EXPERIENCE Ms. Collins has been President of Cambium LLC, a consulting firm serving small and medium sized businesses, since 2007. Ms. Collins has served as a director of PrivateBancorp, Inc. since November 2014 and since its acquisition in June 2017, has been a board member of the acquirer, CIBC, and currently serves on the audit committee. Since July 23, 2021, Ms. Collins has been a board member of RSG Holdings, Inc., and serves on its audit committee. In 1997, Ms. Collins co-founded Svoboda, Collins LLC, a private equity firm, where she served as Managing Director from 1998 to 2007 and continues to serve on its Advisory Board. From 1992 to 1997, Ms. Collins was a principal at William Blair & Company, LLC, where she focused on specialty retail, catalog, and distribution businesses in corporate finance. Ms. Collins served as a director of Integrys Energy Group, Inc. from May 2011 to June 2015 and as a member of its audit committee and Chairperson of its governance committee. Additionally, Ms. Collins’ prior public company director experience includes Molex, Inc. from 2003 to 2013, including as a member of its audit committee and nominating and corporate governance committee, Bucyrus International, Inc. from 2009 to 2011, including as a member of its audit committee, and CDW Corporation from 1996 to 2007, where she served as Chairperson of its audit committee. Qualifications:QUALIFICATIONS
The Board benefits from Ms. Collins’ extensive experience serving on both private and public company boards and her prior committee experience makes her a valued member of the Board and member of our audit committee and Chair of our nominating and corporate governance committee. Ms. Collins’ experience evaluating, investing in, monitoring, and exiting private equity investments as well as advising growth companies as an investment banker also enhances her value to the Company’s Board. | Patricia A. Little
| Age: 60EXPERIENCE
Director since: 2019
Experience:
Ms. Little served as the Senior Vice President and Chief Financial Officer of The Hershey Company from 2015 until her retirement in May 2019. Prior to joining Hershey, she was the Executive Vice President and Chief Financial Officer at Kelly Services, Inc. from 2008 to 2015 and before that she spent 24 years with Ford Motor Company holding a variety of leadership roles. Ms. Little currently serves as a member of the Board of Directors of McCormick and Company Inc. and is a member of its nominating/corporate governance committee. Qualifications:QUALIFICATIONS
The Board benefits from Ms. Little’s deep financial and leadership expertise and insights gained from her more than 30 years of experience with consumer-oriented and brand-driven companies.
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 11
| | | | | Michael C. Smith | | | Age: 51 52 Director since:Since: 2019 | 
| | | | | | | | | EXPERIENCE Experience:
Mr. Smith is the Co-Founder and General Partner and co-founder of Footwork, Venture Capital, an early stage venture capital firm. He previously served asfirm. Previously, he was President, Chief Operating Officer and interim Chief Financial Officer of Stitch Fix, Inc., anthe online personal styling platform with millions of clients, overseeingservice where he oversaw operations, styling, client experience, merchandise, and finance, from October 2018 to January 2021, and in various other executive positions at Stitch Fix, including as Chief Operating Officer from June 2012 to March 2016 and from September 2017 to October 2018. From 2003Prior to 2012,Stitch Fix, Mr. Smith served in a variety of capacities at Walmart.com, including Vice President from 2008 to 2010 andwas Chief Operating Officer at Walmart.com, overseeing all operations for a $5 billion division, including one of the most successful multi-channel offerings in the industry. He holds a B.A. from 2010 to 2012. the University of Virginia and an M.B.A. from the Haas School at University of California, Berkeley. Mr. Smith currently serves as a member of the Board of Directors of Stich Fix and Herman(NASDAQ: SFIX), Miller Knoll, Inc. (where(NASDAQ: MLKN), where he is also a member of its audit committee)committee and Big Sky Growth Partners (NASDAQ: BSKY). Qualifications:QUALIFICATIONS
The Board benefits from Mr. Smith’s more than 28 years of professional experience, with deep retail experience and a strong understanding of data analytics and logistics through a customer-centric lens. |
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Class II Directors Continuing in Office Until the 2024 Annual Meeting: | | | | | Catherine A. Halligan | | David C. Kimbell | Age: 58 Director Since: 2012 | 
| | Age: 55 Director Since: 2021 | 
| | | | | | EXPERIENCE Ms. Halligan has served as an Advisor/Consultant to Chanel Inc. since January 2014 and Narvar Inc. since February 2013. Since January 2019, she has served as a non-executive director of Ferguson plc, a foreign private issuer listed on both the NYSE and the London Stock Exchange and is in the FTSE 100 index of listed companies,including as a member of the audit, nominating and governance, remuneration, and technology committees. Ms. Halligan also serves as a non-executive director of Driven Brands Holdings, Inc., a controlled company listed on the NASDAQ, and serves as Chair of its compensation committee. Ms. Halligan previously served as a member of the board of directors of FLIR Systems, Inc. between March 2014 and its merger with Teledyne in May 2021, including as Chair of the compensation committee and a member of its audit committee. Ms. Halligan held Senior Executive level positions with a SaaS software company and prominent retailers. She served as an Advisor from January to April 2012 and Senior Vice President, Sales & Marketing from July 2010 to December 2011 of PowerReviews Inc., a leading SaaS software for customer reviews and social commerce. Prior to joining PowerReviews Inc., from 2005 to 2010, she was an Officer, and served in various executive positions with Walmart, including Chief Marketing Officer of Walmart from 2007 to 2009 and Vice President Market Development, Global eCommerce of Walmart.com from 2009 to 2010. From 2000 to 2005, Ms. Halligan served as an Associate Partner at Prophet, a global strategy consultancy. From 1996 to 1999, Ms. Halligan held Executive retail management positions with Williams Sonoma Inc., including Vice President and General Manager, Internet and Vice President, Marketing. Ms. Halligan also has previous retail experience with Blue Nile, Inc. and the Gymboree Corporation. Ms. Halligan began her career as a Marketing and Planning analyst for Lands’ End from 1987 to 1991. QUALIFICATIONS With over 20 years of experience in marketing, digital, and e-commerce in the retail and SaaS software industries, Ms. Halligan provides valuable insight and expertise on strategic marketing issues, digital technology, and omnichannel business capabilities. In addition, Ms. Halligan’s business experience with large retail companies and software companies makes her a valued member of our nominating and corporate governance committee and Chair of our compensation committee. | | EXPERIENCE Mr. Kimbell has been our Chief Executive Officer since June 2021. Previously, he served as our President from December 2019 until June 2021, our Chief Merchandising and Marketing Officer from March 2015 until December 2019 and Chief Marketing Officer from February 2014 until March 2015. Prior to joining Ulta Beauty, he was Chief Marketing Officer and Executive Vice President at U.S. Cellular since February 2011. From 2008 to 2010, Mr. Kimbell served as Chief Marketing Officer and Senior Vice President of Seventh Generation, a producer of environmentally friendly household products. From 2001 to 2008, Mr. Kimbell held various positions at PepsiCo, Quaker Food Division, including Vice President of Marketing. Mr. Kimbell held a number of brand management roles in the Beauty Division of The Procter and Gamble Company from 1995 to 2001. QUALIFICATIONS As the Chief Executive Officer of the Company, Mr. Kimbell is able to provide the Board with valuable insight regarding the Company’s operations, its management team, and associates as a result of his day-to-day involvement in the operations of the business. Additionally, Mr. Kimbell brings over 25 years of operational and leadership experience in retail and consumer-driven businesses to the Board, so the Board benefits from his extensive merchandising and marketing expertise as well as his deep understanding of the beauty industry and the strategies needed to operate successfully in our evolving omnichannel and digital environment. In addition, Mr. Kimbell’s demonstrated leadership skills combined with his focus on inclusivity and sustainability provides valuable perspectives and insights to the Board. |
13
NON-EMPLOYEE DIRECTOR COMPENSATION FOR FISCAL 2020
We strive to promote an ownership mentality among our key leadership and Board of Directors.
The Company utilizes equity compensation to encourage our directors to maintain meaningful stock ownership in the Company, aligning directors’ interests with stockholders. As a result, each non-employee director is granted an annual equity retainer totaling $150,000 in the form of restricted stock units, valued using the share price of our common stock on the date of grant. During fiscal 2020, on the date of our annual meeting, each non-employee director received a grant of 595 restricted stock units that will vest on June 3, 2021.
Each non-employee director is paid an annual cash retainer. In addition, the Non-Executive Chair and each committee Chair receive an additional cash retainer for serving in those roles. Cash payments are paid pro-rata in quarterly installments at the end of each fiscal quarter. The compensation committee reviews, on an annual basis, market data gathered by the compensation committee’s independent advisor for determining compensation.
The following table sets forth the cash retainer amounts, by role:
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| | | | | George R. Mrkonic | | Lorna E. Nagler | Age: 69 Director Since: 2015 | 
| | Age: 65 Director Since: 2009 | 
| | | | | | EXPERIENCE Mr. Mrkonic is the Non-Executive Chairman of Maru Group, a UK and North America based market research company unifying deep sector expertise with cloud-based customer insight communities. In addition to being Non-Executive Chairman of Maru and a member of its audit committee, he serves as a director and member of the audit and compensation committees of AutoZone, Inc. Mr. Mrkonic is also the retired Non-Executive Chairman of Paperchase Products Limited, London, UK, a retailer of cards, stationery, wraps, and gifts. He is also the retired President and Vice Chairman of Borders Group, Inc. having served as Director from 1994 to 2004, Vice Chairman from 1994 to 2002, and President from 1994 to 1997. He began his retail career in 1978 and has led several retail companies including Herman’s Sporting Goods, Eyelab, Kmart’s Specialty Retailing Group, and Borders. In the last five years he has also served on the board of directors of Brinker International. QUALIFICATIONS Mr. Mrkonic’s more than 30 years of experience in the retail industry as well as his knowledge and skills as a senior executive and director of large public companies brings to our Board and audit committee a broad understanding of the complex strategic, governance, and financial issues facing large public companies in the current economic environment. | | EXPERIENCE Ms. Nagler has served as a member of the board of directors of Hibbett Sports since June 2019 and is the chair of its compensation committee. In July 2020, she was appointed to the Wisconsin Foundation and Alumni Association Board as a member of their audit committee. Ms. Nagler was President of Bealls Department Stores, Inc. from January 2011 to January 2016. She served as President, Chief Executive Officer and director of Christopher & Banks Corporation, a specialty retailer of women’s clothing, from August 2007 to October 2010. From 2004 to 2007, Ms. Nagler was President of Lane Bryant, a division of Charming Shoppes, Inc., a women’s apparel company. From 2002 to 2004, she was President of Catherines Stores, also a division of Charming Shoppes, Inc. From 1996 to 2002, Ms. Nagler held various retail management positions with Kmart Corporation, including Senior Vice President, General Merchandise Manager of Apparel and Jewelry, Divisional Vice President and General Merchandise Manager of Kids and Menswear. From 1994 to 1996, Ms. Nagler was a Vice President, Divisional Merchandise Manager for Kids “R” Us. Ms. Nagler also has previous retail experience with Montgomery Ward and Main Street Department Stores. QUALIFICATIONS With years of experience as a senior level executive in a wide variety of retail companies, including as the President and Chief Executive Officer of a public retail company, Ms. Nagler provides considerable expertise on strategic, management, and operational issues facing a multi-state retailer. Running a public company gave Ms. Nagler front line exposure to many of the issues facing public retail companies, particularly on the operational, financial, and corporate governance fronts. The Board also benefits from Ms. Nagler’s extensive experience in the retail industry and the informed perspectives such experience facilitates. Additionally, her past role as President and Chief Executive Officer positions her well to serve as a member of our compensation committee and nominating and corporate governance committee. |
14
NON-EMPLOYEE DIRECTOR COMPENSATION FOR FISCAL 2021 We strive to promote an ownership mentality among our key leadership and Board of Directors. The Company utilizes equity compensation to encourage our directors to maintain meaningful stock ownership in the Company, aligning directors’ interests with stockholders. As a result, each non-employee director is granted an annual equity retainer totaling $160,000 in the form of restricted stock units (rounded up to the nearest whole share), valued using the share price of our common stock on the date of grant. During fiscal 2021, on the date of our annual meeting, each non-employee director received a grant of 476 restricted stock units that will vest on June 2, 2022. Each non-employee director is paid an annual cash retainer. In addition, the Non-Executive Chair (if any), the lead independent director, and each committee Chair receives an additional cash retainer for serving in those roles. Cash payments are paid pro-rata in quarterly installments at the end of each fiscal quarter. The compensation committee reviews, on an annual basis, market data for the same peer group used to evaluate executive officer compensation gathered by the compensation committee’s independent advisor for determining compensation. In June 2021, the Board of Directors approved an increase to the cash retainer paid to the Compensation Committee Chair to bring the compensation in line with market. Additionally, they set the retainer fee for the lead independent director. Ms. Dillon’s compensation as the Company’s Chief Executive Officer until June 2, 2021 and then as the Executive Chair of the Board on and after June 2, 2021 is discussed in “Compensation Discussion and Analysis” below and her compensation for service as a director is fully reflected in the Summary Compensation Table. Mr. Garcia and Ms. Ruiz were appointed to the Board on February 16, 2022 and therefore received no compensation for services as a director in fiscal 2021. The following table sets forth the cash retainer amounts, by role, for service before and after June 2021: | | | | | | | | | | | | | | | | | Cash Retainer
Before | | | Cash Retainer
After | | Role | | | | | | June 2, 2021
($) | | | June 2, 2021
($) | | Non-Employee Director | | | | | | 110,000 | | | 110,000 | | Non-Executive Chair | | | | | | 155,000 | | | — | | Lead Independent Director | | | | | | — | | | 40,000 | | Audit Committee Chair | | | | | | 30,000 | | | 30,000 | | Compensation Committee Chair | | | | | | 25,000 | | | 30,000 | | Nominating and Corporate Governance Committee Chair | | | | | | 20,000 | | | 20,000 | |
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Table of Contents Corporate Governance | | |
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| 155,000
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| 30,000
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The following table provides information related to non-employee director compensation earned for fiscal 2021: | | | | | | | | | | | | | | Fees Earned or | | | Stock | | | | | | | | Paid in Cash | | | Awards (1) | | | Total | | Name | | | ($) | | | ($) | | | ($) | | Lorna E. Nagler (2) | | | 136,374 | | | 160,312 | | | 296,686 | | Sally E. Blount | | | 110,000 | | | 160,312 | | | 270,312 | | Michelle L. Collins | | | 130,000 | | | 160,312 | | | 290,312 | | Robert F. DiRomualdo (3) | | | 90,275 | | | — | | | 90,275 | | Catherine A. Halligan | | | 138,296 | | | 160,312 | | | 298,608 | | Charles Heilbronn | | | 110,000 | | | 160,312 | | | 270,312 | | Patricia A. Little | | | 110,000 | | | 160,312 | | | 270,312 | | Michael R. MacDonald | | | 140,000 | | | 160,312 | | | 300,312 | | George R. Mrkonic | | | 110,000 | | | 160,312 | | | 270,312 | | Michael C. Smith | | | 110,000 | | | 160,312 | | | 270,312 | |
| 1. | Amounts shown represent the grant date fair value as computed in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718, Compensation — Stock Compensation (“ASC 718”). For a discussion of the assumptions made in the valuation reflected in this column, see Note 15 to the consolidated financial statements for fiscal 2021 contained in our Annual Report on Form 10-K filed on March 25, 2022. |
| 2. | Ms. Nagler was appointed as the lead independent director on June 2, 2021. |
| 3. | Mr. DiRomualdo retired from the Board of Directors on June 2, 2021. |
The following table sets forth the outstanding restricted stock units held by our non-employee directors, other than Ms. Dillion, as of January 29, 2022: | | | | | | | | | | | | | | | | | | | | Restricted Stock | | Name | | | | | | |
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| Units (#) |
| Lorna E. Nagler | | | | | | | | | 476 | | Sally E. Blount (1) | | | | | | | | | 476 | | Michelle L. Collins (1) | | | | | | | | | 476 | | Catherine A. Halligan | | | | | | | | | 476 | | Charles Heilbronn | | | | | | | | | 476 | | Patricia A. Little (1) | | | | | | | | | 476 | | Michael R. MacDonald | | | | | | | | | 476 | | George R. Mrkonic | | | | | | | | | 476 | | Michael C. Smith | | | | | | | | | 476 | | Compensation Committee Chair
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| 25,000
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| Nominating and Corporate Governance Committee Chair
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| 20,000
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The following table provides information related
| 1. | Ms. Blount, Ms. Collins, and Ms. Little elected to non-employee director compensation earned for fiscal 2020: | | | | | | | | | | | | | | Fees Earned or | | | Stock | | | | | | | | Paid in Cash | | | Awards (1) | | | Total | | Name | | | ($) | | | ($) | | | ($) | | Robert F. DiRomualdo | | | 265,000 | | | 150,119 | | | 415,119 | | Sally E. Blount | | | 110,000 | | | 150,119 | | | 260,119 | | Michelle L. Collins | | | 130,000 | | | 150,119 | | | 280,119 | | Catherine A. Halligan | | | 135,000 | | | 150,119 | | | 285,119 | | Charles Heilbronn | | | 110,000 | | | 150,119 | | | 260,119 | | Patricia A. Little | | | 110,000 | | | 150,119 | | | 260,119 | | Michael R. MacDonald | | | 140,000 | | | 150,119 | | | 290,119 | | George R. Mrkonic | | | 110,000 | | | 150,119 | | | 260,119 | | Lorna E. Nagler | | | 110,000 | | | 150,119 | | | 260,119 | | Michael C. Smith | | | 110,000 | | | 150,119 | | | 260,119 | |
| 1. | Amounts shown representdefer the grant date fair value as computed in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718, Compensation — Stock Compensation (“ASC 718”). For a discussion of the assumptions made in the valuation reflected in this column, see Note 17 to the consolidated financial statements for fiscal 2020 contained in our Annual Report on Form 10-K filed on March 26, 2021. |
18
The following table sets forth the outstanding restricted stock units held by our non-employee directors as of April 5, 2021:
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| Robert F. DiRomualdo
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| 595
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| Sally E. Blount (1)
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| 595
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| Michelle L. Collins (1)
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| 595
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| Catherine A. Halligan
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| 595
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| Charles Heilbronn
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| 595
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| Patricia A. Little
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| 595
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| Michael R. MacDonald
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| 595
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| George R. Mrkonic
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| 595
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| Lorna E. Nagler
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| 595
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| Michael C. Smith
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| 595
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| 1. | Ms. Blount and Ms. Collins elected to defer the restricted stock units received in fiscal 2020received in fiscal 2021 until their retirement or termination from the Board of Directors. |
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Table of Contents | 19
PROPOSAL TWO
RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM | | | What are you voting on? You are being asked to ratify the appointment of Ernst & Young LLP as our independent registered public accounting firm for our fiscal year 2021, ending January 29, 2022. |
| The audit committee of the Board of Directors has appointed Ernst & Young LLP as our independent registered public accounting firm for fiscal 2021, ending January 29, 2022. Services provided to Ulta Beauty by Ernst & Young LLP in fiscal 2020 are described under “Fees to Independent Registered Public Accounting Firm” below. Additional information regarding the audit committee is provided on page 22. Ernst & Young LLP has audited the financial statements of Ulta Beauty since 1997. Representatives of Ernst & Young LLP will be available at the Annual Meeting to respond to appropriate questions and to make such statements as they may desire.
| THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” PROPOSAL TWO
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Stockholder ratification of the selection of Ernst & Young LLP as our independent registered public accounting firm is not required byfor our Bylaws or otherwise. However,fiscal year 2022, ending January 28, 2023.
| | The audit committee of the Board of Directors has appointed Ernst & Young LLP as our independent registered public accounting firm for fiscal 2022, ending January 28, 2023. Services provided to Ulta Beauty by Ernst & Young LLP in fiscal 2021 are described under “Fees to Independent Registered Public Accounting Firm” below. Additional information regarding the audit committee is submittingprovided on page 19. Ernst & Young LLP has audited the selectionfinancial statements of Ulta Beauty since 1997. Representatives of Ernst & Young LLP to the stockholders for ratification as a matter of good corporate governance practice. If the stockholders fail to ratify the selection, the audit committee will reconsider whether or not to retain that firm. Even if the selection is ratified, the audit committee, in its discretion, may direct the appointment of a different independent registered public accounting firm at any time during the year if it determines that such a change would be in the best interests of Ulta Beauty and our stockholders. The affirmative vote of the holders of a majority of the shares present by virtual presence online or represented by proxy and entitled to voteavailable at the Annual Meeting will be required to ratify the appointment of Ernst & Young LLP. Abstentions will be counted toward the tabulation of votes cast on proposals presentedrespond to the stockholdersappropriate questions and will have the same effectto make such statements as negative votes. Broker non-votes will be counted towards a quorum but will not be counted for any purpose in determining whether this proposal has been ratified.they may desire.
| THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” PROPOSAL TWO | |
20
Table of Contents
Stockholder ratification of the selection of Ernst & Young LLP as our independent registered public accounting firm is not required by our Bylaws or otherwise. However, the Board of Directors is submitting the selection of Ernst & Young LLP to the stockholders for ratification as a matter of good corporate governance practice. If the stockholders fail to ratify the selection, the audit committee will reconsider whether or not to retain that firm. Even if the selection is ratified, the audit committee, in its discretion, may direct the appointment of a different independent registered public accounting firm at any time during the year if it determines that such a change would be in the best interests of Ulta Beauty and our stockholders. The affirmative vote of the holders of a majority of the shares present virtually online or represented by proxy and entitled to vote at the Annual Meeting will be required to ratify the appointment of Ernst & Young LLP. Abstentions will be counted toward the tabulation of votes cast on proposals presented to the stockholders and will have the same effect as negative votes. Broker non-votes will be counted towards a quorum but will not be counted for any purpose in determining whether this proposal has been ratified. | Corporate Governance
| 17
Table of Contents FEES TO INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The following table sets forth the aggregate fees billed by Ernst & Young LLP for professional services rendered for fiscal 2020 and 2019:
| | | | | | | | | | | | | 2020 | | | 2019 | | Audit Fees (1) | | | $ | 2,001,000 | | | $ | 1,719,000 | | Audit-Related Fees | | | | — | | | | — | | Tax Fees (2) | | | | 993,000 | | | | 1,303,000 | | All Other Fees (3) | | | | 295,000 | | | | 225,000 | | Total | | | $ | 3,289,000 | | | $ | 3,247,000 | |
| 1. | Audit fees consist of fees and expenses for the annual audit of our consolidated financial statements included in the Annual Report on Form 10-K, the annual audit of our internal control over financial reporting, the quarterly reviews of our consolidated financial statements included in Quarterly Reports on Form 10-Q, accounting consultations, and services related to other regulatory filings made with the SEC. |
| 2. | Tax fees in fiscal 2020 consist of $202,000 for tax planning, advisory, and consulting services and $791,000 for tax compliance and preparation services. Tax fees in fiscal 2019 consist of $706,700 for tax planning, advisory, and consulting services and $596,300 for tax compliance and preparation services. |
| 3. | All other fees consist of fees for access to online research software as well as advisory services associated with information technology systems. |
The audit committee has approved all professional fees paid to Ernst & Young LLP.
The audit committee has established procedures for the pre-approval of all audit, audit-related, and non-audit-related services provided by our independent registered public accounting firm. The procedures include, in part, that: (i) the audit committee, on an annual basis, shall pre-approve the independent registered public accounting firm’s engagement letter/annual service plan; (ii) the audit committee must pre-approve any permitted service not included in the annual service plan; (iii) the audit committee Chair has the ability to pre-approve any permitted service up to a pre-determined amount between regularly scheduled meetings, as applicable, and a report of such services and related fees are to be disclosed to the full audit committee at the next scheduled meeting; and (iv) the audit committee will review a summary of the services provided and the fees paid on an annual basis.
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FEES TO INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The following table sets forth the aggregate fees billed by Ernst & Young LLP for professional services rendered for fiscal 2021 and 2020: | | | | | | | | | | | | | 2021 | | | 2020 | | Audit Fees (1) | | | $ | 1,868,000 | | | $ | 2,001,000 | | Audit-Related Fees | | | | — | | | | — | | Tax Fees (2) | | | | 1,137,000 | | | | 993,000 | | All Other Fees (3) | | | | 117,000 | | | | 295,000 | | Total | | | $ | 3,122,000 | | | $ | 3,289,000 | |
AUDIT COMMITTEE
The audit committee provides assistance to
| 1. | Audit fees consist of fees and expenses for the Board of Directors in fulfilling its responsibility to our stockholders, potential stockholders, the investment community, and other stakeholders relating to the Company’s accounting and financial reporting process and the audits of the Company’s financial statements. During fiscal 2020, theannual audit committee held nine meetings.Specifically, the audit committee assists the Board of Directors in monitoring the integrity of our consolidated financial statements our independent registered public accounting firm’s qualifications and independence,included in the performanceAnnual Report on Form 10-K, the annual audit of our internal audit function and independent registered public accounting firm, our compliance with legal and regulatory requirements, and our policies with respect to risk assessment and risk management, including cybersecurity risks. The audit committee annually evaluates its own performance and reports its findings and action plans tocontrol over financial reporting, the Board. The audit committee has direct responsibility for the appointment, compensation, retention (including termination), and oversightquarterly reviews of our independent registered publicconsolidated financial statements included in Quarterly Reports on Form 10-Q, accounting firm. Our independent registered public accounting firm reports directlyconsultations, and services related to other regulatory filings made with the audit committee.
DuringSEC.
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| 2. | Tax fees and expenses in fiscal 2021 consist of $417,000 for tax planning, advisory, and consulting services and $720,000 for tax compliance and preparation services. Tax fees and expenses in fiscal 2020 the audit committee was composedconsist of the following independent directors: Ms. Blount (until June 3, 2020), Ms. Collins, Ms. Little (effective June 3, 2020), Messrs. MacDonald, Mrkonic$180,000 for tax planning, advisory, and Smith (effective June 3, 2020). Mr. MacDonald servesconsulting services and $813,000 for tax compliance and preparation services. |
| 3. | All other fees consist of fees for access to online research software as the current Chair of the audit committee. Each of the following Committee members were designated by the Board of Directorswell as an “audit committee financial expert” as defined in applicable SEC rules: Ms. Collins, Ms. Little, Messrs. MacDonald, Mrkonic and Smith. The Board of Directors made a qualitative assessment of each member’s level of knowledge and experience based on a number of factors, including education and work, management, and director experience. The Board of Directors has determined that all members of our audit committee are financially literate and are independent, as independence is defined in Rule 5605(a)(2) of the NASDAQ listing standards and Section 10A(m)(3) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The audit committee acts under a written charter that was adopted by the Board of Directors and has been published under “Governance” in the Investor Relations section of the Ulta Beauty website located athttp://ir.ultabeauty.com.
22 advisory services associated with information technology systems.
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The audit committee has approved all professional fees paid to Ernst & Young LLP. The audit committee has established procedures for the pre-approval of all audit and non-audit-related services provided by our independent registered public accounting firm. The procedures include, in part, that: (i) the audit committee, on an annual basis, shall pre-approve the independent registered public accounting firm’s engagement letter/annual service plan; (ii) the audit committee must pre-approve any permitted service not included in the annual service plan; (iii) the audit committee Chair has the ability to pre-approve any permitted service up to a pre-determined amount between regularly scheduled meetings, as applicable, and a report of such services and related fees are to be disclosed to the full audit committee at the next scheduled meeting; and (iv) the audit committee will review a summary of the services provided and the fees paid on an annual basis. 18
AUDIT COMMITTEE The audit committee provides assistance to the Board of Directors in fulfilling its responsibility to our stockholders, potential stockholders, the investment community, and other stakeholders relating to the Company’s accounting and financial reporting process and the audits of the Company’s financial statements. During fiscal 2021, the audit committee held ten meetings. Specifically, the audit committee assists the Board of Directors in monitoring the integrity of our financial statements, our independent registered public accounting firm’s qualifications and independence, the performance of our internal audit function and independent registered public accounting firm, our compliance with legal and regulatory requirements, and our policies with respect to risk assessment and risk management, including cybersecurity and technology risks. The audit committee annually evaluates its own performance and reports its findings and action plans to the Board. The audit committee has direct responsibility for the appointment, compensation, retention (including termination), and oversight of our independent registered public accounting firm. Our independent registered public accounting firm reports directly to the audit committee. During fiscal 2021, the audit committee was composed of the following independent directors: Ms. Collins, Ms. Little, Messrs. MacDonald, Mrkonic and Smith. Mr. MacDonald serves as the current Chair of the audit committee. Each of the following Committee members were designated by the Board of Directors as an “audit committee financial expert” as defined in applicable SEC rules: Ms. Collins, Ms. Little, Messrs. MacDonald, Mrkonic and Smith. The Board of Directors made a qualitative assessment of each member’s level of knowledge and experience based on a number of factors, including education and work, management, and director experience. The Board of Directors has determined that all members of our audit committee are financially literate and are independent, as independence is defined in Rule 5605(a)(2) of the NASDAQ listing standards and Section 10A(m)(3) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The audit committee acts under a written charter that was adopted by the Board of Directors and has been published under “Governance” in the Investor Relations section of the Ulta Beauty website located at https://ulta.com/investor. 19
REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS1 The audit committee assists the Board of Directors in fulfilling its responsibility for oversight of the quality and integrity of the accounting, auditing, and financial reporting processes, and practices of Ulta Beauty. In addition, the audit committee oversees mitigation efforts related to data privacy, cybersecurity, and other technology risks. The audit committee oversees Ulta Beauty’s financial process on behalf of the Board of Directors. Management has the primary responsibility for the financial statements and the reporting process, including the systems of internal controls. Ulta Beauty has an Internal Audit Department that is actively involved in examining and evaluating Ulta Beauty’s financial, operational, and information systems activities and reports functionally to the audit committee and administratively to management. In fulfilling its oversight responsibilities, the audit committee reviewed and discussed with management the periodic reports, including the audited financial statements in our Annual Report on Form 10-K. This included a discussion of the quality, not just the acceptability, of the accounting principles, the reasonableness of significant judgments, and the clarity of disclosures in the financial statements. The audit committee reviewed with the independent registered public accounting firm, which is responsible for expressing an opinion on the conformity of those audited financial statements with accounting principles generally accepted in the United States, its judgments as to the quality, not just the acceptability, of Ulta Beauty’s accounting principles and such other matters as are required to be discussed with the audit committee under generally accepted auditing standards, including the Public Company Accounting Oversight Board Standard No. 1301, Communications with Audit Committees (AS 1301). In addition, the audit committee has discussed with the independent registered public accounting firm the firm’s independence from management and Ulta Beauty, including the matters in the written disclosures and the Letter from the Independent Registered Public Accounting Firm required by applicable requirements of the Public Company Accounting Oversight Board regarding the firm’s communications with the audit committee concerning independence. The audit committee discussed with Ulta Beauty’s independent registered public accounting firm the overall scope and plans for their audit and developed a pre-approval process for all independent registered public accounting firm services. The audit committee meets with the independent registered public accounting firm, with and without management present, to discuss the results of their examination, their evaluation of Ulta Beauty’s internal and disclosure controls, and the overall quality of Ulta Beauty’s financial reporting. As noted, the audit committee held nineten meetings during fiscal 2020.2021. In reliance on the reviews and discussions referred to above, the audit committee recommended to the Board of Directors, and the Board of Directors approved, that the audited financial statements be included in Ulta Beauty’s Annual Report on Form 10-K for fiscal 2020,2021, ended January 30, 2021,29, 2022, for filing with the SEC. The audit committee has appointed Ernst & Young LLP to be Ulta Beauty’s independent registered public accounting firm for fiscal 2021,2022, ending January 29, 2022.28, 2023. | | | Audit Committee of the Board of Directors | | | | Michael R. MacDonald (Chair)
Michelle L. Collins Patricia A. Little
George R. Mrkonic Michael C. Smith
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1 | This report is not “soliciting material,” is not deemed filed with the SEC, and is not to be incorporated by reference into any Ulta Beauty filing under the Securities Act of 1933 (as amended, the “Securities Act”) or the Exchange Act, whether made before or after the date hereof and irrespective of any general incorporation language contained in such filing. |
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COMPENSATION COMMITTEE During fiscal 2020,2021, the compensation committee was composed of the following directors, all of whom satisfy the independence requirements of NASDAQ: Ms. Halligan, Messrs. Heilbronn, MacDonald and Mrkonic, (effective June 3, 2020), and Ms. Nagler.Nagler (until June 2, 2021). Ms. Halligan serves as the current Chair of the compensation committee. During fiscal 2020,2021, the compensation committee held nineseven meetings. The compensation committee acts under a written charter that was adopted by the Board of Directors and has been published under “Governance” in the Investor Relations section of the Ulta Beauty website located at http:https://ir.ultabeauty.comulta.com/investor. Under this charter, the compensation committee is responsible for: | ● | setting our compensation philosophy; |
| ● | reviewing and approving the compensation for the CEO and herthe CEO’s direct reports (“C-Level Officers”); |
| ● | reviewing and recommending to the Board the compensation for non-employee directors; |
| ● | supervising compensation policies for all associates, including reviewing the compensation structure and procedures; |
| ● | recommending to the Board the employment, appointment, and removal of C-Level Officers in accordance with the Bylaws; |
| ● | establishing, amending, and terminating compensation and benefits plans and administering such plans; |
| ● | annually evaluating its own performance and reporting findings and action plans to the Board; and |
| ● | periodically reviewing with management the Company’s policies, practices, and practices with respectstrategies relating to human capital management as they relate to the Company’s workforce generally, including policies and strategies regarding recruiting, selection, talent development, progression and retention, succession planning, workplace health and safety, culture and engagement, and diversity, equity, and inclusion. |
The compensation committee may under its charter delegate any of its responsibilities to a subcommittee, but only to the extent consistent with our Bylaws, Certificate of Incorporation, and NASDAQ rules. Compensation Consultant During fiscal 20202021 the compensation committee engaged Pay Governance as its outside consultant to assist the compensation committee with executive and non-employee director compensation program design, to advise and consult with the committee on general compensation issues, and to keep the committee apprised of regulatory, legislative, and accounting developments and competitive practices related to executive and director compensation. In those capacities, Pay Governance was engaged directly by the compensation committee. Pay Governance is an independent executive compensation consulting firm and does not determine or recommend the exact amount or form of executive compensation for any executive officers. Pay Governance reports directly to the compensation committee, and a representative of Pay Governance, when requested, attends meetings of the committee, is available to participate in executive sessions, and communicates directly with the Chair of the compensation committee or its members outside of meetings. The compensation committee has reviewed the nature of and extent of the relationship between the compensation committee, the Company, and Pay Governance with respect to any potential conflicts of interest or similar concerns. Based on that review, the compensation committee believes that there are no conflicts of interest or potential conflicts of interest that would unduly influence Pay Governance’s provision of advice that is independent of management to the compensation committee. 24 21
Compensation Risk The Company reviewed its compensation plans, practices, and policies and determined that it does not have any such plans, practices, and policies that create risks that are reasonably likely to have a material adverse effect on the Company based on, but not limited to the following: | ● | the Company’s variable compensation programs are linked to specific performance goals set and approved by the compensation committee for executive officers and for other associates by supervisors consistent with the Company’s compensation philosophy and business goals; |
| ● | the performance periods for the pay programs are designed to match the period for which the associate has influence on the results and incorporate incentives of a longer-term nature to tie the associate to the actual results; |
| ● | payments under the incentives are capped; |
| ● | paymentsearned award levels are reviewed and certified by the compensation committee, management, payroll, and human resources, and subject to spot audits;resources; |
| ● | the mix between fixed and variable pay is balanced so as to neither discourage proper risk taking, nor encourage excessive risk taking; |
| ● | participants cannot approve their own performance goals, nor their own payouts; and |
| ● | the compensation committee actively oversees the executive compensation program and has flexibility to use its judgment in assessing performance and pay. |
Compensation Committee Interlocks and Insider Participation During fiscal 2020,2021, none of the members of our compensation committee had at any time been one of our officers or associates. None of our executive officers currently serves, or in the past year has served, as a member of the Board of Directors or compensation committee, or other committee serving an equivalent function, of any entity that has one or more executive officers serving on our Board of Directors or compensation committee. See also “Certain Relationships and Transactions” below. 2522
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS2 The compensation committee has reviewed and discussed the following Compensation Discussion and Analysis (“CD&A”) with management. Based on this review and discussion, the compensation committee recommended to the Board of Directors, and the Board of Directors approved, that the CD&A be included in Ulta Beauty’s fiscal 20202021 Annual Report on Form 10-K and this proxy statement. | | | Compensation Committee of the Board of Directors | | | | Catherine A. Halligan (Chair)
Charles Heilbronn
Michael R. MacDonald George R. Mrkonic
Lorna E. Nagler |
2 | This report is not “soliciting material,” is not deemed filed with the SEC, and is not to be incorporated by reference into any Ulta Beauty filing under the Securities Act or the Exchange Act, whether made before or after the date hereof and irrespective of any general incorporation language contained in such filing. |
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| | | | | ompensation Discussion and Analysis |
Executive Summary
This Compensation Discussion and Analysis describes the material elements of our executive compensation program during fiscal 2020. It also provides an overview of how and why our compensation committee arrived at the specific compensation decisions for our named executive officers for fiscal 2020, including the key factors that the compensation committee considered in determining their compensation. Below is an overview of some of these key factors:
| ● | COVID-19 had a deep impact on the Company. We temporarily closed all stores on March 19, 2020, our net sales decreased 16.8% in fiscal 2020 compared to fiscal 2019, and we had incremental costs of approximately $188 million related to COVID-19, including personal protective equipment (“PPE”) for our associates and adjustments to our stores and facilities to enable safe operation. |
| ● | We acted quickly to find new ways of safely operating. We worked to leverage existing capabilities and accelerated improvements to address significantly increased demand in our e-commerce operations, implemented curbside pickup on April 19, 2020, initiated a phased reopening on May 11, 2020, and reopened all stores by July 20, 2020 with new safe operating procedures and PPE for all associates. Our e-commerce sales increased over 100% in fiscal 2020 compared to fiscal 2019. |
| ● | We delivered results for our stockholders. We were able to generate positive stockholder returns in fiscal 2020, one of the most challenging years, and our three-year total stockholder return covering fiscal 2018-2020 was more than 25%. We maintained our balance sheet strength throughout the period, ending 2020 with $1 billion of cash and cash equivalents. |
| ● | We implemented compensation programs to reflect evolving business expectations. Our compensation committee approved a bifurcated short-term incentive program to reward first-half accomplishment and motivate second-half performance and granted stock options and restricted stock units to align executives with stockholders. |
| ● | Our short-term incentive program was earned at target. For the first half of 2020, the compensation committee reviewed management and Company performance and determined it would provide funding at 25% of annualized target based on management’s aggressive efforts to care for the health and wellbeing of associates and the business. For the second half of 2020, the Company achieved earnings before taxes (“EBT”) above the committee-approved maximum performance goal, resulting in a 75% annualized target payout. The compensation committee approved the resulting payout at 100% of target in recognition of management’s strong leadership, including reacting to the immediate impact of COVID-19 to protect our associates, our guests and the business; reacting to the rapid changes in the business model, including implementing new curbside pickup, and supporting a rapidly accelerating e-commerce business; and positioning stores for a second-half 2020 recovery. Executives payout at target was consistent with the payout earned by the broader population that participates in the corporate bonus plan. |
| ● | Performance-based awards were earned at 58.8% of target in 2020. Performance-based awards granted in 2019 and tied to revenue and EBT goals were earned below target and remain subject to an additional one-year time vesting period. |
| ● | Mix of long-term incentive plan awards granted in 2020 adjusted for COVID-19 uncertainty. The COVID-19 pandemic hit the U.S. immediately prior to the compensation committee’s meeting at which it typically awards annual long-term incentive plan equity awards. Given the difficulty of projecting the impact on the business and the |
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| | timing of future business recovery, the compensation committee decided to award a mix of 50% time-based restricted stock units (“RSUs”) and 50% stock options and to forgo performance-based restricted stock units (“PBSs”) for 2020. The compensation committee believes that the performance orientation of options strongly aligns the executive with stockholders, especially in the time of economic recovery. |
Overview
This Compensation Discussion and Analysis describes the Company’s executive compensation program and explains how the compensation committee made compensation decisions for the following Named Executive Officers’ (“the NEOs”) related to fiscal 2020:
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| Named Executive Officer
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| Title
| Mary N. Dillon
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| Chief Executive Officer
| David C. Kimbell
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| President
| Scott M. Settersten
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| Chief Financial Officer, Treasurer and Assistant Secretary
| Jodi J. Caro
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| General Counsel, Chief Compliance Officer and Corporate Secretary
| Jeffrey J. Childs
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| Chief Human Resources Officer
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Our Company Ulta Beauty is the largest beauty retailer in the United States and the premier beauty destination for cosmetics, fragrance, skin care products, hair care products, and salon services. We provide unmatched product breadth, value, and convenience in aKey distinctive specialty retail environment. Key aspects of our business include: Shopping Experience.One-of-a-kind Assortment. OurWe offer guests can satisfy alla differentiated assortment of their beauty needs at Ulta Beauty. Our stores, website, and mobile applications offer more than 25,000 products from more than 600 well-established and emerging beauty brands across a variety of categories and price points, including Ulta Beauty’s own private label, the Ulta Beauty Collection. Our bright and open store environment and easy to shop website and mobile applications encourage our guests to discover new products and services.points. We believe we offer the widest selection of beauty categories, including prestige and mass cosmetics, fragrance, haircare, prestige and mass skincare, bath and body products, professional hair products, and salon styling tools. We also offer a full-service salon in every store featuring hair, skin, makeup, and brow services.
Value Proposition.Store Footprint. We believe our focus on delivering a compelling value proposition to our guests across all of our product categories drives guest loyalty. We offer a comprehensive loyalty program, Ultamate Rewards, and target communications and promotions through our Customer Relationship Management platform. We also offer frequent promotions and coupons, in-store events, and gifts with purchase.
Convenience. Today, we offer guests a variety of ways to shop for beauty, including in ouroperate more than 1,300 stores through our mobile applications, and on ulta.com. We also provide convenient fulfillment options including buy online pick-up in store, buy online pickup curbside, ship from store, and ship to home. Our stores are predominantly located in convenient, high-traffic locations such as power strip centers. Our typicallocations. With a bright and open store is approximately 10,000 square feet, including approximately 950 square feet dedicatedenvironment, we make it easy for guests to our full-service salon.discover new products and services. Our store design, fixtures, and open layout provide the flexibility to respond to consumer trends and changes in our merchandising strategy. AsWe also offer a full-service salon in every store featuring hair, eyebrow, and other beauty services.
Leading Digital Experiences. Through our website, Ulta.com, and our mobile applications, we offer guests convenient, interactive, and personalized digital experiences. Our digital channels enable always-on shopping and discovery, and our diverse fulfillment options, including buy online pick-up in store, buy online pick-up curbside, ship from store, ship to home, and same-day delivery, provide guests with value and convenience. In addition to e-commerce platforms, we offer guests a variety of January 30, 2021,unique digital experiences, including virtual try-on and skin analysis tools, which leverage augmented reality capabilities and artificial intelligence tools to provide guests with personalized experiences. Best-in-Class Loyalty Program.Our best-in-class loyalty program, Ultamate Rewards, enables members to earn points for every dollar spent on products and beauty services at Ulta Beauty, through purchases on our private label and co-branded credit cards, and purchases at Ulta Beauty at Target. In addition to unique membership benefits, members can redeem points for discounts on any product or service at Ulta Beauty. With more than 95% of total sales coming from members, we operated 1,264 retail storesare uniquely positioned with a deep understanding of our customers and their preferences which enables us to personalize experiences and target communications and promotions through our Customer Relationship Management (CRM) platform. Great Guest Experiences.We cultivate human connection with warm and welcoming guest experiences across 50 states, as well as an e-commerce websiteall of our channels. Our knowledgeable and mobile applications.approachable store associates, our differentiated service offerings, and our efforts to create relevant, compelling digital content are competitive advantages and enable us to build strong engagement with guests. We were founded in 1990 as a beauty retailer at a time when prestige, mass, and salon products were sold through distinct channels — department stores for prestige products; drug stores and mass merchandisers for mass products; and salons and authorized retail outlets for professional hair care products. We developed a unique specialty retail concept that offers a broad range of brands and price points, a compelling value proposition,select beauty services, and a convenient and welcoming shopping environment. We define our target consumer as a beauty enthusiast, a consumer who is passionate about the beauty category, uses beauty for self-expression, experimentation, and self-investment, and has high expectations for the shopping experience. We estimate that female beauty enthusiasts represent approximately 57%60% of shoppers and 77%75% of spend in the U.S. beauty category. 28 24
Executive Summary This Compensation Discussion and Analysis (“CD&A”) describes the material elements of our executive compensation program during fiscal 2021. It also provides an overview of how and why our compensation committee arrived at the specific compensation decisions for our named executive officers for fiscal 2021, including the key factors that the compensation committee considered in determining named executive officer compensation. Below is an overview of some of these key factors: | ● | We exceeded pre-COVID sales and earnings. The Ulta Beauty team delivered outstanding results for the year. Net sales increased to a record $8.6 billion, 40.3% over fiscal 2020 and 16.7% over fiscal 2019. Operating income increased 448% to $1.3 billion, or 15% of net sales, compared to $236.8 million, or 3.9% of net sales, in fiscal 2020. Compared to fiscal 2019, operating income increased 44%. |
| ● | We delivered strong operational results. We increased the number of members in our Ultamate Rewards loyalty program by 21% to a record 37 million members. We strengthened category margins and improved our ability to optimize promotions. Our real estate portfolio is healthy and we continue to expand our digital capabilities. Between our Buy Online Pick Up in Stores “BOPIS” and our ship-from-store capabilities, about 28% of our digital orders this year were fulfilled by stores. For the full year, we delivered sales and profits that far exceeded pre-pandemic levels. Reflecting growing consumer trends, we expanded our Conscious Beauty platform, doubled the number of Black-Owned brands in our assortment, and introduced the Wellness Shop, a cross-category platform that offers guests self-care for the mind, body, and spirit. |
| ● | We delivered results for our stockholders. We delivered positive stockholder returns in fiscal 2021, and our five-year total stockholder return covering fiscal 2017-2021 was more than 30%, which included generating positive returns in fiscal 2020, one of the most challenging years navigating through the COVID-19 impact on the Company. We maintained our balance sheet strength throughout the period, ending fiscal 2021 with $431.6 million of cash and cash equivalents. Since 2014, Ulta Beauty has purchased 14.0 million shares of its common stock for $3.9 billion, while continuing to make strategic growth investments. |
| ● | We navigated global supply chain challenges and tight labor markets. We remain well-positioned to meet guest needs and delivered a successful fiscal year during a challenging and evolving business climate. |
| ● | We ensured our compensation programs reflected evolving business expectations. Our compensation committee approved a short-term incentive program that returned to using full year financial performance goals and determined it would cap actual compensation payouts in the event business performance exceeded planned expectations given the very dynamic and unpredictable economic environment when goals were set. The compensation committee resumed granting performance-based restricted stock units (“PBSs”) delivering 50% of the target award values to Named Executive Officers (the “NEOs”) in PBSs, and reduced the weighting of stock options and restricted stock units (“RSUs”) granted to executives back to pre-COVID pandemic levels. |
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Management responded quickly to unprecedented challenges created byCompensation Overview
This CD&A describes the COVID-19 pandemic. The unprecedented economic, societalCompany’s executive compensation program and human challenges ofexplains how the COVID-19 pandemic in fiscal 2020 prompted management to take numerous actions to protectcompensation committee made compensation decisions for the safety and wellbeing of our associates and guests and mitigate risk. In early March 2020, as the virus began to spread in the U.S., we quickly took steps to keep our associates and guests safe and healthy. We increased sanitization measures and cleaning frequency in stores, limited the use of testers and suspended all beauty services.
As the situation escalated, we made the decision to temporarily close all stores on March 19, 2020, and quickly shifted our focus to our e-commerce operations. Then, as we all continued to learn how to work and operate within a new and dynamic environment, we undertook additional actions to drive sales and leverage our brand and financial strength to better position the Company for when the COVID-19 pandemic would be behind us.
Due to the impact of the COVID-19 pandemic on our business, several changes needed to be made to accommodate a rapidly changing and evolving operating environment.
These changes included:
| ● | Immediate ramp up by distribution centers and fast-fulfillment centers servicing the e-commerce operations to holiday levels. |
| ● | Complete and immediate change in marketing promotional calendars to reflect store closures. |
| ● | Immediate reduction in operating expenses to conserve cash and drawdown of the Company’s line of credit facility to ensure sufficient liquidity. |
| ● | Immediate and evolving development of PPE and safety protocols for associates and guests to mitigate COVID-19 exposure while providing a safe shopping and working environment. |
| ● | Decision to pay retail associates for approximately 30 additional days after stores were temporarily closed. After consideration of the changes incorporated in CARES act, we furloughed approximately 33,000 store retail and salon associates. For those furloughed benefits-eligible associates, the Company provided benefits continuation and waived the associate contribution through December 31, 2020. |
| ● | Development and deployment of associate assistance programs such as the Ulta Beauty Catastrophe Pay policy to support associates as part of pre- and post-furlough compensation, as well as a planned and systematic recall of a portion of our furloughed associates in a manner that optimized expense and store staffing levels while maintaining a positive guest experience and appropriate COVID-19 mitigation. |
| ● | Establishment of contact tracing measures to protect associates and guests and ensure our ability to safely operate stores, distribution centers and fast fulfillment centers, and corporate teams. |
On May 11, 2020, the Company started a phased store reopening process. By July 20, 2020, the full fleet of Ulta Beauty stores was again operational. By January 30, 2021, salon and brow services had resumed in almost all stores. Reflecting operational limitationsfollowing NEOs related to COVID-19 and the partial resumption of services, the Company has reactivated many of the furloughed associates.
Company performance in fiscal 2020 was significantly impacted by the COVID-19 pandemic.
Our results of operations for fiscal 2020 were significantly impacted by the effects of COVID-19 but the multi-year, strategic investments we had previously implemented to enhance our omnichannel and supply chain capabilities, combined with the
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Table of Contents2021:
Compensation Discussion and Analysis
| | | | Named Executive Officer |
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| Title | David C. Kimbell (1) | | | Chief Executive Officer | Mary N. Dillon (2) | | | Executive Chair and Former Chief Executive Officer | Scott M. Settersten | | | Chief Financial Officer, Treasurer and Assistant Secretary | Jodi J. Caro | | | General Counsel, Chief Risk & Compliance Officer | Jeffrey J. Childs | | | Chief Human Resources Officer | Kecia L. Steelman (3) | | | Chief Operating Officer |
| 1. | Mr. Kimbell was named CEO effective June 2, 2021. |
| 2. | Ms. Dillon transitioned from CEO to the Executive Chair of the Board of Directors effective June 2, 2021. |
| 3. | Ms. Steelman was named Chief Operating Officer (“COO”) effective June 2, 2021. |
ongoing commitment of our distribution associates, enabled us to respond quickly to increased e-commerce demand and guest engagement.
WhileOur compensation programs for fiscal 2020 was significantly challenged, due to the flexibility, agility and unwavering commitment to our guests and each other of our leadership team and associates, we accomplished the following:2021 are summarized below.
| ● | We doubled our sales through our digital channels while store traffic declined due to limited physical capacity, reduced operating hours, and guest concerns about their personal safety through most of 2020. To meet this increased demand, we expanded our fulfillment capabilities, including the opening of our Jacksonville fast fulfillment center, enhancements to our existing distribution facilities, expansion of our ship-from-store capabilities, and the introduction of curbside pickup. |
| ● | We expanded GLAMLab, our virtual try-on tool, to include hair color, false lashes and the Benefit brow bar, and we introduced a digital skin analysis tool to assess guest skincare needs and offer personalized recommendations. In 2020, more than 11 million guests engaged with these tools, trying on more than 100 million shades through the application and ulta.com. |
| ● | We gained market share in most prestige categories. |
| ● | We took deliberate actions to adjust and optimize our cost structure to reflect changes in our business and the operating environment. |
| ● | We announced an exclusive partnership with Target Corporation which we believe will disrupt the beauty category and change how guests experience beauty. |
| ● | We published our first ESG report to share our progress in four key focus areas: people, product, community and the environment. |
We implemented compensation programs for fiscal 2020 to reflect evolving business expectations.
| ● | No merit salarySalary increases were awarded forprovided to Mr. Kimbell and Ms. Steelman in connection with their promotion to CEO and COO, respectively. Mr. Kimbell received a 15% increase during his transition to CEO and another 20% after his transition. Ms. Steelman received a 7% increase during her transition to COO and another 7% after her transition. Other NEOs forreceived merit increases in fiscal 2020. Starting on April 19, 2020, our CEO, Mary Dillon, elected to forgo her base salary. The payment of her salary resumed on June 14,2021 after forgoing increases in fiscal 2020. |
| ● | BecauseWhile there was a great deal of ambiguity around the onsetoverall economic environment of COVID-19 occurred prior to the finalization of our incentive programs for the year,fiscal 2021, the compensation committee was able to consider the challenges the pandemic presented and the lack of clarity about its potential duration in approving: |
| o | A bifurcated approachreturned to the pre-pandemic annual incentive programplan design that separated the first half of the year from the second – acknowledging the inabilitytied potential payouts to forecast operations as stores were closed and establishing a framework whereby the committee could assess operational performance for the first half and establish an objective EBT target for the second half of the year; andfull-year earnings before taxes (“EBT”) attainment. |
| o● | For the standard annual award of equity in March, an equalthe committee returned to a pre-pandemic mix of PBSs, stock options, and time-based restricted stock unitsRSUs to maintain an emphasis on stock price appreciation (recovery)support the Company’s pay-for-performance philosophy. Because of the economic uncertainty in setting reasonable multi-year performance goals, the compensation committee set the fiscal 2021 PBSs with two one-year goals for EBT and executive retention duringrevenue, with a periodtarget level performance cap if the Company’s total shareholder return (“TSR”) for which goals couldits 2021-2023 fiscal years is not be reasonably established for performance-based shares.positive. The PBSs also require a third year of time vesting. |
| ● | Based on (i) its assessment of the Company’sour strong fiscal 2021 performance prior to the impact of COVID-19, (ii) management’s handling of the crisis, (iii) the Company’s thoughtful re-emergence from temporarily closing its stores during March – July 2020, (iv) the Company’s performance against its strategic priorities, (v) the Company’s total shareholder |
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| | return, and (vi) the Company’sthat exceeded our expectations for EBT results, for the second half of the fiscal year, the compensation committee approved: |
| o | Bonusapproved annual incentive funding for the first half of the year at the thresholdmaximum level, which equals 25%200% of the full year’s target bonus amount. |
| o | Bonus funding for the second-half of the year based on 150% achievement of the second half EBT results against the EBT target, which equals 75% of the full year’s target bonus amount. |
| o | On February 9, 2021, a payout under the 2019 performance-based restricted stock units (“PBSs”) that reflected the two-year cumulative performance period of fiscal 2019 and fiscal 2020. In assessing performance, the compensation committee elected to exclude the estimated impact of the COVID-19 pandemic on revenue and EBT in fiscal 2020. This had the impact of changing the value of the PBS award for the performance period from zero, to a weighted average payout of approximately 58.8% of target. More details regarding these payments and the factors the compensation committee considered can be found below in the “2020 Compensation Components” section. |
The alignment of performance and pay in fiscal 20202021 reflects our compensation philosophy. Executive pay is delivered through a performance-based compensation program that provides the opportunity to earn meaningful compensation upon achievement of superior performance and limits earnings opportunity when results are not satisfactory. Annual incentive opportunity is typically directly tied to one quantifiable objective performance target: EBT, adjusted for certain accounting charges and credits.EBT. The use of EBT is designed to enhance focus on profitable growth, which is a key indicator of our operating performance. Typically, noNo awards are paid under this program if a threshold level of earningsEBT is not achieved. This program was modified due to the impact 26
Our long-term incentive plan (“LTIP”) is designed to focus on our plan to drive long-term profitable growth. Historically, theThe LTIP included non-qualified stock options with four-year vesting; PBSs that are earned after a two-year performance period, based on achievement against multi-year revenue and EBT goals,performance during two one-year performance periods, with a target level performance cap if the Company’s TSR for its 2021-2023 fiscal years is not positive, and also require a third year of time vesting; non-qualified stock options with four-year vesting; and time-based RSUs with three-yearthree-year cliff vesting. Stock options only provide for compensation if the share price rises above the fair market value grant price, also aligning executive’s interests in share value growth, and time-based RSUs serve as a retention vehicle and further align associates’ interests with stockholders. For 2020, given the uncertainty and inability to set objective long-term goals,fiscal 2021, the compensation committee awarded NEOs 50% in the form of PBSs to support our growth goals, 30% of the targeted LTIP value in the form of stock options to maintain a focus on share price appreciation, and 50%20% in the form of restricted stock unitstime-based RSUs to better support retention. In March 2022, we returned to our historical practice where our PBS awards are tied to the attainment of both two-year EBT growth and two-year revenue growth goals and require a third year of vesting. Payout of the PBS awards is subject to being modified to target payout if the Company’s TSR for its 2022-2024 fiscal years is greater than 10% and performance targets are not met, or if TSR is less than 10% and performance exceeds target.
We value stockholder engagement and consider the results of the 20202021 say-on-pay vote.
At our 20202021 Annual Meeting of Stockholders, approximately 92%90% of stockholders indicated their approval of the compensation paid to our NEOs through the advisory vote to approve executive compensation (“say-on-pay”). The compensation committee believes that this vote affirms stockholder support of the Company’s approach to executive compensation. The compensation committee will continue to consider the outcome of the Company’s say-on-pay votes when making future compensation decisions for our NEOs. We regularly review and assess our compensation programs to ensure that they are aligned with our business strategies and that the type and mix of short-term and long-term incentive vehicles used continue to align management with stockholders’ interests and reward for high performance.
Feedback from stockholders is an important consideration that the compensation committee uses when formulating future compensation programs. The Company actively solicits feedback on a wide range of issues, including executive compensation, corporate governance, and environmental and social responsibility issues. 31
Philosophy | | | | OUR PHILOSOPHY | | | HOW WE EXECUTE OUR PHILOSOPHY | | | | | Our executive compensation philosophy is to provide compensation opportunities that attract, retain, and motivate talented key executives. | | ✔
| We evaluate the competitiveness and effectiveness of our compensation programs against other comparable businesses based on industry, size, and other relevant business factors. | | | | | | | ✔
| We link annual incentive compensation to our performance on a key measurable financial operational, and strategic goalsgoal – EBT – that drivedrives stockholder value. | | | | | | | ✔
| We focus a significant portion of the executive’sexecutives’ compensation on equity-based incentives to align interests closely with stockholders. | | | | | | | ✔
| We manage “pay for performance” such that pay is clearly linked to business and individual performance. |
Overview of 20202021 Compensation Our fiscal 20202021 compensation program consisted of a base salary, annual incentive plan, and long-term incentive plan. This mix of compensation is intended to ensure that total compensation reflects our overall intent to motivate executive officers to meet appropriate performance measures and to align management with stockholders’ long-term interests. 27
Components of Compensation The majority of target compensation we offer our NEOs is delivered in variable, performance-based elements. The material components of our executive compensation program design and their purposes and key characteristics are summarized in the following table: | | | | | | | | | | | | | | | Reward Element | | | Purpose | | | Form | | | Type | | | Duration | | Base Salary | | | Compensation for duties and responsibilities | | | Cash | | | Fixed | | | Short Term | | Annual Incentive Plan | | | Rewards NEOs for achievement of company-wide EBT goal | | | Cash | | | Performance Based | | | Short Term | | Long-Term Incentive Plan | | | Rewards creation of long-term stockholder value and achievement of key operating metrics over a longer-term period | | | Stock Options (50%Performance-Based Shares
(50% of award value)
Stock Options (30% of award value) Restricted Stock Units (50%(20% of award value) | | | Performance Based | | | Long Term |
As part of our continued emphasis on creating stockholder value, we utilize EBT as the single financial performance measure for the corporate annual incentive for all officers. This focus on a single performance objective reflects the Company’s strong linkage between stockholder value creation and management incentives. Each fiscal year, the boardBoard of directorsDirectors approves the EBT target goal. The compensation committee then approves the threshold and maximum performance against the EBT target at the beginning of the fiscal year. As further discussedThis target reflected a rigorous goal setting process in “2020 Components of Compensation-Annual Incentives” later in this CD&A, due to the uncertainty created by COVID-19,which management and the compensation committee bifurcatedworked collaboratively to set stretch targets reflective of our ambitious growth goals which are tied to the company’s operating plans. For fiscal 2021, we achieved record performance, resulting in annual incentive plan into two halves with EBT ascash incentives for the second-half performance measure. 32
We use PBSs, stock options, and RSUs as a means of providing long-term incentives for our NEOs. Historically we also used PBS awards that wereare tied to the attainment of both two-yeartwo one-year EBT growth and two-year revenue growth goals and requiredas well as a third yearthree- TSR metric that caps awards at 100% of vesting. However, due totarget if the uncertainty caused by COVID-19, PBS awards were not used in fiscal 2020. In March 2021, we returned to our historical LTIP structure compromised of PBSs (50% of award value), stock options (30% of award value) and time-based RSUs (20% of award value) for fiscal 2021 for our NEOs. three-year TSR is negative. The first chart below shows the mix of our current CEO’s fiscal 20202021 target compensation by component and the portion of total compensation that is performance based. The second chart shows this same data for our other NEO’s (excluding Ms. Dillon) fiscal 20202021 target compensation.
 
The use of stock options and PBSs emphasizes long-term alignment with stockholder value, as the stock options will not have any value unless our share price increases.increases and the PBSs will not vest unless performance goals are met. 33 29
20202021 Executive Compensation Process
| | | | What We Do: | | | Objectives and Considerations: | Compensation Committee Reviews Comparative Pay Levels We review competitive pay levels among a peer group of retailers with revenues similar to Ulta Beauty, compensation survey data for similarly sized retail companies from the Willis Towers Watson 20192020 Retail Executive Survey Report, and compensation survey data for similarly sized general industry companies from the Willis Towers Watson 20192020 CDB General Industry Survey report. Our CEO Provides Input for Other Executives The CEO with input from our human resources department on competitive market positions recommends to the compensation committee other executive’s compensation based on the executive’s performance and internal pay equity among current executives and newly hired executives, as well as talent and succession planning considerations. The CEO does not participate in setting herhis own compensation. Compensation Committee Makes Final Determination The compensation committee approves executive compensation after deliberation, taking into account such factors as talent planning, succession, and Company performance. In addition, the committee considers such factors as total compensation philosophy, individual performance, and the positioning of Ulta Beauty’s executive total compensation levels relative to market. | | | | | | | We consider the nature and job scope of each NEO. | | | | | | | | We consider internal pay positioning, taking into account each NEO’s pay components and levels relative to other executives with respect to role, length of time the NEO has served in the NEO’s current position, seniority, and levels of responsibility. | | | | | | | | We consider the accounting and tax impact of each element of compensation. | | | | | | | | We consider competitive pay levels and practices for similar positions among identified data sets. | | | | |
| | | | | ULTA BEAUTY 20202021 COMPENSATION PEER GROUP | | | | | | Big Lots, Inc. | | Dollar General Corporation | | Ross Stores, Inc. | | Burlington Stores, Inc. | | Dollar Tree, Inc. | | Sally Beauty Holdings, Inc. | Capri Holdings Limited | | Foot Locker, Inc. | | The Michaels Companies, Inc.* | Carter’s, Inc. | | L Brands, Inc. | | Tractor Supply Company | Dick’s Sporting Goods, Inc. | | PVH Corp. | | Under Armour, Inc. | | | | | Williams-Sonoma, Inc. |
* The Michaels Companies, Inc. was publicly-traded at the time it was used in this peer group analysis. 30
WeThe compensation committee selected a peer group of companies inwith similar sizerevenues and market capitalization and with whom we may compete for talent and assess them annually to ensure the peer group remains relevant from industry, size, and performance perspectives for use in benchmarking pay to inform ourits decisions.
34
Compensation of the PresidentChief Executive Officer In March 2020, in2021, the Company announced its CEO succession plan, pursuant to which, effective June 2, 2021, Mary Dillon transitioned to the newly created role of Executive Chair of the Board of Directors and David Kimbell succeeded Ms. Dillon as CEO. In recognition of his strong individualMs. Dillon’s ongoing commitment and continued Company performance,leadership in her role as CEO through June 2, 2021 and to improvethereafter as Executive Chair of the competitivenessCompany’s Board of his total compensation relative to market,Directors, the compensation committee madeestablished the following adjustments to Mr. Kimbell’s compensation: compensation for Ms. Dillion in line with our normal practices in anticipation of her transition:
| ● | increasedno change to base salary, by 9% to $798,075, effective March 22, 2020;prorated for time in role; |
| ● | increased annual incentive opportunity from 100%with target of 170% of base salary (or $798,075) to 115% of base salary (or $917,786); andremained consistent with prior year, prorated based on CEO service in fiscal 2021; |
| ● | increased long-term incentive plan opportunity from $2,213,996 to $2,705,995,LTIP equity award on March 25, 2021 with a grant date fair value of $5,200,000, using the same mix of vehicles as for other senior officers (50% PBSs, 30% options, and 20% RSUs). To further align her interests with the Company, Ms. Dillon retains her right to vest in her PBSs, stock options and 50%RSUs at the same time and based on the same performance factors as other executives, as long as she continues to provide services as CEO through June 2, 2021, and as Executive Chair of the Board through the Annual Meeting and, thereafter complies with certain non-compete, non-solicitation and confidential information covenants through March 15, 2024; and |
| ● | annual cash retainer for serving as the Executive Chair of the Board of Directors was set at $800,000, prorated based on Executive Chair service in fiscal 2021. |
In connection with Mr. Kimbell’s promotion to CEO, the compensation committee made the following adjustments to his compensation: | ● | increased base salary by 15% to $915,782, effective March 21, 2021; |
| ● | increased base salary by an additional 20% to $1,100,008, effective June 3, 2021; |
| ● | increased annual incentive opportunity from 115% of base salary to 180% of base salary; and |
| ● | LTIP equity award on March 25, 2021 with a grant date fair value of $4,510,000, using the same mix of vehicles as for other senior officers (50% PBSs, 30% options, and 20% RSUs). |
In addition, on March 27, 2020, the compensation committee awarded Mr. Kimbell an equity award with a grant date fair value of $5,000,000, split equally between stock options and RSUs, consistent with our annual grants for 2020. The options will vest and become exercisable in 25% increments annually beginning March 15, 2021. The RSUs will cliff vest 100% on March 15, 2023.
20202021 Compensation Components
| | | | | COMPENSATION COMPONENTS | | | | | | Base Salary | | Annual Incentives
|
| Long-Term Incentive Plan
|
Base Salary
Base salaries are reviewed annually and are set based on: competitiveness versus the external market, talent planning, internal merit increase budgets, individual and Company performance, and internal equity considerations.
The compensation committee and management discuss the economic and market conditions, which impact compensation decisions. After these thorough reviews, our CEO makes individual recommendations with input from the human resources department regarding competitive position to the market. Ms. Dillon was not involved in the discussion of her own compensation. The NEO base salary and percentage increases for fiscal 2020 were:
| | | | | | | | | | | 2020 | | | | | | | | Base Salary | | | Percentage | | Named Executive Officer | | | ($) | | | Increase | | Mary N. Dillon | | | 1,185,038 | | | — | % | David C. Kimbell | | | 798,075 | | | 9 | % | Scott M. Settersten | | | 697,528 | | | — | % | Jodi J. Caro | | | 561,766 | | | — | % | Jeffrey J. Childs | | | 573,352 | | | — | % |
In March 2020, merit increases of 3% for all NEOs and 3.5% for Jodi Caro were approved, but were not implemented in light of the COVID-19 pandemic. These base salary levels are competitive with our market. Instead of the 3% approved for all other NEOs, Mr. Kimbell received a 9% market increase to bring his base salary in line with the competitive market for his role. Ms. Dillon’s, Mr. Settersten’s, Ms. Caro’s and Mr. Childs’s approved increases would have been reflective of the general salary increase applicable to other associates that had exhibited strong performance but were already at the targeted market level.
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In response to COVID-19, Ms. Dillon voluntarily elected to forgo her base salary from April 19, 2020 through June 14, 2020, when a significant number of our associates were brought back from furlough and our stores were substantially reopened. Additionally, with the exception of Mr. Kimbell, all merit increases for the NEOs were deferred for the remainder of fiscal 2020. Thus, base salaries in the table above reflect salary levels for both fiscal 2019 and 2020. Mr. Kimbell received a market adjustment effective March 22, 2020.
Annual IncentivesLong-Term Incentive Plan
| | | Rewards creation of long-term stockholder value | | | Performance-Based Shares At the beginning(50% of fiscal 2020, the compensation committee deferred setting bonus targets due to the uncertainty surrounding the COVID-19 pandemic. Based on (i) its assessment of the Company’s performance prior to the impact of COVID-19, (ii) management’s handling of the ongoing crisis, (iii) the Company’s re-emergence from temporarily closing its stores during March – July 2020 and (iv) the Company’s performance against its strategic priorities, the compensation committee subsequently agreed to a bifurcated approach to the annual incentive program that separated the first-half of the year from the second.award value)
| ● | For the first half of fiscal 2020, the compensation committee could make a discretionary determination of bonus funding at the completion of the fiscal year, using its judgment and considering multiple factors including COVID-19 crisis management, business stabilization and reopening efforts and first-half results; and |
| ● | For the second half of fiscal 2020, the compensation committee approved a second-half EBT target and the threshold and maximum performance against that target. The second-half fiscal 2020 annual incentive award was based on the attainment of the second-half EBT target and was designed to represent a fair balance between financial attainment for the stockholders and financial reward, engagement and retention for the bonus plan participants. If the second-half goals were achieved, an incentive pool would be funded at a level equal to 50% of the annual incentive target. |
The NEO target annual incentives, shown as a percentageStock Options (30% of base salaries, for fiscal 2020 were as follows:award value)
| | | | | | | |
|
|
|
|
|
| 2020
|
|
|
|
|
|
|
| Annual Incentive
|
| Named Executive Officer
|
|
|
|
|
| Target
|
| Mary N. Dillon
|
|
|
|
|
| 170
| %
| David C. Kimbell
|
|
|
|
|
| 115
| %
| Scott M. Settersten
|
|
|
|
|
| 80
| %
| Jodi J. Caro
|
|
|
|
|
| 65
| %
| Jeffrey J. Childs
|
|
|
|
|
| 65
| %
|
Mr. Kimbell’s annual incentive target for 2020 was increased from 100% to 115%Restricted Stock Units (20% of his base salary to reflect his performance and maintain competitive compensation levels. Mr. Settersten’s annual incentive target for 2020 increased from 75% to 80% of his base salary to reflect market competitiveness.award value)
For fiscal 2020, had the COVID-19 pandemic not occurred, the EBT target for fiscal 2020 would have been $914.0 million. The pandemic and resulting temporary store closures greatly affected the business. The compensation committee in assessing the Company’s performance in the first-half of the fiscal year, the uncertain economic environment and unsettled and changing state regulations around store operating environments set a second-half fiscal 2020 target EBT under the annual incentive program of $204.0 million. This target reflected a rigorous goal setting process in which management and the compensation committee worked collaboratively over a number of committee meetings to set stretch targets reflective of our growth goals for the second half of fiscal 2020 based on the information on hand and our collective assessment of the overall economic environment when the goals were set.
| | 36
| Performance Based | | | Long Term | |
As part of our continued emphasis on creating stockholder value, we utilize EBT as the single financial performance measure for the corporate annual incentive for all officers. This focus on a single performance objective reflects the Company’s strong linkage between stockholder value creation and management incentives. Each fiscal year, the Board of Directors approves the EBT target goal. The compensation committee then approves the threshold and maximum performance against the EBT target at the beginning of the fiscal year. This target reflected a rigorous goal setting process in which management and the compensation committee worked collaboratively to set stretch targets reflective of our ambitious growth goals which are tied to the company’s operating plans. For fiscal 2021, we achieved record performance, resulting in annual cash incentives for the NEOs payable at 200% of their target annual incentives. We use PBSs, stock options, and RSUs as a means of providing long-term incentives for our NEOs. PBS awards are tied to the attainment of two one-year EBT growth and revenue growth goals as well as a three- TSR metric that caps awards at 100% of target if the three-year TSR is negative. The first chart below shows the mix of our current CEO’s fiscal 2021 target compensation by component and the portion of total compensation that is performance based. The second chart shows this same data for our other NEO’s (excluding Ms. Dillon) fiscal 2021 target compensation. 28
The use of stock options and PBSs emphasizes long-term alignment with stockholder value, as the stock options will not have any value unless our share price increases and the PBSs will not vest unless performance goals are met. 29
2021 Executive Compensation Process What We Do: | The fiscal 2020 second-half annual incentive performance/payout range was as follows:
| | | | | | | | | | | | Second Half of 2020 | | | | | | | | Annual Incentive Payout | | | | | | | | Percent to Target | | | Payout | | Threshold | | | 80 | % | | 20 | % | Target | | | 100 | % | | 100 | % | Maximum | | | 110 | % | | 150 | % |
| BasedObjectives and Considerations:
| Compensation Committee Reviews Comparative Pay Levels We review competitive pay levels among a peer group of retailers with revenues similar to Ulta Beauty, compensation survey data for similarly sized retail companies from the Willis Towers Watson 2020 Retail Executive Survey Report, and compensation survey data for similarly sized general industry companies from the Willis Towers Watson 2020 CDB General Industry Survey report. Our CEO Provides Input for Other Executives The CEO with input from our human resources department on our EBT performance of $323.7 million for the second half of fiscal 2020, the annual incentive payout was 150% of the second-half target based on EBT performance of greater than 110%competitive market positions recommends to target. This second-half payout of 150% is equal to 75% of the annual incentive plan target. For the first-half incentive award, the compensation committee made a discretionary determination of bonus funding atother executive’s compensation based on the completion of the fiscal year considering multiple factors including COVID-19 crisis management, business stabilizationexecutive’s performance and reopening effortsinternal pay equity among current executives and first-half results. A listing of factors (butnewly hired executives, as well as talent and succession planning considerations. The CEO does not limited to) considered by the committee is reflected on page 29. Based on these factors, the compensation committee approved a payout of 50%. This first-half payout of 50% is equal to 25% of the annual incentive plan target.participate in setting his own compensation.
For fiscal 2020, the combined results of the first-half 2020 bonus payout of 50% (equal to 25% of the annual target) and the second-half 2020 incentive plan payout of 150% (equal to 75% of the annual target) resulted in a cumulative payout equal to 100% of the fiscal 2020 incentive target. Executives payout at target was consistent with the payout earned by the broader population that participates in the corporate bonus plan.Compensation Committee Makes Final Determination
The compensation committee can use negative discretionapproves executive compensation after deliberation, taking into account such factors as talent planning, succession, and Company performance. In addition, the committee considers such factors as total compensation philosophy, individual performance, and the positioning of Ulta Beauty’s executive total compensation levels relative to reduce calculated market. | | | | | | | We consider the nature and job scope of each NEO. | | | | | | | | We consider internal pay positioning, taking into account each NEO’s pay components and levels relative to other executives with respect to role, length of time the NEO has served in the NEO’s current position, seniority, and levels of responsibility. | | | | | | | | We consider the accounting and tax impact of each element of compensation. | | | | | | | | We consider competitive pay levels and practices for similar positions among identified data sets. | | | | | |
| | | | | ULTA BEAUTY 2021 COMPENSATION PEER GROUP | | | | | | Big Lots, Inc. | | Dollar General Corporation | | Ross Stores, Inc. | | Burlington Stores, Inc. | | Dollar Tree, Inc. | | Sally Beauty Holdings, Inc. | Capri Holdings Limited | | Foot Locker, Inc. | | The Michaels Companies, Inc.* | Carter’s, Inc. | | L Brands, Inc. | | Tractor Supply Company | Dick’s Sporting Goods, Inc. | | PVH Corp. | | Under Armour, Inc. | | | | | Williams-Sonoma, Inc. |
* The Michaels Companies, Inc. was publicly-traded at the time it was used in this peer group analysis. 30
The compensation committee selected a peer group of companies with similar revenues and market capitalization and with whom we may compete for talent and assess them annually to ensure the peer group remains relevant from industry, size, and performance perspectives for use in benchmarking pay to inform its decisions. Compensation of the Chief Executive Officer In March 2021, the Company announced its CEO succession plan, pursuant to which, effective June 2, 2021, Mary Dillon transitioned to the newly created role of Executive Chair of the Board of Directors and David Kimbell succeeded Ms. Dillon as CEO. In recognition of Ms. Dillon’s ongoing commitment and leadership in her role as CEO through June 2, 2021 and thereafter as Executive Chair of the Company’s Board of Directors, the compensation committee established the following compensation for Ms. Dillion in line with our normal practices in anticipation of her transition: | ● | no change to base salary, prorated for time in role; |
| ● | annual incentive payouts but did not apply any downward discretionwith target of 170% of base salary remained consistent with prior year, prorated based on CEO service in fiscal 20202021; |
| ● | LTIP equity award on March 25, 2021 with a grant date fair value of $5,200,000, using the same mix of vehicles as for other senior officers (50% PBSs, 30% options, and 20% RSUs). To further align her interests with the second halfCompany, Ms. Dillon retains her right to vest in her PBSs, stock options and RSUs at the same time and based on the same performance factors as other executives, as long as she continues to provide services as CEO through June 2, 2021, and as Executive Chair of 2020.the Board through the Annual Meeting and, thereafter complies with certain non-compete, non-solicitation and confidential information covenants through March 15, 2024; and |
| ● | annual cash retainer for serving as the Executive Chair of the Board of Directors was set at $800,000, prorated based on Executive Chair service in fiscal 2021. |
In connection with Mr. Kimbell’s promotion to CEO, the compensation committee made the following adjustments to his compensation: | ● | increased base salary by 15% to $915,782, effective March 21, 2021; |
| ● | increased base salary by an additional 20% to $1,100,008, effective June 3, 2021; |
| ● | increased annual incentive opportunity from 115% of base salary to 180% of base salary; and |
| ● | LTIP equity award on March 25, 2021 with a grant date fair value of $4,510,000, using the same mix of vehicles as for other senior officers (50% PBSs, 30% options, and 20% RSUs). |
2021 Compensation Components | | | | | COMPENSATION COMPONENTS | | | | | | Base Salary | | Long-Term Incentive Plan | During fiscal 2020, we provided
| | Rewards creation of long-term incentive awards through grantsstockholder value | | | Performance-Based Shares (50% of stock options and RSUs to our NEOs and certain other associates. Under the LTIP, each eligible associate may receive an award with a value that is targeted to a percentage of base salary, with the ultimate value dependent upon Company performance.value) The compensation committee approved awards in fiscal 2020 as follows:Stock Options (30% of award value)
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| 2020
Restricted Stock Units (20% of award value) | | | Performance Based | | | Long Term |
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| LTIP Target
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| Named Executive Officer
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| Percentages
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| Mary N. Dillon
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| 409
| %
| David C. Kimbell
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| 330
| %
| Scott M. Settersten
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|
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| 230
| %
| Jodi J. Caro
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| 135
| %
| Jeffrey J. Childs
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|
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| 100
| %
|
The compensation committee increased the LTIP target percentage for Mr. Kimbell from 270% to 330% of base salary and Ms. Caro from 110% to 135% of base salary to further align their compensation opportunities with stockholders for long-term value creation and provide market competitive long-term compensation opportunities.
In 2020, the compensation committee implemented a different vesting schedule for stock options granted to Ms. Dillon, Mr. Settersten, and Mr. Childs to align vesting with support for succession planning and as incentive for retention. The stock options granted in fiscal 2020 will vest 50% on April 1, 2022, 25% on March 15, 2023 and 25% on March 15, 2024.
|
As part of our continued emphasis on creating stockholder value, we utilize EBT as the single financial performance measure for the corporate annual incentive for all officers. This focus on a single performance objective reflects the Company’s strong linkage between stockholder value creation and management incentives. Each fiscal year, the Board of Directors approves the EBT target goal. The compensation committee then approves the threshold and maximum performance against the EBT target at the beginning of the fiscal year. This target reflected a rigorous goal setting process in which management and the compensation committee worked collaboratively to set stretch targets reflective of our ambitious growth goals which are tied to the company’s operating plans. For fiscal 2021, we achieved record performance, resulting in annual cash incentives for the NEOs payable at 200% of their target annual incentives. We use PBSs, stock options, and RSUs as a means of providing long-term incentives for our NEOs. PBS awards are tied to the attainment of two one-year EBT growth and revenue growth goals as well as a three- TSR metric that caps awards at 100% of target if the three-year TSR is negative. The first chart below shows the mix of our current CEO’s fiscal 2021 target compensation by component and the portion of total compensation that is performance based. The second chart shows this same data for our other NEO’s (excluding Ms. Dillon) fiscal 2021 target compensation. 37
Consistent with our pay-for-performance orientation, the compensation committee granted the annual LTIP award with the following mix:
| | | | | | | | Stock Options
|
| RSUs
| Stock options granted under the LTIP generally have the following characteristics:
|
| RSUs granted under the LTIP generally have the following characteristics:
| ✔ exercise price equal to the fair market value of our common stock on the date of grant;
✔ ratable vesting, on an annual basis over a four-year period; and
✔ ten-year term from the date of grant.
|
| ✔ entitle the holder to receive an equal number of shares of common stock at settlement; and
✔ cliff vest 100% at the end of three years from grant date.
|
PBS awards granted in 2019 were eligible to be earned based on two-year cumulative revenue and EBT targets as shown under the columns labeled “Original” below:
| | | | | | | | | | | | | | | | | | | | | | | Revenue – 33% of PBS Value | | | EBT – 67% of PBS Value | | | | | $ - Original
(in millions) | | $ - Adjusted
(in millions) | | Percent
to Target | | Payout | | | $ - Original
(in millions) | | $ - Adjusted
(in millions) | | Percent
to Target | | Payout | | Threshold | | | 15,155 | | 13,285 | | 95% | | 50% | | | 1,799 | | 1,122 | | 85% | | 50% | | Target | | | 15,953 | | 13,984 | | 100% | | 100% | | | 2,116 | | 1,320 | | 100% | | 100% | | Maximum | | | 16,750 | | 14,683 | | 105% | | 200% | | | 2,328 | | 1,452 | | 110% | | 200% | | Original Achievement | | | 13,550 | | — | | 85% | | 0% | | | 1,137 | | — | | 54% | | 0% | | Adjusted Achievement | | | — | | 13,550 | | 97% | | 69% | | | — | | 1,137 | | 86% | | 54% | |
The two-year cumulative revenue and EBT targets were $13.98 billion and $1.32 billion, respectively. At the beginning of 2020 our revenue and EBT was on track for the 2019 PBS awards to payout at 56% of target. For 2020, the compensation committee exercised discretion and adjusted our revenue and EBT performance to exclude the estimated impact of the COVID-19 pandemic. After taking into account these adjustments, we achieved two-year cumulative revenue and EBT of $13.55 billion and $1.14 billion, respectively, resulting in a payout of 69.0% of the revenue target and 53.8% of the EBT target of the 2019 PBS award, for a total a payout of approximately 58.8% of the target opportunity. While the performance period is complete, the awards will not vest until March 15, 2022.
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28
In addition, a separate RSU award pool (High Performer Pool) may be funded each year if EBT performance for the year at a minimum reaches threshold. If the High Performer Pool is funded, based on actual EBT performance for the year and approved by the compensation committee, the CEO may recommend RSU awards to specific individuals based on her assessment of their individual performance and contribution to the success of the Company. The CEO recommends these individual awards to the compensation committee for approval. For fiscal 2020, as in prior years of strong performance, a High Performer Pool was created but none of the NEOs received a grant under the program.
Executive Compensation Policies and Practices
The compensation committee and management seek to ensure that our executive compensation and benefits programs align with our core compensation philosophy. We maintain the following policies and practices that drive our NEOs compensation program:
| | | | | What We Do
|
| What We Don’t Do
| ✔
| Pay-for-Performance: Significant amount is performance-based and not guaranteed
|
| ✘
| No Excise Tax Gross-Ups: The Company does not provide any excise tax gross-up payments in connection with a change in control
| ✔
| Multiple Performance Metrics and Time Horizons: Use multiple performance metrics focusing on top-line and bottom-line growth and multi-year vesting and measurement periods for long-term incentives
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| ✘
| No Repricing or Buyouts of Stock Options: The Company’s equity plan prohibits repricing or buyouts of underwater stock options
| ✔
| Annual Compensation Risk Review: Annually assess risk in compensation programs
|
| ✘
| No Tax Gross-ups for Perquisites: The Company does not provide tax gross-ups to NEOs for the limited perquisites we provide
| ✔
| Double-Trigger Change in Control: Include “double-trigger” change in control provisions for the vesting of equity awards and the receipt of severance
|
| ✘
| No Hedging, Derivatives, Pledging or Margin Accounts: NEOs are prohibited from engaging in derivatives and hedging transactions and from holding Company stock in a margin account or pledging Company stock as collateral
| ✔
| Share Ownership Guidelines: NEOs must comply with share ownership requirements
|
| ✘
| No Dividends on Unearned PBSs and RSUs: No dividends or dividend equivalents are paid on PBSs or RSUs until such PBSs and RSUs become vested and earned
| ✔
| Clawback Policy: We maintain a robust clawback policy that provides for recovery of incentive compensation in the event of a financial restatement, other misconduct not involving financial restatements, and for breaches of non-compete and other restrictive covenants
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| ✘
| No Contracts: No contracts with multi-year guaranteed salary increases or non-performance bonus arrangements
| ✔
| Challenging Performance Objectives: Set challenging performance objectives for Annual Incentive and LTIP
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|
|
| ✔
| Use of Independent Consultant: The compensation committee has retained an independent compensation consultant that performs no other consulting services for the Company and has no conflicts of interest
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|
|
| ✔
| Limited Perquisites: Provide limited perquisites
|
|
|
| ✔
| Peer Groups: Use appropriate peer groups when establishing compensation
|
|
|
|
39
The use of stock options and PBSs emphasizes long-term alignment with stockholder value, as the stock options will not have any value unless our share price increases and the PBSs will not vest unless performance goals are met. 29
2021 Executive Compensation Process What We Do: | | | Objectives and Considerations: | Share Ownership GuidelinesCompensation Committee Reviews Comparative Pay Levels
We review competitive pay levels among a peer group of retailers with revenues similar to Ulta Beauty, compensation survey data for similarly sized retail companies from the Willis Towers Watson 2020 Retail Executive Survey Report, and compensation survey data for similarly sized general industry companies from the Willis Towers Watson 2020 CDB General Industry Survey report. Our CEO Provides Input for Other Executives The CEO with input from our human resources department on competitive market positions recommends to the compensation committee other executive’s compensation based on the executive’s performance and internal pay equity among current executives and newly hired executives, as well as talent and succession planning considerations. The CEO does not participate in setting his own compensation. Compensation Committee Makes Final Determination The compensation committee approves executive compensation after deliberation, taking into account such factors as talent planning, succession, and Company performance. In addition, the committee considers such factors as total compensation philosophy, individual performance, and the positioning of Ulta Beauty’s executive total compensation levels relative to market. | | | | | | | We consider the nature and job scope of each NEO. | | | | | | | | We consider internal pay positioning, taking into account each NEO’s pay components and levels relative to other executives with respect to role, length of time the NEO has served in the NEO’s current position, seniority, and levels of responsibility. | | | | | | | | We consider the accounting and tax impact of each element of compensation. | | | | | | | | We consider competitive pay levels and practices for similar positions among identified data sets. | | | | | |
| | | | | ULTA BEAUTY 2021 COMPENSATION PEER GROUP | | | | | | Big Lots, Inc. | | Dollar General Corporation | | Ross Stores, Inc. | | Burlington Stores, Inc. | | Dollar Tree, Inc. | | Sally Beauty Holdings, Inc. | Capri Holdings Limited | | Foot Locker, Inc. | | The Michaels Companies, Inc.* | Carter’s, Inc. | | L Brands, Inc. | | Tractor Supply Company | Dick’s Sporting Goods, Inc. | | PVH Corp. | | Under Armour, Inc. | | | | | Williams-Sonoma, Inc. |
* The Michaels Companies, Inc. was publicly-traded at the time it was used in this peer group analysis. 30
The compensation committee selected a peer group of companies with similar revenues and market capitalization and with whom we may compete for talent and assess them annually to ensure the peer group remains relevant from industry, size, and performance perspectives for use in benchmarking pay to inform its decisions. Compensation of the Chief Executive Officer In March 2021, the Company announced its CEO succession plan, pursuant to which, effective June 2, 2021, Mary Dillon transitioned to the newly created role of Executive Chair of the Board of Directors and David Kimbell succeeded Ms. Dillon as CEO. In recognition of Ms. Dillon’s ongoing commitment and leadership in her role as CEO through June 2, 2021 and thereafter as Executive Chair of the Company’s Board of Directors, the compensation committee established the following compensation for Ms. Dillion in line with our normal practices in anticipation of her transition: | ● | no change to base salary, prorated for time in role; |
| ● | annual incentive with target of 170% of base salary remained consistent with prior year, prorated based on CEO service in fiscal 2021; |
| ● | LTIP equity award on March 25, 2021 with a grant date fair value of $5,200,000, using the same mix of vehicles as for other senior officers (50% PBSs, 30% options, and 20% RSUs). To further align her interests with the Company, Ms. Dillon retains her right to vest in her PBSs, stock options and RSUs at the same time and based on the same performance factors as other executives, as long as she continues to provide services as CEO through June 2, 2021, and as Executive Chair of the Board through the Annual Meeting and, thereafter complies with certain non-compete, non-solicitation and confidential information covenants through March 15, 2024; and |
| ● | annual cash retainer for serving as the Executive Chair of the Board of Directors was set at $800,000, prorated based on Executive Chair service in fiscal 2021. |
In connection with Mr. Kimbell’s promotion to CEO, the compensation committee made the following adjustments to his compensation: | ● | increased base salary by 15% to $915,782, effective March 21, 2021; |
| ● | increased base salary by an additional 20% to $1,100,008, effective June 3, 2021; |
| ● | increased annual incentive opportunity from 115% of base salary to 180% of base salary; and |
| ● | LTIP equity award on March 25, 2021 with a grant date fair value of $4,510,000, using the same mix of vehicles as for other senior officers (50% PBSs, 30% options, and 20% RSUs). |
2021 Compensation Components | | | | | COMPENSATION COMPONENTS | | | | | | Base Salary | | Annual Incentives | | Long-Term Incentive Plan |
31
Base Salary Base salaries are reviewed annually and are set based on competitiveness versus the external market, talent planning, internal merit increase budgets, individual and Company performance, and internal equity considerations. The NEO base salary increases for fiscal 2021 were: | | | | | | | | | | | Base Salary | | | Base Salary | | | | | Before June 2, 2021 | | | After June 2, 2021 | | Named Executive Officer | | | ($) | | | ($) | | David C. Kimbell | | | 915,782 | | | 1,100,008 | | Mary N. Dillon | | | 1,185,038 | | | — | | Scott M. Settersten | | | 723,694 | | | 723,694 | | Jodi J. Caro | | | 585,645 | | ��� | 585,645 | | Jeffrey J. Childs | | | 593,424 | | | 593,424 | | Kecia L. Steelman | | | 750,402 | | | 800,010 | |
In March 2021, the compensation committee approved merit increases of 4% for Mr. Settersten, Ms. Caro, and Mr. Childs. These base salary levels are competitive with our market. These approved increases were reflective of the general salary increase applicable to other associates that had exhibited strong performance but were already at the targeted market level. In connection with his promotion to CEO, Mr. Kimbell received a 15% increase in March 2021 over his fiscal 2020 salary and then an additional 20% increase in June 2021 over his March 2021 salary. In connection with her promotion to COO, Ms. Steelman received a 7% increase in March 2021 over her 2020 salary and then an additional 7% increase in June 2021 over her March 2021 salary. Annual Incentives The NEO target annual incentives, shown as a percentage of base salaries, for fiscal 2021 compared to fiscal 2020 were as follows: | | | | | | | | | | 2021 | | | | 2020 | | | | Annual Incentive | | | | Annual Incentive | | Named Executive Officer | | Target | | | | Target | | David C. Kimbell | | 180 | % | | | 115 | % | Mary N. Dillon | | 170 | % | | | 170 | % | Scott M. Settersten | | 85 | % | | | 80 | % | Jodi J. Caro | | 65 | % | | | 65 | % | Jeffrey J. Childs | | 65 | % | | | 65 | % | Kecia L. Steelman | | 100 | % | | | 80 | % |
Mr. Kimbell’s annual incentive target for 2021 was increased to reflect his expanded responsibilities in light of his promotion to CEO in June 2021. Mr. Settersten’s annual incentive target for 2021 was increased to reflect market competitiveness. Ms. Steelman’s annual incentive target for 2021 was increased to reflect her expanded responsibilities in light of her promotion to COO in June 2021. In fiscal 2021, target EBT under the annual incentive program was $673.6 million. This target reflected a rigorous goal setting process in which management and the compensation committee worked collaboratively to set stretch targets reflective of our growth goals. The fiscal 2021 EBT goal was an appropriate stretch goal at the time it was set given that our EBT performance in fiscal 2020 had decreased to $231.1 million as a result of the pandemic, there were no clear signs of an overall economic revival, and due to concerns over continued COVID-19 outbreaks in fiscal 2021. 32
The fiscal 2021 annual incentive performance/payout range was as follows: | | | | | | | | | | | 2021 | | | | | | | | Annual Incentive Performance | | | | | | | | Percent to Target | | | Payout | | Threshold | | | 87 | % | | 40 | % | Target | | | 100 | % | | 100 | % | Maximum | | | 110 | % | | 200 | % |
Based on our EBT performance of $1.3 billion, the annual incentive payout was 200% of the target based on EBT performance of greater than 110% to target. The compensation committee can use negative discretion to reduce calculated annual incentive payouts but did not apply any downward discretion in fiscal 2021. Long-Term Incentive Plan During fiscal 2021, we provided long-term incentive awards through grants of PBSs, stock options, and RSUs to our NEOs and certain other associates. Under the LTIP, each eligible associate may receive an award with a value that is targeted to a percentage of base salary, with the ultimate value dependent upon Company performance. The LTIP awards, shown as a percentage of base salaries, for fiscal 2021 compared to fiscal 2020 were as follows: | | | | | | | | | | | | 2021 | | | | 2020 | | | | | LTIP Target | | | | LTIP Target | | Named Executive Officer | | | Percentages | | | | Percentages | | David C. Kimbell | | | 410 | % | | | 330 | % | Mary N. Dillon | | | 439 | % | | | 409 | % | Scott M. Settersten | | | 230 | % | | | 230 | % | Jodi J. Caro | | | 150 | % | | | 135 | % | Jeffrey J. Childs | | | 100 | % | | | 100 | % | Kecia L. Steelman | | | 280 | % | | | 185 | % |
The compensation committee increased the LTIP target percentage for Mr. Kimbell, Ms. Dillon, Ms. Caro, and Ms. Steelman to further align their compensation opportunities with stockholders for long-term value creation and provide market competitive long-term compensation opportunities. Mr. Kimbell’s and Ms. Steelman’s LTIP award was based on their June 2021 salary. 33
Consistent with our pay-for-performance orientation, the compensation committee granted the annual LTIP award with the following mix: 
| | | | | | | | PBS | Stock Options | RSUs | PBSs granted under the LTIP have the following characteristics: | Stock options granted under the LTIP generally have the following characteristics: | RSUs granted under the LTIP generally have the following characteristics: | ✔ tied to achievement of two, one-year revenue and EBT targets; ✔ 50% of PBS grant value ties to attainment of revenue target and 50% of PBS grant value tied to attainment of EBT target; ✔ the number of shares earned can be less or greater than target, including zero, based on Company performance; ✔ the PBS awards are capped at 100% of the target if three-year TSR is negative; and ✔ following the end of the two one-year performance periods, a third year of time vesting is required before the number of earned shares is delivered to the recipient. | ✔ exercise price equal to the fair market value of our common stock on the date of grant; ✔ ratable vesting, on an annual basis over a four-year period; and ✔ ten-year term from the date of grant. | ✔ entitle the holder to receive an equal number of shares of common stock at settlement; and ✔ cliff vest 100% at the end of three years from grant date. |
PBS awards granted in fiscal 2021 were eligible to be earned based on two one-year cumulative revenue and EBT targets follows: | | | | | | | | | | | | | | | Revenue – 50% of PBS Value | | | EBT – 50% of PBS Value | | | | | Percent to Target | | Payout | | | Percent to Target | | Payout | | Threshold | | | 89% | | 50% | | | 89% | | 50% | | Target | | | 100% | | 100% | | | 100% | | 100% | | Maximum | | | 107% | | 170% | | | 110% | | 200% | |
The fiscal 2021 one-year revenue and EBT targets were $7.3 billion and $673.6 million, respectively. For fiscal 2021, we achieved one-year revenue and EBT of $8.6 billion and $1.3 billion, respectively, resulting in a payout of 170% of the revenue payout and 200% of the EBT target. Although the performance period is complete, the award payout is subject to a cap based on the Company’s three-year TSR and is not eligible to vest until 2024. 34
As discussed in last year’s proxy statement, the compensation committee approved a payout under the 2019 PBSs in 2021 that reflected the two-year cumulative performance period of fiscal 2019 and fiscal 2020. In assessing performance, the compensation committee elected to exclude the estimated impact of the COVID-19 pandemic on revenue and EBT in fiscal 2020. This had the impact of changing the value of the PBS award for the performance period from zero, to a weighted average payout of approximately 58.8% of target. This determination resulted in an additional compensation charge with respect to the 2019 PBSs that is included in the amounts reported in each of the Summary Compensation Table and Grants of Plan-Based Awards Table contained in this proxy. 35
Executive Compensation Policies and Practices The compensation committee and management seek to ensure that our executive compensation and benefits programs align with our core compensation philosophy. We maintain the following policies and practices that drive the compensation program for our NEOs: | | | | | What We Do |
| What We Don’t Do | ✔ | Pay-for-Performance: Significant amount is performance-based and not guaranteed | | ✘ | No Excise Tax Gross-Ups: The Company does not provide any excise tax gross-up payments in connection with a change in control | ✔ | Multiple Performance Metrics and Time Horizons: Use multiple performance metrics focusing on top-line and bottom-line growth and multi-year vesting and measurement periods for long-term incentives | | ✘ | No Repricing or Buyouts of Stock Options: The Company’s equity plan prohibits repricing or buyouts of underwater stock options | ✔ | Annual Compensation Risk Review: Annually assess risk in compensation programs | | ✘ | No Tax Gross-ups for Perquisites: The Company does not provide tax gross-ups to NEOs for the limited perquisites we provide | ✔ | Double-Trigger Change in Control: Include “double-trigger” change in control provisions for the vesting of equity awards and the receipt of severance | | ✘ | No Hedging, Derivatives, Pledging or Margin Accounts: NEOs are prohibited from engaging in derivatives and hedging transactions and from holding Company stock in a margin account or pledging Company stock as collateral | ✔ | Share Ownership Guidelines: NEOs must comply with share ownership requirements | | ✘ | No Dividends on Unearned PBSs and RSUs: No dividends or dividend equivalents are paid on PBSs or RSUs until such PBSs and RSUs become vested and earned | ✔ | Clawback Policy: We maintain a robust clawback policy that provides for recovery of incentive compensation in the event of a financial restatement, other misconduct not involving financial restatements, and for breaches of non-compete and other restrictive covenants | | ✘ | No Contracts: No contracts with multi-year guaranteed salary increases or non-performance bonus arrangements | ✔ | Challenging Performance Objectives: Set challenging performance objectives for Annual Incentive and LTIP | | | | ✔ | Use of Independent Consultant: The compensation committee has retained an independent compensation consultant that performs no other consulting services for the Company and has no conflicts of interest | | | | ✔ | Limited Perquisites: Provide limited perquisites | | | | ✔ | Peer Groups: Use appropriate peer groups when establishing compensation | | | |
36
Share Ownership Guidelines The compensation committee has established the following share ownership guidelines to strengthen the focus of our senior officers on our long-term goals and further align their interests with stockholders: | | | | Position | | | Required Amount | CEO | | | 6X Base Salary | Other NEOs | | | 3X Base Salary | Chief Non-NEOs | | | 2X Base Salary | Other NEOs
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|
| 3X Base Salary
| Chief Non-NEOs
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| 2X Base Salary
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Shares of common stock held in brokerage accounts for the executives’ benefit in trust, through tax qualified retirement plans, PBSs (which have been earned based on performance, but which are still subject to time vesting), RSUs and the gain in value (i.e. “in-the-money value”) of vested and unvested stock options held are included in determining whether the ownership requirement has been met and sustained. Each executive has five years following appointment to meet the applicable stock ownership requirements of their position.
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Committee Chair
