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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

(Rule 14a-101)

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

(Amendment No.      )

Filed by the Registrant  x

Filed by a Party other than the Registrant  ¨

Check the appropriate box:

VMware, Inc.

(Name of Registrant as Specified In Its Charter)

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

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VMWARE, INC.

NOTICE OF THE ANNUAL MEETING OF STOCKHOLDERS

April 1, 2008

To the Stockholders:

Notice is hereby given that the Annual Meeting of Stockholders of VMware, Inc. (“VMware”), a Delaware corporation, will be held at the Sheraton Palo Alto Hotel, 625 El Camino Real, Palo Alto, California 94304, on Wednesday, May 14, 2008, at 8:30 a.m. We will also offer a webcast of the annual meeting at http://www.vmware.com. The webcast will be available on our website for approximately 30 days following our meeting.

We are holding the meeting for the following purposes:

All stockholders of record at the close of business on March 21, 2008, the record date, are entitled to notice of and to vote at this meeting and any adjournments thereof.

Class A common stockholders may cast their votes by completing a proxy. Whether or not you plan to attend the meeting, please cast your vote, as instructed in the Notice of Internet Availability of Proxy Materials and in “Voting over the Internet or by Telephone” on page 3 of the proxy statement, over the Internet or by telephone, as promptly as possible. You may also request a paper proxy card to submit your vote by mail, if you prefer. We encourage you to vote via the Internet. It is convenient and saves us significant postage and processing costs.

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VMWARE, INC.

PROXY STATEMENT

INFORMATION CONCERNING SOLICITATION AND VOTING

General

This Proxy Statement is furnished in connection with the solicitation of proxies of the Class A common stockholders by the Board of Directors of VMware, Inc., a Delaware corporation (“VMware”, the “Company”, “we”, or “us”), for the Annual Meeting of Stockholders of VMware to be held on May 14, 2008 (the “Annual Meeting”), and any adjournments thereof, for the purposes set forth in the attached Notice of the Annual Meeting of Stockholders (the “Notice of Annual Meeting”). VMware was incorporated in 1998, and our principal executive offices are located at 3401 Hillview Avenue, Palo Alto, California 94304. This Proxy Statement and the accompanying proxy card are first being distributed to stockholders on or about April 1, 2008.

Internet Availability of Proxy Materials

Under the rules recently adopted by the U.S. Securities and Exchange Commission (“SEC”), we are now furnishing proxy materials to our stockholders on the Internet, rather than mailing printed copies of those materials to each stockholder. If you received a Notice of Internet Availability of Proxy Materials by mail, you will not receive a printed copy of the proxy materials unless you request one. Instead, the Notice of Internet Availability of Proxy Materials will instruct you as to how you may access and review the proxy materials on the Internet. The Notice of Internet Availability of Proxy Materials also instructs you as to how you may access your proxy card to vote on the Internet. If you received a Notice of Internet Availability of Proxy Materials by mail and would like to receive a printed copy of our proxy materials, please follow the instructions included in the Notice of Internet Availability of Proxy Materials.

We anticipate that the Notice of Internet Availability of Proxy Materials will be mailed to stockholders on or about April 1, 2007.

Outstanding Shares

We have two classes of authorized common stock: Class A common stock and Class B common stock. As of March 21, 2008, the record date for the Annual Meeting, VMware had outstanding and entitled to vote 383,681,398 shares of common stock, of which 83,681,398 shares are Class A common stock and 300,000,000 shares are Class B common stock. EMC Corporation (“EMC”), our parent and controlling stockholder, holds all of the Class B common stock and 31.7% of the Class A common stock.

Quorum

In order to conduct any business at the Annual Meeting, a quorum must be present in person or represented by valid proxies. Holders of shares representing a majority of the total outstanding shares of common stock on March 21, 2008 entitled to vote at the Annual Meeting, represented in person or by proxy, constitute a quorum, except with respect to the election of the Class I, Group I directors nominated for election at the Annual Meeting, for which the holders of a majority of the outstanding shares of Class B common stock, represented in person or by proxy, constitute a quorum. Abstentions and broker non-votes, defined below, are considered present for purposes of determining the presence of a quorum.

Voting

Only Class A and Class B common stockholders of record on March 21, 2008 will be entitled to vote at the Annual Meeting.

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The Class A common stock and Class B common stock will vote together as a single class on all matters described in the proxy materials for which Class A common stockholder votes are being solicited. The election of the Class I, Group I directors nominated for election at the Annual Meeting will be voted on solely by the Class B common stock. The holders of Class B common stock are entitled to 10 votes per share on all matters to be voted on at the Annual Meeting, except in relation to the election of the Class I, Group II director, in which they are entitled to only one vote per share. The holders of Class A common stock are entitled to one vote per share on all matters to be voted on at the Annual Meeting. We encourage you to register your vote via the Internet.

Based on its ownership of 85.1% of the outstanding shares of VMware’s common stock, as of March 21, 2008 representing 98.1% of the combined voting power of our common stock, EMC has the voting power to adopt and approve all proposals to be voted on at the Annual Meeting.

Whether your proxy is submitted via the Internet, by phone or by mail, if it is properly completed and submitted and if you do not revoke it prior to the Annual Meeting, your shares will be voted at the Annual Meeting in the manner set forth in this proxy statement or as otherwise specified by you.

If on March 21, 2008 your shares were held in an account at a bank or brokerage firm or other similar organization, then you are the beneficial owner of shares held in “street name” and these proxy materials are being forwarded to you by that organization. The organization holding your account is considered the stockholder of record for purposes of voting at the Annual Meeting. If you are a beneficial owner, you have the right to direct your bank, brokerage firm or other agent on how to vote the shares in your account by submitting your vote as described below. You are also invited to attend the Annual Meeting. However, since you are not the stockholder of record, you may not vote your shares in person at the meeting unless you request and obtain a valid proxy from your bank, brokerage firm or other agent.

If the enclosed form of proxy is properly signed and returned or a proxy is voted via the Internet or by telephone, the shares of Class A common stock represented thereby will be voted as specified in the proxy. If you do not specify in the proxy how your shares are to be voted, the shares will be voted as recommended by the Board of Directors: FOR Proposals 1, 2 and 3. If your shares are registered in the name of a bank, brokerage firm or other agent and the bank, brokerage firm or agent does not receive instructions from you about how your shares are to be voted, this is known as a “broker non-vote”. However, for the election of directors and the ratification of the selection of independent auditors, the bank or brokerage firm that holds your shares may vote your shares in its discretion, even if it does not receive instructions from you on how to vote your shares. For the approval of the 2007 Equity and Incentive Plan, the bank, brokerage firm or agent may not vote your shares at all, if it does not receive instructions from you on how to vote your shares.

Recommendations of the Board of Directors

The Board of Directors recommends that our Class A common stockholders vote:

Should the Class I, Group II nominee named in Proposal 1 be unable to serve or for good cause will not serve as director, the persons named in the enclosed form of proxy will vote for such other person as the Board of Directors may recommend.

The Board of Directors expects EMC, the sole holder of our Class B common stock, to vote FOR the two Class I, Group I directors listed under “Election of Directors” at the Annual Meeting, to serve until their successors are elected and qualified.

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Votes Required to Approve Each Proposal

Proposal 1—Election of Directors

In each case, a majority of the votes cast means that the number of votes cast “For” a nominee must exceed the number of votes cast “Against” the nominee.

Proposal 2—Ratification of the selection by the Audit Committee of the Board of Directors of PricewaterhouseCoopers LLP as VMware’s independent auditors for the fiscal year ending December 31, 2008

This proposal must receive “For” votes from the holders of shares of Class A and Class B common stock representing at least a majority of the votes actually present in person or represented by proxy at the Annual Meeting and entitled to vote on the matter.

Proposal 3—Approval of the VMware, Inc. 2007 Equity and Incentive Plan

This proposal must receive “For” votes from the holders of shares of Class A and Class B common stock representing at least a majority of the votes actually present in person or represented by proxy at the Annual Meeting and entitled to vote on the matter.

Voting over the Internet or by Telephone

All Class A common stockholders have three options for submitting their vote prior to the Meeting:

If you vote this year’s proxy by the Internet, you may also elect to receive future proxy and other materials electronically by following the instructions when you vote. You may vote using the Internet and telephone voting facilities until 11:59 p.m., E.S.T. on May 13, 2008.

Counting of Votes

Votes will be counted by the inspector of election appointed by the Board of Directors for the meeting, who will separately count “For” and “Against” votes, abstentions and broker non-votes. The election of directors is by the majority of votes cast at the Annual Meeting, therefore neither abstentions nor broker non-votes will have any effect upon the outcome of voting with respect to that proposal. The ratification of the selection of the independent auditors and the approval of the 2007 Equity and Incentive Plan each require a majority of the votes actually present in person or represented by proxy at the Annual Meeting and entitled to vote on the matter. Abstentions will have the effect of a vote “Against” both of these proposals. A broker non-vote will have the effect of a vote “Against” the ratification of the selection of the independent auditors where the bank, brokerage firm or agent does not vote those shares at all, even though it has the discretion to do so. A broker non-vote will have no effect on the outcome of voting with respect to the approval of the 2007 Equity Incentive Plan, since those shares are not considered to be entitled to vote on the matter.

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Changing or Revoking Your Proxy

You have the right to revoke your proxy at any time before it is voted at the meeting by:

Please note, as mentioned above, if you are a beneficial owner, and not a holder of record, of shares you may not vote your shares in person at the meeting unless you request and obtain a valid proxy from your bank, brokerage firm or other agent who holds your shares in street name.

If your shares are held by your bank brokerage firm or other agent as a nominee or agent, you should follow the instructions provided by your bank, brokerage firm or agent.

Annual Meeting Admission

Stockholders who wish to attend the annual meeting will be required to present verification of ownership of VMware common stock, such as a bank or brokerage firm account statement. All stockholders who attend the meeting will be required to present a valid government-issued picture identification, such as a driver’s license or passport. Registration will begin at 7:30 a.m.

Other Business

As of the date of this Proxy Statement, VMware has no knowledge of any business other than that described in the Notice of Annual Meeting that will be presented for consideration at the Annual Meeting. The deadline under VMware’s Bylaws for stockholders to notify VMware of any director nominations or proposals to be presented at the Annual Meeting, which was February 1, 2008, has passed. If any other business should properly come before the Annual Meeting, the persons appointed by the enclosed form of proxy shall have discretionary authority to vote all such proxies as they shall decide.

A complete list of stockholders entitled to vote at the Annual Meeting will be available for inspection by any stockholder for any purpose germane to the Annual Meeting for 10 days prior to the Annual Meeting during ordinary business hours at our headquarters located at 3401 Hillview Avenue, Palo Alto, California 94304.

Expenses of the Proxy Solicitation

The expenses of preparing, printing and assembling the materials used in the solicitation of proxies on behalf of the Board of Directors will be borne by VMware. In addition to the solicitation of proxies by use of the mails, VMware may use the services of certain of its officers and employees (who will receive no compensation therefor in addition to their regular salaries) to solicit proxies personally and by mail, telephone and electronic means from brokerage firms and other stockholders.

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OUR BOARD OF DIRECTORS AND NOMINEES

Our Board of Directors is currently composed of eight members. The number of directors constituting our Board of Directors may be set by resolution of the Board of Directors from time to time. However, the Board of Directors may not consist of less than six directors nor more than twelve directors.

The Board of Directors is divided into two groups, Group I and Group II. Holders of Class B common stock, voting separately as a class, are entitled to elect directors representing a minimum of 80% of the total number of the directors constituting our Board of Directors, without vacancies. These directors are Group I directors. Holders of Class A common stock and holders of Class B common stock, voting together as a single class, are entitled to elect the remaining number of directors. These directors are Group II directors.

Our Board of Directors is also divided into three classes, with each class serving for a staggered three-year term. The Board of Directors consists of three Class I directors, three Class II directors and two Class III directors. At each annual meeting of stockholders, a class of directors is elected for a three-year term to succeed the directors of the same class whose terms are then expiring. The initial terms of the Class I directors, Class II directors and Class III directors expire upon the election and qualification of successor directors at the annual meeting of stockholders held during the calendar years 2008, 2009 and 2010, respectively. Ms. James was appointed as a member of our Board of Directors on September 24, 2007, as a Class I, Group II director, as the designee of Intel Corporation (“Intel”) appointed under the terms of the stock purchase agreement between us and Intel Capital Corporation (“Intel Capital”). Mr. Powell was proposed by Cisco Systems, Inc. (“Cisco”) as a potential director in connection with the stock purchase agreement between EMC, Cisco and us and was appointed as a member of our Board of Directors on November 8, 2007, as a Class II, Group I Director. The stock purchase agreements and other transactions between us and Intel as well as between us and Cisco are described in more detail below. See “Transactions With Related Persons” below.

The following table shows the members of our Board of Directors and the committees, group and class to which they belong:

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Directors Standing For Election

Each of the incumbent Class I directors has been nominated by the Board of Directors for election at the Annual Meeting, and each of them has agreed to stand for election, for an additional three-year term.

Information concerning the nominees is presented below:

Renee J. James

Class I, Group II

Term expires: 2008 Annual Meeting

Ms. James, age 43, has been a director of VMware since September 2007. Ms. James joined Intel in 1987 and has been Vice President and General Manager of the Software and Solutions Group for Intel since 2005. Prior to that Ms. James was Vice President and General Manager of Intel’s Microsoft Program Office, from 2000 to 2005 and the Director and Chief Operating Officer of Intel Online Solutions, Intel’s internet application hosting business, from 1998 to 2000. Ms. James also served for four years as technical assistant to then-Intel chairman and Chief Executive Officer Andrew S. Grove, now Senior Advisor to Executive Management.

Joseph M. Tucci

Class I, Group I

Term expires: 2008 Annual Meeting

Mr. Tucci, age 60, has been Chairman of the Board of Directors of VMware since April 2007. Mr. Tucci has been the Chairman of the Board of Directors of EMC since January 2006 and has been its Chief Executive Officer and a director since January 2001. Mr. Tucci has served as EMC’s President since January 2000. He also served as EMC’s Chief Operating Officer from January 2000 to January 2001. Prior to joining EMC, Mr. Tucci served as Deputy Chief Executive Officer of Getronics N.V., an information technology services company, from June 1999 through December 1999 and as Chairman of the Board and Chief Executive Officer of Wang Global, an information technology services company, from December 1993 to June 1999, when it was acquired by Getronics N.V. Mr. Tucci joined Wang Global in 1990 as its Executive Vice President, Operations. Mr. Tucci is also a director of Paychex, Inc., a provider of payroll, human resources and benefits outsourcing solutions.

John R. Egan

Class I, Group I

Term expires: 2008 Annual Meeting

Mr. Egan, age 50, has been a director of VMware since April 2007. Mr. Egan is also a member of the Board of Directors of EMC on which he has served since May 1992. Mr. Egan has been a managing partner and general partner in Egan-Managed Capital, a venture capital firm, since October 1998. From May 1997 to September 1998, Mr. Egan served as Executive Vice President, Products and Offerings of EMC. From January 1992 to June 1996, he served as Executive Vice President, Sales and Marketing of EMC. He resigned as an executive officer of EMC in September 1998 and as an employee of EMC in July 2002. Mr. Egan is also a director of NetScout Systems, Inc., a provider of network and application performance management solutions.

Directors Not Standing For Election

Information concerning our continuing directors is presented below:

Diane B. Greene

Class II, Group I

Term expires: 2009 Annual Meeting

Ms. Greene, age 52, has been a director of VMware since April 2007. Ms. Greene is one of our founders and has served as our President and Chief Executive Officer since our inception in 1998. Ms. Greene also served as an Executive Vice President of EMC between January 2005 and August 14, 2007. Ms. Greene is a director of Intuit Inc., a provider of business, financial management and tax solutions for small businesses, consumers and accountants.

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Michael W. Brown

Class II, Group I

Term expires: 2009 Annual Meeting

Mr. Brown, age 62, has been a director of VMware since April 2007. Mr. Brown is also a member of the Board of Directors of EMC on which he has served since 2005. From August 1994 to July 1997, Mr. Brown served as Vice President and Chief Financial Officer of Microsoft Corporation. He was Vice President, Finance of Microsoft from April 1993 to August 1994. He joined Microsoft in December 1989 and served as Treasurer from January 1990 to April 1993. Prior to joining Microsoft, Mr. Brown spent 18 years with Deloitte & Touche LLP in various positions. Mr. Brown is also a director of Administaff, Inc., a professional employer organization providing services such as payroll and benefits administration and Thomas Weisel Partners Group, Inc., a publicly traded investment bank.

David I. Goulden

Class III, Group I

Term expires: 2010 Annual Meeting

Mr. Goulden, age 48, has been a director of VMware since April 2007. Mr. Goulden has served as EMC’s Executive Vice President and Chief Financial Officer since August 2006. He served as its Executive Vice President, Customer Operations from April 2004 to August 2006 and as its Executive Vice President, Customer Solutions and Marketing and New Business Development from November 2003 to April 2004. Mr. Goulden also served as EMC’s Executive Vice President, Global Marketing and New Business Development from July 2002 to November 2003. Prior to joining EMC, Mr. Goulden served as a member of the Board of Management, President and Chief Operating Officer for the Americas and Asia Pacific of Getronics N.V., an information technology services company, from April 2000 to July 2002, as President and Chief Operating Officer for the Americas of Getronics N.V. from June 1999 to April 2000 and in a number of executive positions at Wang Global, an information technology services company, from September 1990 to June 1999.

Dennis D. Powell

Class II, Group I

Term expires: 2009 Annual Meeting

Mr. Powell, age 60, has been a director of VMware since November 2007. Mr. Powell is currently an Executive Advisor at Cisco Systems. He served as Cisco’s Chief Financial Officer from May 2003 until his retirement on February 15, 2008. In that position, Mr. Powell served as Cisco’s Executive Vice President since August 2007 and its Senior Vice President since May 2003. From June 2002 to May 2003 Mr. Powell served as Cisco’s Senior Vice President, Corporate Finance. Prior to that, from January 1997 to June 2002 he served as Cisco’s Vice President, Corporate Controller. Mr. Powell is also a director of Applied Materials, Inc., a provider of fabrication services, equipment and software, and Intuit Inc., a provider of business, financial management and tax solutions for small businesses, consumers and accountants.

David N. Strohm

Class III, Group I

Term expires: 2010 Annual Meeting

Mr. Strohm, age 59, has been a director of VMware since April 2007. Mr. Strohm is also a member of the Board of Directors of EMC on which he has served since October 2003 and as Lead Director since January 2006. Mr. Strohm has been a Venture Partner of Greylock Partners, a venture capital firm, since January 2001 and was a General Partner of Greylock from 1980 to 2001. He is also a General Partner of several partnerships formed by Greylock. Mr. Strohm is also a director of Successfactors, Inc., a provider of human capital management applications.

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Ownership interests of our directors or officers in the common stock of EMC, or service as both a director of EMC and VMware, or as a director of VMware and an officer or employee of EMC could create, or appear to create potential conflicts of interest when directors and officers are faced with decisions that could have different implications for us and EMC. In order to address potential conflicts of interest between us and EMC with respect to corporate opportunities, our certificate of incorporation contains provisions regulating and defining the conduct of our affairs as they may involve EMC and its officers and directors, and our powers, right, duties and liabilities and those of our officers, directors and stockholders in connection with our relationship with EMC. Our certificate of incorporation also contains provisions limiting the liability of our directors or officers who are also directors or officers of EMC in the event they learn of a transaction that may be a corporate opportunity for both VMware and EMC, provided they comply with the policies set forth in our certificate of incorporation. For more information, see “Transactions with Related Persons—EMC Corporation” below. Additionally, transactions with EMC are subject to review by our Audit Committee pursuant to our policy for the review of transactions with related persons. For more information, see “Review and Approval of Transactions with Related Persons” below.

Selection and Nomination of Directors

The Board of Directors identifies and evaluates proposed candidates for addition to the Board of Directors. The Board of Directors reviews and assesses the skills and characteristics it believes are or may be required on the Board based on the needs of our business. The Board of Directors will identify director candidates through numerous sources, including recommendations from directors, executive officers and stockholders of VMware. The Board will identify those individuals most qualified to serve as Board members and will consider many factors with regard to each candidate, including judgment, integrity, diversity, prior experience, the interplay of the candidate’s experience with the experience of other Board members, the extent to which the candidate would be desirable as a member of any committees of the Board, and the candidate’s willingness to devote substantial time and effort to the Board.

VMware stockholders may recommend individuals to the Board of Directors for consideration as potential director candidates by submitting their names and appropriate background and biographical information to the Board of Directors at VMware Board of Directors, 3401 Hillview Avenue, Palo Alto, California 94304. Assuming that the appropriate information has been timely provided, the Board of Directors will consider these candidates substantially in the same manner as it considers other candidates it identifies.

VMware stockholders also may nominate director candidates by following the advance notice provisions of VMware’s By-laws. For additional information, see “Advance Notice Procedures” below.

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CORPORATE GOVERNANCE

Our Class A common stock began trading on the New York Stock Exchange (the “NYSE”) on August 14, 2007. For the purposes of the New York Stock Exchange’s Corporate Governance Standards (the “NYSE rules”), because more than 50% of the voting power of VMware is held by EMC, VMware is a “controlled company”. Accordingly, we are exempt from certain NYSE corporate governance requirements and have elected to avail ourselves of these exemptions. In particular, as a controlled company under the NYSE rules, we are exempt from the requirements to:

In light of our position as a controlled company, we have opted to establish a single Compensation and Corporate Governance Committee, instead of a separate Compensation Committee and a Nominating and Governance Committee. However, we have voluntarily caused the Compensation and Corporate Governance Committee to be comprised entirely of independent directors, in compliance with the NYSE rules, although we are not required to maintain the independent composition of this committee.

Our Board of Directors is committed to maintaining strong corporate governance practices. Our Board has adopted Corporate Governance Guidelines to provide a framework for the effective governance of VMware. Our Board reviews the Guidelines at least annually and implements changes as appropriate. At the time of our IPO, our Board adopted written charters for its standing committees (Audit, Compensation and Corporate Governance, and Mergers and Acquisitions), as well as Business Conduct Guidelines applicable to all directors, officers and employees. Information about our corporate governance practices and copies of the Corporate Governance Guidelines, committee charters, and Business Conduct Guidelines, are available on the Investor Relations page of our company website at http://www.vmware.com. VMware will provide stockholders with a copy of its Corporate Governance Guidelines and Business Conduct Guidelines, without charge, upon written request to our Investor Relations Department, VMware, Inc. 3401 Hillview Avenue, California 94304.

Our Board of Directors has adopted corporate governance practices that the Board believes are in the best interests of VMware and our stockholders as well as compliant with the rules and regulations of the SEC and the listing standards of the NYSE. Highlights include:

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Communications with the Board of Directors

Our Board of Directors provides a process for VMware stockholders and other interested parties to send communications directly to the Board of Directors. Any person who desires to contact the Board of Directors may do so by sending an e-mail to ContactTheBoard@vmware.com.

Communications with the Audit Committee

VMware’s Audit Committee also provides a process to send communications directly to the committee about VMware’s accounting, internal accounting controls or auditing matters. Any person who desires to contact the Audit Committee regarding such matters may do so by sending an e-mail to AuditCommitteeChair@vmware.com.

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BOARD INDEPENDENCE AND COMMITTEES

Board Independence

As a controlled company under the NYSE rules, we are exempt from the requirement to have a majority of independent directors on our Board of Directors. Our Board of Directors has affirmatively determined that each of Michael W. Brown, Renee J. James, Dennis D. Powell and David N. Strohm are independent directors of VMware under the NYSE rules. The Board of Directors considered all facts and circumstances it deemed relevant in making such determinations of independence, including business relationships, as well as the relationships with EMC, Intel and Cisco discussed below:

The Board of Directors affirmatively concluded that, based on the facts and circumstances, none of these relationships are of a material nature or are of a nature that would preclude such directors from being deemed independent under NYSE rules.

Attendance at Board, Committee and Annual Stockholder Meetings

Our Board of Directors expects that each director will prepare for, attend and participate in all Board of Directors’ and applicable committee meetings and that each director will ensure that other commitments do not materially interfere with his or her service on the Board of Directors. During the fiscal year ended December 31, 2007, our Board of Directors held 14 meetings. Each director attended at least 75% of the Board of Directors

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meetings and committee meetings which were held during the period in which he or she was a director of VMware and in which he or she was a member of such committees, except that Mr. Powell did not attend the last Board meeting in 2007, which occurred subsequent to his election to our Board in November 2007. VMware’s Corporate Governance Guidelines provide that each director is expected to attend the Annual Meeting of Stockholders.

Committees of the Board

Our Board of Directors has established three standing committees: the Audit Committee, the Compensation and Corporate Governance Committee and the Mergers and Acquisitions Committee. Each committee operates pursuant to a written charter that is available on the Investor Relations page of our website at http://www.vmware.com. The current membership of each committee is listed below.

Audit Committee

We completed our initial public offering (“IPO”) of our Class A common stock in August 2007. As a newly-public company, we are permitted, under the rules and regulations of the SEC and the NYSE Rules, to phase in membership of our Audit Committee by independent directors. Under these rules, we were required to have one independent director on the Audit Committee on the effective date of the registration statement relating to our IPO and to have a majority of independent directors on the Audit Committee 90 days after the effective date. We complied with these requirements, and our Audit Committee is currently comprised of a majority of independent directors within the meaning of the applicable SEC rules and regulations and the NYSE rules. Pursuant to these phase-in rules, our Audit Committee must be comprised solely of independent directors by August 13, 2008, the one-year anniversary of the effective date of our registration statement relating to our IPO. We intend to comply fully and timely with this requirement. Currently, three of the four members of our Audit Committee are independent under the NYSE Rules and meet the independence criteria applicable to audit committees under the Sarbanes-Oxley Act of 2002 and the SEC’s implementing rules thereunder. Mr. Goulden does not meet these independence criteria because he serves as the Executive Vice President and Chief Financial Officer of EMC, our parent company.

Our Board of Directors has determined, in accordance with the rules and regulations of the SEC, that each of Messrs. Brown, Goulden and Powell is an “audit committee financial expert”, and that each of Messrs. Brown and Powell and Ms. James meets the additional, heightened independence criteria of Rule 10A-3 of the SEC applicable to audit committee members.

The Audit Committee held seven meetings in 2007. This committee reviews with management and our auditors, our financial statements, the accounting principles applied in their preparation, the scope of the audit, any comments made by our independent auditors on our financial statements and our accounting controls and procedures, the independence of our auditors, our internal controls, our policy pertaining to related person transactions, the other matters as set forth in the Audit Committee charter, as adopted by the Board of Directors, and such other matters as the committee deems appropriate.

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Pursuant to the charter adopted at the time of our IPO, the Audit Committee is responsible for the appointment, compensation, retention and oversight of the work of our independent auditors for the purpose of preparing or issuing an audit report or performing other audit, review or attest services for us and pre-approves all such audit, review or attest engagements. The Audit Committee also pre-approves non-audit services to be performed by our independent auditors in accordance with the committee’s pre-approval policy.

During 2007, senior members of our financial and legal management participated in each of the Audit Committee’s regularly scheduled meetings. During the course of the year, the Audit Committee had separate executive sessions with our chief financial officer and members of his staff and our independent auditor at which candid discussions regarding legal matters, financial reporting, internal controls and accounting systems and processes took place. The Audit Committee discussed with VMware’s independent auditors the overall scope and plans for its audit.

The Audit Committee has met, reviewed and discussed our financial statements for the fiscal year ended December 31, 2007 with our management and our independent auditors. The meeting included a discussion of the quality and not just the acceptability of the accounting principles applied, the reasonableness of the significant accounting judgments and estimates, and the clarity of disclosures in the financial statements.

In performing all of these functions, the Audit Committee acts in an oversight capacity. The Audit Committee reviews the Company’s quarterly and annual reports on Form 10-Q and Form 10-K prior to filing with the SEC. In its oversight role, the Audit Committee relies on the work and assurances of our management, which has the primary responsibility for establishing and maintaining adequate internal control over financial reporting, and for preparing the financial statements, and of the independent auditors who are engaged to audit and report on our consolidated financial statements, management’s assessment of the effectiveness of our internal control over financial reporting and the effectiveness of the Company’s internal control over financial reporting.

Compensation and Corporate Governance Committee

The Compensation and Corporate Governance Committee held 18 meetings in 2007. Pursuant to the charter adopted at the time of the IPO, the committee recommends compensation for non-employee directors, evaluates and sets compensation for the Chairman of our Board of Directors and our executive officers, and monitors all general compensation programs. Subject to the terms of our compensation plans and the consent of the holders of our Class B common stock to the aggregate size of the annual equity award pool pursuant to the terms of our certificate of incorporation, the Compensation and Corporate Governance Committee will have discretion to determine the amount, form, structure and implementation of compensation payable to our executive officers, including, where appropriate, discretion to increase or decrease awards or to award compensation absent the attainment of performance goals and to award discretionary cash compensation outside of the parameters of our compensation plans. The Compensation and Corporate Governance Committee approves transactions under our equity plans and has the authority to administer and interpret the provisions of the Company’s equity and other compensation plans. The Compensation and Corporate Governance Committee is also responsible for overseeing and reporting to the Board on succession planning for the Chief Executive Officer and other senior management positions. In exercising such discretion, the Committee will consult with our President and Chief Executive Officer.

Our Compensation and Corporate Governance Committee is also responsible for overseeing and advising the Board of Directors with respect to corporate governance matters, assisting the Board of Directors in identifying and recommending qualified candidates for nomination to the Board of Directors, making recommendations to the Board of Directors with respect to assignments to committees of the Board of Directors and overseeing the evaluation of the Board of Directors.

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Mergers and Acquisitions Committee

The Mergers and Acquisitions Committee held nine meetings in 2007. Pursuant to the charter adopted at the time of the IPO, this committee reviews and assesses, with VMware management, potential acquisitions, divestitures and investments, and, where appropriate, will make recommendations to the Board of Directors regarding potential target candidates. In connection with such review and assessment, our Mergers and Acquisitions Committee may approve acquisitions, divestitures and investments up to a specified applicable dollar limit and in accordance with any other relevant parameters previously established by the Board of Directors. Our Mergers and Acquisitions Committee also participates, with the Compensation and Corporate Governance Committee, in the preparation and review of the annual performance of the Mergers and Acquisitions Committee.

Compensation Committee Interlocks and Insider Participation

During fiscal 2007, our Compensation and Corporate Governance Committee was comprised of Messrs. Brown and Strohm. No executive officer of VMware during 2007 served, or currently serves, as a member of the Board of Directors or compensation committee of any entity that has one or more executive officers serving on VMware’s Board of Directors or VMware’s Compensation and Governance Committee.

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PROPOSAL 1

ELECTION OF DIRECTORS

THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE ELECTION OF

THE CLASS I, GROUP II NOMINEE LISTED BELOW.

Stockholders are being asked to elect three Class I directors, of which two directors are Group I directors and one is a Group II director, to serve for an additional three-year term. The current Class I directors’ term of office expires at the Annual Meeting. The Board of Directors has nominated the three following persons, all incumbent Class I directors, for election as Class I directors at the Annual Meeting:

Ms. James, the Class I, Group II nominee, must be elected by a majority of the aggregate of the votes of the Class A and Class B common stock cast with respect to each nominee at the Annual Meeting, with each Class A and Class B share entitled to one vote per share in such election.

Messrs. Egan and Tucci, the two Class I, Group I nominees, must be elected by a majority of the votes of the Class B common stock cast with respect to such nominee at the Annual Meeting.

We expect each nominee for election as a director at the Annual Meeting to be able to accept such nomination. Information about the nominees is provided under the heading “Our Board of Directors and Nominees” above.

Each Class I Director elected at the 2008 Annual Meeting will serve until the 2011 Annual Meeting or special meeting in lieu thereof, and until that director’s successor is elected and qualified.

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PROPOSAL 2

RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS

THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” PROPOSAL 2

VMware is asking stockholders to ratify the selection by the Audit Committee of the Board of Directors of PricewaterhouseCoopers LLP (“PWC”) as the Company’s independent auditors for the fiscal year ending December 31, 2008.

PWC, an independent registered public accounting firm, has served as VMware’s independent auditors since December 2002. VMware expects that representatives of PWC will be present at the Annual Meeting and will be given the opportunity to make a statement if they desire to do so and to respond to appropriate questions. PWC is also the independent auditor of EMC, our parent company. We are required by the Master Transaction Agreement we entered into with EMC at the time of our IPO to use our reasonable best efforts to use the same independent registered public accountant selected by EMC until such time as EMC is no longer required to consolidate our results of operations and financial position (determined in accordance with generally accepted accounting principles consistently applied). For further information, see “Transactions with Related Persons—Our Relationship with EMC Corporation” below.

This proposal must receive “For” votes from the holders of shares of Class A and Class B common stock representing at least a majority of the votes actually present in person or represented by proxy at the Annual Meeting and entitled to vote on the matter. Each share of Class A common stock is entitled to one vote and each share of Class B common stock is entitled to ten votes on this proposal.

Although ratification by the stockholders is not required by law, the Board of Directors has determined that it is desirable to request approval of this selection by the stockholders as a matter of good corporate governance. In the event the stockholders fail to ratify the appointment of PWC, the Audit Committee will consider this factor when making any determinations regarding PWC.

Pre-Approval of Audit and Non-Audit Services

During 2007, the Audit Committee pre-approved all audit, review and attest services performed by PWC.

In accordance with the Audit Committee’s pre-approval policy, the Audit Committee pre-approves all permissible non-audit services and all audit, review or attest engagements. The Audit Committee has delegated to its Chairman the authority to pre-approve any specific non-audit service which was not previously pre-approved by the Audit Committee, provided that any decisions of the Chair to pre-approve non-audit services shall be presented to the Audit Committee at its next scheduled meeting. During 2007, the Audit Committee pre-approved all non-audit services in accordance with the policy set forth above.

The following table summarizes the fees of PWC billed to us for the last two fiscal years.

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PROPOSAL 3

APPROVAL OF VMWARE, INC. 2007 EQUITY AND INCENTIVE PLAN

THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” PROPOSAL 3

Stockholders are being asked to approve the VMware, Inc. 2007 Equity and Incentive Plan. The 2007 Equity and Incentive Plan allows us to provide our employees, consultants, advisors and non-employee directors with equity-based incentive awards and non-equity based compensation that are competitive with those of companies with which we compete for talent. The purpose of the plan is to attract, motivate and retain such persons and to provide compensation opportunities to reward superior performance. We believe that equity is a key element of our compensation package and that equity awards encourage employee loyalty and align employee interests directly with those of our stockholders.

Our Board approved the 2007 Equity and Incentive Plan on June 5, 2007, and EMC, our parent and controlling stockholder, also approved the 2007 Equity and Incentive Plan on June 5, 2007. The 2007 Equity and Incentive Plan must receive “For” votes from the holders of shares of Class A and Class B common stock representing at least a majority of the votes actually present in person or represented by proxy at the Annual Meeting and entitled to vote at the meeting in order to permit awards granted to our officers considered to be “Covered Employees” under Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”) that are in excess of the $1 million per year limitation on compensation payable to Covered Employees to be deductible as “performance-based compensation under Section 162(m). Currently, our chief executive officer and our three other highest compensated officers (other than our principal financial officer) are considered Covered Employees under Section 162(m). Stockholder approval of this Proposal No. 3 will also constitute approval of (i) the performance criteria upon which performance-based awards (including cash-incentive awards) are intended to be deductible under Section 162(m), (ii) the annual per person limit of 3,000,000 shares for stock-based awards, and (iii) the $5,000,000 annual limit for a cash-based award payment to a Covered Employee.

If the 2007 Equity and Incentive Plan is not approved by stockholders, we will not continue to grant awards to the Covered Employees under the 2007 Equity and Incentive Plan. However, neither the approval nor the failure to approve the 2007 Equity and Incentive Plan will limit the ability of the Board of Directors to adopt any additional incentive or bonus plans or to pay any other compensation, including any additional equity or bonus awards, to the Covered Employees or to other employees. However, any such additional bonus awards or other compensation might not be considered qualified performance-based compensation and therefore might not be deductible under Section 162(m) of the Code unless such awards or compensation complies with the stockholder approval and other requirements of the Code.

The 2007 Equity and Incentive Stock Plan contains several important features, including the following:

The following is a summary of the material terms and conditions of the 2007 Equity and Incentive Stock Plan. This summary is qualified in its entirety by reference to the terms of the 2007 Equity and Incentive Stock Plan, a copy of which is attached as Annex A to this Proxy Statement.

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Summary of the 2007 Equity and Incentive Plan

Awards under the 2007 Equity and Incentive Plan may be in the form of stock options (either incentive stock options or non-qualified stock options) or other stock-based awards, including awards of restricted stock, restricted stock units and stock appreciation rights. The plan also provides for the grant of cash-based awards. Eighty million (80,000,000) shares of our Class A common stock have been reserved for issuance under the 2007 Equity and Incentive Plan. As of December 31, 2007, an aggregate of 45,935,081 shares of Class A common stock were issuable pursuant to outstanding equity awards granted under the 2007 Equity and Incentive Stock Plan and an aggregate of 31,091,078 shares of Class A common equity stock were available for future grant under such plan. Substantially all of our employees, non-employee directors and consultants are eligible to participate in the 2007 Equity and Incentive Plan. As of December 31, 2007, there were approximately 5,000 VMware people worldwide, including employees and non-employee directors eligible to receive awards under the 2007 Equity and Incentive Plan.

The following principal types of awards are available under the plan:

Stock Options. Stock options represent the right to purchase shares of our Class A common stock within a specified period of time at a specified price. The exercise price for a stock option will be not less than 100% of the fair market value of the common stock on the date of grant. Stock options will have a maximum term of ten years from the date of grant. Stock options granted may include those intended to be “incentive stock options” within the meaning of Section 422 of the Code. Stock options awarded under the 2007 Equity and Incentive Plan may vest as determined by Compensation and Corporate Governance Committee. Stock options are assigned an exercise price equal to the closing trading price of our Class A common stock on the grant date. The terms of grants made to employees generally provide for vesting as to 25% of the stock option grant on the first anniversary of the grant date and the remaining 75% of the stock options in equal monthly installments thereafter over three years. Employee stock options generally have a term of six years. Grants made to our non-employee directors in June 2007 prior to our IPO provided for immediate exercisability subject to continued vesting as to one-third of the underlying award on each of the first three anniversaries of the grant date. Any unvested shares obtained in connection with the exercise of an unvested option will be subject to a right of repurchase by us. In January 2008, our Board of Directors approved guidelines for grants to non-employee directors that provide for stock option grants upon a non-employee director’s commencement of service to vest in two annual installments on the anniversary of the director’s initial election to our Board and grants to continuing directors to vest in quarterly installments over one year. Such option grants shall generally have a seven-year term. In the future, our Compensation and Corporate Governance Committee and our Board may revise its policies with respect to option grants from time to time.

Restricted Stock and Restricted Stock Units. Restricted stock is a share of our Class A common stock that is subject to a risk of forfeiture or other restrictions that will lapse subject to the recipient’s continued employment or the attainment of performance goals. Restricted stock units represent the right to receive shares of our Class A common stock in the future, with the right to future delivery of the shares also subject to the recipient’s continued employment or the attainment of performance goals. We grant RSUs to employees and the guidelines adopted by our Board of Directors for grants to our non-employee directors provides for RSU grants in addition to the stock option grants discussed above. Vesting requirements of restricted stock and restricted stock units vary and are established by our Compensation and Corporate Governance Committee.

Stock Appreciation Rights. Stock appreciation rights entitle the holder upon exercise to receive shares of our Class A common stock having a value equal to the excess of (i) the value of the number of shares with respect to which the right is being exercised (which value is based on fair market value at the time of such exercise) over (ii) the exercise or base price applicable to such shares. The exercise price for a stock appreciation right will be not less than 100% of the fair market value of our Class A common stock on the date of grant.

Other Stock-Based or Cash-Based Awards. Our Compensation and Corporate Governance Committee is authorized to grant awards in the form of other stock-based awards or other cash-based awards, as deemed to be

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consistent with the purposes of the 2007 Equity and Incentive Plan. The maximum value of the aggregate payment to any Covered Employee with respect to cash-based awards under the 2007 Equity and Incentive Plan in respect of an annual performance period is $5,000,000.

Performance Based Awards. The Compensation and Corporate Governance Committee may grant awards under the 2007 Equity and Incentive Plan subject to the satisfaction of performance goals. In the case of awards intended to qualify for exemption under Section 162(m) of the Code, the Compensation and Corporate Governance Committee will use one or more objectively determinable performance goals that relate to one or more performance criteria and will administer the awards in accordance with the applicable requirements of Section 162(m) of the Code. The performance criteria available under the 2007 Equity and Incentive Stock Plan may consist of any or any combination of the following areas of performance: (i) earnings including operating income, earnings before or after taxes, earnings before or after interest, depreciation, amortization, or extraordinary or special items or book value per share (which may exclude nonrecurring items); (ii) pre-tax income or after-tax income; (iii) earnings per common share (basic or diluted); (iv) operating profit; (v) revenue, revenue growth or rate of revenue growth; (vi) return on assets (gross or net), return on investment, return on capital, or return on equity; (vii) returns on sales or revenues; (viii) operating expenses; (ix) stock price appreciation; (x) cash flow, free cash flow, cash flow return on investment (discounted or otherwise), net cash provided by operations, or cash flow in excess of cost of capital; (xi) implementation or completion of critical projects or processes; (xii) economic value created; (xiii) cumulative earnings per share growth; (xiv) operating margin or profit margin; (xv) common stock price or total stockholder return; (xvi) cost targets, reductions and savings, productivity and efficiencies; (xvii) strategic business criteria, consisting of one or more objectives based on meeting specified market penetration, geographic business expansion, customer satisfaction, employee satisfaction, human resources management, supervision of litigation, information technology, and goals relating to acquisitions, divestitures, joint ventures and similar transactions, and budget comparisons; (xviii) personal professional objectives, including any of the foregoing performance goals, the implementation of policies and plans, the negotiation of transactions, the development of long term business goals, formation of joint ventures, research or development collaborations, and the completion of other corporate transactions; and (xix) any combination of, or a specified increase in, any of the foregoing. Where applicable, the performance goals may be expressed in terms of attaining a specified level of the particular criteria or the attainment of a percentage increase or decrease in the particular criteria, and may be applied to one or more of VMware, a subsidiary or affiliate, or a division or strategic business unit, or may be applied to the performance of VMware relative to a market index, a group of other companies or a combination thereof, all as determined by the Compensation and Corporate Governance Committee. The performance goals may include a threshold level of performance below which no payment will be made (or no vesting will occur), levels of performance at which specified payments will be made (or specified vesting will occur) and a maximum level of performance above which no additional payment will be made (or at which full vesting will occur). To the extent applicable, each of the performance goals shall be determined in accordance with generally accepted accounting principles. Each of the performance goals shall be subject to certification by the Compensation and Corporate Governance Committee; provided that, to the extent an award is intended to satisfy the performance-based compensation exception to the limits of Section 162(m) of the Code and then to the extent consistent with such exception, the Compensation and Corporate Governance Committee shall have the authority to make equitable adjustments to the performance goals in recognition of unusual or non-recurring events affecting VMware or any subsidiary or affiliate or the financial statements of VMware or any subsidiary or affiliate, in response to changes in applicable laws or regulations, or to account for items of gain, loss or expense determined to be extraordinary or unusual in nature or infrequent in occurrence or related to the disposal of a segment of a business or related to a change in accounting principles. The Compensation and Corporate Governance Committee will determine whether the performance goals for a performance award have been met.

The maximum aggregate payment which any Covered Employee may receive pursuant to a cash-based award will be $5,000,000 in any annual performance period, and for any performance period in excess of one year, such amount multiplied by a fraction, the numerator of which is the number of months in the performance period and the denominator of which is twelve. With respect to a performance-based award made to a Covered

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Employee that is intended to be deductible pursuant to Section 162(m) of the Code, no payment shall be made prior to certification by the Compensation and Corporate Governance Committee that the performance goals have been attained. The Compensation and Corporate Governance Committee may, in certain circumstances, exercise its discretion to reduce the amount of the performance-based award.

The maximum number of shares reserved for the grant or settlement of awards under the 2007 Equity and Incentive Plan is 80,000,000, and not more than 3,000,000 shares may be granted to any plan participant under the plan in any twelve-month period, subject in each case to adjustment in the event of a extraordinary dividend or other distribution, recapitalization, stock split, reverse split, reorganization, merger, consolidation, spin-off, combination, repurchase or share exchange or other similar corporate transaction. Any shares subject to awards which are cancelled, forfeited or otherwise terminated or satisfied without the issuance of shares will again be available for grants under the plan.

Our Compensation and Corporate Governance Committee administers the 2007 Equity and Incentive Plan. The Compensation and Corporate Governance Committee has the ability to: select individuals to receive awards; select the types of awards to be granted; determine the terms and conditions of the awards, including the number of shares, the purchase price of the awards, and restrictions and performance goals relating to any award; establish the time when the awards and/or restrictions become exercisable, vest or lapse; determine whether options will be incentive stock options; determine whether and to what extent an award may be settled, cancelled, forfeited, accelerated (including upon a “change in control”), exchanged or surrendered; and make all other determinations deemed necessary or advisable for the administration of the plan. The Compensation and Corporate Governance Committee may grant awards which, in the event of a “change in control” of VMware, become fully vested and exercisable. Moreover, the event of any extraordinary dividend or other extraordinary distribution (whether in the form of cash, stock, or other property), recapitalization, stock split, reverse split, reorganization, merger, consolidation, spin-off, combination, repurchase, or share exchange, or other similar corporate transaction, the Compensation and Corporate Governance Committee shall make such equitable changes or adjustments as necessary or appropriate to any or all of (i) the number and kind of shares of stock or other property (including cash) that may thereafter be issued in connection with awards or the total number of awards issuable under the plan, (ii) the number and kind of shares of stock or other property issued or issuable in respect of outstanding awards, (iii) the exercise price, grant price or purchase price relating to any award, (iv) the performance goals and (v) the individual limitations applicable to awards; provided that, with respect to ISOs, any adjustment shall be made in accordance with the provisions of Section 424(h) of the Code, and provided further that no such adjustment shall cause any award which is or becomes subject to Section 409A of the Code to fail to comply with the requirements of such section. Our Compensation and Governance Committee may also make such modifications to the plan and/or the awards granted thereunder as necessary in order to conform with the laws and regulations of jurisdictions outside of the United States.

The 2007 Equity and Incentive Stock Plan allows us to cancel outstanding awards or “clawback” the value of awards realized if officers or other senior employees engage in activity detrimental to VMware.

Under the 2007 Equity and Incentive Plan, awards are generally non-transferable other than by will or by the laws of descent and distribution. However, our Compensation and Corporate Governance Committee in its sole discretion may grant transferable nonqualified stock options that upon becoming fully vested and exercisable may be transferred to a third-party pursuant to an auction process approved or established by VMware.

Our Board of Directors may amend, alter or discontinue the 2007 Equity and Incentive Plan, but no amendment, alteration or discontinuation will be made that would impair the rights of a participant under any award granted without such participant’s consent or that would increase the total number of shares reserved under the plan (other than pursuant to the adjustment provisions summarized above). In addition, stockholder approval may be required with respect to certain amendments, due to stock exchange rules or requirements of applicable law. The 2007 Equity and Incentive Plan, unless sooner terminated by our Board of Directors, will remain in effect through the tenth anniversary of its adoption.

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U.S. Federal Income Tax Consequences

Incentive Stock Options. In general, neither the grant nor the exercise of an incentive stock option granted under the 2007 Equity and Incentive Plan will result in taxable income to the option holder or a deduction to us. If the option holder does not dispose of stock received upon exercise of an incentive stock option within two years after the date the option is granted and within one year after the date of exercise, any later sale of such stock will result in a capital gain or loss (and we are not entitled to a corresponding deduction).

If stock received upon the exercise of an incentive stock option is disposed of before the holding period requirements described above have been satisfied, the option holder will generally realize ordinary income at the time of disposition. The amount of such ordinary income will generally be equal to the difference between the fair market value of our Class A common stock on the date of exercise and the exercise price. In the case of a disqualifying disposition in which a loss (if sustained) would be recognized, then the amount of ordinary income will not exceed the excess of the amount realized on the sale over the adjusted basis of the stock, that is, in general, the price paid for the stock. We will generally be entitled to a deduction for Federal income tax purposes equal to the amount of ordinary income realized by the option holder, subject to any necessary withholding and reporting requirements.

Certain option holders exercising incentive stock options may become subject to the alternative minimum tax, under which the difference between (i) the fair market value of stock purchased under incentive stock options, determined on the date of exercise, and (ii) the exercise price, will be an item of tax preference in the year of exercise for purposes of the alternative minimum tax.

Non-Qualified Stock Options. Options granted under the 2007 Equity and Incentive Plan which are not incentive stock options are “non-qualified options”. No income results upon the grant of a non-qualified option. When an option holder exercises a non-qualified option, he or she will realize ordinary income subject to withholding. Generally, such income will be realized at the time of exercise and in an amount equal to the excess, measured at the time of exercise, of the then fair market value of our Class A common stock over the option price. We will generally be entitled to a deduction for Federal income tax purposes equal to the amount of ordinary income realized by the option holder, subject to certain withholding and reporting requirements.

Restricted Stock. Generally, restricted stock is not taxable to a participant at the time of grant, but instead is included in ordinary income (at its then fair market value) when the restrictions lapse. A participant may elect to recognize income at the time of grant, in which case the fair market value of our Class A common stock at the time of grant is included in ordinary income and there is no further income recognition when the restrictions lapse. We are generally entitled to a tax deduction in an amount equal to the ordinary income recognized by the participant.

Restricted Stock Units. Generally, the participant will not be subject to tax upon the grant of an award of restricted stock units but will recognize ordinary income in an amount equal to the fair market value of any shares received on the date of delivery of the underlying shares of our Class A common stock. We will generally be entitled to a corresponding tax deduction.

Stock Appreciation Rights. Generally, the participant will not be subject to tax upon the grant of a stock appreciation right. However, upon the receipt of shares pursuant to the exercise of a stock appreciation right, the participant, generally, will recognize ordinary income in an amount equal to the fair market value of the shares received. The ordinary income recognized with respect to the receipt of shares upon exercise of stock appreciation rights will be subject to any necessary withholding and reporting requirements. Generally, we will not be entitled to a tax deduction upon the grant or termination of stock appreciation rights. However, we will, generally, be entitled to a deduction for Federal income tax purposes equal to the amount of ordinary income realized by the participant.

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Section 162(m). Section 162(m) of the Code limits to $1 million the deduction a public company may claim in any year for compensation to any of certain key officers. There are a number of exceptions to this deduction limitation, including an exception for qualifying performance-based compensation. It is intended that awards under the plan may be eligible for this performance-based exception.

Section 409A. Section 409A of the Code, which is generally effective as of January 1, 2005, makes important changes to the tax treatment of nonqualified deferred compensation. Awards held by employees that are subject to but fail to comply with Section 409A are subject to a penalty tax of 20% in addition to ordinary income tax, as well as to interest charges. In addition, the failure to comply with Section 409A may result in an acceleration of the timing of income inclusion in respect of awards for income tax purposes. Awards granted under the 2007 Equity and Incentive Plan are intended to be exempt from the rules of Section 409A and will be administered accordingly. The Compensation and Corporate Governance Committee intends to administer any award resulting in a deferral of compensation subject to Section 409A consistent with the requirements of Section 409A to the maximum extent possible, as determined by the Compensation and Corporate Governance Committee.

This summary is not a complete description of the U.S. Federal income tax aspects of the 2007 Equity and Incentive Plan. Moreover, this summary relates only to Federal income taxes; there may also be Federal estate and gift tax consequences associated with the 2007 Equity and Incentive Plan, as well as foreign, state and local tax consequences.

New Incentive Plan Benefits

The future benefits or amounts that could be received under the 2007 Equity and Incentive Plan are discretionary and are therefore not determinable at this time. In addition, the benefits or amounts which would have been received by or allocated to executive officers and our other employees for the last fiscal year are not determinable. Please see the table below which sets forth the equity incentive awards that have been issued under the 2007 Equity and Incentive Plan through March 1, 2008.

Stockholder Approval

In order for future awards granted under the 2007 Equity and Incentive Plan to our Covered Employees to continue to qualify as “performance-based compensation” under Section 162(m) of the Code, the plan must be approved by our stockholders. If we obtain stockholder approval for the 2007 Equity and Incentive Plan, we will be required to seek additional stockholder approval if the Board wishes to amend the plan in the future and, in any event, will be required to obtain stockholder approval at the 2013 annual stockholder meeting if we determine to continue to grant “qualified performance-based compensation” to our Covered Employees under the 2007 Equity and Incentive Plan at that time.

This proposal must receive “For” votes from the holders of shares of Class A and Class B common stock representing at least a majority of the votes actually present in person or represented by proxy at the Annual Meeting and entitled to vote on the matter. Each share of Class A common stock is entitled to one vote and each share of Class B common stock is entitled ten votes on this matter.

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The table below shows, as to the Named Executive Officers and the other individuals and groups indicated, the number of shares of common stock subject to stock-based awards issued under the 2007 Equity and Incentive Plan through March 1, 2008. As detailed below, amounts shown include shares issued pursuant to the exchange of VMware stock-based awards for EMC stock-based awards conducted in conjunction with our IPO (the “Exchange Offer”). The closing trading price of our Class A common stock as reported on the NYSE on February 29, 2008 was $58.67 per share. For further information, see “Compensation of Executive Officers—Outstanding Awards at Fiscal Year End” below.

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EQUITY COMPENSATION PLAN INFORMATION

The following table sets forth certain information regarding VMware’s equity compensation plans as of December 31, 2007. Our equity compensation plans include our 2007 Equity and Incentive Plan and our 2007 Employee Stock Purchase Plan. Only shares of Class A common stock may be issued under these plans.

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL

OWNERS AND MANAGEMENT

The following table sets forth information, as of March 1, 2008, about the beneficial ownership of Class A common stock and Class B common stock by (i) EMC, (ii) each person who is known by us to own beneficially more than 5% of either class of our common stock, (iii) each of our directors and nominees for director, (iv) each of the Named Executive Officers (as defined below) and (v) by all directors and executive officers of VMware as a group.

Applicable percentage ownership is based on 83,541,639 shares of Class A common stock and 300,000,000 shares of Class B common stock outstanding at March 1, 2008. In computing the number of shares of common stock beneficially owned by a person and the percentage ownership of that person, we deemed outstanding shares of common stock subject to options, warrants, rights or conversion privileges held by that person that are currently exercisable or exercisable within 60 days of March 1, 2008. We did not deem these shares outstanding, however, for the purpose of computing the percentage ownership of any other person.

Only EMC, its successor-in-interest or its majority-owned or controlled subsidiaries may hold shares of Class B common stock unless and until such time as EMC distributes its shares of Class B common stock in a distribution under section 355 of the Code, following which distribution the Class B common stock may be held by EMC, the distributees and their transferees. The rights of the holders of Class A and Class B common stock are identical, except with respect to voting, the election of directors, conversion, certain actions that require the consent of holders of Class B common stock and other protective provisions as set forth in our certificate of incorporation. Each share of Class B common stock is convertible into one share of Class A common stock at any time, at EMC’s election. However, if EMC distributes its shares of Class B common stock in a distribution under section 355 of the Code, such right to convert Class B common stock into Class A common stock will terminate upon such distribution.

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The address of all persons listed above, other than EMC, Intel, Cisco and Fidelity Management & Research Company is c/o VMware, Inc., 3401 Hillview Avenue, Palo Alto, California 94304.

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COMPENSATION DISCUSSION AND ANALYSIS

Named Executive Officers

Our named executive officers for 2007 set forth in the proxy statement are Diane Greene, President and Chief Executive Officer, Mark Peek, Chief Financial Officer, Carl Eschenbach, Executive Vice President of Worldwide Field Operations, Rashmi Garde, Vice President and General Counsel and Thomas Jurewicz, our Vice President of Finance. Mr. Jurewicz served as our principal financial officer during 2007 until we hired Mr. Peek in April 2007. These individuals are referred to as the “Named Executive Officers.”

Objectives of our Executive Compensation Program

The objectives of our executive compensation program are:

To achieve these objectives, we have implemented and maintained compensation plans that tie a substantial portion of our executive compensation to the achievement of pre-determined performance goals and the price of our stock. We may adopt other arrangements from time to time to best meet our compensation objectives.

Elements of our Executive Compensation Program

Overview of Compensation Setting Process

Prior to May 2007, compensation for our Named Executive Officers was determined by the EMC Compensation Committee or by Ms. Greene. Following the formation of our Compensation and Corporate Governance Committee (the “Committee”) on May 18, 2007 in preparation for our initial public offering (“IPO”), all compensation actions for our Named Executive Officers were determined by the Committee.

During the period in 2007 prior to the formation of the Committee, the EMC Compensation Committee determined Ms. Greene’s compensation because during that period we were a wholly-owned subsidiary of EMC and Ms. Greene also served as an executive officer of EMC. Specifically, the EMC Compensation Committee approved Ms. Greene’s first half bonus targets and performance metrics. During this period, no adjustments were made with respect to her base salary and no equity awards were granted to her. During that period, Ms. Greene determined the compensation for our other Named Executive Officers, including their first half bonus targets and performance metrics. In April 2007, as we prepared for our IPO, Mr. Peek was hired as our Chief Financial Officer. Mr. Peek’s new hire compensation package was determined and approved by EMC.

Since its formation, the Committee has approved compensation for all of our Named Executive Officers. Specifically, the Committee approved the terms and conditions of Ms. Greene’s new employment agreement in July 2007, equity grants that we made to our Named Executive Officers in June 2007 from our 2007 Equity and Incentive Plan in advance of our IPO and second half bonus targets, including performance metrics.

The Committee did not conduct formal benchmarking studies or approve peer groups in determining compensation for the Named Executive Officers in 2007. However, the Committee reviewed information prepared by EMC and recommendations by Ms. Greene with respect to Named Executive Officers other than her. The Committee also considered advice from an independent consultant retained by the Committee with respect to overall compensation levels for our Named Executive Officers and the pre-IPO equity grants we made to our Named Executive Officers in June 2007.

Decisions made by Ms. Greene prior to formation of the Committee with respect to Named Executive Officer compensation and recommendations made by her to the Committee since its formation have been

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informed by survey data reviewed by our management gathered from SEC filings and the Radford Executive compensation survey. These decisions and recommendations have been made by evaluating each Named Executive Officer’s role and responsibility and the competitive marketplace. The competitive marketplace for these individuals was determined by comparing the compensation of these individuals to the compensation payable to similarly situated employees with reference to survey data compiled for North American high technology companies with revenues of between $1 billion and $3 billion, North American software companies with revenues in excess of $1 billion and high technology and software companies in the San Francisco Bay area with revenues in excess of $1 billion. Although survey data was reviewed, compensation was not “benchmarked” to any particular level. In 2007, as in prior years, a strong emphasis was placed on survey data relating to the cash bonus and equity components of the compensation paid to executives. Over 2,500 companies participated in the Radford survey, with over 250 in the software products industry, including many of the companies with whom we directly compete for talent, such as BEA Systems, Inc., CA, Inc., Google, Microsoft Corporation, Network Appliance, Inc., Oracle Corporation, SAP America, Symantec Corp, Adobe Systems Incorporated, Yahoo! Inc. and McAfee, Inc.

In 2008, the Committee plans to undertake a formal evaluation of the competitive market with the assistance of its independent consultant, Frederic W. Cook & Co. (“FWC”), as well as studies prepared by management. FWC reports directly to the Committee and does no separate work for management in any capacity. Management has separately retained Mercer Human Resources Consulting to assist with analyses which may be reviewed by the Committee.

Compensation Components

The compensation packages of our Named Executive Officers rely upon a mix of cash and equity-based compensation to achieve our compensation objectives. We have emphasized long-term equity awards in our compensation packages, which we believe is consistent with our position as a newly-public company emphasizing future growth in the virtualization software market. Cash is generally a lesser portion of our compensation packages and is divided into base salary and short-term performance-based bonus awards. We believe that differences in the relative compensation levels of our Named Executive Officers reflect market competitive levels of compensation for each respective executive position and are reasonable and appropriate to attract and retain our Named Executive Officers.

Base Salary

Base salary serves as the primary form of guaranteed compensation for our Named Executive Officers. It also impacts other compensation and benefit levels, including annual bonus opportunities as they are expressed as a percentage of base salary. We have not established specific percentiles of the competitive market for any of our Named Executive Officers, but current base salaries are believed be at or below median levels in relation to other publicly-traded software companies of similar size.

Base salaries in effect at the beginning of the year were reflective of our status as a wholly-owned subsidiary of EMC. Effective January 1, 2007, Mr. Jurewicz’s salary was increased by $5,000 and Ms. Garde’s base salary was increased by $7,500. No other adjustments to base salaries of our Named Executive Officers were made at that time. The adjustments were approved by Ms. Greene and based on her judgment regarding their individual performance and market conditions as well as the survey data referenced above.

The Committee approved an increase to Ms. Greene’s salary from $350,000 to $750,000 effective June 1, 2007. The Committee believed the new salary was commensurate with her new position and increased level of responsibilities as CEO of a publicly-traded company. In making its determination, the Committee took into account Ms. Greene’s importance to us, the size of her equity holdings, FWC’s advice regarding compensation structure, compensation survey data presented by EMC and Ms. Greene’s salary level relative to other Named Executive Officers.

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The Committee also approved an increase to Mr. Eschenbach’s base salary from $375,000 to $525,000 retroactive to April 1, 2007. Prior to our IPO, Mr. Eschenbach had received discretionary bonus payments from EMC of $112,500 in 2006 and $37,500 in 2007 in recognition of his strong performance as well as for competitive and retention purposes. The Committee determined that it would be appropriate for competitive and retention purposes to increase Mr. Eschenbach’s base salary because following our IPO he would no longer receive any payments from EMC.

Mr. Peek’s salary was approved as part of a negotiation to secure his employment as our CFO in anticipation of our IPO, and also reflected the higher cost of living in the Bay Area.

Annual Bonus

Each of our Named Executive Officers is eligible to earn annual cash bonuses tied to our financial results and individual performance. We believe it is important to provide rewards for specific results and behaviors which support our overall long-term business strategy. Individual bonus target levels for 2007 were set between 30% and 56% of base salary for our Named Executive Officers other than Ms. Greene. Ms. Greene’s annual bonus target amount was set at 100% of her base salary. These levels were informed by the survey data referenced above but were not specifically benchmarked at any particular level relative to the competitive market. We believe cash bonus opportunities are at or below median levels in relation to other publicly-traded software companies of similar size.

For Ms. Greene, 75% of her bonus opportunity for 2007 was tied to the achievement of specific semi-annual corporate revenues and non-GAAP operating income results, while 25% was tied to the achievement of semi-annual individual goals. For all other Named Executive Officers except Mr. Eschenbach, the mix was 50% semi-annual corporate revenues and non-GAAP operating income results, and 50% semi-annual individual achievement. For Mr. Eschenbach, his mix for the first half of 2007 was 50% semi-annual corporate bookings achievement, and 50% semi-annual corporate revenues and non-GAAP operating income results. For the second half of 2007, Mr. Eschenbach’s mix was 50% semi-annual corporate bookings achievement and 50% semi-annual individual achievement.

Corporate Financial Metrics

The corporate financial metrics were chosen because these are key metrics that drive our business. Non-GAAP operating income was calculated by taking GAAP operating income, and adding back or subtracting, as the case may be, amounts relating to stock-based compensation, certain charges from EMC, amortization of intangibles, including in process research and development charges, and the net impact of the cash elements of capitalized software development costs calculated pursuant to the Statement of Financial Accounting Standard (“SFAS”) 86. Bookings were calculated as the aggregate dollar amount of products sold to customers during the measurement period without regard to revenue recognition policies. Threshold achievement of 80% for each of the targets except bookings was required for each six-month performance period before any bonus payouts could be made. Maximum payouts equal to 150% of the portion of the bonus target tied to the achievement of corporate financial metrics were possible for the achievement of overall corporate financial results equal to or greater than 150% of target. Mr. Eschenbach’s bookings bonus did not include threshold or maximum amounts as it was based on a sales commission model, reflecting the focus of Mr. Eschenbach’s sales organization. Mr. Eschenbach’s bookings bonus program is further detailed in “Grants of Plan-Based Awards” below.

The first half corporate revenue and operating income goals were $480 million and $130 million, respectively. The second half targets were $570 million and $150 million, respectively. We achieved 115.7% of the revenue target and 112.9% of operating income target for the first half of 2007. We achieved 135.1% of the revenue target and 133% of operating income target for the second half of 2007. Mr. Eschenbach’s first half corporate bookings target was $610 million and his second half target was $950 million. Actual bookings results

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were in excess of target for both six-month periods. As a result, each of the Named Executive Officers received bonus payments for the first and second halves of 2007 that exceeded their target bonus amounts. Bonus payment amounts are detailed in the “Summary Compensation Table” below.

Individual Performance Goals

Individual goals for each six-month period were established for each of our Named Executive Officers for 2007. Threshold achievement of 80% of corporate financial goals was required for each six-month period before any bonus payouts for achievement of individual goals for the corresponding six-month period could be made. Between four and eight individual performance goals were assigned in each six-month period except for Mr. Eschenbach, as noted below. The Committee evaluated whether these performance goals were achieved by the Named Executive Officers, taking into account actual performance against individual goals and the degree of difficulty in achieving the goals, in the exercise of the Committee’s discretion in determining the appropriate level of payouts. In making its determinations with respect to Named Executive Officers other than Ms. Greene, the Committee reviewed recommendations that she made to the Committee at the conclusion of each six-month period.

Ms. Greene’s individual performance goals included, and her performance was evaluated by the Committee with respect to, consistent execution of our business plan, maintaining industry leadership, completing the planning and budgeting cycle, partnering with industry vendors and attracting and retaining key talent in the industry. For Ms. Garde, her goals included the establishment of legal entities outside of the United States and organizational objectives relating to us becoming a publicly-traded company. For Mr. Peek, his goals included results relating to investor relations, accounting policies, information technology infrastructure and facilities. For Mr. Eschenbach, his goals for the first half of 2007 were our achievement of our first half corporate financial goals and for the second half included increasing new partnerships and sales contracts in certain markets, increasing the number of customers and building the sales organization. For Mr. Jurewicz, his goals included leading the planning and budgeting process, project management, implementing and achieving compliance goals and financial forecasting.

For 2007, the Committee reviewed the results of the individual performance goals for Ms. Greene and Ms. Greene’s recommendations with respect to Named Executive Officers other than herself and deemed that the individual performance goals were substantially achieved. Accordingly, the Committee approved the maximum individual payouts for each of our Named Executive Officers.

Additionally, the Committee approved for Ms. Garde a discretionary bonus of $10,000 based on the recommendation by Ms. Greene and in recognition of her efforts during our IPO process. Mr. Peek received a sign-on bonus of $67,000 net of taxes during 2007. As discussed above, Mr. Eschenbach also received a discretionary bonus in the amount of $37,500 from EMC in light of his strong performance, as well as for competitive and retention purposes.

Long-Term Incentives

We strongly believe that equity awards align the interests of our Named Executive Officers with those of our stockholders. Prior to our IPO, Ms. Greene, Mr. Eschenbach, Ms. Garde and Mr. Jurewicz held EMC stock options, restricted EMC stock and/or performance-accelerated restricted EMC stock (“PARs”). However, no such EMC awards were granted to any of our Named Executive Officers during 2007.

Stock awards granted to our Named Executive Officers by EMC in years prior to 2007 included performance-based acceleration targets that were triggered during 2007. The PARs granted by EMC to our Named Executive Officers in prior years were scheduled to vest in a single cliff on the fifth anniversary of the grant date, subject to the recipient’s continued employment. A portion of the PARs could vest at an accelerated rate, generally with respect to one-third or one-quarter of the underlying shares in each of the first three or four years following grant, if annual performance goals were met.

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In 2004, the only Named Executive Officer to be granted PARs was Ms. Greene. We refer to these as the “2004 PARs”. EMC also granted PARs to Ms. Greene and to several of our other Named Executive Officers in 2005. We refer to these as the “2005 PARs”. Ms. Greene was granted 137,500 2004 PARs, two-thirds of which had vested prior to 2007 at an accelerated rate due to the achievement of performance targets during 2005 and 2006. The 2004 PARs and the 2005 PARs granted to Ms. Greene and certain of our Named Executive Officers provided that if VMware achieved profit contribution, defined as net income before taxes, interest expense and amortization of intangible assets, of $300 million and revenue of $1 billion prior to 2010, all remaining unvested PARs would vest on an accelerated basis. Since these targets were achieved in 2007, all remaining unvested PARs held by our Named Executive Officers vested on an accelerated basis in January 2008.

Our employees, including our Named Executive Officers, were allowed to exchange their EMC stock-based awards (including the PARs) for equivalent VMware stock-based awards in connection with our IPO. The number of VMware stock-based awards received was determined by an exchange ratio based upon EMC’s two-day weighted average trading price prior to the consummation of our IPO and the IPO price of our Class A common stock. Acceleration of the PARs was approved in January 2008 by the EMC Compensation Committee with respect to those PARs held by our Named Executive Officers that were not exchanged for VMware restricted stock and by the VMware Committee for those PARs that were exchanged. As a result, the remaining unvested 2004 PARs that Ms. Greene exchanged for 28,030 shares of VMware common stock vested and 300,000 shares of EMC common stock subject to 2005 PARs that Ms. Greene did not exchange vested.

The remaining unvested 2005 PARs held by Mr. Eschenbach, Ms. Garde and Mr. Jurewicz also accelerated, as detailed in the footnotes to the “Outstanding Equity Awards at Fiscal Year End” table below. In the case of Mr. Eschenbach, the accelerated vesting of 30,000 of the PARs granted to him in 2005, was subject to EMC’s achievement of earnings per share targets. Since EMC achieved its 2007 earnings per share target of 72 cents, the 2007 tranche of this award vested on an accelerated basis. For purposes of determining whether the EPS goal was achieved, stock option expense, restructuring charges, operating results from acquisitions closed during the year, and positive tax adjustments for prior periods were excluded from the calculation of EPS.

In anticipation of the IPO, our Board of Directors adopted the 2007 Equity and Incentive Plan on June 5, 2007 and authorized an exchange offer, pursuant to which our eligible employees were allowed to tender restricted EMC stock or vested and unvested EMC options for restricted VMware stock or unvested VMware options, respectively, in conjunction with our IPO.

Additionally, in June 2007, the Committee approved broad-based equity awards of our Class A common stock to our Named Executive Officers as well as our other employees. The structure and levels of these awards were based upon recommendations by Ms. Greene as well as advice from FWC that provided our Committee with an overview of market competitive practices in similar situations. We believe that the resulting program helped us achieve our strategic objectives by:

One-quarter of the stock options will vest on the first anniversary of the grant date and the remaining three-quarters of the stock options will vest in equal monthly installments thereafter over three years. Stock options generally have a term of six years and are assigned an exercise price equal to the fair market value of VMware Class A common stock on the grant date. Following our IPO, the fair market value has been determined by the closing trading price of our Class A common stock on the date of grant.

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During 2007, our Named Executive Officers received the following stock option grants prior to our IPO at an exercise price of $23.00 per share:

Additionally, in July 2007, the Committee approved a grant of 85,000 restricted stock units (“RSUs”) to Ms. Greene which is scheduled to vest in full on February 1, 2009 if certain criteria established to qualify the RSUs as performance-based compensation under Section 162(m) of the Internal Revenue Code are satisfied in 2008. The RSU award was in consideration of an earlier commitment by EMC to grant EMC equity awards to Ms. Greene which the Committee believed would be more appropriately fulfilled through the grant of our equity in light of our planned IPO. The Committee also believed the award, together with the stock options listed above, were appropriate incentives to provide for Ms. Greene’s long term retention with us following our IPO.

In connection with hiring Mr. Peek as our CFO, we granted him 250,000 stock options in June 2007 pursuant to our April 2007 offer to him as an inducement to join us. The employment offer to Mr. Peek also provided for the grant of restricted stock awards with a value equal to the value of the stock options and restricted stock forfeited when he left his prior employer. This resulted in a grant of 433,216 RSUs. The RSUs provide for 3-year cliff vesting, with one-third of the award subject to accelerated vesting at each of the first two anniversaries of the grant date if the corporate revenue and operating income targets for the second half of 2007 were achieved. As described above, the second half 2007 targets were achieved. In determining the awards for the other Named Executive Officers, the Committee relied on information provided by EMC and management regarding competitive grant levels, as well as advice from FWC, and believes they provided for substantial retention and incentive to create stockholder value.

As discussed above, in connection with our IPO, our Board of Directors approved an exchange offer to eligible employees, including each of our Named Executive Officers, which allowed them to tender their EMC stock options or restricted stock in exchange for VMware stock options or restricted stock. Three of our Named Executive Officers exchanged certain of their EMC options and restricted stock awards for VMware options and restricted stock pursuant to the exchange offer as follows: Ms. Greene received 795,054 stock options and 28,030 shares of restricted stock in the exchange, Mr. Eschenbach received 73,389 stock options and 50,964 shares of restricted stock, and Mr. Jurewicz received 49,393 stock options and 12,231 shares of restricted stock. Please refer to “Outstanding Equity Awards at Fiscal Year-End,” below, for a summary of all equity-based awards held by our Named Executive Officers as of the end of our 2007 fiscal year.

Benefits and Perquisites

Our Named Executive Officers were provided benefits that were commensurate with those offered to full-time employees. Retirement benefits are limited to a 401(k) plan that provides for a matching contribution of 6% of the employee’s contribution, up to a maximum of $3,000 per year. The 401(k) plan is provided as a standard element of compensation in the marketplace, designed to assist employees with retirement savings in a tax-advantaged manner.

On June 5, 2007, our Board of Directors adopted an employee stock purchase plan that is intended to be qualified under Section 423 of the Code. Under the plan, our employees, including our Named Executive Officers, are able to purchase shares at the lower of 85% of the fair market value of the stock at the time of grant or 85% of the fair market value at the time of exercise. Options to purchase shares will be granted twice yearly, on or about January 1 and July 1, and will be exercisable on or about the succeeding June 30 or December 31.

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From time to time, we have provided temporary housing allowances to our Named Executive Officers who have moved to the higher-priced San Francisco Bay area in order to join us or take on new positions with us. During 2007, we paid a $7,000 monthly mortgage assistance allowance to Mr. Eschenbach that commenced in 2006 in connection with our prior commitment to him to pay 24 months of housing allowance when he relocated from Pennsylvania to the San Francisco Bay Area in conjunction with his promotion to his current position. We also agreed to pay Mr. Peek a $7,000 monthly housing allowance for the first two years of his employment with us in connection with his move from Seattle, Washington to the San Francisco Bay Area to join us in April 2007. We also reimbursed Mr. Peek for relocation expenses.

We do not generally provide any perquisites to our Named Executive Officers. Prior to our IPO, EMC paid expenses for Mr. Eschenbach’s spouse to attend an EMC function as well as a tax gross-up for such expenses, as detailed in the “Summary Compensation Table” below.

Post-Termination Compensation

Ms. Greene’s employment agreement provides for benefits upon termination of employment under certain circumstances, including in connection with a change of control. Ms. Greene’s employment agreement provides that if Ms. Greene’s employment is terminated by us without “cause” or by Ms. Greene for “good reason” (together, a “qualifying termination of employment”), Ms. Greene will be entitled to vesting credit on all time-based vesting equity awards granted to her by us and EMC for the period from the date of termination until the next anniversary of the pricing of our IPO, which occurred on August 13, 2007. In addition, Ms. Greene will be eligible to vest in performance awards which were scheduled to vest in such period if the applicable performance metrics are achieved. If such a termination occurs within the two-year period following a change in control of VMware, Ms. Greene will be entitled to full vesting of all equity awards granted to her by us and by EMC. See also “Employment Agreement with CEO” below.

Mr. Peek’s agreement with us entitles him to full acceleration of vesting of all unvested RSUs that were granted to him in connection with his hiring in the event that Mr. Peek’s employment is terminated following a change of control other than for cause or by Mr. Peek because his duties have been diminished such that he no longer serve as a chief financial officer of a public entity. Mr. Jurewicz is entitled to a severance payment equal to three months of his annual salary if his employment is terminated without cause.

The change in control and severance arrangements we have in place were provided as necessary to attract and retain our executives. We believe these arrangements are reasonable when compared to competitive market practices.

We provide death benefits and disability insurance to our employees including our Named Executive Officers. VMware stock options and restricted stock units also vest in the event of death or disability.

Tax Deductibility

Section 162(m) of the Code generally disallows a tax deduction to public corporations for compensation greater than $1 million paid for any fiscal year to the corporation’s chief executive officer and certain other executive officers. However, performance-based compensation is not subject to the $1 million deduction limit if certain requirements are met. The Committee may consider the impact of Section 162(m) when designing our cash and equity bonus programs, but may elect to provide compensation that is not fully deductible as a result of Section 162(m) if it determines this is in our best interests. The Committee has structured our 2008 annual bonus plan for our Named Executive Officers and the performance objectives for vesting in Ms. Greene’s RSU award (discussed below in “Employment Agreement with CEO”) to allow it to qualify as performance-based compensation under Section 162(m).

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Hedging Policy

We have adopted a policy prohibiting any of our directors or employees, including the Named Executive Officers, from “hedging” their ownership in shares of our common stock or other equity-based interests in us, including by engaging in short sales or trading in derivative securities relating to our common stock and the common stock of EMC.

Employment Agreement with CEO

On July 26, 2007, we entered into an employment agreement with Ms. Greene. The employment agreement has a one-year term, subject to automatic annual renewals for additional one-year periods unless thirty days’ notice is given not to renew the agreement. The employment agreement provides that Ms. Greene will serve as our President and Chief Executive Officer and a member of our Board of Directors. The agreement provides for an annual base salary of $750,000 and an aggregate annual bonus target of $750,000. Ms. Greene’s salary was increased to $750,000 effective June 1, 2007, and her aggregate annual bonus target was increased retroactive to January 1, 2007. Bonuses will be paid subject to the achievement of specified individual performance objectives and the Company’s attainment of financial objectives as approved by the Compensation Committee. The employment agreement provides that in the event of a qualifying termination of employment, including in connection with a change of control, Ms. Greene will be entitled to certain severance benefits described above in “Post Termination Compensation” and further detailed in the section “Potential Payments Upon Termination or Change of Control.” For purposes of the employment agreement, “cause” is defined generally as Ms. Greene’s willful and continued failure to perform her employment duties; willful material misconduct in the performance of her duties to the Company; conviction of a felony or a misdemeanor involving moral turpitude; or commission of an act involving personal dishonesty that results in material harm to the Company. “Good Reason” is generally defined as the assignment to Ms. Greene of any duties inconsistent with her status as President and Chief Executive Officer of the Company; any material adverse alteration in her roles, titles, reporting relationship or in the nature or status of her responsibilities; a reduction by the Company in her base salary; a reduction by the Company in her aggregate annual bonus target; or the relocation of her principal place of employment by more than fifty miles.

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COMPENSATION OF EXECUTIVE OFFICERS

Summary Compensation Table

The table below summarizes the compensation information in respect of the Named Executive Officers for the fiscal years ended December 31, 2007 and 2006. The amounts shown in the Stock Awards and Option Awards columns do not reflect compensation actually received by the Named Executive Officer. Instead the amounts shown includes the compensation cost recognized under FAS 123R in respect of awards granted in 2007 and in prior years. For more information on FAS 123R, refer to footnote (1) below.

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Grants of Plan-Based Awards

The following table sets forth information concerning non-equity incentive plan grants to the Named Executive Officers under our annual cash incentive bonus plan during the fiscal year ended December 31, 2007. For further information, see “Compensation Discussion and Analysis—Annual Bonus.” The actual amounts realized in respect of the non-equity plan incentive awards in respect of the 2007 fiscal year are reported in the Summary Compensation Table under the “Non-Equity Incentive Plan Compensation” column. The following table also sets forth information with respect to stock awards and option awards granted during 2007.

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Outstanding Equity Awards at Fiscal Year-End

The following table sets forth information concerning stock options and stock awards held by the Named Executive Officers as of December 31, 2007. Between our acquisition by EMC in 2004 and our IPO in August 2007, we operated as a wholly-owned subsidiary of EMC and EMC issued stock options and restricted stock awards to our Named Executive Officers under its 2003 Stock Plan. In June 2007, we adopted our 2007 Equity and Incentive Plan pursuant to which we may grant equity awards for shares of our Class A common stock.

In connection with our IPO, we offered our employees, including our Named Executive Officers, the opportunity to exchange their outstanding EMC equity awards for VMware equity awards issued under our 2007 Equity and Incentive Plan (the “Exchange Offer”). The exchange rate was determined by the ratio of the two-day weighted average trading price of EMC common stock to the IPO price of our Class A common stock. The exchange became effective August 13, 2007 at a ratio of approximately 0.6116 shares of VMware Class A common stock for each share of EMC common stock. The exercise price of exchanged stock options was adjusted in proportion to the exchange ratio.

As indicated in the following table, our Named Executive Officers elected to exchange certain of their EMC equity awards for VMware equity awards in the Exchange Offer and to retain certain of their EMC equity awards. Additionally, prior to our IPO, we granted stock options and restricted stock units (“RSUs”) under the 2007 Equity and Incentive Plan to our Named Executive Officers. Accordingly, as of December 31, 2007, our Named Executive Officers held equity awards for shares of VMware Class A common stock and EMC common stock as follows:

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The market and payout values for unvested VMware equity awards and exchanged equity awards are calculated based on a market value of $84.99 of our Class A common stock (the closing market price of VMware’s Class A common stock on December 31, 2007) multiplied by the number of shares subject to the award. The market and payout values for unvested EMC stock awards are calculated based on a market value of $18.53 of EMC’s common stock (the closing market price of EMC’s common stock on December 31, 2007) multiplied by the number of shares subject to the award.

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Option Exercises and Stock Vested

The following table sets forth information regarding stock options and stock awards exercised and vested, respectively, for the Named Executive Officers during fiscal year ended December 31, 2007. All such exercised and vested stock options and awards were for shares of EMC common stock.

Pension Benefits

VMware does not provide pension benefits to the Named Executive Officers.

Nonqualified Deferred Compensation

VMware employees are not provided with a nonqualified deferred compensation plan.

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Potential Payments Upon Termination or Change of Control

The tables below reflect the compensation and benefits due to each of the Named Executive Officers in the event of termination of employment or a change in control under the circumstances described below.

Payments and Benefits upon any Termination

Employees, including the Named Executive Officers, are entitled to receive earned and unpaid compensation upon any termination of employment. Accordingly, subject to the exceptions noted below, upon any termination of employment the Named Executive Officers will receive accrued but unused vacation pay. In addition, except as noted below, all unvested stock awards will terminate upon any termination of employment. The vested portion of all VMware and EMC stock options, including stock options issued in the Exchange Offer, generally remain exercisable for a period of three months following the date of termination other than for cause. Additionally, Ms. Greene is entitled to unpaid, but earned and accrued annual incentive awards for any completed fiscal year as of her termination of employment.

Voluntary Termination

Except as discussed above for Ms. Greene, a Named Executive Officer who voluntarily terminates employment is not entitled to any compensation benefits other than those that are paid to all employees upon any termination of employment.

Involuntary Termination For Cause

Except as discussed above for Ms. Greene, a Named Executive Officer whose employment is terminated for cause is not entitled to any compensation or benefits other than those that are paid to all employees upon any termination of employment.

Involuntary Termination Without Cause or For Good Reason

Except as discussed below, a Named Executive Officer whose employment is involuntarily terminated without cause or who terminates employment for good reason is not entitled to any benefits other than those that are paid to all employees upon any termination of employment as described above. The provision of any additional compensation and benefits would be made at the discretion of the Compensation and Corporate Governance Committee. However, if one of our employees’ employment is terminated in connection with a reduction in force, a pro rata portion of the PARs granted to the employee will vest if the performance goals are subsequently achieved. Since it is unlikely the Named Executive Officers would be terminated in connection with a reduction in force, the tables below do not include an estimate of the value of PARs that would potentially vest if the performance goals were subsequently achieved. Additionally, with the exception of Mr. Jurewicz who holds a PARs award that continues to vest monthly until completely vested on December 31, 2008, all of our Named Executive Officers who held PARs awards became fully vested in such awards on or before January 31, 2008.

Certain of our Named Executive Officers are contractually entitled to compensation or benefits in addition to those paid to all employees upon any termination of employment as described above. Mr. Jurewicz, is entitled to a severance payment equal to three months of his annual salary if his employment is involuntarily terminated without cause. Ms. Greene is entitled to any unpaid, but earned and accrued annual incentive award for any completed fiscal year as of termination of employment. Additionally, Ms. Greene would be entitled to vesting credit on all time-based vesting equity awards granted to her by us and EMC for the period from the date of termination until the next anniversary of the pricing of our IPO, which occurred on August 13, 2007. Ms. Greene will also be eligible to vest in performance awards which were scheduled to vest in such period if the applicable performance metrics are achieved. All such awards shall be exercisable for a period of three years following her termination (or the remaining option term, whichever is shorter). Ms. Greene is also entitled to these benefits if she terminates her employment for “good reason,” as defined in her employment agreement and discussed above in “Compensation Discussion and Analysis—Employment Agreement with CEO.”

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Change in Control

Our Named Executive Officers do not have change in control agreements. However, certain of our Named Executive Officers are contractually entitled to compensation or benefits if they are involuntarily terminated other than for cause or terminate their employment for good reason following a change in control. If Ms. Greene is involuntarily terminated other than for cause or she terminates her employment for good reason within two years following a change in control, she shall become fully vested in all equity awards granted to her by us and EMC and such awards shall be exercisable for a period of three years following her termination (or the remaining option term, whichever is shorter).

If, following a change in control, Mr. Peek is involuntarily terminated other than for cause or terminates his employment because his duties have been diminished such that he no longer serve as a chief financial officer of a public entity, he will become fully vested in his RSUs that were granted to him in connection with his hiring.

As of the date of this proxy statement, Ms. Garde holds an EMC stock option. EMC equity awards granted to VMware employees under EMC’s 2003 Stock Incentive Plan will vest if EMC is not the surviving corporation of a merger and the surviving corporation does not issue replacement awards. As of December 31, 2007, Ms. Greene and Mr. Eschenbach also held EMC equity awards but those awards fully vested on January 30, 2008 and therefore, there is no further acceleration under those awards in the event of a change in control of EMC. VMware equity awards granted under our 2007 Plan do not provide for automatically accelerated vesting in the event of a change in control. VMware equity awards issued in exchange for EMC equity awards in the Exchange Offer also do not automatically vest in the event of a change in control.

Death

In addition to providing the benefits that are provided to all employees generally upon any termination of employment, upon an employee’s death, the employee’s survivors will continue to receive the employee’s base salary for six months and we will make a $10,000 contribution to a tax-qualified education fund in respect of each of the deceased employee’s minor children. In addition, for those employees who hold equity awards granted under EMC’s 2003 Stock Incentive Plan and our 2007 Equity and Incentive Plan, unvested stock options and stock awards will immediately vest and all options held by the employee prior to his or her death will remain exercisable for three years thereafter.

Disability

We do not have guidelines for providing compensation or benefits upon an employee’s disability other than providing the benefits that are provided to all employees generally upon any termination of employment. However, for those employees who hold equity awards granted under EMC’s 2003 Stock Incentive Plan and our 2007 Equity and Incentive Plan, unvested stock options and stock awards will immediately vest, and all options held by an employee prior to his or her termination for disability will remain exercisable for three years thereafter.

Retirement

We do not provide any retirement benefits to the Named Executive Officers, other than the matching 401(k) plan contributions of up to $3,000 per year that are provided to all employees who participate in our 401(k) plan.

However, employees are generally entitled to continued vesting and exercisability with respect to their EMC equity awards if they are retirement eligible under EMC’s equity plans. For this purpose, employees are eligible to retire if they voluntarily terminate employment after 20 years of service or after they have attained age 55 with five years of service and provided they give six months’ advance notice. None of the Named Executive Officers are retirement eligible. We do not have a similar retirement benefit for awards granted under our 2007 Equity and Incentive Plan.

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Valuation of Accelerated Vesting of Equity Awards

The amounts shown in the tables are estimates of the amounts which would have been paid upon termination of employment if such termination had occurred on December 31, 2007. The actual amounts to be paid can only be determined at the time of the termination of employment. The value of accelerated vesting in stock options and restricted stock awards and units is determined by the fair market value of our Class A common stock of $84.99 per share and the fair market value of EMC common stock of $18.53 per share, which were the closing prices of such shares on the NYSE on December 31, 2007.

Diane B. Greene

The following table shows the potential payments and benefits that will be provided under each of the scenarios discussed above.