In making compensation decisions, the Committee compares each element of total compensation against various “market data” to establish reference points for analyzing, benchmarking and setting compensation for Section 16 officers. As there is considerable variation in the compensation amounts and methodologies used among companies and because no two companies possess the exact same characteristics, size, structure, business, history and prospects, the Committee relied on “market data” composed of a combination of a broad technology company sample and a specific peer company analysis. For 2006, the broad-based technology company data was drawn from the Buck High Technology Survey for companies between $1 billion and $3 billion in sales revenue. In addition, for the general managers who are compensated in part based on the performance of their respective business unit, the Committee received survey data grouping for the top executive managing business units with revenue between $250 million and $1 billion. In addition, for Mr. Minshull, who lives in the United Kingdom, the broad-based survey data for 2006 was adjusted by 25% to reflect the higher cost of living in London area compared to the San Francisco area.

 

The Committee also relies on data from a peer group of publicly-traded networking equipment and other high technology companies (the “Peer Group”). The companies included in the Peer Group are ones which the Committee believes that Juniper Networks competes with for talent. This list is periodically reviewed and updated by the Committee to take into account changes in both the Company’s business and the businesses of the peer companies. For 2006, the Peer Group consisted of 3Com Corporation; Avaya, Inc; BEA Systems, Inc.; Brocade Communications Systems Inc; Check Point Software Technologies Ltd; Cisco Systems; Extreme Networks, Inc.; Foundry Networks Inc.; Google Inc.; Intel Corporation; Lucent Technologies, Inc.; Network Appliance, Inc.; McAfee, Inc; Nortel Networks Corporation; NVIDIA Corporation; Oracle Corporation; Sun Microsystems, Inc.; Symantec Corporation; and Yahoo, Inc. The data on the compensation practices of the Peer Group is gathered through searches of publicly available information. Because of the variations between companies as to which individuals and roles compensation is disclosed, there will not be available directly comparable information from each peer company with respect to each of our Section 16 officers or named executive officers.

 

For the 2007 annual compensation review completed by Mercer, the broad-based technology company data was drawn from several sources, including: the Buck Executive High Technology Survey, the Radford Executive Survey, and the Mercer Market Benchmark Database. For corporate positions, data was collected for companies between $1 billion and $6 billion in sales revenue, a broader scope than used for the 2006 review, reflecting the larger size and growth of the Company. For the general managers who are compensated in part based on the performance of their respective business unit, the Committee received survey data for Top Business Unit Executives scoped to the sales revenue size of each respective business unit at the Company.

 

For 2007, the Peer Group was revised at the recommendation of Mercer to reflect a broader sample of high-technology businesses of similar size to the Company from the standpoint of sales revenue. The 2007 Peer Group consisted of the following benchmark companies: Adobe Systems, Inc.; Autodesk, Inc.; Avaya, Inc.; BEA Systems, Inc.; BMC Software, Inc.; CA, Inc.; Corning, Inc.; Earthlink, Inc.; eBay, Inc.; Intuit, Inc.; Network Appliance, Inc.; Symantec Corporation.; Tellabs, Inc.; VeriSign, Inc.; and Yahoo, Inc. The data on the compensation practices of the Peer Group is gathered through publicly available information. Because of the variations between companies as to which individuals and roles compensation is disclosed, there will not be available directly comparable information from each peer company with respect to each of our Section 16 officers or named executive officers.

 

In addition to the benchmarking data sources discussed above, the Committee also considers other information and factors in determining compensation for individual Section 16 officers including, internal consistency between Juniper Networks employees, job performance, skills, prior experience, competitive job offers made to Juniper Networks employees, recruiting offers made by Juniper Networks, and market conditions. Finally, in some cases, the compensation for newly hired Section 16 officers may be determined based on the recruitment negotiations with such individuals, and may reflect such factors as the amounts of compensation that the individual would forego by joining Juniper Networks or the costs of relocation.

 

Elements of Executive Compensation

 

The principal components of compensation for Section 16 officers are:

 

 

Juniper Networks has selected these elements of compensation because each is considered useful and/or necessary to meet one or more of the principal objectives of our compensation policy. Base salary and employee benefits are set with the goal of attracting employees by guaranteeing a minimum level of compensation for services performed. Performance-based cash incentives are provided to incentivize or reward achievement of short-term or annual performance goals. Long-term equity incentives are provided to align executive interests with those of our stockholders and to promote achievement of long-term business objectives and retention of key talent.

 

The Committee reviews the compensation program on an annual basis. The Committee’s annual review is primarily focused on the structure of the performance based incentive plans overall and, with respect to individual Section 16 officers, on (i) base salary, (ii) total target cash compensation (base salary + performance based cash incentive) and (iii) long-term equity incentive compensation and total direct compensation (total target comp + long-term equity incentive). The Company does not typically offer perquisites or employee benefits to Section 16 officers that are not also made available to employees on a broad basis. Severance benefits have been approved either in connection with the negotiations to recruit individual executives or periodically as part of a program to extend such benefits to Section 16 officers as a group. Accordingly, severance benefits, employee benefits and perquisites are reviewed from time to time, but not annually, to ensure that benefit levels remain competitive and are reasonable and not excessive.

 

Base Salary

 

Salaries are used to provide a fixed amount of compensation for the executive’s regular work. Overall, and for the last several years, the Company has targeted base salary levels for each position, on average, at the 50th percentile of similar positions based on the benchmarking data. Some variation above and below the competitive median is allowed when, in the judgment of management and/or the Compensation Committee, as appropriate, the value of the individual’s experience, performance and specific skill set justifies variation. In addition, variation is allowed to ensure some relative consistency among Section 16 officers.

 

The salaries of the Section 16 officers are reviewed on an annual basis, as well as at the time of a promotion or other change in responsibilities. Increases in salary are based on an evaluation of the individual’s performance and level of pay compared to the benchmark data discussed above for similar positions. The effective date of annual increases typically is April 1st of each year.

 

Pursuant to the 2006 annual compensation review, no changes were made to the base salary of Mr. Dykes, Mr. Minshull, or Ms. Kim Perdikou because their salaries were at approximately the median percentile. The base salaries of Dr. Sindhu and Mr. Sturgeon were increased by approximately 11% and 9%, respectively to move their

salaries closer to the median percentile. Even after the adjustment, Dr. Sindhu’s salary was still below the median. At that time, no change was made to the base salary of Mr. Kriens even though his salary was below the median. However, the Committee concluded that it would continue to move their salaries toward the median over multiple years rather than attempt to close this gap in one large step.

 

In May 2006, Ms. Perdikou was promoted to Executive Vice President Infrastructure Products Group and General Manager, Service Provider Business Team. In connection with that promotion, her base salary was increased from $275,000 to $300,000 so that her new base salary was equal to that of the Company’s other General Manager.

 

In December 2006, Mr. Stephen Elop agreed to join the Company. His base salary was determined with reference to the benchmark data discussed above and through negotiation.

 

Pursuant to the 2007 annual compensation review and based on the performance of the company in 2006, no changes were made to the base salaries of Mr. Elop, Mr. Minshull, Mr. Dykes or Mr. Sturgeon. As Mr. Elop’s salary had been determined recently in connection with his joining Juniper Networks, no adjustment was deemed necessary.

 

The Committee approved an increase in base salary for Mr. Kriens intended to both move Mr. Kriens closer to the median as discussed above and to place his salary above that of Mr. Elop. The Committee also approved an increase in salary for Ms. Perdikou to move her closer to the median percentile and to rebalance her cash compensation between salary (which was below the target market positioning) and annual cash incentive compensation (which was higher than the target market positioning, as described below). The Committee assessed the role of Dr. Sindhu and determined that it was appropriate that his position as both the Chief Technology Officer and Vice Chairman be compensated at a level comparable to that of a product group General Manager. Accordingly, his salary was increased to an amount equal to that of Ms. Perdikou.

 

Performance-Based Cash Incentive Compensation

 

Target Incentives as a Percentage of Salary

 

As discussed above, the Company’s compensation objective is to have a significant portion of each Section 16 officer’s compensation tied to performance. To this end, the Company has established a target annual performance-based cash incentive opportunity for each Section 16 officer expressed as a percent of base salary. In establishing the amount of target incentive, the Committee evaluates the total target cash compensation (base salary + target incentive) and compares it to the market benchmark data discussed above. The actual award earned may be higher or lower than this target incentive amount based on company, business unit, and/or individual performance factors.

 

In 2006, the Company’s objective was to target total cash compensation between the 50^th and 70th percentile. Based on the 2006 base salary adjustments discussed above and on an evaluation of the benchmark data discussed above, the Committee determined that no changes should be made to the existing target incentives for the Section 16 officers from 2005 target levels. Accordingly, the 2006 target incentives, expressed as a percentage of base salary, remained at 150%, 100%, 100%, 100%, 100% and 100% for Mr. Kriens, Mr. Dykes, Mr. Minshull, Ms. Perdikou, Mr. Sturgeon and Dr. Sindhu, respectively.

 

In 2007, the Company’s objective was to target total cash compensation at approximately the market median. Taking into account the changes made to base salary discussed above and the benchmark data for total cash compensation, the Committee determined that no changes be made to the target incentive percentages for Mr. Kriens, Mr. Minshull, Mr. Dykes or Mr. Sturgeon. With respect to Ms. Perdikou and Dr. Sindhu, the Committee determined that in light of their review of total cash compensation benchmark data, the mix of cash compensation between base salary and variable incentive should be rebalanced for those two individuals. As a result, the amount of target incentive was reduced from 100% to 75% of base salary for both Ms. Perdikou and Dr. Sindhu while salaries were increased as described above.

 

In connection with his joining the Company, Mr. Elop’s target incentive was established at 125% of base salary for 2007 (Mr. Elop was not eligible for an annual cash incentive in 2006). The Committee determined this target based on two factors. First, the Committee concluded that it was desirable to use the 125% amount in order to weight

Mr. Elop’s total cash compensation more heavily on achievement of Company performance objectives than other executive officers (other than Mr. Kriens). Second, the Committee determined that the target incentive percentage was consistent with the general compensation objective of targeting Mr. Elop’s total cash compensation at approximately the median percentile for his position based on the market benchmark data.

 

Annual Incentive Plans

 

Each year an annual incentive plan is established for Section 16 officers in order to reward those individuals based on performance against various business objectives for that year or for a portion of that year, as described below. The Company believes that achievement of the Company’s business plan and near term business objectives are best effectuated through a cash incentive plan tied to performance goals established for a period of one year or less. Because of the rapidly changing industry in which the Company competes, the Company believes that by establishing goals that are measured over an annual or semi-annual basis, the goals can be established with greater specificity and linkage to the operating plan objectives and with less risk of subsequent revision than if objectives were based on longer measurement periods. The Committee also believes that goals that can be achieved over an annual or semi-annual period are more effective at motivating performance and promoting retention than goals which take a longer time to achieve and are therefore inherently less under the control of the individual to accomplish. Moreover, the Company also believes that establishing annual or semi-annual plans provides the Company with the flexibility to adjust the structure and objectives of its plan to meet changes in the Company’s business and competitive environment.

 

To promote achievement of longer term objectives, the Company relies on equity incentives discussed in more detail below.

 

2006 Executive Officer Bonus Plan.  In February 2006, the Committee approved the 2006 Executive Officer Bonus Plan for Section 16 officers (the “2006 Bonus Plan”). Participants under the 2006 Bonus Plan were divided into two categories: Mr. Kriens, Mr. Dykes, Mr. Minshull and Dr. Sindhu were designated “corporate participants,” and Ms. Perdikou and Mr. Sturgeon were designated as “business team participants.” The payment of bonuses under the 2006 Bonus Plan was based on several performance components: (i) financial objectives, (ii) revenue growth performance relative to peers and (iii) individual objectives. Performance objectives were established at the beginning of each the fist six months (January-June) and second six months (July-December) of 2006 and payments under the 2006 Bonus Plan were calculated and paid after each six-month measurement period.

 

The Company believes that the primary performance measurements and vast majority of the potential incentive bonus should be based on achieving key financial targets tied to the Company’s annual operating plan. The basic financial performance calculation for corporate participants was based on performance against six month Company total revenue targets (weighted 60%) and Company non-GAAP operating income targets (weighted 40%). The financial performance calculation for business team participants was based on performance against six month Company revenue targets and business team revenue targets (each weighted 30% for a combined weighting of 60%) and business team contribution margin targets and Company non-GAAP operating income targets (each weighted 20% for a combined weighting of 40%). Achieving less than 90% of a target resulted in no payment for that performance measure and overachieving of the specific target by 120% or more resulted in payment of up to 200% of the target amount for that measure. Amounts in between the minimum and maximum were based on a sliding scale.

 

The basic bonus calculation based on achieving financial objectives after each six-month period was then subject to increase or decrease by up to 20% based on the Company’s revenue growth relative to the weighted-average revenue growth of a pre-determined Performance Peer Group consisting of Brocade Communications Systems; Check Point Software; 3Com; Cisco Systems; Extreme Networks; Foundry Networks; SonicWall, Inc.; and Sonus Networks. The relative growth of each of these Performance Peer companies was weighted based on total revenue. Revenue growth of 10 percentage-points above the weighted average growth of these Performance Peers would result in a modifier of +20% being applied to the bonus payouts, and revenue growth of 10 percentage-points below these Performance Peers would result in a modifier of −20%. Performance within the range of +/− 10 percentage points would be calculated on a sliding scale. This component was intended to align the interests of the Section 16 officers with the stockholders and to ensure that a portion of their performance was dependent not just on

performance against internal objectives, but on performance of the Company relative to the Performance Peer Group.

 

In addition, the basic bonus calculation was subject to a further additional increase or decrease by up to 10% based on the achievement of individual management objectives for that officer established by the Chief Executive Officer. In the case of Mr. Kriens, his management objective component was calculated based on the average achievement of all of the other Section 16 officers. This component was intended to promote performance of various business objectives tied to the individual’s specific areas of responsibility. Achievement of less than 80% of objectives resulted in a decrease of 10% of the basic bonus calculation, achievement of 80% resulted in no change to the basic bonus calculation, achievement of 100% of objectives resulted in a 10% increase to the basic bonus payment calculation. The calculation for amounts between the minimum and maximum was based on a sliding scale.

 

Upon completion of each six month measurement period for 2006, the Committee reviewed the performance of the Company, each business team and each Section 16 officer to verify and approve the calculations of the amounts to be paid under the 2006 Bonus Plan. At the time the Committee set the performance goals for the participants under the 2006 Bonus Plan, it believed that they were achievable but only with significant effort.

 

Payments to Section 16 officers under the 2006 Bonus Plan ranged between 51% and 110% of the individual’s target bonus for the first six month period and between 27% and 86% for the second six month period. The following table summarizes the payments for the Company’s Section 16 officers:

 

 

 

 

2007 Annual Incentive Plan.  For the 2007 fiscal year, the Committee approved the 2007 Annual Incentive Plan (the “2007 AIP”) for Section 16 officers. Under the 2007 AIP, each participant is eligible to receive an annual incentive bonus once per year at the end of the year based on achievement of specified objectives established at the beginning of the year. The Company believes that the primary performance measurements should be based on achieving key financial targets tied to the Company’s annual operating plan. The incentive is based 50% on the Company’s revenue results, 30% on the Company’s operating income results and 20% on achieving other specified strategic goals, such as employee engagement and leadership development. However, in the case of a general manager of a business team, such as Ms. Kim Perdikou, Executive Vice President Infrastructure Products Group and General Manager, Service Provider Business Team, the revenue and operating income factors are based half on achieving the Company’s revenue and operating income targets and half on achieving the applicable business team’s revenue and contribution margin targets. The incentive amounts are calculated and paid after the end of 2007. The amounts will depend on the level of achievement against the objectives and range between zero and 200% of the target incentive. No payment is earned for the revenue component or operating income component if less than 80% of the respective objective is achieved. At 80% of the objective, 30% of the applicable component is earned; achievement of 100% of the objective results in 100% of the component earned; and if 120% of the objective is

achieved, 200% of that component is earned. At the time the Committee set the performance goals for the participants under the 2007 AIP, it believed that they were achievable but only with significant effort.

 

Additional Bonuses

 

In addition to the annual performance bonus programs discussed above, the Committee reserves the right to award additional cash bonuses to Section 16 officers outside of the annual incentive plan as needed to address specific needs and circumstances. These bonuses are intended to reward the individual for performance relating to actions or behaviors not directly measured under the standard incentive plan or to address gaps in compensation created by unique circumstances. Examples of such contributions or actions include the assuming of additional responsibilities or leadership development. The Company believes that financial performance is not the only measure of the contributions made by an individual to the Company and that on occasion an additional bonus is appropriate. As these bonuses are not part of a predetermined formula, there are no fixed criteria for determining the timing or amount of such bonuses, although the Committee does assess their overall amount in the context of the individual’s total target competition.

 

On January 4, 2007, the Compensation Committee approved discretionary cash bonuses for 2006 for Mr. Minshull, Ms. Perdikou and Mr. Dykes in the amounts of $250,000, $125,000 and $125,000, respectively. In determining the amount these bonuses, the Committee considered the additional responsibilities and projects assumed by the individuals, their performance in their roles, and their overall cash compensation. These amounts were in addition to incentives paid pursuant to the 2006 Executive Incentive Plan which provides variable compensation based primarily on financial performance. Based on the leadership and performance demonstrated in 2006 in new roles assumed by the individuals or in managing additional projects and responsibilities undertaken during the year, it was determined that discretionary bonuses be awarded to these individuals in recognition of those contributions in addition to amounts earned based on financial performance. The amounts were recommended by the Company’s Chief Executive Officer and were approved by the Committee.

 

In May 2006, Ms. Perdikou was promoted from acting General Manager to Executive Vice President Infrastructure Products Group and General Manager, Service Provider Business Team. However, due to the stock option pricing investigation being conducted by the Company, the Company elected to delay granting her any stock options associated with that promotion until some time after the completion of the investigation. In recognition of Ms. Perdikou’s service in the role for seven months without having received any equity awards in connection with this promotion, the Company approved in December 2006 a special cash bonus of $175,000. The Committee determined the amount of the bonus in part based on the estimated potential change in value had the options been granted on the date of her promotion as well as based on the overall compensation paid to Ms. Perdikou and on her performance to date. Although the Chief Executive Officer made the initial recommendation as to the amount of the bonus, the Committee determined and approved the final amount.

 

Long-Term Equity Incentive Compensation

 

Juniper Networks provides long-term equity incentive compensation through awards of stock options, restricted stock units, and/or performance shares that generally vest over multiple years. Our equity compensation programs are intended to align the interests of our employees with those of our stockholders by creating an incentive for our Section 16 officers to drive financial performance over time and maximize stockholder value. The equity compensation program also is designed to encourage our Section 16 officers to remain employed with the Company.

 

2006 Equity Incentive Program.  Prior to 2006, the Company relied primarily on stock options to provide equity incentives to its Section 16 officers. In 2006, the Committee concluded that a combination of both stock options and performance-awarded restricted stock units would better address the Company’s compensation strategy, especially the need to balance incentives to drive performance with the need to attract and retain executive talent. Employees are able to profit from stock options only if the Company’s stock price increases in value over the stock option’s exercise price. Accordingly, options can provide effective incentives to option holders to achieve increases in the value of the Company’s stock but may have limited retention value if the stock price does not increase. Restricted stock units result in the issuance of shares of stock upon vesting. These shares have a value equal to the market price of Common Stock and, therefore, the employee can profit from their issuance regardless of

whether the price increases or decreases over time. For this reason restricted stock units can provide a more predictable value to employees than stock options, and therefore can be efficient tools in both retaining and motivating employees, while also serving as an incentive to increase the value of the Company’s stock. Restricted stock units also may be efficient with respect to the use of our equity plan share reserves and overall dilution because fewer restricted stock units are typically needed to provide effective retention and incentive value as compared to stock options. Both the stock options and the restricted stock units awarded vest over multiple years. These vesting provisions promote retention by requiring the employee to remain with the Company in order to receive all of the awards.

 

In establishing the amount of long-term equity incentives to award each individual, the Committee evaluated the total value of the proposed long-term equity awards and compared it to the market benchmark data discussed above. In 2006, the Company’s objective was to target long term equity incentive compensation at approximately the 75th percentile of market data. In addition, the Committee also evaluated the retention value of prior equity awards granted to an individual based on the potential value of the unvested portion of those awards under various scenarios. In structuring the 2006 awards, the Committee sought to allocate 50% of the value to stock options and 50% to performance awarded restricted stock units. Stock option grant guidelines were developed by dividing the portion of long-term incentive value allocated to stock options by the estimated value of a Juniper Networks stock option. Performance awarded restricted stock grant guidelines were created by applying a ratio of one share subject to a restricted stock unit being equivalent to 2.5 shares subject to a stock option. This number was then increased by 20% to reflect the additional risk associated with the performance feature discussed below. A risk-adjusted present value methodology was used to value stock options for the purposes of determining grant guidelines, assuming a strike price of $18.00 and resulting in an estimated option value of $9.17. This estimated value does not reflect the actual strike price which was determined on the date of grant, nor is it the same as the value used for accounting purposes which is reflected in the Summary Compensation Table on page 33 and the Grant of Plan Based Awards Table on page 34.

 

The stock options were granted by the Company on February 8, 2006 and have an exercise price equal to the closing market price on the date of grant of $18.96 per share. The options have a seven year term and vest with respect to 25% of the shares on the first anniversary of grant and with respect to 1/48th of the shares each month thereafter.

 

The restricted stock units were awarded under a program pursuant to which the number of restricted stock units issued to each officer was dependent on the achievement of earnings per share objectives for 2006. At the time the Committee set the target performance goals for the participants under the 2006 restricted stock unit program, it believed that they were achievable but only with significant effort. Depending on the level of performance against the objectives, participants could receive restricted stock units for as much as 150% of the target number of restricted stock units or as few as 25% of the target number of restricted stock units. The restricted stock units issued after the 2006 performance period vest as to 75% of the shares on February 27, 2008, 15% on February 27, 2009 and 10% on February 27, 2010.

 

The following table reflects the restricted stock units earned under the 2006 restricted stock unit program and issued on February 27, 2007:

 

 

 

Retention Equity Awards.  On January 4, 2007, the Compensation Committee awarded restricted stock units for Mr. Minshull, Ms. Perdikou and Mr. Sturgeon in the amount of 120,000, 80,000 and 80,000 shares respectively. These awards were in addition to the awards made for the performance-awarded restricted stock unit plan as described above. Such restricted stock units vest as to 25% of the shares on February 1, 2008, 25% on February 1, 2009 and 50% on February 1, 2010. The recommendation for these awards was made by the Chief Executive Officer. In determining whether to provide these awards and how many restricted stock units to award, the Compensation Committee considered several factors including the expected value of the awards currently and under various stock price scenarios, whether existing options were underwater, how critical are the contributions made by the individual, an assessment of retention risk and the employee’s current target compensation before and after the award relative to market data and other executive officers in the Company. These equity awards were intended to promote the retention of the individuals by providing additional time-based equity awards.

 

2007 Long-Term Incentive Program.  For 2007, the Company reviewed its approach to equity awards, and the Committee redesigned the program to increase the focus on pay-for-performance by introducing performance shares into the mix of equity awards, replacing the performance-awarded restricted stock unit grant opportunity provided in 2006. The performance shares approved by the Committee vest based on a combination of time and performance against specific objectives. The Committee believes that this combination provides incentives to achieve increases in the Company’s stock price, to achieve specified performance objectives, and to promote retention.

 

In determining the amount of long-term equity incentives to award each individual, the Committee evaluated the value of the proposed long-term equity awards and total direct compensation and compared those values to the market benchmark data discussed above. For 2007, to reflect the change in the Company’s size and maturity, and based on the evaluation of its compensation practices relative to the Peer Group, the Company’s objective was to move total direct compensation to between the 50th and 75th percentile of the benchmark market data discussed above. In structuring the 2007 awards, the Committee sought to allocate 50% of the value to stock options and 50% to the performance shares. Stock option grants were valued using the risk-adjusted present value methodology as described above for 2006, assuming an exercise price of $20.00 and resulting in an estimated option value of $9.52 per share. Performance shares were valued assuming target performance and at an assumed grant price of $20.00 per share for the purpose of establishing grant guidelines.

 

The stock options were granted by the Company on March 9, 2007 and have an exercise price equal to the closing market price on the date of grant of $18.31 per share. The options have a seven year term and vest with respect to 25% of the shares on the first anniversary of grant and with respect to 1/48th of the shares each month thereafter, assuming continued service to the Company.

 

The performance shares vest based on achievement of specific performance objectives established for each year of a three-year period. The amount of performance shares earned for a particular year is based on the achievement of annual performance targets established for that year. For 2007, the performance targets are based on revenue and operating margin. At the time the Committee set the target performance goals, it believed that they were achievable but only with significant effort. With respect to each year’s performance, the individual can earn between 0% and 200% of the target amount for that year depending on the level of achievement against the targets established for that year (the target amount for each year is one third of the target amount for the entire three year period). At the completion of the three years, and provided the employee is still employed on the date of calculation, the employee is issued a number of fully paid and fully vested shares of common stock equal to the number “earned” over the three year period. For example: an employee is granted performance shares for a maximum of 60,000 shares with a target number of 30,000 shares over a three year period. During the first year the Company achieves the target revenues and target operating margin, and the employee earns the target number of 10,000 shares for that year, or 1/3 of the total target number of shares for the full three year period. During the second year, the Company achieves target revenue but is below target operating margin and the employee earns 5,000 shares. During the third year, the Company exceeds its revenue and operating margin targets and the employee earns 20,000 shares. Accordingly, the employee is issued at the completion of the three year cycle a total of 35,000 fully vested shares. No shares are

vested or issued prior to the completion of the third year, and any earned but unvested shares are forfeited if the employee leaves the Company before they are vested and paid.

 

Equity Ownership Guidelines.  The Company believes that the significant component of each Section 16 officer’s overall compensation based on equity awards is sufficient to align the officer’s interests with those of the stockholders. Moreover, the Company has also established limitations on the maximum amount of an officer’s stock and option holdings that the officer can sell within any quarter or year without first obtaining the approval of the Board of Directors. Accordingly, the Company has not adopted any specific requirements as to a minimum number of shares that must be owned by an officer.

 

Stock Option Granting Policy.  In 2007, the Board of Directors approved a policy for granting stock options and equity awards. New hire and ad hoc promotional and adjustment grants to non-executive employees are to be granted monthly on the third Friday of the month, except as discussed below. If a quorum of the Stock Committee (currently composed of the Chief Executive Officer, Chief Financial Officer and one outside director) is not available for a meeting on or prior to the third Friday of the month or in the four days preceding it, grants are to be approved by means of an action by written consent. Such consent shall by its terms provide that the options will be granted upon the later of (i) the third Friday of the month or (ii) the date of the last signature of the Stock Committee members. Annual performance grants to non-Section 16 officers will also be scheduled to occur on the same date as a monthly grant and shall be approved by the Stock Committee in the manner described above. Grants in connection with acquisitions shall, unless a date is specified in the acquisition agreement, occur to the extent practical on a date on which equity awards to Company employees are made by the Stock Committee. Annual equity awards to Section 16 officers will be generally scheduled to be approved at a meeting of the Compensation Committee in the first quarter after the Q4 earnings announcement and prior to March 1. The annual grants to Section 16 persons should also be made effective on the third Friday of the month if the meeting approving such grants occurs on or before such date. If a quorum of the Compensation Committee is not available for a meeting on or before the third Friday of the month, an action by written consent shall be prepared and circulated. Such consent shall by its terms provide that the options will be granted upon the later of (i) the third Friday of that month or (ii) the date of the last signature of the Compensation Committee members. Notwithstanding the foregoing, if the Company is advised by outside counsel that the granting of equity awards on a particular date or to particular recipients, or prior to the disclosure of certain non-public information, could reasonably be deemed to be a violation of applicable laws or regulations, such grants may be delayed until such time as the granting of those awards would be not reasonably expected to constitute a violation. If doing a particular monthly grant would cause the Company to exceed any granting limitation imposed by the Board or Compensation Committee (such as an annual limit), the monthly grant shall be delayed until the first subsequent month in which the limitation would not be exceeded. If the making of a grant would cause the Company to violate the terms of any agreement approved by the Board or a Committee of the Board, such grant shall be delayed until it would not be in violation of such agreement. The exercise price of options granted will be the closing market price on the date of grant. The Company intends to grant options in accordance with the foregoing policy without regard to the timing of the release of material non-public information, such as a positive or negative earnings announcement.

 

Employee Benefits and Perquisites

 

Historically, the Company has made available to Section 16 officers the same employee benefits and perquisites that are available to employees broadly. The Company provides employee benefit programs and perquisites to employees, including Section 16 officers, that the Company and the Committee believe are reasonable and consistent with its overall compensation program to better enable the Company to attract and retain employees. There are no special benefit plans or programs for Section 16 officers. Accordingly, employee benefits and perquisites are reviewed from time to time only to ensure that benefit levels remain competitive but are not included in the Committee’s annual determination of a Section 16 officer’s compensation package.

 

Section 16 officers are entitled to participate on the same basis and in the same medical, dental, vision, disability, life insurance and other plans and programs made available to other full time employees in the applicable country of residence.

 

The Company has a 401(k) tax-qualified retirement savings plan pursuant to which all U.S. based employees are entitled to participate. Employees can make contributions to the plan on a before-tax basis to the maximum amount prescribed by the Internal Revenue Service. The Company will match 25% of the amount contributed by the employee. The Company matching contributions are fully-vested upon contribution. Mr. Minshull participates in the Group Personal Pension Plan which is a tax-qualified defined contribution retirement plan available to all full time employees in the United Kingdom. The Company contributes 7% of an employee’s base salary to the plan following an initial period of service, which Mr. Minshull has satisfied. As such, Company contributions for Mr. Minshull are fully-vested upon contribution. The Company does not match employee contributions to this plan. Other than these generally available plans, there are no other deferred savings plans in which the Section 16 officers participate. The Company does not maintain or provide any defined benefit plans for its employees.

 

As is typical for the Company’s managers in Europe, Mr. Minshull is given a car allowance. Mr. Minshull receives a car allowance of $2,342 per month in arrears, less deductions for tax and U.K. National Insurance taxes contributions. He is also entitled to reimbursement of fuel costs through the standard expense reimbursement process.

 

Attributed costs of the personal benefits described above for the named executive officers for the fiscal year ended December 31, 2006, are included in the column entitled “All Other Compensation” in the Summary Compensation Table on page 33.

 

Severance Benefits

 

In addition to compensation designed to reward employees for service and performance, the Company has approved certain severance and change of control provisions for certain employees, including named executive officers.

 

Basic Severance.  In order to recruit executives to the Company and encourage retention of employees, the Company believes it is appropriate and necessary to provide assurance of certain severance payments if the Company terminates the individual’s employment without cause, as described below. On January 4, 2007, the Company’s Compensation Committee approved severance benefits for Mr. Elop, as well as for several members of senior management, including Mr. Kriens, Dr. Sindhu, Mr. Minshull, Ms. Perdikou, and Mr. Sturgeon. In the event the employee is terminated involuntarily by Juniper Networks without cause, as defined in the agreement, and provided the employee executes a full release of claims, in a form satisfactory to Juniper Networks, promptly following termination, the employee will be entitled to receive the following severance benefits: (i) an amount equal to six months of base salary, (ii) an amount equal to half of the individual’s annual target bonus for the fiscal year in which the termination occurs and (iii) six months of Company-paid health, dental, vision, and life insurance coverage. The Company believes that the size of the severance package is consistent with severance offered by other companies of the Company’s size or in the Company’s industry.

 

The Company has also entered into an agreement with Mr. Dykes on December 13, 2004, which provides that if Mr. Dykes is terminated involuntarily by the Company without cause, as defined in the agreement, promptly following termination Mr. Dykes will be entitled to receive the following severance benefits: (i) an amount equal to six months of his base salary, (ii) an amount equal to half of his annual at target bonus for the fiscal year in which termination occurs and (iii) and acceleration of six months of vesting of his initial grant of options to purchase shares of the Company’s common stock.

 

The following table describes the potential payments upon termination of employment without cause (assuming the change in control benefits discussed below do not apply) for each of the Section 16 officers as described above. Amounts payable assume relevant salary, bonus and benefit values in effect as of December 31, 2006. The amounts in the following table related to benefits represent the amounts payable by the Company to maintain the officer’s benefits for the period following the termination of the named executive officer’s employment without cause as described above.

 

 

 

 

Change in Control Severance.  The Committee considers maintaining a stable and effective management team to be essential to protecting and enhancing the best interests of Juniper Networks and its stockholders. To that end, Juniper Networks recognizes that the possibility of a change in control may exist from time to time, and that this possibility, and the uncertainty and questions it may raise among management, may result in the departure or distraction of management to the detriment of the Company and its stockholders. Accordingly, the Committee decided to take appropriate steps to encourage the continued attention, dedication and continuity of members of the Company’s management to their assigned duties without the distraction that may arise from the possibility of a change in control. As a result, the Committee approved certain severance benefits for Mr. Kriens, Mr. Elop, Mr. Minshull, Dr. Sindhu, Mr. Dykes, Ms. Perdikou, Mr. Sturgeon, as well as for several members of senior management in the event of a change of control. In approving these benefits the committee considered a number of factors, including the prevalence of similar benefits adopted by other publicly traded companies.

 

Under the benefits approved by the committee, provided the employee signs a release of claims and complies with certain post termination non-solicitation and non-competition obligations, the employee will receive change in control severance benefits if either (i) the employee is terminated without Cause within 12 months following the change of control or (ii) between 4 and 12 months following a change of control the employee terminates his or her employment with the Company (or any parent or subsidiary of the Company) for “Good Reason” (both Cause and Good Reason are defined in the agreement). For the purposes of this agreement, a reduction in duties, title, authority or responsibilities solely by virtue of the Company being acquired and made part of a larger entity (as, for example, when the Chief Financial Officer of the Company remains the Chief Financial Officer of the subsidiary or business unit substantially containing the Company’s business following a change of control) does not by itself constitute grounds for “Good Reason”

The change in control severance benefits consist of (i) a cash payment equal to the employee’s annual base salary plus the employee’s target bonus for the fiscal year in which the change of control or the employee’s termination occurs, whichever is greater, (ii) acceleration of vesting of all of the employee’s then unvested outstanding stock options, stock appreciation rights, restricted stock units and other Company equity compensation awards and (iii) one year of Company-paid health, dental, vision, and life insurance coverage.

 

The following table describes the potential payments upon termination of employment in connection with a change in control of Juniper Networks for each of Section 16 officers as described above. The amounts in the following table for equity awards represent the value of the awards that vest as a result of the termination without cause or a resignation for “good reason” (as defined in the applicable agreement) of the named executive officer’s employment in connection with a change in control. For purposes of valuing the stock options, the amounts below are based on a per share price of $18.94, which was the closing price as reported on the Nasdaq Global Select Market on December 29, 2006. Other amounts payable assume relevant salary, bonus and benefit values in effect as of December 31, 2006. The amounts in the following table related to benefits represent the amounts payable by the Company to maintain the officer’s benefits for the period following the termination of the named executive officer’s employment in connection with a change in control as described above.

 

 

The Impact of Favorable Accounting and Tax Treatment on Compensation Program Design

 

Favorable accounting and tax treatment of the various elements of our compensation program is a relevant consideration in their design. However, the Company and Committee have placed a higher priority on structuring flexible compensation programs to promote the recruitment, retention and performance of Section 16 officers than on maximizing tax deducibility. Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Tax Code”), places a limit of $1,000,000 on the amount of compensation that Juniper Networks may deduct in any one year with respect to each of its five most highly paid executive officers. To maintain flexibility in compensating executive officers in a manner designed to promote varying corporate goals, the Committee has not adopted a policy requiring all compensation to be deductible.

 

There is an exception to the $1,000,000 limitation for certain performance-based compensation meeting certain requirements. The Company believes that the stock options awarded under the Company’s 2006 Equity Incentive Plan will meet the terms of the exception. Restricted stock units are not considered performance-based

under Section 162(m) of the Tax Code and, as such, are generally not deductible by the Company. The Company has not sought stockholder approval of its annual cash incentive plans, and therefore, payments under those plans may not be fully deductible.

 

Beginning on January 1, 2006, the Company began accounting for stock-based payments including its Stock Option Program, Long-Term Stock Grant Program, Restricted Stock Program and Stock Award Program in accordance with the requirements of FASB Statement 123(R). Like many of the companies within our Peer Group, Juniper Networks has lowered both grant guidelines and option participation rates to ensure that the Company’s equity granting practice remains competitive but also within acceptable cost limitations.

 

The Compensation Committee of the Company has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management and, based on such review and discussions, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in this Proxy Statement.

 

THE COMPENSATION COMMITTEE

 

William Stensrud (Chairman)
Kenneth Levy
Frank Marshall (through February 20, 2007)
Michael Lawrie (from February 27, 2007)

 

No member of the Compensation Committee serves as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving as a member of the Company’s Board of Directors or Compensation Committee.

 

The following table discloses compensation received by Juniper Networks’ Chief Executive Officer and Chief Financial Officer during fiscal 2006 and Juniper Networks’ three other most highly paid executive officers (together with the CEO and CFO, the “named executive officers”) as of December 31, 2006.

 

Summary Compensation Table

 

 

 

 

The following table shows all plan-based awards granted to our named executive officers during 2006. The option awards identified in the table below are also reported in the Outstanding Equity Awards at Fiscal 2006 Year-End Table on the following page.

 

Grants of Plan-Based Awards
for Fiscal 2006

 

 

 

 

The following table shows all outstanding equity awards held by our named executive officers at December 31, 2006.

 

Outstanding Equity Awards at Fiscal 2006 Year-End