RHT Red Hat

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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RED HAT, INC.

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June 25, 2019

Dear Red Hat

Stockholders,

It is my pleasure to invite you to Red Hat’s 2019 Annual Meeting of Stockholders. This year’s meeting will be held on Thursday, August 15, 2019, at 8:30 a.m. Eastern time, at our corporate headquarters, located at 100 East Davie Street, Raleigh, North Carolina 27601. I hope you will be able to attend.

This year we are again pleased to furnish our proxy materials via the Internet. Providing our materials to stockholders electronically allows us to conserve natural resources and reduce our printing and mailing costs for the distribution of the proxy materials. We will mail to stockholders a Notice of Internet Availability of Proxy Materials for the 2019 Annual Meeting which contains instructions on how to access those documents over the Internet. Stockholders who wish to receive paper copies of the proxy materials may do so by following the instructions on the Notice of Internet Availability of Proxy Materials.

Your vote is important to us. Whether or not you plan to attend the 2019 Annual Meeting, we hope you will vote as soon as possible. You may vote in person, by telephone, over the Internet or, if you received paper copies of the proxy materials, by mail.

Thank you for your ongoing support of Red Hat.

Sincerely,

James M. Whitehurst

President and Chief Executive Officer

June 25, 2019

Fellow Stockholders,

Fiscal 2019 was a momentous year for Red Hat. We began the fiscal year by celebrating 25 years of embracing open source principles and the open source development model that unlocks the business potential for enterprises across industries and around the world. As the world’s leading provider of enterprise open source software solutions, we have helped customers integrate new and existing IT applications, develop cloud-native applications and automate and manage complex environments to better compete in the rapidly changing business climate.

Throughout those years, your Board has focused on working with management to build on this open source leadership to provide long-term sustainable value for stockholders. Red Hat has produced this value by listening to customers, collaborating with strategic partners and creating an open and inclusive culture to attract and retain people who are passionate about open source. This passion helped us become the first public open source company to generate more than $3 billion in revenue and be recognized by Fortune as one of the World’s Most Admired Companies and one of the 100 Best Companies to Work For in 2019.

Ensuring that the Board has an appropriate balance of skills, tenure and experience, and functions effectively has remained a focus. As we have done consistently over the years, we assessed our performance as a board and individually through a written assessment and individual conversations with our Board Chair and the Chair of our Nominating and Corporate Governance Committee. We added two new directors with deep experience in the technology industry to strengthen our ability to serve the Company and our stockholders.

In October 2018, stockholders saw the fruits of these efforts when Red Hat entered into an agreement to join forces with IBM to bring Red Hat to a wider audience and enhance our ability to accelerate the impact of open source as the basis for digital transformation. Our stockholders approved this transaction at a Special Meeting of Stockholders in January 2019. When this transaction closes, Red Hat stockholders will receive $190 per share in cash, representing a total enterprise value of $34 billion. We expect the merger to be completed in the second half of 2019.

As a Board we have recognized that our role has been to work with management to deliver value to you, our stockholders. We encourage you to share your viewpoints and suggestions with us. You can contact us at Investor Relations, Red Hat, Inc., 100 East Davie Street, Raleigh, NC 27601, United States.

Thank you for choosing to invest in Red Hat. We appreciate your support for these efforts and are honored to serve the Company, its employees and its stockholders as Red Hat’s journey continues to drive innovation with open source technologies.

Respectfully submitted,

Red Hat, Inc. Board of Directors

This Proxy Summary provides general information about Red Hat, Inc., referred to as “Red Hat,” “the Company,” “we,” “us,” and “our” in this Proxy Statement, and highlights certain information contained elsewhere in this Proxy Statement. As it is only a summary, please refer to the entire Proxy Statement and the 2019 Annual Report to Stockholders before you vote. Our fiscal year ends on the last day of February, and we identify our fiscal years by the calendar years in which they end. For example, we refer to the fiscal year ended February 28, 2019 as “Fiscal 2019.” “GAAP” means U.S. generally accepted accounting principles.

At a special meeting of stockholders held on January 16, 2019, our stockholders approved the adoption of the Agreement and Plan of Merger (the “Merger Agreement”) we entered into with International Business Machines Corporation (“IBM”) and Socrates Acquisition Corp. on October 28, 2018. No further action by our stockholders is required with respect to the Merger Agreement. Accordingly, no action will be taken at the 2019 Annual Meeting of Stockholders (“Annual Meeting”) with respect to, and no proxy is being solicited by this Proxy Statement in connection with, the Merger Agreement or any matters related thereto. While we anticipate that the proposed merger with IBM will be completed in the second half of 2019, if the closing of the merger occurs prior to the commencement of the Annual Meeting on August 15, 2019, then the Annual Meeting will not be held. As of the date of this Proxy Statement, the proposed merger with IBM has not been completed.

PROXY SUMMARY OUR BOARD

INDEPENDENT

BOARD CHAIR AND COMMITTEE MEMBERS

DIRECTOR NOMINEES
NAME		AGE		PRIMARY OCCUPATION		COMMITTEE MEMBERSHIP		EXPERIENCE & EXPERTISE		INDEPENDENT
Sohaib Abbasi		62		Chairman, Chief Executive Officer and President (Retired), Informatica Corporation		Compensation (Chair), Audit
W. Steve Albrecht		72		Professor of Accounting (Retired), Brigham Young University, Marriott School of Management		Audit (Chair), Nominating and Corporate Governance
Charlene T. Begley		52		Senior Vice President and Chief Information Officer (Retired), General Electric Company		Audit, Nominating and Corporate Governance
Narendra K. Gupta (Board Chair)		70		Managing Director, Nexus Venture Partners		Compensation
Kimberly L. Hammonds		52		Former Group Chief Operating Officer, Deutsche Bank AG		Compensation, Nominating and Corporate Governance
William S. Kaiser		63		Partner, Greylock Partners		Nominating and Corporate Governance (Chair)
Kevin M. Murai		56		President and Chief Executive Officer (Retired) and Chairman, SYNNEX Corporation		Compensation
James M. Whitehurst		51		President and CEO, Red Hat, Inc.
Alfred W. Zollar		65		Executive Partner, Siris Capital Group, LLC		Audit

PROXY SUMMARY OUR BOARD

DIRECTOR NOMINEES

GOVERNANCE HIGHLIGHTS

PROXY SUMMARY PERFORMANCE

Red Hat Performance and Executive Compensation

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

In Fiscal 2019, Red Hat achieved over $3.3 billion in total revenue and delivered growth in revenue, operating income, cash flow from operations and stock price at fiscal year end.

PAY AND PERFORMANCE AT A GLANCE

Red Hat’s Fiscal 2019 financial and stock price performance drove over 80% of the compensation earned by our executives during Fiscal 2019, reflecting the linkage between pay and performance built into our executive compensation program design. Payouts for Fiscal 2019 performance reflect:

NOMINEES FOR ELECTION TO THE BOARD OF DIRECTORS

Our Board of Directors (the “Board”) currently consists of nine directors. All of our incumbent directors are nominees for re-election to the Board at the Annual Meeting. We believe that our director nominees, individually and together as a whole, possess the requisite skills, experience and qualifications necessary to maintain an effective Board to serve the best interests of the Company and its stockholders.

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

NOMINEES FOR ELECTION TO THE BOARD OF DIRECTORS

NOMINEES FOR ELECTION TO THE BOARD OF DIRECTORS

NOMINEES FOR ELECTION TO THE BOARD OF DIRECTORS

BOARD COMPOSITION

In Fiscal 2019, Red Hat appointed two new directors. Mr. Zollar joined our Board in May 2018, and Mr. Murai joined our Board in September 2018. Donald H. Livingstone’s term as a director ended at the 2018 Annual Meeting of Stockholders (the “2018 Annual Meeting”), and he did not stand for re-election to our Board.

CRITERIA FOR EVALUATING CANDIDATES FOR SERVICE ON OUR BOARD

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

BOARD COMPOSITION

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

DIVERSITY

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

BOARD INDEPENDENCE

The Board affirmatively determined that all of our directors, except for Mr. Whitehurst, our President and CEO, are independent according to the criteria of the New York Stock Exchange (“NYSE”) and our Corporate Governance Guidelines and in the judgment of our Board. The Board makes its independence determination on an annual basis at the time it approves director nominees for inclusion in the annual proxy statement and, if a director joins the Board in the interim, at such time as the director joins the Board. For a director to be considered independent under the NYSE rules, the Board must determine that a director does not have a direct or indirect material relationship with Red Hat (other than as a director) that would interfere with the director’s exercise of independent judgment in carrying out his or her responsibilities. On an annual basis, we require each member of our Board to complete a questionnaire designed to provide information to assist the Board in determining whether the director is independent. The Board makes independence determinations on a case-by-case basis in light of all relevant facts and circumstances. The Board had previously determined that Mr. Livingstone, who served on our Board for a portion of Fiscal 2019, was independent.

ELECTION OF DIRECTORS

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

BOARD COMPOSITION

PROCESS FOR NOMINATING CANDIDATES FOR SERVICE ON OUR BOARD

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

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

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

COMMITTEES OF THE BOARD

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

COMMITTEES OF THE BOARD

COMMITTEES OF THE BOARD

BOARD OPERATIONS

LEADERSHIP STRUCTURE

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

BOARD OPERATIONS

RISK OVERSIGHT

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

BOARD OF DIRECTORS

PRIMARY RISK OVERSIGHT

RED HAT AND ITS STOCKHOLDERS

Our Board and management focus on creating long-term, sustainable stockholder value. Key to this goal has been regular stockholder engagement through meetings with stockholders at conferences and in one-on-one meetings to discuss our financial performance, corporate governance practices, executive compensation programs and other matters. Additionally, we have invited investors to attend roadshows and visit Red Hat facilities and provide periodic e-mail communications about developments of interest, such as acquisitions. A variety of financial, investor and corporate governance information is available on our website. Since the announcement of the Merger Agreement, our focus has primarily shifted to the completion of the merger and planning for integration.

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

KEY BOARD PRACTICES

BOARD MEETINGS AND ATTENDANCE

Directors are responsible for attending all meetings of the Board, the Board committees on which they serve and the annual meeting of stockholders. The Board met 19 times during Fiscal 2019, either in person or by teleconference. During Fiscal 2019, each member of our Board attended at least 75% of the aggregate of the meetings of the Board and the committees on which he or she served. All of the then-serving members of our Board attended our 2018 Annual Meeting.

EXECUTIVE SESSIONS

Our independent directors and each committee of the Board meet in separate regularly-scheduled executive sessions, without management. Our practice is for our Board Chair to preside over any executive session of the Board, and for each committee chair to preside over any executive session of their respective committee of the Board.

KEY BOARD PRACTICES

SUCCESSION PLANNING

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

BOARD EVALUATIONS

Our directors regularly assess the performance of the Board and each of the committees of the Board through a written survey and individual feedback sessions with the Board Chair or the chair of the Nominating and Corporate Governance Committee.

KEY GOVERNANCE POLICIES

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

CODE OF BUSINESS CONDUCT AND ETHICS

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

CORPORATE GOVERNANCE GUIDELINES

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

CORPORATE SOCIAL RESPONSIBILITY

Red Hat’s company culture is rooted in open source principles, which permeate all aspects of our business. From our philanthropy and volunteering, to our sustainability initiatives and corporate governance, we strive to work together in ways that are open, inclusive and allow our employees to share and collaborate to create a positive impact on the communities where we live, work, and play.

We invest in programs not only to help our communities thrive, but also to attract and retain the engaged employees we need to compete successfully in the technology industry, ultimately driving the success of our business. This commitment is reflected in programs involving:

KEY GOVERNANCE POLICIES

For more information on Red Hat’s approach to corporate social responsibility and our programs, see our report, “Community and Social Responsibility 2019; Open unlocks the world’s potential” available on our website. The information contained on, or available through, our website is not incorporated by reference in this Proxy Statement.

POLICIES AND PROCEDURES FOR RELATED PERSON TRANSACTIONS

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

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

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

RELATED PERSON TRANSACTIONS FOR FISCAL 2019

Since March 1, 2018, there has not been, nor is there currently proposed, any transaction, arrangement or relationship in which Red Hat is a party, the amount involved exceeds $120,000 and any related person had or will have a direct or indirect material interest, except for Red Hat’s employment of M. W. Vincent, the brother-in-law of DeLisa K. Alexander, our Executive Vice President and Chief People Officer, during Fiscal 2019. In Fiscal 2019, Mr. Vincent’s total compensation, which included salary and commissions, was $240,714.

BOARD COMPENSATION

OVERVIEW

Our Non-Employee Director Compensation Plan (the “Director Compensation Plan”) provides for a combination of cash and equity compensation for our non-employee directors. The Compensation Committee believes that a combination of cash and equity is the best way to attract and retain directors with the attributes, experience and skills necessary for a company such as Red Hat. Due to the unique nature of our open source development model and the constantly evolving environment in which we operate, the Company needs directors who are knowledgeable about the Company’s business environment and are willing to make a significant commitment to the Company and its stockholders for the long term. The Director Compensation Plan was updated in Fiscal 2018 to increase the annual cash retainers for Board service and service as Board Chair based on peer company benchmarking data provided by FW Cook, the Compensation Committee’s independent compensation consultant (the “Consultant”), that indicated that our cash retainer amounts were no longer competitive.

BOARD COMPENSATION

Our current compensation program for non-employee directors includes:

The cash retainer and annual RSA for any director who serves only a portion of a year will be pro-rated. Annual RSA grants are made only to directors standing for election at our next annual meeting of stockholders.

CASH COMPENSATION

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

The following table sets out annual cash compensation amounts payable to non-employee directors for Board and committee service during Fiscal 2019:

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

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

BOARD COMPENSATION

EQUITY COMPENSATION

In Fiscal 2019, our non-employee directors were entitled to receive equity compensation in order to align their interests with stockholder interests.

ADDITIONAL COMPENSATION

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

SUMMARY COMPENSATION TABLE FOR NON-EMPLOYEE DIRECTORS

The following table summarizes the compensation awarded to our directors other than Mr. Whitehurst during Fiscal 2019:

(1) Compensation paid to Mr. Whitehurst, our President and CEO, is described in the section entitled “Executive Compensation.”

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

(3) Amounts in this column represent the aggregate grant date fair value of equity compensation issued to directors determined in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 718. For the assumptions made in determining these values, see Notes 2 and 19 to the Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for Fiscal 2019. Equity compensation that our non-employee directors are eligible to receive is described in the section entitled “Equity Compensation” above.

BOARD COMPENSATION

(4) As of February 28, 2019, our non-employee directors had DSUs and unvested RSAs representing the right to receive the following number of shares of common stock: Mr. Abbasi—31,823, Dr. Albrecht—15,392, Ms. Begley—1,710, Dr. Gupta—46,284, Ms. Hammonds—1,710, Mr. Kaiser—8,900, Mr. Murai—2,389 and Mr. Zollar—2,448.

(5) During Fiscal 2019, Mr. Abbasi was eligible to receive $110,000 in cash compensation and an annual RSA valued at $250,000. Mr. Abbasi elected to receive DSUs in lieu of his cash compensation and annual RSA. The stock awards total in the table includes $372 of value realized as a result of issuing grants rounded up to the nearest whole share.

(6) During Fiscal 2019, Dr. Albrecht received $107,500 in cash compensation and an annual RSA valued at $250,000. Dr. Albrecht elected to receive DSUs in lieu of his annual RSA. The stock awards total in the table includes $36 of value realized as a result of issuing a grant rounded up to the nearest whole share.

(7) During Fiscal 2019, Ms. Begley received $87,500 in cash compensation and an annual RSA valued at $250,000. The stock awards total in the table includes $36 of value realized as a result of issuing a grant rounded up to the nearest whole share.

(8) During Fiscal 2019, Dr. Gupta received $135,000 in cash compensation and an annual RSA valued at $250,000. Dr. Gupta elected to receive DSUs in lieu of his annual RSA. The stock awards total in the table includes $36 of value realized as a result of issuing a grant rounded up to the nearest whole share.

(9) During Fiscal 2019, Ms. Hammonds received $82,500 in cash compensation and an annual RSA valued at $250,000. The stock awards total in the table includes $36 of value realized as a result of issuing a grant rounded up to the nearest whole share.

(10) During Fiscal 2019, Mr. Kaiser received $75,000 in cash compensation and an annual RSA valued at $250,000. The stock awards total in the table includes $36 of value realized as a result of issuing a grant rounded up to the nearest whole share.

(11) During Fiscal 2019, Mr. Livingstone received $45,951 in cash compensation. Mr. Livingstone retired as a director in Fiscal 2019. He received cash compensation for his service up to his retirement date, but did not receive an annual RSA award.

(12) During Fiscal 2019, Mr. Murai received $24,783 in cash compensation and an initial RSA valued at $300,000. The stock awards total in the table includes $58 of value realized as a result of issuing a grant rounded up to the nearest whole share.

(13) During Fiscal 2019, Mr. Zollar was eligible to receive $56,517 in cash compensation and an initial RSA valued at $300,000. For part of Fiscal 2019, Mr. Zollar elected to receive DSUs in lieu of his cash compensation (DSUs received for $20,000 in cash compensation). Mr. Zollar also received a prorated annual RSA valued at $41,667. The stock awards total in the table includes $138 of value realized as a result of issuing grants rounded up to the nearest whole share.

PROCESS FOR SETTING DIRECTOR COMPENSATION

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

INDEMNIFICATION

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

DIRECTOR STOCK OWNERSHIP REQUIREMENTS

We have a Stock Ownership Policy that applies to our non-employee directors. During Fiscal 2019 this Stock Ownership Policy was amended to set the stock ownership level for each non-employee director at 2,500 shares, an ownership level based on a multiple of the cash retainer for service as a Board member in place at the beginning of Fiscal 2019. The ownership levels were adjusted to account for the almost 90% increase in Red Hat’s stock price since the levels were previously set. As of the end of Fiscal 2019, each of our non-employee directors was in compliance with the Stock Ownership Policy. Our Stock Ownership Policy is described in the section entitled “Executive Compensation—Compensation Discussion and Analysis—Compensation Policies and Practices—Stock Ownership Requirements.”

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The Compensation Committee is composed entirely of independent directors, as was the case at all times during Fiscal 2019. At the beginning of Fiscal 2019, Mr. Abbasi, Dr. Gupta, Ms. Hammonds and Mr. Livingstone were members of the Compensation Committee. Mr. Livingstone did not stand for re-election at the 2018 Annual Meeting and left the committee when his term ended in August 2018. In February 2019, Mr. Murai joined the Compensation Committee. No member of the Compensation Committee (i) was during Fiscal 2019 or is currently an employee of the Company, (ii) has ever been an officer of the Company, (iii) is or was a participant in a “related person” transaction as described in the section entitled “Key Governance Policies—Policies and Procedures for Related Person Transactions—Related Person Transactions for Fiscal 2019” or (iv) is an executive officer of another entity, at which one of our executive officers serves on the compensation committee or the board of directors. None of our executive officers serves as a member of the board of directors or on the compensation committee, or other committee serving an equivalent function, of any entity that has one or more executive officers who serve as members of our Board or our Compensation Committee.

ITEM NO. 1—ELECTION OF DIRECTORS

ITEM NO. 1—ELECTION OF DIRECTORS

The Board has nominated nine directors for one-year terms expiring at the 2020 Annual Meeting of Stockholders (“2020 Annual Meeting”). Each nominee has indicated an intention to serve if elected and will hold office for his or her term and until a successor has been elected and qualified or until his or her earlier resignation or removal. In the event that any of the nominees should be unable or unwilling to serve, proxies may be voted for the election of some other person or for fixing the number of directors at a lesser number. Proxies cannot be voted for a greater number of persons than the number of nominees named.

EXECUTIVE SUMMARY OF COMPENSATION DISCUSSION AND ANALYSIS

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

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

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

In Fiscal 2019, the Compensation Committee approved an executive compensation program designed to focus our executive team on growing our business and building long-term stockholder value. Our program provided compensation opportunities based on achievement against revenue, cash flow from operations, non-GAAP operating margin and TSR metrics, which the Compensation Committee believes are key contributors to our long-term profitability and growth, and the executive team’s ability to develop and implement strategies to accelerate the impact of open source as the basis for digital transformation.

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

Payouts earned in Fiscal 2019 under the incentive compensation elements of our program reflected this pay and performance link. While Red Hat once again delivered double-digit gains year-over-year for total revenue and stock price (as of the end of the fiscal year), we experienced lower operating income growth year-over-year and a decline in our operating margin from the Fiscal 2018 level. These mixed results led to payouts for performance-based compensation in Fiscal 2019 that were above target, but lower than payouts earned by our Named Officers under our annual cash bonus plan, operating performance share units (“Operating PSUs”) and TSR performance share units (“TSR PSUs”) in Fiscal 2018. After evaluating the performance of the Company and the individual executives under our standard executive compensation program, the Compensation Committee approved:

EXECUTIVE SUMMARY OF COMPENSATION DISCUSSION AND ANALYSIS

Performance-based compensation payouts earned by our Named Officers in respect of performance in Fiscal 2019, as approved by the Compensation Committee, and the percentage change from payouts earned in Fiscal 2018, are presented below. Shares delivered are based on target award amounts granted in Fiscal 2017 and Fiscal 2018 (Operating PSUs) and Fiscal 2017 (TSR PSUs).

(1) Mr. Shander began participating in our standard executive compensation program in Fiscal 2018, and as a result he received his first PSU payout in Fiscal 2019 under the Operating PSUs granted in Fiscal 2018.

On October 28, 2018, the Board approved the Merger Agreement. The Merger Agreement included certain interim operating covenants that we must follow, including a covenant that requires us to grant only RSAs or restricted stock units (“RSUs”) following the date of the Merger Agreement. Our stockholders approved the transactions contemplated by the Merger Agreement (the “Merger Transaction”) at a special meeting of stockholders held on January 16, 2019, with 99 percent of the votes cast voting for the Merger Agreement.

The Compensation Committee made no changes to our annual cash bonus plan structure for Fiscal 2020, but approved equity grants consisting solely of RSAs as required under the Merger Agreement. The committee also approved the RSA awards as solely service-based awards in light of the change in the deductibility of performance-based compensation enacted as part of the Tax Cuts and Jobs Act in December 2017 (the “2017 Tax Act”) and reduced the life of the award to three years. The committee believes that these changes were appropriate to enable Red Hat to motivate and retain our executives and focus them on closing the Merger Transaction for the benefit of our stockholders, at the same time that they must continue to manage our business for success in the competitive technology industry. The Fiscal 2020 executive compensation program continues to emphasize equity compensation which aligns management interests with our stockholders’ interests and includes a performance component through the annual cash bonus plan. More detail about the Fiscal 2020 executive compensation program is provided in the section entitled “Executive Compensation—Compensation Discussion and Analysis—Fiscal 2020 Key Compensation Decisions.”

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

EXECUTIVE SUMMARY OF COMPENSATION DISCUSSION AND ANALYSIS

The following table summarizes the principal components of our standard executive compensation program in Fiscal 2019.

COMPENSATION DISCUSSION AND ANALYSIS

COMPENSATION DISCUSSION AND ANALYSIS

OUR COMPENSATION PHILOSOPHY

Our executive compensation program is designed to:

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

PROCESS FOR DETERMINING NAMED OFFICERS’ COMPENSATION

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

ROLE OF THE COMPENSATION COMMITTEE

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

COMPENSATION DISCUSSION AND ANALYSIS

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

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

ROLE OF STOCKHOLDER SAY-ON-PAY VOTE

The Compensation Committee considers the results of our annual say-on-pay advisory vote and other feedback received from stockholders on executive compensation matters in determining executive compensation decisions and policies. These forms of stockholder feedback provide useful input to the committee in its work to design and oversee an executive compensation program that serves the long-term interests of our stockholders. At our 2018 Annual Meeting, approximately 96% of the votes cast were voted “FOR” approval of our executive compensation program as described and disclosed in the Compensation Discussion and Analysis section, compensation tables and narrative discussion in our 2018 Proxy Statement, and over the past five years, at least 96% of the votes cast each year were voted “FOR” our annual say-on-pay vote. The Compensation Committee believes such results affirm stockholders’ support of the Company’s approach to, and structure of, executive compensation.

ROLE OF THE COMPENSATION CONSULTANT

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

The Consultant provided executive compensation-related data used in preparing the Company’s Annual Report on Form 10-K for Fiscal 2019 and this Proxy Statement. The Consultant provided no other services in Fiscal 2019 and is not otherwise retained by, and does not otherwise advise, the Company on compensation matters.

After considering information provided by the Consultant and any other factors the Compensation Committee considered relevant to the Consultant’s independence or felt were relevant to a potential conflict of interest between the Consultant and the Compensation Committee or the Company, the Compensation Committee assessed the independence of the Consultant pursuant to SEC and NYSE rules in the first quarter of Fiscal 2019 and concluded that the Consultant’s work for the Compensation Committee did not present a conflict of interest.

COMPENSATION DISCUSSION AND ANALYSIS

ROLE OF MANAGEMENT

Management helps the Compensation Committee fulfill its responsibilities by:

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

COMPENSATION PEER GROUP

The Compensation Committee annually reviews and approves a peer group composed of companies in our industry considered to be our peers. In Fiscal 2019 this peer group data was used:

The Consultant recommends peer companies for the Compensation Committee’s consideration. In developing its recommendation, the Consultant identifies companies with similar Global Industrial Classification System (“GICS”) industry codes and with comparable levels of market capitalization, revenues, operating income, number of employees and revenue and operating income growth rates, in an effort to populate the group with companies that have attributes appropriate to compare to Red Hat. The Fiscal 2019 compensation peer group consisted of 19 peer companies from the Software, Internet Software and Services, Computers & Peripherals and IT Services GICS industry codes and includes several companies with which we compete for talent.

For Fiscal 2019, after review and discussion with the Consultant, the Compensation Committee decided to remove Nuance Communications, Inc. and Verint Systems, Inc. from our peer group because it believed that these companies no longer met the Company’s identification criteria, including market capitalization. The committee added CA, Inc., a provider of enterprise and mainframe software solutions services, ServiceNow, Inc., a provider of cloud-based solutions to automate workflow, and Workday, Inc., a provider of enterprise cloud applications for finance and human resources, in order to provide a peer group composed of size-relevant companies within our industry. CA, Inc. was acquired by Broadcom, Inc. in November 2018 and so ceased to be a public reporting company.

For Fiscal 2020, after review and discussion with the Consultant, the Compensation Committee decided to make no changes to the peer group other than to remove CA, Inc.

COMPENSATION DISCUSSION AND ANALYSIS

The table below lists selected financial data (in millions) and other relevant information derived from public sources for each Fiscal 2019 peer group company other than CA, Inc., which is excluded from this table because it ceased to be a public reporting company during Fiscal 2019. This table is intended to illustrate the types of information used by the Compensation Committee to evaluate whether selected peers are reasonably comparable with Red Hat and should not be relied upon for any other purpose.

MOST RECENT FOUR QUARTERS AS OF

FEBRUARY 28, 2019

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

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

(2) As of February 28, 2019.

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

COMPENSATION DISCUSSION AND ANALYSIS

EXECUTIVE COMPENSATION PROGRAM STRUCTURE

The principal components of our Fiscal 2019 executive compensation program—Base Salary, Annual Cash Bonus and Equity Compensation—are described in more detail below.

CASH COMPENSATION

CEO TARGET BONUS PERCENTAGE

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

PERFORMANCE GOALS AND PAYOUTS

COMPENSATION DISCUSSION AND ANALYSIS

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

CALCULATION OF PAYOUT AMOUNT

COMPANY FINANCIAL GOALS

For Fiscal 2019, the Compensation Committee selected Company performance metrics of total revenue, cash flow from operations, and non-GAAP operating margin because management uses these metrics as a component of its internal reporting to evaluate performance of the business, to make operating decisions, including internal budgeting and the calculation of incentive compensation for all employees, and to forecast future performance. Additionally, the Compensation Committee, taking into account the Consultant’s recommendations, believes these performance metrics drive long-term stockholder value. The total revenue metric reflects management’s effectiveness at selling our products and services and is a critical measurement of the growth of our business used by management and market analysts. Cash flow from operations reflects management’s effectiveness in generating cash and providing the capital resources necessary for the business to grow. Non-GAAP operating margin demonstrates how efficiently management runs the business and controls costs. We use non-GAAP operating margin because we seek to compensate our executive team based on how effectively they build stockholder value through operating the Company business. The Compensation Committee believes this non-GAAP metric eliminates the impact of items that are unrelated to business operations and outside of management’s control, such as tax rates.

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