Executive Variable Compensation Plan



 Exhibit 10.5 
  
 

 
  
 Executive Variable Compensation
Plan 
  
 The following summary highlights key features of Red
Hat’s Executive Variable Compensation Plan (the “Plan”). 
  

	I.	PURPOSE 

  
 The Plan has been designed to motivate and reward key management employees whose efforts impact the performance of Red Hat Incorporated (the
“Company”) and its subsidiaries through the achievement of pre-established financial and individual objectives. 
  
 Performance under the Plan is measured on the fiscal year and payments under the Plan are made annually. 
  

	II.	ELIGIBILITY 

  
 Officers and key management employees may be eligible to participate in the plan, upon the recommendation by the Chief Executive Officer of the Company
and approval by the Board of Directors. An employee who is eligible to participate in any other cash incentive plan of the company is not eligible to participate in this Plan. 
  

	III.	AWARD CRITERIA 

  
 The Board of Directors, upon the recommendation by the Compensation Committee, must approve the Company performance objectives that are used to determine
awards paid under this plan. Performance metrics may include one or more of (but not limited to) the following: net revenues, gross margins, operating income, pre-tax income, net income, EPS (basic and diluted) EBITDA, return on invested capital,
return on equity, cash flow from operations, or changes in deferred revenues. 
  
 In general, 100% of performance under this Plan will be based on financial objectives. At the discretion of the Compensation Committee, up to 25% of the individual award may be based on subjective factors such
as individual performance or achievement of other goals not stated in the Plan. In other words, each Participant is eligible to receive no less than 75% of the award earned on the basis of financial performance, and is eligible for up to 125%.
 
  

	IV.	TARGET AWARDS 

  
 A Target Award percentage is established for each position eligible to participate in the Plan. Target Awards (TA’s) may range from 10% to 100%,
depending on position, of each participant’s base pay in effect at the conclusion of the performance period (or pro rata at the time of becoming a participant). 
  
 Generally, the participants receive the TA when performance under the Plan meets, but does not exceed, the pre-established
performance objectives. 
  










	V.	PERFORMANCE MEASUREMENT 

  

			
	 Minimum
	  	This is the lowest level of performance at which an award will be generated for this particular objective of the plan. The award paid for performance at the minimum level is 5% of Target
Award. There will be no payment for performance below the minimum level.
		
	 Target
	  	This is the expected level of performance based on the current year’s financial plan, and will generally result in a payment equal to 100% of Target Award.
		
	 Maximum
	  	This is the performance level for which the maximum award under the plan will be paid. The maximum award under the plan is limited to 225% of the Target Award.

  

	VI.	AWARD CALCULATION 

  
 Attainment of the financial objectives of the Plan is measured based on actual results versus Plan targets. Payouts are expressed as percentage of target
bonus for each participant versus actual levels of financial performance versus Plan targets. If actual results are between stated percentages, interpolations of payout percentages are to be applied. 
  

	VII.	INDIVIDUAL OBJECTIVES 

  
 The Compensation Committee may approve the use of individual objectives as part of the participant’s performance criteria under the Plan. The use of
individual objectives is subject to the following requirements: 
  

	 	•	Not to exceed 25% of the total award 

  

	 	•	Individual objectives must be specifically identified at the beginning of the plan year and must be quantifiable in terms of both the targeted achievement and the time frame in
which the objective is to be completed. 

  

	 	•	Each objective must specify minimum, target and maximum performance levels. 

  

	VIII. 	ALTERNATIVE CALCULATIONS 

  
 There may be circumstances under which the financial performance of the Company does not generate an award under this program. The nature and scope of the
Company’s operations are such that at times unanticipated economic and market conditions may render pre-established financial objectives unattainable in any given plan year. If, in the opinion of the Committee, such circumstances should arise,
then bonus payments not to exceed 50% of Target Award may be paid. 
  










	IX.	MODIFICATIONS 

  
 If, during a Plan Year, there has occurred or should occur, in the opinion of the Company, a significant beneficial or adverse change in economic
conditions, the indicators of growth or recession in the Company’s business segments, the nature of the operations of the Company, or applicable laws, regulations or accounting practices, or other matters which were not anticipated by the
Company when it approved objectives for the Plan Year and which, in the Company’s judgment, had, have, or are expected to have a substantial positive or negative effect on the performance of the Company as a whole, the Compensation Committee,
subject to ratification by the Board, may modify or revise the Performance Objectives for the Plan Year in such manner as it may deem appropriate in its sole judgment. By way of illustration, and not limitation, such significant changes might result
from sales of assets, or mergers, acquisitions, divestitures, or spin-offs.  
  

	X.	PAYMENT 

  
 Any awards generated under the Plan must be approved by the Compensation Committee and ratified by the Board of Directors. It is anticipated that any
awards generated in during the fiscal year (performance period) will be paid during the first quarter of the subsequent fiscal year. 
  
 EVC-eligible employees hired during the calendar year will receive a prorated bonus based upon the actual date of hire. Employees terminating prior to the
payout date are not eligible for payment of any award under this plan unless termination is due to retirement or economic reduction in force. In such cases, any bonus payments will be prorated to the date of termination and determined on the basis
of bonuses actually paid to similarly situated employees.