Lee Klarich
Palo Alto NetworksAbout Lee Klarich
Lee Klarich is Palo Alto Networks’ Chief Product and Technology Officer and a member of the Board since August 2025; he has led product strategy since 2006 and holds a bachelor’s in engineering from Cornell University . Age: 50 . Under PANW’s platformization strategy in FY25, total revenue grew 15% to $9.22B, NGS ARR rose 32% to $5.58B, RPO reached $15.8B, and Non-GAAP EPS increased 18% to $3.34, reflecting strong product execution . Over the last five years, PANW’s TSR significantly outperformed the S&P 500 (nearly 3x) and the 2025 compensation peer group (nearly 4x) .
Past Roles
| Organization | Role | Years | Strategic Impact |
|---|---|---|---|
| Palo Alto Networks | Chief Product and Technology Officer; Director | Aug 2025–present | Chairs Security Committee; drives tech vision and leads engineering and product |
| Palo Alto Networks | Chief Product Officer | Aug 2017–Aug 2025 | Instrumental in platform strategy and innovation |
| Palo Alto Networks | EVP, Product Management | Nov 2015–Aug 2017 | Led product roadmap and execution |
| Palo Alto Networks | SVP, Product Management | Nov 2012–Nov 2015 | Built Next-Gen Security Platform |
| Palo Alto Networks | VP, Product Management | May 2006–Nov 2012 | Early product inception leadership |
External Roles
| Organization | Role | Years | Strategic Impact |
|---|---|---|---|
| Juniper Networks | Director of Product Management (firewall/VPN) | Not disclosed | Managed core security product line |
| NetScreen Technologies | Product line management (pre-acquisition) | Not disclosed | Continued management post-acquisition |
| Excite@Home; Packard Bell-NEC | Various positions | Not disclosed | Early career operating roles |
| Other public company boards | None | — | No interlocks disclosed |
Fixed Compensation
| Component | FY2023 | FY2024 | FY2025 |
|---|---|---|---|
| Base Salary ($) | $550,000 | $550,000 | $550,000 |
| Target Bonus (%) | 100% | 100% | 100% |
| Target Bonus ($) | $825,000 | $660,000 | $550,000 |
| Actual Bonus Paid ($) | $825,000 | $660,000 | $660,000 |
| All Other Compensation ($) | $32,023 | $2,162 | $106,720 (incl. $1,000 401(k) match, $720 life insurance, $105,000 regulatory filing fee) |
Multi-Year Compensation Summary (Total)
| Metric | FY2023 | FY2024 | FY2025 |
|---|---|---|---|
| Stock Awards ($) | $15,685,347 | $19,126,156 | $24,654,517 |
| Non-Equity Incentive ($) | $825,000 | $660,000 | $660,000 |
| Total Compensation ($) | $17,092,370 | $20,338,318 | $25,971,237 |
Performance Compensation
| Cash Incentive Plan (FY2025) | Metric | Design Detail |
|---|---|---|
| Annual Cash Incentive | Revenue; Organic Operating Margin; Corporate Responsibility modifier | 100% performance-based; threshold defined at up to 10% below target for funding; max 165% of target payout |
| Long-Term PSUs (FY2025 award) | Metric | Weighting | Target | Actual | Achievement | Vesting/Payout Rules |
|---|---|---|---|---|---|---|
| Financial Measures | NGS ARR | 50% | $5.34B | $5.58B | Included in 216% average | 3-year PSU; Final payout = Average of FY25–FY27 financial achievements × rTSR modifier; Cap 400% |
| Financial Measures | Non-GAAP EPS | 50% | $3.16 | $3.34 | Included in 216% average | Same as above |
| rTSR Modifier | Relative TSR vs S&P 500 (3-year) | Modifier | — | — | — | Applied over full period; cap maintained; FY2026 target for 1.0x set at 55th percentile |
| FY2023 PSUs – Final Results | Metric | Target/Actual | Achievement | rTSR Modifier | Final Payout |
|---|---|---|---|---|---|
| Financial Measures (FY23–FY25) | Billings growth (FY23/FY24) and Avg of NGS ARR & Non-GAAP EPS (FY25) | FY23: 23.1% vs 20%; FY24: 11% vs 17.9%; FY25: NGS ARR $5.58B vs $5.34B and EPS $3.34 vs $3.16 | ~136% average | 2.0x (93rd percentile) | ~273% of target PSUs |
| FY2026 PSU Design Changes | rTSR Target; NGS ARR performance thresholds |
|---|---|
| rTSR 1.0x modifier raised from 50th to 55th percentile; NGS ARR thresholds tightened (+33% to max/threshold bands, e.g., max now ≥$400M above target) |
Equity Ownership & Alignment
| Beneficial Ownership (as of 9/15/2025) | Shares | % of Outstanding | Notes |
|---|---|---|---|
| Total beneficial ownership | 1,754,032 | <1% (outstanding shares 673,720,207) | Components below |
| Ownership Breakdown | Shares |
|---|---|
| Held of record by Klarich | 177,954 |
| Lee & Susan Klarich 2005 Trust | 740,000 |
| PSUs issuable within 60 days | 468,038 |
| Options (PSOs) exercisable within 60 days | 368,040 |
| Outstanding Equity Awards (7/31/2025) | Grant Date | Unvested RSUs/Units (#) | Market Value ($) | Options Exercisable (#) | Exercise Price ($) | Expiration |
|---|---|---|---|---|---|---|
| PSUs/RSUs | 8/23/2022 | 468,038 | $81,251,397 | — | — | — |
| PSUs/RSUs | 8/21/2023 | 277,264 | $48,133,030 | — | — | — |
| PSUs/RSUs | 8/20/2024 | 119,536 | $20,751,450 | — | — | — |
| Stock Options | 10/20/2018 | — | — | 552,060 | $32.25 | 4/19/2026 |
| FY2025 Exercises and Vesting | Options Exercised (#) | Value Realized ($) | Stock Vested (#) | Value Realized ($) |
|---|---|---|---|---|
| Klarich | 1,272,098 | $186,284,276 | 155,150 | $29,077,437 |
| Ownership Policies | Requirement/Restriction | Status/Details |
|---|---|---|
| Executive ownership guideline | 1x base salary; excludes unvested awards/options; 5-year deadline | Klarich met guideline (since May 2011) |
| One-year post-vesting hold | Required for all NEOs (exceptions for tax/initial exec grants) | In effect |
| Hedging prohibited; pledging limited | No hedging; pledging only with Governance & Sustainability Committee approval; group pledge cap $100M; LTV ≤30%; pledged shares cannot count toward ownership/holding | No pledges disclosed for Klarich in beneficial ownership footnotes |
Employment Terms
| Severance & Change-in-Control (Double Trigger within 12 months of CIC) | Salary Continuation ($) | Target Bonus ($) | COBRA ($) | Equity Acceleration |
|---|---|---|---|---|
| Klarich | $550,000 | $550,000 | $36,012 | Greater of 12 months’ vesting or 50% of then-unvested time-based awards |
| Termination Unrelated to CIC | Payments |
|---|---|
| Other NEOs (incl. Klarich) | No specific payments (CEO only eligible for salary + COBRA) |
| Death Benefits (Survivor Benefit Policy) | Bonus ($) | Accelerated Equity ($) | Total ($) |
|---|---|---|---|
| Klarich | $275,000 | $47,031,712 | $47,306,712 |
- Clawbacks: SEC-compliant Compensation Recovery Policy (Dec 2023) for restatements; 2017 Clawback for fraud/misconduct (two-year window) remains for certain officers .
- Tax gross-ups: No 280G/4999 excise tax gross-ups; Committee may pay non-deductible comp if appropriate .
Board Governance
- Board Service: Director since August 2025; Committee memberships include Security Committee (Chair) .
- Independence: Employee director (not independent); Board is 82% independent with independent Audit, Compensation & People, and Governance & Sustainability Committees .
- Dual-role implications: Klarich’s management + director role reduces independence; mitigations include a strong Lead Independent Director with robust responsibilities, regular executive sessions of independent directors, and annual evaluation of leadership structure (CEO also serves as Chair; Klarich chairs Security Committee) .
Compensation Structure Analysis
- 100% of NEO equity grants in FY2025 were performance-based PSUs; maximum payout reduced from 600% to 400% for FY2023–FY2025 grants; FY2026 PSUs tightened rTSR target and NGS ARR thresholds, evidencing stronger pay-for-performance alignment .
- Cash incentives use different metrics than PSUs (Revenue, Organic OM, CR modifier vs NGS ARR/EPS + rTSR), reducing metric overlap risk .
- Equity mix shifted away from options; PANW has not granted options since 2020, favoring PSUs with multi-year performance .
- Say-on-Pay: Improved from 38% “For” in 2023 to a majority “For” in 2024 after program changes and outreach .
Equity Grants – FY2025 (Grant-Date Fair Value under ASC 718)
| Grant Tranche (ASC 718 measurement) | Target Units (#) | Max Units (#) | Grant-Date Fair Value ($) |
|---|---|---|---|
| FY2023 PSUs (portion measured FY2025) | 23,106 | 92,424 | $5,781,121 |
| FY2024 PSUs (portion measured FY2025) | 9,960 | 39,840 | $2,586,612 |
| FY2025 PSUs (measured FY2025) | 57,240 | 228,960 | $16,286,784 |
Investment Implications
- Alignment: Strong—ownership guideline met; one-year hold policy; no hedging; tightly performance-linked PSUs with higher targets and capped payouts; no CIC gross-ups; robust clawbacks .
- Retention risk: Moderate—severance economics are limited (1x salary/bonus + COBRA; partial time-based acceleration only), but continued platform leadership and Board role suggest commitment; FY2025 program refinements reflect investor engagement .
- Trading signals: FY2025 exercises/vesting were sizable (options exercised: 1.27M; stock vested: 155K), potentially indicating liquidity activity; monitor Form 4s and 10b5-1 plans for ongoing selling cadence .
- Performance levers: PSU metrics (NGS ARR and Non-GAAP EPS) directly tie Klarich’s equity value to execution on platformization and profitability; rTSR modifier heightens external performance discipline .
Note: Director compensation applies to non-employee directors; employee directors (such as Klarich) are not shown in the director compensation table, and non-employee directors are subject to 5× retainer ownership guidelines (all compliant as of Sept 15, 2025) .