The CMD Committee reduced his compensation by approximately 50%. The historical 75th percentile position was intended to reflect Mr. Lundgren's sustained leadership, experience and long tenure in the role as well as our size relative to the peers, measured primarily on annual revenue and market capitalization, both of which fall between the median and the 75th percentile. Upon Mr. Gennette's promotion to President and CEO, the CMD Committee set his targeted total direct compensation between the 25th percentile and median of the peer group, reflecting his inexperience in the role, with the expectation that targeted total direct compensation will move towards median over time, assuming strong performance.
The use of market comparison data
With respect to fiscal 2016 compensation, the CMD Committee usedreferences comparative compensation data of the followinga peer group of 12 publicly-tradedpublicly traded retail companies to assessinform itself of the competitiveness of our executive compensation levels and opportunities,program design and in determiningbelieves the individual components ofdata provides directional context for compensation compensation practices, and the
relative proportions of each component of compensation:
|
| | |
Bed, Bath & Beyond | Kohl's | Sears Holdings |
Dillard's | L Brands | Target |
Gap | Nordstrom | TJX Companies |
J.C. Penney | Ross Stores | Walmart |
We selected this peer group in 2013 with input from FW Cook, taking into consideration a variety ofdecisions. The CMD Committee recognizes that due to factors unique to Macy’s, including revenue, market capitalization, total assets, number of employees, Global Industry Classification Standard, business model product and customer base,strategies, scope and whether the company competes with the Company with respect to product, customers and/orcomplexity of jobs, and specific talent needs, as well as executive talent. We review our peer group annually.
As of October 2016, our revenues and total assets ranked at and above the 75th percentile ofchanges within the peer group companies. Our net income and market cap rank near median and the number of employees between the median and 75th percentile of the peer group companies.
|
| | | | | | | | | | | | | | | | | | | |
| ($ in millions) | | Revenue (1) | | Net Income (1) | | Market Cap (2) | | Total Assets (3) | | Number of Employees (4) |
| 75th Percentile: | |
| $26,117 |
| |
| $1,485 |
| |
| $28,479 |
| |
| $12,093 |
| | 187,500 |
|
| Median: | | 14,976 |
| | 743 |
| | 10,006 |
| | 8,648 |
| | 122,500 |
|
| 25th Percentile: | | 12,362 |
| | 373 |
| | 5,271 |
| | 7,323 |
| | 76,475 |
|
| | | | | |
| | | | |
| | |
| Macy's | |
| $26,132 |
| |
| $688 |
| |
| $11,256 |
| |
| $21,274 |
| | 157,900 |
|
| Macy's Percentile Rank | | 75 | % | | 44 | % | | 55 | % | | 85 | % | | 68 | % |
Data Source: Standard & Poor's Capital IQ, as of October 31, 2016
(1) Most recently reported four quarters.
(2) As of October 31, 2016.
(3) Most recently reported quarter.
(4) Most recently reported fiscal year.
Competitive Analyses. As part of the fiscal 2016 compensation planning process, the CMD Committee asked FW Cook to review the design of our annual and long-term incentive programs and prepare a competitive analysis of the compensation of the Named Executives. The materials prepared by FW Cook included:
| |
(i) | an analysis of the design of our annual incentive and long-term incentive programs in relation to our financial and strategic priorities, human resources objectives and market practice to determine whether changes were appropriate, |
| |
(ii) | a competitive analysis of the targeted total direct compensation for the Named Executives, including base salary, annual incentives and long-term incentives, and |
| |
(iii) | a competitive assessment of our long-term incentive grant practices, including a review of share usage (shares granted in equity plans as a percentage of weighted-average outstanding shares) and potential dilution relative to peer group practice and a fair value transfer analysis that measured the aggregate cost of long-term incentives as a percent of market capitalization and revenue. |
FW Cook determined that our incentive compensation programs continue to be well designed and reward profitable growth and appreciation in shareholder value through successful execution of the strategies to enhance customer engagement and financial objectives on both an absolute and a relative basis. Based on this review, the CMD Committee determined that no material changes to the design of the annual incentive and long-term incentive programs for fiscal 2016 were warranted.
Pay-for-performance compensation mix
In recognition of the ability of executive officers to directly influence our overall performance, and consistent with our philosophy of linking pay to performance, the largest portion of the Named Executives' compensation is variable, at-risk pay. The actual amounts realized may vary from "targeted" compensation based upon the level of achievement of specific corporate objectives, stock price performance and the Company's TSR relative to the peer companies. Total compensation and the amount of each element are driven by the design of our executive compensation program, the executive's years of experience, the scope of his or her duties and internal comparability.
The CMD Committee has established guidelines for annual performance-based incentive awards and for long-term performance-based equity incentive awards. Based on the combination of the annual incentive and long-term award guidelines, 74% to 89% of the Named Executives' targeted total direct compensation (salary, annual incentive and grant date value of long-term incentive awards) for fiscal 2016 was delivered through variable incentives in which payout is tied toyear-over-year changes in stock price and predetermined performance objectives.
Equity-based long-term incentive awards, which for fiscal 2016 consisted of performance-based restricted stock units (60% of the total long-term incentive grant date value) and stock options (40% of the total long-term incentive grant date value), represent the largest element of pay for the Named Executives. These percentages are consistent with our compensation philosophy of focusing on sustained financial results and strategic initiatives and fostering a pay-for-performance culture.
The targeted total direct compensation mix we used for fiscal 2016 for Mr. Lundgren and the other Named Executives is illustrated below. This mix of short- and long-term compensation components provides sufficient rewards to
motivate near-term performance, while at the same time providing significant incentives to keep our executives focused on longer-term corporate goals that drive shareholder value.
|
| | | | | |
| CEO Targeted Pay Mix | Salary | Annual Incentive | Performance Restricted Stock Units | Stock Options | Total |
| % of Total Compensation | 11.2% | 19.0% | 41.9% | 27.9% | 100% |
| Short-Term Cash vs. Long-Term Equity | 30.2% | 69.8% | 100% |
| Fixed vs. Performance-Based | 11.2% | 88.8% | 100% |
|
| | | | | |
| Other Named Executives Targeted Pay Mix (average) | Salary | Annual Incentive | Performance Restricted Stock Units | Stock Options | Total |
| % of Total Compensation | 25.6% | 23.8% | 30.4% | 20.2% | 100% |
| Short-Term Cash vs. Long-Term Equity | 49.4% | 50.6% | 100% |
| Fixed vs. Performance-Based | 25.6% | 74.4% | 100% |
Fiscal 2016 Compensation and Analysis
Base Salary
Members of senior management earn a base salary that is competitive and consistent with their position, skill level, experience, knowledge and length of service with the Company. Base salary is intended to aid in the attraction and retention of talent in a competitive market and is generally aligned with market median, although actual salaries may be higher or lower as a result of various factors, including those referred to above as well as our performance results, the broad economic climate in which the Company operates, internal pay equity and attributes and circumstances that are specific to particular individuals. Base salaries of senior management are reviewed by the CMD Committee in March of each year, as well as at the time of promotion or significant changes in responsibility.
Following the conclusion of fiscal 2015, management, with input from FW Cook and Mr. Lundgren, prepared for the CMD Committee a summary of the total compensation package then in effect for each Named Executive and a proposed total compensation package for fiscal 2016 for each Named Executive. As shown below, the proposed compensation packages did not provide for any changes to base salary compensation for the Named Executives.
2016 Base Salary Increases |
| | | | | | | | | | | |
| Name | | FY 2016 Salary (000s) | | FY 2015 Salary (000s) | | %
Increase |
| Lundgren |
| $1,600 |
| |
| $1,600 |
| | 0 | % |
| Hoguet |
| $900 |
| |
| $900 |
| | 0 | % |
| Gennette |
| $1,000 |
| |
| $1,000 |
| | 0 | % |
| Sachse |
| $900 |
| |
| $900 |
| | 0 | % |
Annual Incentive
The Named Executives participated in the Senior Executive Incentive Compensation Plan, referred to as the Incentive Plan, in fiscal 2016. The Incentive Plan aligns executive compensation with our business strategy and operating performance objectives and is designed to motivate executives to meet or exceed annual corporate financial goals that are established by the CMD Committee and approved by the full Board.
The CMD Committee approved the annual performance goals for the fiscal 2016 annual incentive in March 2016 after the Board approved our fiscal 2016 business objectives and strategies. When setting fiscal 2016 performance goals, the CMD Committee considered the current economic conditions, potential events that could impact future sales and earnings levels and our performance relative to the performance of the peer companies. As discussed below, the CMD Committee set goals that were challenging yet reasonable, and would increase shareholder value if achieved.
Target Annual Incentive Opportunity. The CMD Committee made no changes to the target annual incentive opportunities for the Named Executives in fiscal 2016.
Maximum Annual Incentive Opportunity. The Named Executives become eligible for a maximum annual incentive award based on a percentage of EBIT achieved for the fiscal year. The maximum potential award for Mr. Lundgren for fiscal 2016 is equal to 0.45% of EBIT and the maximum potential award for each of the other Named Executives is equal to 0.25% of EBIT. No annual incentive award, however, can exceed the Incentive Plan's per-person maximum of $7 million.
For purposes of determining performance results, EBIT is adjusted to eliminate the effects of asset impairments, restructurings, acquisitions, divestitures, other unusual or infrequently occurring items, store closing costs, unplanned material tax law changes and/or assessments and the cumulative effect of tax or accounting changes, as determined in accordance with generally accepted accounting principles, as applicable. If EBIT is positive, a portion of each dollar of EBIT is used to determine the participant's maximum award. If EBIT is negative, no incentive awards are paid.
The CMD Committee selected EBIT as the performance metric to ensure that the maximum potential payout is determined as a percentage of controllable profit. Excluding interest and taxes ensures that profit is defined based on operating results that the Named Executives can directly influence. The CMD Committee set the percentages of EBIT for the Named Executives at a level sufficient to enable reasonable award levels under all possible scenarios.
Reduction of the Maximum Annual Incentive Award. In determining actual incentive awards made under the Incentive Plan, the CMD Committee has the discretion to, and has in the past, paid actual incentive awards which are lower than the maximum awards described above. The CMD Committee may reduce the maximum incentive awards based on a "targeted" annual incentive award opportunity established for each Named Executive under the Incentive Plan and our overall performance during the fiscal year measured against pre-established financial goals or on such alternative or additional factors, if any, as it may deem appropriate.
The targeted annual incentive award opportunities for the Named Executives are expressed as a percent of year-end base salary and actual awards may range from 0% to 260% of the "target" award, not to exceed the maximum as determined under the above-referenced EBIT formula, depending upon actual performance relative to the pre-determined goals, as shown in the chart below (and on such alternative or additional factors, if any, as the CMD Committee deems appropriate). The calculation of performance results may be adjusted to eliminate the effects of asset impairments, restructurings, acquisitions, divestitures, other unusual or infrequently occurring items, store closing costs, unplanned material tax law changes and/or assessments and the cumulative effect of tax or accounting changes, as determined in accordance with generally accepted accounting principles, as applicable. The targeted annual incentive award opportunities are interpolated for performance results falling between "threshold" and "target" and between "target" and "outstanding".
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| | | | | | | | | | | | |
| | | | | | Annual Incentive as a % of Base Salary |
| Position | | Component | | | Threshold | | Target | | Outstanding |
| Chief Executive Officer | EBIT $ | | 18.1 | % | | 90.7 | % | | 272.1 | % |
| | Sales $ | | 18.1 | % | | 56.7 | % | | 124.7 | % |
| | Cash Flow $ | | 9.1 | % | | 22.6 | % | | 45.2 | % |
| | Total | | 45.3 | % | | 170.0 | % | | 442.0 | % |
| | | | | | | | |
| President | EBIT $ | | 13.3 | % | | 66.7 | % | | 200.1 | % |
| | Sales $ | | 13.3 | % | | 41.7 | % | | 91.7 | % |
| | Cash Flow $ | | 6.6 | % | | 16.6 | % | | 33.2 | % |
| | Total | | 33.2 | % | | 125.0 | % | | 325.0 | % |
| | | | | | | | |
| Other Named Executives | EBIT $ | | 8.0 | % | | 40.0 | % | | 120.0 | % |
| | Sales $ | | 8.0 | % | | 25.0 | % | | 55.0 | % |
| | Cash Flow $ | | 4.0 | % | | 10.0 | % | | 20.0 | % |
| | Total | | 20.0 | % | | 75.0 | % | | 195.0 | % |
| | | | | | | | | | |
The CMD Committee selected the following levels of EBIT, Sales and Cash Flow as the financial goals for fiscal 2016 under the Incentive Plan for purposes of the targeted annual incentive opportunity for the Named Executives:
|
| | | | | | | | | | |
| | | | Performance Range ($ in millions) |
| Performance Metric | | Weight | | Threshold | | Target | | Outstanding |
| EBIT | 53.3% | | 85% of Target | |
| $2,341.9 |
| | 120% of Target |
| Sales | 33.3% | | 98% of Target | |
| $27,505.3 |
| | 101% of Target |
| Cash Flow | 13.3% | | $50 below Target | |
| $1,677.6 |
| | $150 above Target |
Reasons for Selecting These Metrics. The Incentive Plan financial metrics focus executives on maximizing growth, operating profit dollars and cash flow.
The EBIT measure focuses the executives on maximizing operating income and is a good indicator of how effectively our annual business objectives and strategies, which focus on growth in profits, are being executed.
Sales, a priority for retailers, are a measure of growth and provide opportunities for the achievement of various other financial measures, including EBIT and cash flow. The Sales target under the Incentive Plan includes sales of departments licensed to third parties and excludes certain items that are included in externally reported sales under GAAP, including licensed department income, shipping and handling fees and sales to third-party retailers.
Cash Flow measures how much cash we generate from our operating activities net of our investing activities. This cash can be used to further invest in the business, to return to shareholders or to strengthen the balance sheet.
The heavier weighting for the EBIT and Sales objectives reflects our emphasis on profitable growth. The performance levels of EBIT, Sales and Cash Flow are determined annually, consistent with the economic environment at the time our annual business objectives and strategies are finalized and are set to help the Company achieve its longer term average EBITDA margin and average ROIC objectives under the long-term incentive program discussed below. These performance levels are intended to be aggressive but realistic, such that achieving threshold levels would represent minimum acceptable performance and achieving maximum levels would represent outstanding performance. The targeted Sales objective is based to a significant degree on an assumption regarding sales growth relative to projected General Merchandise, Apparel and Home Furnishings (GAF) growth. The sales growth assumption is based on recent history and is adjusted for the risks and opportunities that are embedded in our merchandising strategies. We then plan our EBIT/EBITDA and cash flow objectives to incorporate our cost reduction strategies and real estate monetization.
Fiscal 2016 Annual Incentive Awards. At its March 23, 2017 meeting, the CMD Committee determined the actual incentive awards to be paid to the Named Executives for fiscal 2016 performance.
Based on our financial results for fiscal 2016, the CMD Committee determined that we achieved positive EBIT (adjusted as described below) of $1.946 billion. This resulted in a maximum potential incentive award of $8.760 million for Mr. Lundgren (0.45% of EBIT) and $4.866 million for each of the other Named Executives (0.25% of EBIT), in all instances subject to the Incentive Plan's per-person maximum of $7 million.
Consistent with the design of the annual incentive award program described above, the CMD Committee exercised its discretion to reduce the maximum potential incentive awards, based on the level of achievement of the EBIT, Sales and Cash Flow metrics, as adjusted as described below in relation to amounts reported in our audited financial statements. The CMD Committee adjusted EBIT for costs associated with unplanned store closings and asset impairment charges, for costs associated with an unplanned restructuring and cost reduction program, for a timing shift of gain recognition related to the sale of a store in Brooklyn and for non-cash settlement charges associated with retirement plans. The CMD Committee adjusted Sales to account for unplanned store closings.
|
| | | | | | | | | | | | | | | | |
| | | 2016 Performance ($ in millions) | | Annual Incentive Payout as a % of Base Salary |
| Annual Incentive Component | | Results | | Achievement Level | | Lundgren | | President | | Other Named Executives |
| EBIT $ | |
| $1,946.8 |
| | Below Threshold | | 0 | % | | 0 | % | | 0 | % |
| Sales $ | |
| $26,665.0 |
| | Below Threshold | | 0 | % | | 0 | % | | 0 | % |
| Cash Flow $ | |
| $1,681.4 |
| | Between Target and Outstanding | | 23.17 | % | | 17.02 | % | | 10.25 | % |
| | | | | | | | | | | |
| Total Earned | | | | | | 23.17 | % | | 17.02 | % | | 10.25 | % |
| Total Target Opportunity | | | | | | 170.00 | % | | 125.00 | % | | 75.00 | % |
Long-term equity compensation
The equity compensation awards made to the Named Executives in fiscal 2016 consisted of performance-based restricted stock units and stock options. A description of each type of award, with relevant definitions, begins on page 66. The long-term incentive program is designed to align the interests of the Company and its executives with those of its shareholders.
How Awards are Determined. The CMD Committee, taking into account the recommendations of FW Cook, established a target dollar amount for total long-term compensation for the performance period beginning with fiscal 2016 for each Named Executive. The target amounts are consistent with median (75th percentile for Mr. Lundgren) long-term incentive opportunities provided by our peer group companies, and also take into account prior-year opportunities. The CMD Committee determined that the target 2016 long-term compensation for the Named Executives would be allocated as follows:
60% in performance-based restricted stock units that vest after a three-year performance period only if we meet pre-determined financial performance and relative TSR goals; and
40% in stock options that vest in installments over a four-year period and have value only if our stock price increases over the grant price of the options.
The value given to the equity compensation awards by the CMD Committee are estimates, and are not intended to be predictive of the actual value that the Named Executives might realize from the awards. The amount they ultimately realize will be based on our financial performance, relative TSR and stock price performance.
Reasons for This Mix of Long-term Awards. The CMD Committee established this mix of equity awards to support several important objectives, including focusing key employees, including the Named Executives, on the following items:
establishing a direct link between compensation and the achievement of our long-term financial objectives and returns to shareholders on both absolute and relative basis;
the achievement of longer-term goals related to our key strategies (the My Macy's localization initiative, driving the omnichannel business and embracing customer centricity, including engaging customers on the selling floor through the Magic Selling program); and
enhancing retention by mitigating the impact of fluctuations in the price of the common stock with the use of performance-based restricted stock units in combination with stock options.
The CMD Committee believes this mix provides a reasonable balance between stock price performance and longer-term operating and strategic performance.
Performance-Based Restricted Stock Units.The CMD Committee determines the number of performance-based restricted stock units required to deliver the targeted award value (60% of the fiscal 2016 long-term incentive award opportunity) to the Named Executives by dividing the targeted award dollar value by the closing price of Macy's common stock on the date of the grant.
Maximum Award Opportunity. A maximum award of 150% of the target award of performance-based restricted stock units is funded following the end of the three-year (fiscal 2016-2018) performance period if cumulative EBITDA earned over the performance period is at least $8.5 billion. In determining the actual number of units to be paid, the CMD Committee has the discretion to reduce the maximum award based on our performance against pre-established performance objectives, as explained below.
Determination of Actual Award. Subject to the attainment of the $8.5 billion cumulative EBITDA threshold over the three-year (fiscal 2016-2018) performance period, the awards granted in fiscal 2016 may pay out from 0% to 150% of the target award opportunity based on our performance against average EBITDA margin, average ROIC, and relative TSR objectives over the three-year performance period (as such calculations are described beginning on page 66), as follows:
|
| | | | | | | | | | | | | | | |
| | | EBITDA Margin (50% weight) | | ROIC (30% weight) | | Relative TSR (20% weight) |
| Performance Level* | | 3-Year Average | | Vesting % | | 3-Year Average | | Vesting % | | 3-Year TSR vs. Peers | | Vesting % |
| Outstanding | ≥ 13.7% | | 150 | % | | ≥ 22.3% | | 150 | % | | ≥ 75.0% | | 150 | % |
| Target | 13.2% | | 100 | % | | 21.3% | | 100 | % | | 50.0% | | 100 | % |
| Threshold | 12.7% | | 50 | % | | 20.3% | | 50 | % | | 35.0% | | 50 | % |
| Below Threshold | < 12.7% | | 0 | % | | < 20.3% | | 0 | % | | < 35.0% | | 0 | % |
| |
* | Straight-line interpolation will apply to performance levels between the ones shown. |
If the $8.5 billion cumulative EBITDA threshold is not attained, no awards are payable regardless of our performance against the average EBITDA margin, average ROIC and relative TSR metrics. Performance levels for each metric are based on our long-term business objectives and strategies and historic performance of key business competitors.
Reasons for Selecting These Metrics. The CMD Committee selected these performance metrics because they are closely monitored by investors and are the key drivers of long-term sustainable shareholder value creation. In addition, the average EBITDA margin and average ROIC metrics complement the EBIT, Sales and Cash Flow measures used in the annual incentive plan by focusing executives on efficient use of assets and profitable growth.
With respect to EBITDA margin, the Company has long stated to investors that its objective is to achieve an EBITDA margin rate of 14%, consistent with historic peak profit levels for the Company and above that of our key competitors. While unlikely to be achieved in the near term, the Company believes this still to be an appropriate longer-term objective and goals were set to encourage margin improvement.
ROIC is a measure of investment productivity and the efficiency in which assets are employed in the operation of the business. It is a very important measure of our performance over time because capital decisions need to be evaluated over an extended period. That is why we include it in our long-term incentive plan and not in our annual incentive plan.
Relative TSR is a good measure of shareholder value creation, especially when measured on a consistent basis over extended periods of time. In addition, peer-to-peer measurement is viewed as an executive compensation "best practice" by many proxy advisory firms and corporate governance experts. The CMD Committee determined that TSR should be measured against that of the compensation peer group since that group includes our primary competitors for business, talent and investor capital and results in a consistent group being used internally for pay and performance comparisons. The 20% weighting given to the relative TSR metric ensures that a meaningful amount of the grant is subject to relative TSR results.
Stock Options. The CMD Committee determines the number of stock options required to deliver the targeted value (40% of the fiscal 2016 long-term incentive award opportunity) by dividing the targeted award dollar value by the Black-Scholes value for the common stock on the grant date. Stock options are granted at the closing price of Macy's common stock on the date of the grant, vest 25% on each of the four anniversaries following the grant date and have a term of 10 years. Any value that the Named Executives may realize from stock option grants is wholly dependent upon share price appreciation after the date of the grant and, furthermore, only to the extent that share price appreciation is sustained over the required service vesting period and thereafter during the term of the option.
Fiscal 2016 Equity Awards.
Awards Granted in 2016. At its March 22, 2016 meeting, the CMD Committee granted the number of stock options and target number of performance-based restricted stock units to the Named Executives that are reflected in the 2016 Grants of Plan-Based Awards table on page 65.
Awards Not Earned and therefore Forfeited in 2016. The three-year (fiscal 2014-2016) performance period for the performance-based restricted stock units granted to the Named Executives in fiscal 2014 expired as of the end of fiscal 2016. In February 2017, the CMD Committee determined that cumulative EBITDA earned over the performance period exceeded the applicable $8.25 billion threshold, resulting in the maximum award of 150% of the target award being
funded. The CMD Committee exercised its negative discretion to then determine the number of performance-based restricted stock units that would be paid based on our average EBITDA margin, average ROIC and relative TSR performance objectives over the three-year performance period, as follows:
|
| | | | | | | | | | | | | | | |
| | | EBITDA Margin (50% weight) | | ROIC (30% weight) | | Relative TSR (20% weight) |
| Performance Level* | | 3-Year Average | | Vesting % | | 3-Year Average | | Vesting % | | 3-Year TSR vs. Peers | | Vesting % |
| Outstanding | ≥ 14.6% | | 150 | % | | ≥ 24.0% | | 150 | % | | ≥ 75.0% | | 150 | % |
| Target | 14.3% | | 100 | % | | 23.6% | | 100 | % | | 50.0% | | 100 | % |
| Threshold | 13.6% | | 50 | % | | 22.0% | | 50 | % | | 35.0% | | 50 | % |
| Below Threshold | < 13.6% | | 0 | % | | < 22.0% | | 0 | % | | < 35.0% | | 0 | % |
* Straight-line interpolation applies to performance levels between the ones shown.
Our average EBITDA margin and ROIC, as well as Relative TSR were below the threshold level of performance level. As a result, the Named Executives did not earn any of the performance-based stock units and therefore forfeited 100% of the performance restricted stock units granted in March 2014.
Other Benefits and Programs Under the Executive Compensation Program
Benefits
We provide certain limited executive benefits to senior executives, including the Named Executives, to fulfill particular business purposes. In general, these benefits make up a very small percentage of targeted total compensation for the Named Executives.
Supplementary Executive Retirement Plan. The Named Executives other than Ms. Garcia participate in the Company's supplementary executive retirement plan. This plan supplements the pension benefits provided to the Named Executives under our cash account pension plan, and takes into account compensation that the tax rules do not permit the cash account pension plan to take into account. The plan was closed to new participants in January 2012 and benefits under the plan were frozen effective as of December 31, 2013. As a result, no Named Executive has accrued an additional benefit under the plan since fiscal 2013.
Executive Deferred Compensation Plan. Through December 31, 2013, we provided executives the opportunity to defer receiving income under the Executive Deferred Compensation Plan (EDCP), generally until after they terminate their employment. This benefit offered tax advantages to eligible executives, permitting them to defer payment of their compensation and defer taxation on that compensation until the deferred amounts are paid to the executives. Effective January 1, 2014, the EDCP was replaced with the Macy's, Inc. Deferred Compensation Plan. Amounts deferred under the EDCP will continue to earn interest or dividend equivalents, but participants may no longer defer compensation under the plan.
Macy's, Inc. Deferred Compensation Plan. Effective January 1, 2014, the Named Executives became eligible to participate in the Macy's, Inc. Deferred Compensation Plan. This plan operates in a manner similar to our 401(k) Plan and provides for income deferral and Company matching contribution opportunities with respect to compensation in excess of amounts eligible for such opportunities under our 401(k) Plan.
Car and Driver Program. Pursuant to a recommendation resulting from an independent third-party security study, we provide Mr. Lundgren with the services of a car and driver for commuting in New York City, for certain business travel and for personal use. This benefit is to ensure the personal safety of Mr. Lundgren, who maintains a significant public role as the leader of Macy's. The benefit also allows Mr. Lundgren to work productively during his commute. This benefit will also be provided to Mr. Gennette in his role as President and CEO.
Business Club. The Named Executives are offered Company-paid membership at business clubs for the purpose of conducting business on behalf of Macy's. This benefit provides the Named Executives with access to appropriate settings for business networking and other business functions and meetings. Any meal or other expenses incurred at the club that are not business-related are the responsibility of the Named Executives.
Company Airplane. Except as described below, Company-owned aircraft are generally used for Company business only. Mr. Lundgren travels extensively on Company business while overseeing our Macy's, Bloomingdale's and Bluemercury omnichannel operations, which include more than 800 stores in 45 states, the District of Columbia, Guam and
Puerto Rico. In addition to the use of Company-owned aircraft for business, we encourage Mr. Lundgren to use Company-owned aircraft for personal flights as well. This ensures the safety and security of Mr. Lundgren and his family and enables him to conduct business more efficiently and securely before, during and after flights. As a result of the enhanced safety and efficiency associated with personal use of the aircraft, the CMD Committee believes that the value accruing to the Company more than offsets the incremental costs that Macy's incurs to make the aircraft available for Mr. Lundgren's personal use and thereforesurvey data, there is an efficient formimperfect comparability of compensation for him. Mr. Lundgren is required to reimburse the Company to the extent that the calculated costs associated with his personal usage of Company-owned aircraft in a fiscal year exceeds $75,000 in the aggregate. This benefit will also be provided to Mr. Gennette in his role as President and CEO.
Severance Benefits
Executive Severance Plan and Change-in-Control Plan. To enable the Company to offer competitive total compensation packages to key executives, as well as to ensure the retention, independence and objectivity of these individuals when considering potential takeovers that may create uncertainty as to their future employment with the Company, the CMD Committee (and the Non-Employee Directors with respect to Mr. Lundgren) approved an executive severance plan and a change-in-control plan, referred to as the CIC Plan, in October 2009. The CMD Committee believes that the benefits provided under these plans are appropriate and are consistent with our objective of attracting and retaining highly-qualified executives.
In addition, the CMD Committee believes that the CIC Plan provides the Company with certain protections, specifically to retain key executives prior to or following a change in control and to ensure key executives maintain their focus on the interests of shareholders when making decisions during a potential or actual change-in-control transaction. In setting the severance benefit level under the CIC Plan,NEO positions among companies. Thus, the CMD Committee does not considerbenchmark or target any specific position for compensation components based on peer group data.
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