Below we identify and describe the specific experience, qualifications, attributes or skills (collectively, “Director Qualifications”"Director Qualifications") our Directors bring to the Board that are important in light of our business. The specific Directors’Director Qualifications that the Corporate Governance and Nominating Committee and the Board considered in each Director’sDirector's re-nomination follow their individual biographies.
From June 1999 to March 2009, he served as a director of the Reserve Fund, a family of money market mutual funds.
Mr. Reasor has been a Director since June 2012. Since May 1, 2012, hehas been Senior Vice President, Investor Relations, Strategic Development, Public Affairs and Public Policy of Phillips 66 headquartered in Houston, Texas. From April 1, 2009 to April 30, 2012, Mr. Reasor served as Vice President, Investor Relations and Public Affairs of ConocoPhillips, a NYSE company that is also headquartered in Houston. From June 1, 2005 to March 31, 2009, he served as President, US Marketing of ConocoPhillips. Mr. Reasor began his career with Phillips Petroleum in 1979. 4Director Qualifications:
· | Investor relations experience: significant experience in the development, implementation and articulation of corporate and marketing strategy; has developed commercial, financial and communications experience in domestic and international facilities; strong background working directly with investment analysts, institutional investors and the broad financial community |
· | Leadership experience: current Senior Vice President of an advantaged downstream energy company (Phillips 66). Former Vice President of a NYSE listed international exploration and production company (ConocoPhillips) |
Mr. Schwartz has been a Director since July 2007. Since June 1997, Mr. Schwartz has been a business advisor and consultant to various companies principally in the retail, distribution and services industries. Prior to that, Mr. Schwartz spent thirty-five years with Arthur Andersen, LLP, from which he retired as a Senior Partner in June 1997. While at Arthur Andersen, he served clients in various industries, primarily retailing, distribution and communications. Mr. Schwartz is also a director of Walgreen Co., Foot Locker, Inc. He retired as a director of Walgreen Co, in January, 2013 and True Value Company.
Company in April, 2011. Mr. Schwartz will be retiring from the Foot Locker Board in May, 2013.
Director Qualifications:
· | Leadership, Industry and Audit Committee experience: member of the Board of Directors, of two large companies in the retail industry and one large company in the wholesale distribution industry; Chairman of the AuditStrategic Planning and Finance Committee of two large companies, one of which isand a public company in the retail industry and one of which is in the wholesale distribution industry; Chairmanmember of the Finance and Strategic PlanningAudit Committee of a large public company in the retail industry (Foot Locker); former Chairman of the Audit Committee and a member of the Finance Committee of a public company in the retail industry (Walgreen); former Chairman of the Audit Committee of a private company in the wholesale distribution industry (True Value) |
· | Finance experience: Certified Public Accountant; former partner with Arthur Andersen (partner in charge of Retail Industry Program and Managing Partner of the Chicago office’soffice's Attest and Business Consulting Practice) |
Ms. TurpinMr. Scozzafava was appointedhas been a Director on March 25, 2010. She retired from The Limited Stores,since February 2012. Since January 2008, he has served as Chief Executive Officer of Furniture Brands International, Inc. ("Furniture Brands"), a NYSE company headquartered in August 1997.St. Louis, Missouri. Mr. Scozzafava has served as Chairman of the Board of Furniture Brands since May 2008 and as a director since June 2007. From June 19942007 to August 1997, Ms. TurpinJanuary 2008, he served as PresidentVice Chairman and Chief Executive Officer — designate of The Limited Stores, Inc.Furniture Brands. From 2001 until June 2007, he was employed at Wm. Wrigley Jr. Company, where he held several positions, most recently serving as Vice President — Worldwide Commercial Operations from March 2006 to March 2007, and as Vice President & Managing Director — North America/Pacific from January 19902004 to June 1994, sheMarch 2006. Mr. Scozzafava was President and CEO of Lane Bryant, a subsidiary of The Limited Stores, Inc. Ms. Turpin is also a director of Foot Locker, Inc. and The Warnaco Group, Inc.employed at Campbell Soup Company from 1996 to 2000, where he held various senior executive level positions.
Director Qualifications:
· | Leadership and Committee experience: former President and current CEO of a large specialty retail business;and Chairman of the Compensation Committee and memberBoard of a NYSE company that ranks as one of the Corporate Governance and Nominating Committeetop United States makers of a large public company in the retail industry; member of the Compensation Committee and Corporate Governance and Nominating Committee of another large public company in the retail industryresidential furniture (Furniture Brands) |
· | Industry experience:Strategic planning:strong background in operations and consumer goods, with extensive experience in department store and apparel specialty store retailingstrategic planning through various executive leadership roles (Furniture Brands, Wrigley, Campbell Soup) |
Your Board of Directors recommends a vote FOR each nominee for Director.
INFORMATION RELATING TO THE BOARD OF DIRECTORS AND COMMITTEES Our business is managed under the direction of our Board. Our Board currently consists of eightten Directors. Members of our Board are kept informed of our business through discussions with our Chief Executive OfficerCEO and other officers, by reviewing materials provided to them, by visiting our offices, stores and distribution centers, and by participating in meetings of the Board and its Committees.
Board Leadership Structure. Andy Hall, our Chief Executive Officer,Our CEO does not serve as the Chairman of our Board. We believe that this leadership structure is appropriate for the Company because while it allows the Chief Executive OfficerCEO to speak for and lead the Company and communicate with other members of senior management, it provides for effective oversight by our Board, all of whose members are independent with the exception of Messrs. Hall and Scarborough,Mr. Glazer, and all of whom are highly qualified and experienced and other than Messrs. Hall and Scarborough, exercise a strong independent oversight function. This ove rsightoversight function is enhanced by the fact that all of the Board’sBoard's standing committees—Audit,committees (Audit, Compensation, and Corporate Governance and Nominating—Nominating) are comprised entirely of independentIndependent Directors. Further, as set forth below in “Information Relating to the Board of Directors and Committees—Lead Independent Director”, the Board has designated one of the independent Directors as Lead Independent Director.
The Board’sBoard's Role in Risk Oversight. The Board’sBoard's role in the risk oversight of the Company is administered directly and through its standing committees as follows:
· | The Audit Committee has primary responsibility for financial oversight. In that regard, the Audit Committee’sCommittee's purpose is to assist in the Board’sBoard's oversight of (i) the integrity of the Company’sCompany's financial statements, (ii) the Company’sCompany's compliance with legal and regulatory requirements, (iii) the Company’sCompany's independent auditor’sauditor's qualifications, independence and work, and (iv) the performance of the Company’s |
| Company's internal audit function and independent auditors. The Audit Committee acts independently as authorized and assists the Board in fulfilling its oversight responsibilities by reviewing certain financial information that is provided to the Board and others, the internal control structure, the audit process, and the adherence to applicable laws and regulations. Considering the size and complexity of the Company, the Committee must apply reasonable materiality standards to all of its activities. In addition, the Audit Committee has certain responsibilities with respect to our compliance program. For additional information, please see “Information"Information Relating to the Board of Directors and Committees—Audit Committee”Committee" on page 12 of this Proxy Statement and “Item 2—"Item 3—Ratification of the Selection of Deloitte & Touche LLP as Independent Registered Public Accounting Fir mFirm for Fiscal 2010—2013—Audit Committee Report” later inReport" on page 69 of this Proxy Statement. |
· | The Compensation Committee considers the risks associated with our compensation policies and practices for all employees, including non-executive officers, to ensure that they do not create risks that are reasonably likely to have a material adverse affect on the Company. For additional information, please see “Information"Information Relating to the Board of Directors and Committees—Compensation Committee” later inCommittee" on page 13 of this Proxy Statement. |
· | The Corporate Governance and Nominating Committee assists the Board in fulfilling its corporate governance and oversight responsibilities by reviewing corporate governance issues that may be brought before the Board, by exercising oversight over the Company’sCompany's Corporate Governance Guidelines, by recommending qualified individuals for nomination as Directors and reviewing their performance, and by reviewing applicable laws and regulations related to corporate governance matters. For additional information, please see “Information"Information Relating to the Board of Directors and Committees—Corporate Governance and Nominating Committee” later inCommittee" on page 10 of this Proxy Statement. |
· | The Board is kept abreast of its Committees' risk oversight and other activities via reports of each Committee Chairman to the full Board. These reports are presented at every regular Board meeting and include discussions of Committee agenda topics, including matters involving risk oversight. |
· | Members of management who supervise the day-to-day risk management responsibilities periodically provide reports to the Board as a whole and to the Committees if requested. |
The Board considers specific risk topics, including risks associated with our strategic plan, our capital structure and our development activities. In addition, the Board receives detailed regular reports from the members of our senior management team, which consists of the heads of our principal business and corporate functions—that include discussions of the risks and exposures involved in their respective areas of responsibility. These reports are provided in connection with regular Board meetings and are discussed, as necessary, at Board meetings. Further, the Board is routinely informed of developments affecting the Company that could affect our risk profile or other aspects of our business.
Director Independence. SixNine of our eightten Directors are Independent Directors, as independence is defined by the New York Stock Exchange (“NYSE”). TwoNYSE. One of our Directors areis not an Independent DirectorsDirector by virtue of the fact that they arehe is our former Chief Executive Officer and current consultant (Jim Scarborough) and our current President and Chief Executive Officer (Andy Hall)CEO (Michael Glazer). All members of the Board’sBoard's Audit, Compensation, and Corporate Governance and Nominating Committees are Independent Directors. Members of the Audit Committee m ustmust also satisfy, and they do satisfy, a separate SEC independence requirement, which provides that they may not accept directly or indirectly any consulting, advisory or other compensatory fee from us or any of our subsidiaries other than their Directors’Directors' compensation.
Corporate Governance Guidelines. The Board has adopted written Corporate Governance Guidelines (the “Governance Guidelines”"Governance Guidelines") to assist it in the exercise of its corporate governance responsibilities. The purpose of the Governance Guidelines is to provide a structure within which our Directors and our management can monitor the effectiveness of policy and decision making both at the Board and management level, with a view to enhancing shareholder value over the long term. The Governance Guidelines are available on our website at www.stagestoresinc.com. They can be accessed by clicking “Investor Relations”,"Investor Relations," then “Corporate Governance”,"Corporate Governance," and then “Corporate"Corporate Governance Guidelines.” Lead Independent Director. The Governance Guidelines provide that if the Chairman of the Board is not an Independent Director, the Independent Directors must appoint a Lead Independent Director. Since Mr. Scarborough, the Chairman of the Board, is not an Independent Director, the Independent Directors have appointed Mr. Montgoris as the Lead Independent Director. The Lead Independent Director is required to perform the following duties:
· | Coordinate the activities of the Independent Directors; |
· | Provide the Chairman of the Board with input on agendas for the Board and Board committee meetings; |
· | Coordinate and develop the agenda for, and chair executive sessions and other meetings of, the Independent Directors; |
· | Facilitate communications between the Chairman of the Board and the other members of the Board, including communicating other members’ requests to call special meetings of the Board; |
· | Discuss the results of the Chief Executive Officer’s performance evaluation with the Chairman of the Compensation Committee; |
· | Convey to the Chief Executive Officer, together with the Chairman of the Compensation Committee, the results of the Chief Executive Officer’s performance evaluation; and |
· | Preside at regularly scheduled executive sessions of the Independent Directors. |
Code of Ethics for Senior Officers. In order to promote ethical conduct in the practice of financial management throughout the Company, the Board has adopted a Code of Ethics for Senior Officers (the “Code”"Code"). We believe that in addition to the CEO, the Chief ExecutiveOperating Officer, the Chief Financial Officer and the Controller each holds an important and elevated role in corporate governance. The Code is designed to deter wrongdoing and provides principles to which our principal executive officer, principal financial officer, principal accounting offic erofficer or controller, or persons performing similar functions are expected to adhere and advocate. These principles embody rules regarding individual and peer responsibilities, as well as responsibilities to the shareholders, the public and others who have a stake in our continued success. The Code is available on our website at www.stagestoresinc.com. It can be accessed by clicking “Investor Relations”,"Investor Relations," then “Corporate Governance”,"Corporate Governance," and then “Code"Code of Ethics for Senior Officers.”" We intend to disclose future amendments to certain provisions of the Code, or waivers of such provisions granted to Directors and executive officers, if any, on our website within four business days following the date of such amendment or waiver or as otherwise may be required by the SEC.
Code of Ethics and Business Conduct. The Board has also adopted a Code of Ethics and Business Conduct (the “Code"Code of Ethics”Ethics"), which is the basic set of policies and procedures governing the behavior of all Directors, executive officers, and other employees of the Company (each employee an “Associate”"Associate" and collectively the “Associates”"Associates") in conformance with Section 303A.10 of the NYSE Listed Company Manual. It is our policy to adhere to the highest standards of business ethics in all our business activities. When Assoc iatesAssociates are engaged in any activity concerning the Company, our customers, competitors, suppliers, other Associates, shareholders or the general public, they must maintain standards of uncompromising integrity and conduct themselves in a professional manner with a positive, supportive attitude about the Company. The Code of Ethics is available on our website at www.stagestoresinc.com. It can be accessed by clicking “Investor Relations”,"Investor Relations," then “Corporate Governance”,"Corporate Governance," and then “Code"Code of Ethics and Business Conduct.”" We intend to disclose future amendments to certain provisions of the Code of Ethics, or waivers of such provisions granted to Directors and executive officers, if any, on our website within four business days following the date of such amendment or waiver or as otherwise may be required by the NYSE or the SEC.
Non-Accounting Complaints. We have established procedures to enable anyone who has a concern about a violation of the Code of Ethics or any other Company policy to report that concern through normal Company channels or anonymously. An Anonymous Ethics Hotline is maintained by an independent third party and is available 24 hours a day, 7 days a week.
Accounting Complaints. The Audit Committee has established procedures for (i) the receipt, retention and treatment of complaints regarding accounting, internal accounting controls, or auditing matters, and (ii) the confidential, anonymous submission by our employees of concerns regarding questionable accounting or auditing matters. These procedures, which are incorporated into the Code of Ethics, (i) set forth a statement about our commitment to comply with the laws; (ii) encourage employees to inform us of conduct amounting to a v iolationviolation of the applicable standards; (iii) describe prohibited conduct; (iv) set forth compliance procedures that employees can easily use, including making anonymous complaints; and (v) provide assurances that there will be no retaliation for reporting suspected violations.
Policy on Poison Pills. The term “Poison Pill”"Poison Pill" refers to a type of shareholder rights plan that some companies adopt to provide an opportunity for negotiation during a hostile takeover attempt. The Board has not adopted a Poison Pill. However, as we are a Nevada corporation, our Articles of Incorporation provide that we have expressly elected to be governed by Chapter 78 of the Nevada Revised Statutes (“NRS”("NRS") with respect to the acquisition of a controlling interest in the Company. NRS 78 provides that a person who se eksseeks to acquire a “Controlling Interest”"Controlling Interest" (20% or greater) in a Nevada corporation will only obtain such voting rights in the shares acquired (the “Control Shares”"Control Shares") as are granted by a vote of the holders of a majority of the remaining voting power of the Company at a special or annual meeting of the shareholders. In addition, NRS 78 provides that the Company may redeem not less than all of the Control Shares at the average price of the Control Shares if the Control Shares are not granted full voting rights by the shareholders.
Attendance at Board, Committee and Annual Meetings Board Meetings. The Board held four regular meetings and oneseven special meetingmeetings during the 2009 fiscal year.our 2012 Fiscal Year. During the 2009 fiscal year,our 2012 Fiscal Year, no current Director attended fewer than 75% of the aggregate of the total number of meetings of the Board and of meetings held by committees of the Board on which he or she was a member during the time he or she was a Director. In addition to regularly scheduled meetings, a number of Directors were involved in numerous informal meetings with management, offering valuable advice and suggestions on a broad range of corporate matters.
Executive Sessions (Meetings of Independent Directors). As described in the Governance Guidelines, the Independent Directors meet in regularly scheduled executive sessions without employees and non-independentnon-Independent Directors present. The Chairman of the Board presides at all executive sessions.
Annual Meeting. It is the Board’sBoard's policy that Directors should attend our annual meeting of the shareholders absent exceptional cause. Last year, all Directors attended the annual meeting of shareholders.shareholders except for Diane Ellis, Lisa Kranc and Clayton Reasor, who were not Directors at the time.
The Board has the following standing committees: Corporate Governance and Nominating, Audit and Compensation. Each committee operates under a written charter that is periodically reviewed by the respective committee and the Corporate Governance and Nominating Committee. The following table provides information concerning the independence of our Directors and the current membership of each committee.
DIRECTOR INDEPENDENCE AND COMMITTEE MEMBERSHIP
Director | Board | Corporate Governance and Nominating Committee | Audit Committee | Compensation Committee |
Mr. Barocas (I) | X | X(C) | | X |
Ms. Ellis (I) | X | | X | X |
Mr. Glazer | X | | | |
Mr. GlazerMs. Greene (I) | X | X | X (ACFE) | |
Mr. Hesterberg (I) | X | X | | X (C) |
Mr. HallMs. Kranc (I) | X | X | | X |
Mr. Montgoris (I)(LID) | X | X (C) | | X (ACFE) | X |
Ms. MosseMr. Reasor (I) | X | X | | X |
Mr. Scarborough | X (C) | | | |
Mr. Schwartz (I) | X | X | X (C)(ACFE) | |
Ms. TurpinMr. Scozzafava (I) | X | X | X (ACFE) | X |
(I) | The named Director is an Independent Director. |
(C) | The named Director is the Chairman. |
(LID) | The named Director is the Lead Independent Director. |
(ACFE) | The named Director is an Audit Committee Financial Expert. |
Mr. Montgoris is serving as interim Chairman of the Corporate Governance and Nominating Committee and as a member of the Compensation Committee due to the death of Tom Mentzer. If Mr. Montgoris is reelected at the Annual Meeting, we anticipate that he will be appointed Chairman of the Board, in which case his position as Lead Independent Director will no longer be needed. If Mr. Glazer is reelected at the Annual Meeting, we anticipate that he will replace Mr. Montgoris as Chairman of the Corporate Governance and Nominating Committee. If Ms. Turpin is reelected at the Annual Meeting, we anticipate that she will replace Mr. Glazer as Chairman of the Compensation Committee.
In General. The members of the Corporate Governance and Nominating Committee are William MontgorisAlan Barocas (Chairman), Alan Barocas, Michael Glazer, Sharon Mosse,Gabrielle Greene, Earl Hesterberg, Lisa Kranc, Clayton Reasor and David Schwartz, and Cheryl Nido Turpin, all of whom are Independent Directors. The Committee’sCommittee's primary purposes are (i) to develop, recommend to the Board, maintain and review the Governance Guidelines and propose changes to the Governance Guidelines as corporate governance developments warrant, (ii) to consider any Director candidates recommended by shareholders, (iii) to identify, recruit and recommend potential candidates for nomination as Directors to the Board consistent with criteria approved by the Board, and to nominate Directors for membership on Board committees, (iv) to evaluate the overall performance of the Board, the committees of the Board, the Directors and management, and (v) to report annually to the Board on the status of the Chief Executive Officer’sOfficer's succession plan. The Committee assists the Board in fulfilling its corporate governance and oversight responsibilities by reviewing corporate governance issues that may be brought before the Board, by exercising oversight over the Governance Guidelines, by recommending qualified individuals for nomination as Directors and reviewing their performance, and by reviewing applicable laws and regulations related to corporate governance matters. Annually, the Committee evaluates the overall performance of the Board and the Governance Guidelines. Periodically, the Committee reviews the compensation paid to the Directors.& #160; An annual performance evaluation of the Corporate Governance and Nominating Committee is conducted by the Board and the members of the Committee. The Committee met sixfour times during the 2009 fiscal year.our 2012 Fiscal Year.
Committee Meetings; Reports to the Board. The Corporate Governance and Nominating Committee meets as frequently as circumstances require, but in any event a minimum of four times per year. Meetings are led by the Chairman or by his or her designee should the Chairman be unable to attend. The Chairman, in consultation with Committee members, determines the frequency and length of Committee meetings. The Committee may ask members of management or others to attend meetings and may provide pertinent information to them, as the Committee deems necessary. The Committee reports to the Board as frequently as circumstances require, but in any event a minimum of four times each year.
Corporate Governance and Nominating Committee Charter. The Corporate Governance and Nominating Committee’sCommittee's Charter is posted on our website at www.stagestoresinc.com. It can be accessed by clicking “Investor Relations”"Investor Relations", then “Corporate Governance”"Corporate Governance", and then “CG"CG&NC Charter”.Charter."
Evaluation of the Chairman, the Board, Board Committees and Individual Directors. The Corporate Governance and Nominating Committee is responsible for establishing the evaluation criteria and implementing the process for the annual evaluation of the Chairman, the Board, the Board Committees and the individual Directors. Each Director annually evaluates the Chairman, the Board, the Board Committees and the other Directors. With respect to the Chairman, the Board and the Board Committees, the evaluations are of their overall performance as a whole and t hethe Committee considers specific areas in which the Directors believe a better contribution could be made. The results of the evaluations of the Chairman, the Board and the Board Committees are reported to the entire Board by the Lead Independent Director.Chairman. With respect to the evaluation of individual Directors, the purpose of the evaluation is to increase the corporate governance effectiveness of the Board, not to target individual Directors. The results of the individual Director evaluations are communicated to the respective Directors by the Lead Independent DirectorChairman or his designee and, in the case of the Lead Independent Director,Chairman, by outside counsel.
Evaluation of the Guidelines, Committee Charters, Corporate Governance Policies and Related Party Transactions. With input from the other Directors, the Corporate Governance and Nominating Committee reports annually to the Board on its evaluation of the Governance Guidelines, the Committee charters, any other corporate governance policies, and any related party transactions (transactions involving the Company and any executive officer, Director, employee or their affiliates and immediate family members).
Director Qualifications; Process for Identifying and Evaluating Nominees. Nominees for Director must possess the following minimum qualifications: broad experience, diversity (differences of viewpoint, professional experience, education, skill and other individual qualities and attributes that contribute to the Board’sBoard's heterogeneity), wisdom, integrity, the ability to make independent analytical inquiries, an understanding of our business
environment, and a willingness to devote adequate time to Board duties. The Corporate Governance and Nominating Committee is responsible for assessing the appropriate balance of skills and qualifications required of Directors. In identifying and evaluating nominees for Director, including nominees recommended by shareholders, the Corporate Governance and Nominating Committee will implement such processes as it deems appropriate including, in its sole discretion, retaining a third party or third parties to identify or evaluate or assist in identifying or evaluating potential nominees. However, at a minimum, each nominee for Director must (i) meet the minimum qualifications set forth above, (ii) have at least one interview with the Corporate Governance and Nominatin gNominating Committee and with any other Board member who requests an interview, and (iii) complete and sign a Director and Executive Officer Questionnaire in a form deemed appropriate by the Board prior to his or her nomination to the Board. Each Director must no less than annually complete and sign a Director and Executive Officer Questionnaire in a form deemed appropriate by the Board. In the event any information contained on a Director’sDirector's most recent Director and Executive Officer Questionnaire becomes incomplete or inaccurate, it is the responsibility of the Director to provide complete and accurate information to the Corporate Governance and Nominating Committee within thirty days. When formulating its Director recommendations, the Committee will also consider any advice and recommendations offered by our Chief Executive OfficerCEO and any other members of the Board. Diversity. The Board endeavors to have a Board representing a range of experience in business and in other areas that are relevant to the Company’sCompany's activities. The goal of the Corporate Governance and Nominating Committee is to achieve a Board that, as a whole, provides effective oversight of the management and business of the Company through, among other things, diversity (differences of viewpoint, professional experience, education, skill and other individual qualities and attributes that contribute to the Board’sBoard's heterogeneity). This policy with respect to the consideration of diversity in identifying Director no mineesnominees is implemented, and its effectiveness assessed, annually by both the Board and the Corporate Governance and Nominating Committee as part of the Director nomination process.
Consideration of Shareholder Nominees. When formulating its Director recommendations, the Corporate Governance and Nominating Committee will also consider any written recommendations received from our shareholders identifying the nominee and stating his or her qualifications. The Committee evaluates all nominees for Director in the same manner regardless of the source of the recommendation. For the Annual Meeting of Shareholders in 2011,2014, recommendations for Director nominees must be submitted in writing by December 31, 2010 Friday, January 3, 2014 to the Corporate Governance and Nominating Committee, c/o Edward J. Record, Secretary, Stage Stores, Inc., 10201 Main Street, Houston, Texas 77025, and must include the names of such nominees, together with their qualifications for service as a Director of the Company.
Succession Planning. The Governance Guidelines require (i) the Corporate Governance and Nominating Committee to make an annual report to the Board on emergency as well as expected Chief Executive OfficerCEO succession planning and (ii) the Chief Executive OfficerCEO to prepare, on a continuing basis, a short-term succession plan which delineates a temporary delegation of authority to certain officers of the Company, if all or a portion of the executive officers of the Company should unexpectedly become unable to perform their duties. The short-term succession plan will be in effect until the Board has the opportunity to consider the s ituationsituation and take action, when necessary.
Consultants. The Corporate Governance and Nominating Committee has the authority to retain, from time to time and at our expense, search firms and other consultants to assist it in identifying and recruiting potential directors for nomination, in evaluating director compensation, and to otherwise carry out its responsibilities and duties and to approve the search firm or other consultant’sconsultant's fees and other retention terms.
Engagement of Compensation Consultant-Director Compensation. The Corporate Governance and Nominating Committee (i) has the authority to retain, from time to time and at our expense, a professional compensation consulting firm to review our Director compensation program, and (ii) has selected and engaged Hay Group, a leading human resource and compensation consulting firm, as its independent consultant to advise it on Director compensation. Likewise, the decision to retain a consultant is at the sole discretion of the Corporate Governance and Nominating Committee and the consultant works at the direction of the Corporate Governance and Nominating Committee. Since 2005, Hay Group a leading human resource and compensation consulting firm, has been engaged from time to time by both the Corporate Governance and Nominating Committee and management for professional compensation consulting with respect to compensation of our Directors.
Compensation of Directors; Role of Compensation Consultant in Determining or Recommending the Amount or Form of Director Compensation. It is the responsibility of our Corporate Governance and Nominating Committee to recommend to our Board alternative forms of Director compensation. Our management reports at least once a year to the Corporate Governance and Nominating Committee on the status of our Director compensation in relation to the compensation of directors of our Peer Group. With the assistance of Hay Group as its compensation consultant, the Corporate Governance and Nominating Committee periodically evaluates Director compensation to ensure that our Directors are compensated in a manner consistent with tho sethose of our Peer Group. Changes in Director compensation, if any, are recommended by the Corporate Governance and Nominating Committee, but must be approved by our Board after a full discussion.
The nature and role of Hay Group’sGroup's assignment with respect to Director compensation and its interaction with the Chairman of the Corporate Governance and Nominating Committee is essentially the same as it is with the Compensation Committee in the case of executive officer compensation. However, Hay Group only attends meetings of the Corporate Governance and Nominating Committee that involve Director compensation, which is generally one meeting a year.
In General. The members of the Audit Committee are David Schwartz (Chairman), Alan BarocasDiane Ellis, Gabrielle Greene, William Montgoris and William Montgoris,Ralph Scozzafava, all of whom are Independent Directors. The Committee’sCommittee's primary purposes are to (1)(i) assist Board oversight of (a) the integrity of the Company’sCompany's financial statements, (b) the Company’sCompany's compliance with legal and regulatory requirements, (c) the Company’sCompany's independent auditor’sauditor's qualifications and independence, and (d) the performance of the Company’sCompany's internal audit function and independent auditors;auditors, and (2) prepar e(ii) prepare an audit committee reportAudit Committee Report as required by the SEC to be included in the Company’sCompany's annual proxy statement. The Committee’sCommittee's primary responsibilities and duties are (i) to monitor the integrity of our financial process and systems of internal controls regarding finance, accounting and legal compliance, (ii) to select, retain, terminate, determine compensation and oversee the work of our independent registered public accounting firm, (iii) to ensure the independence and monitor the performance of the our independent registered public accounting firm and
the performance of our internal auditing department, (iv) to provide an avenue of communication between our independent registered public accounting firm and our internal auditing department, and (v) to provide an avenue of communication among theour independent registered public accounting firm, our management, our internal auditing department and the Board. An annual performance evaluation of the Audit Committee is conducted by the Board an dand the members of the Committee. The Committee met ten times during the 2009 fiscal year.
our 2012 Fiscal Year.
Committee Meetings; Reports to the Board. The Audit Committee meets as frequently as circumstances require, but in any event a minimum of four times per year. Meetings are led by the Chairman or by his or her designee should the Chairman be unable to attend. The Chairman, in consultation with Committee members, determines the frequency and length of Committee meetings. The Committee may ask members of management or others to attend meetings and may provide pertinent information to them, as the Committee deems necessary. Most meetings allow time for an executive session in which the Committee and others specifically requested by the Committee (such as representatives of the Company's independent registered public accounting firm) have an opportunity to directly discuss all accounting issues without the presence of management. The Committee reports to the Board as frequently as circumstances require, but in any event a minimum of four times each year.
Authority to Engage Advisors and to Conduct Independent Investigations. The Audit Committee has the authority to engage, at the Company’sCompany's expense, independent counsel and other advisersadvisors it determines necessary to carry out its duties. The Committee has the authority to conduct any investigation appropriate to fulfilling its responsibilities and duties, and it has direct access to our independent registered public accounting firm as well as anyone in the Company.
Audit Committee Charter. The Audit Committee’sCommittee's Charter is available on our website at www.stagestoresinc.com. It can be accessed by clicking “Investor Relations”,"Investor Relations," then “Corporate Governance”,"Corporate Governance," and then “Audit"Audit Committee Charter.”"
Audit Committee Financial Expert. The Board has determined that Ms. Greene and Messrs. Montgoris, Schwartz and SchwartzScozzafava are Audit Committee Financial Experts, as that term is defined by the SEC.
Audit Committee Report. The Audit Committee Report is on page 57 70 of this Proxy Statement.
Service on Audit Committees of Public Companies. Section 303A.07(a) of the NYSE Listed Company Manual states that if an audit committee member simultaneously serves on the audit committee of more than three public companies, the board must determine that such simultaneous service does not impair the director’s ability to effectively serve on the issuer’s audit committee. David Schwartz, the Chairman of our Audit Committee, also serves as the Chairman of the audit committee of Walgreen Co. and as a member of the audit committee of Foot Locker, Inc., both of which are public companies. He also serves as the Chairman of the audit committee of True Value Company, which is not a public company. Our Board has determined that Mr. Schwartz’s simultaneous service on our Audit Committee and the audit committees of those other companies does not impair his ability to effectively serve on our Audit Committee.
In General. The members of our Compensation Committee are Michael GlazerEarl Hesterberg (Chairman), William Montgoris, Sharon MosseAlan Barocas, Diane Ellis, Lisa Kranc, Clayton Reasor and Cheryl Nido Turpin,Ralph Scozzafava, all of whom are Independent Directors. Our Board has entrusted the Compensation Committee with overall responsibility for establishing, implementing and monitoring our executive compensation program. The primary purpose of the Compensation Committee is to administer the cash salary, bonus and other incentive compensation programs for the current and future Executive Officersexecutive officers of the Company, as the term Executive Officer is defined in the Committee’s Charter.Company. In addition, the Committee’s purposesCommittee's responsibilities include the following: (i) review and approve corporate goals and objectives relevant to CEO compensation, evaluate the CEO's perfor mance in light ofperformance against those goals and objectives and, either as a committee or together with the other Independent Directors, determine and approve the CEO's compensation level based on this evaluation, (ii) make recommendations to the Board with respect to non-CEO executive officer compensation and incentive-compensation and equity-based plans that are subject to Board approval, and (iii) prepare a Compensation Committee Report and/or such other disclosure as may be required by applicable SEC rules or regulations.
An annual performance evaluation of the Compensation Committee is conducted by the Board and the members of the Committee. The Committee met sixfive times during the 2009 fiscal year.
our 2012 Fiscal Year.
Compensation Committee Charter. The Compensation Committee’s Charter is available on our website at www.stagestoresinc.com. It can be accessed by clicking “Investor Relations”, then “Corporate Governance”, then “Compensation Committee Charter.”
Compensation Committee Report. The Compensation Committee Report is on page 35 of this Proxy Statement.
Compensation and Compensation Principles. For a discussion of executive officer and Director compensation and compensation principles, please see “Compensation of Directors and Executive Officers-Compensation Discussion and Analysis” andMeetings; Reports to the compensation tables and narrative discussions that follow beginning on page 17 of this Proxy Statement.Board.
Processes and Procedures for Executive Officer Compensation. The primary responsibilities of the Compensation Committee are as follows: (i) review the performance and approve the compensation of our executive officers, (ii) review and approve the terms and conditions of written employment agreements for our executive officers, (iii) provide oversight of all cash compensation, equity compensation, benefits and perquisites for the entire officer population, and (iv) review and monitor equity incentive plans as well as any pension, profit sharing and benefit plans.
The Compensation Committee meets as frequently as circumstances require, but typically meets at leastin any event a minimum of four times per year. EachMeetings are led by the Chairman or by his or her designee should the Chairman be unable to attend. The Chairman, in consultation with Committee members, determines the frequency and length of Committee meetings. The Committee may ask members of management or others to attend meetings and may provide pertinent information to them, as the Committee deems necessary. At least one meeting per year held in-person allows time for an executive session in which the Committee and others specifically requested by the Committee (such as outside consultants) have an opportunity to directly discuss all executive compensation issues without the presence of management. The Committee reports to the Board as frequently as circumstances require, but in any event a minimum of four times each year.
Compensation Committee Charter. The Compensation Committee's Charter is available on our website at www.stagestoresinc.com. It can be accessed by clicking "Investor Relations," then "Corporate Governance," and then "Compensation Committee Charter."
Compensation Committee Report. The Compensation Committee Report is on page 44 of this Proxy Statement.
Compensation and Compensation Principles. For a discussion of executive officer compensation and compensation principles, please see "Compensation of Directors and Executive Officers-Compensation Discussion and Analysis" and the compensation tables and narrative discussions that follow beginning on page 21 of this Proxy Statement.
Processes and Procedures for Executive Officer Compensation; Committee Meetings. In addition to the purposes set forth in "Compensation Committee-In General", above, the primary responsibilities and duties of the Compensation Committee are as follows: (i) review and evaluate the performance and approve the compensation of our executive officers, (ii) review and approve the terms and conditions of written employment, separation and retirement agreements for our executive officers, (iii) provide oversight of all cash compensation, equity compensation, benefits and perquisites for the entire officer population, (iv) review and monitor equity incentive plans as well as any pension, profit sharing and benefit plans, (v) oversee the Company's compensation policies and practices for all employees, including non-executive officers, so that they do not create risks that are reasonably likely to have a material adverse affect on the Company, and (vi) oversee the Board's annual performance evaluation of our CEO using a process consistent with that set forth in the Governance Guidelines.
The Compensation Committee reviews compensation analyses prepared by an independent compensation consultant and by management and assesses program design and recommendations for individual executives against these strategies.benchmarking purposes. The Committee determinesrecommends our Chief Executive Officer’sCEO's compensation andto the Board, reviews and discusses rec ommendationsrecommendations for other senior executives with our Chief Executive OfficerCEO and approvesrecommends final pay packages.packages to the Board. The Committee also reviews overall program design and total costs compared to approved strategies.
The Compensation Committee believes that having the input of management is important to the overall effectiveness of our executive compensation program. Our Chief Executive OfficerCEO and our Executive Vice President, Human Resources (“("EVP Human Resources”Resources") are the primary representatives of management who interact with the Committee. The Committee seeks input from our Chief Executive OfficerCEO and our EVP Human Resources regarding the performance of our executive team and individual compensation levels (within parameters approved by the Committee) and also seeks recommendations on various executive compensation awards (e.g., new hire equity grants). In addition, our Chief Executive OfficerCEO and our EVP Human Resources regul arlyregularly attend Committee meetings (except for executive sessions) to participate in the presentation of materials and discussion of management’smanagement's point of view regarding compensation issues.
Our Chief Executive OfficerCEO is not permitted to be present during deliberations and voting regarding his or her compensation. While our Chief Executive OfficerCEO may be present during deliberations and voting on the compensation of other executive officers, our Chief Executive OfficerCEO may not vote on theirhis or her compensation.
The Compensation Committee has delegated authority to our Chief Executive Officer to grant equity awards to employees at the Vice President levelAll base salary, bonus compensation and below, with a maximum number of 5,000 shares to any one person at any one time. All equity awards, regardless of the amount and the number of shares, at the SeniorExecutive Vice President level and above must be approved by the Board. In addition,The Board has granted our Chief Executive Officer hasCEO the authority (i) to managedetermine and modify, in his or her discretion, the base salary and bonus compensation of employees of the Company other than executive management (Executive Vice Presidents and above) subject to a maximum base salary of $400,000 and a maximum bonus target of 50% with respect to any single employee compensation at the Vice President levelin any single calendar year, and below within the compensation guidelines(ii) to award up to 5,000 Performance Shares or shares of Restricted Stock under our Amended and Restated 2001 Equity Incentive Plan, our Second Amended and Restated 2008 Equity Incentive Plan, or other equity incentive plan approved by the Committee.
Company's shareholders to any single employee in any single calendar year other than executive management.
Authority to EngageEngagement of Compensation Consultant-ExecutiveConsultants-Executive Officer Compensation. The Compensation Committee hasmay, in its sole discretion, retain or obtain the authority to retain, from time to time and at the Company’s expense,advice of a professional compensation consulting firmconsultant to review our executive officer compensation program. program, including, but not limited to, a review of our "performance based" compensation programs in light of Section 162(m) of the Internal Revenue Code. For a discussion of Section 162(m), please see "Tax, Accounting and Other Implications-Deductibility of Executive Compensation" on page 43 of this Proxy Statement.
The Committee has selectedis directly responsible for the appointment, compensation and engaged Hay Group as its independentoversight of the work of any compensation consultant to advise it on executive compensation.retained by the Committee. The decision to retain a compensation consultant is at the sole discretion of the Committee and the compensation consultant works at the direction of the Committee. The Company must provide for appropriate funding, as determined by the Committee, for payment of reasonable compensation to any compensation consultant retained by the Committee.
The Committee has selected and retained Hay Group as its independent compensation consultant to advise it on executive compensation. Since 2005, Hay Group has been engaged from time to time by both the Committee and manage mentmanagement for professional compensation consulting with respect to compensation of the Company’sCompany's executive officers.
Review of Compensation Consultant Arrangements. In September 2011, the Compensation Committee and the Board reviewed the then existing compensation consultant arrangements. A general discussion was held concerning whether the Board, by and through the Compensation Committee with respect to executive officer compensation and related matters (e.g., comparator data, the Compensation Discussion and Analysis in the Company's proxy statements and interactions with proxy advisory companies) and by and through the Corporate Governance and Nominating Committee with respect to Director compensation, on the one hand, and the Company, by and through management with respect to the compensation of other officers, on the other hand, should retain the services of separate compensation consultants and, if so, who those compensation consultants should be. The Board reviewed management's approach to hiring its compensation consultant as well as the roles, responsibilities, requirements (including timing) and the costs of compensation consultants.
Based upon the recommendation of the Compensation Committee, the Board determined and directed that the Board, by and through the Compensation Committee with respect to executive officer compensation and related matters, such as those described in the previous paragraph, and by and through the Corporate Governance and Nominating Committee with respect to Director compensation, on the one hand, and the Company, by and through management with respect to the compensation of other officers, on the other hand, should retain the services of separate compensation consultants and that (i) the Board and its Committees should retain the services of Hay Group and (ii) the Company should retain the services of another compensation consultant as needed. However, the Board determined that the Company should continue to participate in the Hay Group annual compensation survey, as it has for many years, since Hay Group may need this information in its work for the Board and for Board committees.
Role of Compensation Consultant in Determining or Recommending the Amount or Form of Executive Officer Compensation. On an annual basis, Hay Group prepares competitive pay analyses regarding both our peer group of companies, as identified on page 2127 of this Proxy Statement (the “Peer Group”"Peer Group"), and the broader market; it provides information on our performance compared to the Peer Group and to our performance group of companies, as identified on page 2128 of this Proxy Statement (the “Performance Group”"Performance Group"); and it advisesprovides input to the Compensation Committee on the level and design of compensation programs for our executive officers.
The Chairman of the Compensation Committee works directly with Hay Group to determine the scope of the work needed to assist the Committee in its decision making processes. For example, Hay Group meets with the Committee to review issues and gain input on plan design and alternatives. In this process, Hay Group meets with the members of the Committee, our Chief Executive Officer and our other senior management to facilitate the development of our executive compensation strategy and approach to determining compensation levels.
When requested, Hay Group attends Committee and Board meetings and the Committee’sCommittee's executive sessions to present and discuss market data and program design alternatives, and to provide advice and counsel regarding decisions facing the Committee. Occasionally, Hay Group also meets individually with the Chairman of the Committee prior to Board meetings to discuss findings and issues. In addition, with the agreement and approval of the Committee, Hay Group works with our management team on broad-based compensation design and issues and links them to our overall executive compensation strategy. Aggregate
Independence of Compensation Consultant; Conflicts of Interest. The Compensation Committee assessed the independence of Hay Group pursuant to SEC Rules and concluded that no conflict of interest exists that would prevent Hay Group from independently representing the Committee. The aggregate fees paid by the Company to Hay Group during the 2009 fiscal yearFiscal 2012 did not exceed $120,000.
Compensation Committee InterlocksAuthority to Engage Independent Legal Counsel and Insider Participation. None of the members of the Compensation Committee has ever been an officer or an employee of the Company or its subsidiary. None of our executive officers serves on any board of directors with any of our Directors other than on our Board in the case of Mr. Hall, our President and Chief Executive Officer.
Consultants.Other Advisers. The Compensation Committee has the authority, in its sole discretion, to retain, from time to time and at ourthe Company's expense, a professionalindependent legal counsel and other advisers. The Committee is directly responsible for the appointment, compensation consulting firm to reviewand oversight of the Company’s Executive Officer compensation program including, but not limited to, a reviewwork of any independent legal counsel and other advisers retained by the Committee.
Compensation Committee Interlocks and Insider Participation. None of our “performance based”Directors are employed at a company whose compensation programs in lightcommittee includes any of Section 162(m) of the Internal Revenue Code, and to approve the consulting firm’s fees and other retention terms. For a discussion of Section 162(m), see “Tax, Accounting and Other Implications-Deductibility of Executive Compensation” later in this Proxy Statement.our executive officers.
Shareholder and Other Interested Party Communications with the Board
In General. Shareholders and other interested parties may send written communications to the Board and, if applicable, to the Chairman and other individual Directors, including the Independent Directors, by mail, facsimile or courier to our principal executive offices. All correspondence that we receive will be relayed to the Board or, if applicable, to the Chairman or other individual Director. Communications should be addressed in care of Edward Record, Secretary, Stage Stores, Inc., 10201 Main Street, Houston, Texas 77025, or sent by facsimile to Mr. Record at (713) 669-2709.
Deadline for Shareholder Proposals for Inclusion in Next Year’sYear's Proxy Statement. Shareholder proposals intended to be presented at the 20112014 Annual Meeting of Shareholders and included in our proxy statement and form of proxy relating to that meeting pursuant to Rule 14a-8(e) under the Securities Exchange Act of 1934 must be received in writing by us at our principal executive offices by December 31, 2010.Friday, January 3, 2014. Proposals should be addressed to Edward Record, Secretary, Stage Stores, Inc., 10201 Main Street, Houston, Texas 77025.
Other Shareholder Proposals for Presentation at Next Year’sYear's Annual Meeting. For any shareholder proposal that is not submitted to us for inclusion in next year’syear's proxy statement, but is instead sought to be presented by the shareholder directly at the 20112014 Annual Meeting, Rule 14a-4(c) under the Securities Exchange Act of 1934 permits management to vote proxies in its discretion if we: (1)(i) receive written notice of the proposal before the close of business on Wednesday, March 16, 2011,19, 2014, and advise shareholders in the 20112014 Proxy Statement about the nature of the matter and how management intends to vote on the matter, or (2)(ii) do no tnot receive written notice of the proposal before the close of business on Wednesday, March 16, 2011.19, 2014. Notices of intention to present proposals at the 20112014 Annual Meeting should be addressed to Edward Record, Secretary, Stage Stores, Inc., 10201 Main Street, Houston, Texas 77025.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Security Ownership of Certain Beneficial Owners
The following table provides information regarding beneficial ownership of our common stock by any person or entity known by us to be the beneficial owner of more than five percent (5%) of our outstanding common stock as of April 12, 2010.18, 2013. As of April 12, 2010,18, 2013, there were 38,449,491 32,657,988 shares of our common stock outstanding.
Name and Address | | Number of Shares Beneficially Owned | | Percent of Class | |
Wellington Management Company, LLP | | 3,738,000 | | 9.7% | (1) |
75 State Street | | | | | |
Boston, MA 02109 | | | | | |
| | | | | |
BlackRock, Inc. | | 3,011,775 | | 7.8% | (2) |
55 East 52nd Street | | | | | |
New York, NY 10022 | | | | | |
| | | | | |
Dimensional Fund Advisors LP | | 2,998,629 | | 7.8% | (3) |
Building One | | | | | |
6300 Bee Cave Road | | | | | |
Austin, TX 78746 | | | | | |
| | | | | |
Keeley Asset Management Corp. | | 2,022,180 | | 5.3% | (4) |
401 South LaSalle Street, Suite 1201 | | | | | |
Chicago, IL 60605 | | | | | |
| Name and Address | | Number of Shares Beneficially Owned | | Percent of Class | |
| | | | | | |
| Dimensional Fund Advisors LP | | 2,791,873 | | 8.5% | (1) |
| Palisades West, Building One | | | | | |
| 6300 Bee Cave Road | | | | | |
| Austin, TX 78746 | | | | | |
| | | | | | |
| BlackRock, Inc. | | 2,320,095 | | 7.1% | (2) |
| 40 East 52nd Street | | | | | |
| New York, NY 10022 | | | | | |
| | | | | | |
| Wellington Management Company, LLP | | 2,124,150 | | 6.5% | (3) |
| 280 Congress Street | | | | | |
| Boston, MA 02210 | | | | | |
| | | | | | |
| The Vanguard Group, Inc. | | 1,991,049 | | 6.1% | (4) |
| 100 Vanguard Blvd. | | | | | |
| Malvern, PA 19355 | | | | | |
| | | | | | |
| S.A.C Capital Advisors, L.P. | | 1,695,256 | | 5.2% | (5) |
| 72 Cummings Point Road | | | | | |
| Stamford, CT 06902 | | | | | |
__________________________
(1) | The information is based on the Schedule 13G/A filed with the SEC on February 12, 201011, 2013 by Wellington Management Company, LLPDimensional Fund Advisors LP reporting on beneficial ownership as of December 31, 2009. According to the filing, the reporting person has shared voting power with respect to 2,640,625 shares and shared investment power with respect to 3,738,000 shares. |
(2) | The information is based on the Schedule 13G filed with the SEC on January 29, 2010 by BlackRock, Inc. reporting on beneficial ownership as of December 31, 2009.2012. According to the filing, the reporting person has sole voting power with respect to 3,011,7752,758,171 shares and sole investment (dispositive) power with respect to 3,011,7752,791,873 shares. This Schedule 13G was filed in order to amend the most recent Schedule 13G filing made by Barclays Global Investors, NA, which was acquired by BlackRock on December 1, 2009. |
(3)(2) | The information is based on the Schedule 13G/A filed with the SEC on February 8, 20102013 by Dimensional Fund Advisors LPBlackRock, Inc. reporting on beneficial ownership as of December 31, 2009.2012. According to the filing, the reporting person has sole voting power with respect to 2,963,2162,320,095 shares and sole investment (dispositive) power with respect to 2,998,6292,320,095 shares. |
(3) | The information is based on the Schedule 13G/A filed with the SEC on February 14, 2013 by Wellington Management Company, LLP reporting on beneficial ownership as of December 31, 2012. According to the filing, the reporting person has shared voting power with respect to 1,571,975 shares and shared investment (dispositive) power with respect to 2,124,150 shares. |
(4) | The information is based on the Schedule 13G/A filed with the SEC on February 12, 20102013 by Keeley Asset Management Corp.The Vanguard Group, Inc. reporting on beneficial ownership as of December 31, 2009.2012. According to the filing, the reporting person has sole voting power with respect to 2,017,98049,039 shares, and sole investment (dispositive) power with respect to 2,022,1801,943,710 shares and shared investment (dispositive) power with respect to 47,339 shares. |
(5) | The information is based on the Schedule 13G filed with the SEC on March 27, 2013 by S.A.C. Capital Advisors, L.P. reporting on beneficial ownership as of March 26, 2013. According to the filing, the reporting person has shared voting power with respect to 1,695,256 shares and shared investment (dispositive) power with respect to 1,695,256 shares. |
Security Ownership of Management
The following table provides information regarding the beneficial ownership of our common stock by each currently employed Named Executive Officer listed in the 20092012 Summary Compensation Table and each of our Directors, as well as the number of shares beneficially owned by all of our Directors and executive officers as a group as of April 12, 2010.18, 2013, unless otherwise indicated by footnote. Other than in the case of Mr. Glazer, as footnoted, none of the shares are pledged as security. As of April 12, 2010,18, 2013, there were 38,449,491 32,657,988 shares of our common stock outstanding. The table also provides information about stock options exercisable within 60 days and Deferred Stock Units ("DSUs") credited to the accounts of eac heach Director and Named Executive Officer under various compensation plans. Unless otherwise indicated by footnote, individuals have sole voting and investment (dispositive) power.
Name | | Common Stock | | Restricted Stock (1) | | Stock Options Exercisable Within 60 Days | | Deferred Stock Units (2) | | Percent of Class |
Andrew T. Hall | | 77,318 | | 30,000 | | 280,500 | | - | | 1.0 | % |
Edward J. Record | | 25,924 | | 35,000 | | 108,750 | | - | | (3) | |
Richard A. Maloney | | - | | 55,000 | | 36,250 | | - | | (3) | |
Ernest R. Cruse | | 9,275 | | - | | - | | - | | (3) | |
Ron D. Lucas | | 37,982 | | - | | 194,764 | | - | | (3) | |
Alan J. Barocas | | 12,726 | | 21,556 | | - | | - | | (3) | |
Michael L. Glazer | | 67,573 | (4) | 20,913 | | 16,875 | | - | | (3) | |
William J. Montgoris | | 11,482 | | 20,913 | | 50,625 | | - | | (3) | |
Sharon B. Mosse | | 5,224 | | 20,913 | | 50,625 | | 9,503 | | (3) | |
James R. Scarborough | | 75,700 | | - | | 387,460 | | - | | 1.2 | % |
David Y. Schwartz | | - | | 15,513 | | 5,129 | | 10,549 | | (3) | |
Cheryl N. Turpin | | - | | 3,387 | | - | | - | | (3) | |
| | | | | | | | | | | |
All Directors and Executive Officers as a group (15 persons) | | 334,711 | | 228,195 | | 1,211,216 | | 20,052 | | 5.4 | % |
Name | | Common Stock | | Restricted Stock (1) | | Stock Options/SARS Exercisable Within 60 Days | | Deferred Stock Units (2) | | Percent of Class |
Michael L. Glazer (3) | | 113,093 | | 125,733 | | 11,250 | | - | | (4) | |
Oded Shein | | 3,235 | | 24,800 | | 15,000 | | - | | (4) | |
Edward J. Record | | 106,253 | | 46,600 | | 276,125 | | - | | 1.3 | % |
Steven P. Lawrence | | - | | 68,000 | | - | | - | | (4) | |
Michael M. Searles | | - | | 41,150 | | - | | - | | (4) | |
Alan J. Barocas | | 37,884 | | 6,094 | | - | | - | | (4) | |
Diane M. Ellis | | - | | 3,474 | | - | | - | | (4) | |
Gabrielle E. Greene | | 9,020 | | 8,137 | | - | | - | | (4) | |
Earl J. Hesterberg | | 14,281 | | 8,398 | | - | | - | | (4) | |
Lisa R. Kranc | | - | | 3,371 | | - | | | | | |
William J. Montgoris | | 40,693 | | 13,071 | | 45,000 | | - | | (4) | |
C. Clayton Reasor | | - | | 5,931 | | - | | | | | |
David Y. Schwartz | | 31,388 | | 6,094 | | 10,258 | | 11,172 | | (4) | |
Ralph P. Scozzafava | | 1,118 | | 8,653 | | - | | - | | (4) | |
| | | | | | | | | | | |
All Directors and Executive Officers as a group (18 persons) | 458,242 | | 433,514 | | 456,483 | | 11,172 | | 4.1 | % |
_____________________________
(1) | Reflects unvested Restricted stockStock which was granted under our Amended and Restated 2001 and Second Amended and Restated 2008 Equity Incentive Plan.Plans. |
(2) | Deferred Stock Units (“DSU”)DSUs are held under our 2003 Amended and Restated Non-EmployeeNon‑Employee Director Equity Compensation Plan. Each DSU is equal in value to a share of our stock, but does not have voting rights. Individuals do not have investment power with respect to DSUs. The number of DSUs credited to a Director’sDirector's account will be adjusted, as appropriate, to reflect any stock split, any dividend paid in cash and any dividend payable in shares of our stock. At the election of the Director upon termination of his or her service as a Director, the DSUs will be distributed to the Director either (i) in cash, or (ii) in shares of our stock. |
(3) | 103,760 shares are pledged as security in a margin account |
(3)(4) | Ownership is less than one percent of our outstanding common stock. |
Hedging by Employees and Directors; Anti-Hedging Policy
In General. Section 955 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, enacted in July 2010, amends Section 14 of the Exchange Act by adding a new Section 14(j) Disclosure of Hedging by Employees and Directors that directs the SEC to issue rules requiring that publicly-traded companies disclose in their proxy statements whether any employee or director, or any designee of an employee or a director, is permitted to purchase financial instruments (including prepaid variable forward contracts, equity swaps, collars, and exchange funds) that are designed to hedge or offset any decrease in the market value of equity securities:
(4)· | All 67,573 shares are pledgedgranted to the employees or directors by the issuer as security in a margin account.part of the compensation of the employee or director; or |
· | held, directly or indirectly, by the employee or director. |
As of the date of this Proxy Statement, the SEC has not issued rules with respect to new Section 14(j).
Anti-Hedging Policy. In response to new Section 14(j) and subject to amendment once the SEC has issued rules in this regard, the Board has adopted an Anti-Hedging Policy which provides that any employee or Director of the Company, or any designee of an employee or a Director of the Company, shall not be permitted to purchase financial instruments (including prepaid variable forward contracts, equity swaps, collars, and exchange funds) that are designed to hedge or offset any decrease in the market value of the Company's equity securities:
· | granted to the employees or Directors by the Company as part of the compensation of the employee or Director; or |
· | held, directly or indirectly, by the employee or Director. |
TRANSACTIONS WITH RELATED PERSONS
Transactions with Related Persons
Alan Barocas. Effective January 1, 2011, Alan Barocas, one of our Directors, accepted the position of Senior Executive Vice President of Leasing at General Growth Properties, Inc. ("General Growth"), which is based in Chicago, Illinois. Because in the ordinary course of business the Company leased three of its 864 store locations from General Growth at February 2, 2013, because General Growth may manage other store locations leased by the Company and because Mr. Barocas is now an employee of General Growth, we conducted an independence analysis to determine whether Mr. Barocas remains an Independent Director, as defined in the Governance Guidelines. We reviewed information with respect to payments made by the Company to General Growth in each of the last three years ($1.1 million in 2010. $0.8 million in 2011 and $0.5 million in 2012); we spoke with Mr. Barocas; and we reviewed General Growth's 2012 Form 10-K with respect to General Growth's consolidated gross revenues (in excess of $2.4 billion in 2010, $2.4 billion in 2011 and $2.5 billion in 2012). As a result, the Board concluded that Mr. Barocas continues to meet the NYSE definition of Independent Director. The Board also concluded that Mr. Barocas did not have a direct or indirect material interest in the Company's leasing of store locations from General Growth during Fiscal 2012. The Board has directed that Mr. Barocas and management report to the Corporate Governance and Nominating Committee and the Board, on no less than a quarterly basis, as to whether the service of Mr. Barocas, as both a Director of the Company and an employee of General Growth, is such that (i) he is no longer an Independent Director and (ii) he may have a direct or indirect material interest in the Company's leasing of store locations from General Growth during Fiscal 2013.
Richard Maloney.On November 3, 2008,January 30, 2012, Richard Maloney, then our Chief Merchandising Officer, resigned from the Company to pursue other interests. On February 21, 2012, we entered into a ConsultingSeparation Agreement with James Scarborough, who retiredMr. Maloney. The approximate value of the transaction is $1,431,000. We filed a copy of the Separation Agreement as Exhibit 10.1 to our Form 10-Q for the period ended April 28, 2012, which we filed with the SEC on June 7, 2012.
Andrew Hall. On March 28, 2012, Andrew Hall, then our President and Chief Executive Officer, as of that date. The term ofresigned from the Consulting Agreement began on November 3, 2008 and will end onCompany to pursue other interests. Effective June 10, 2010 (the “Term”), unless earlier terminated or extended by mutual agreement of the parties. We will pay Mr. Scarborough a retainer of $350,000 per Term year during the Term of the Consulting Agreement for an aggregate total of approximately $564,000. As Mr. Scarborough was a Named Executive Officer at the time and is currently our Chairman of the Board, we filed the Consulting Agreement as an Exhibit to our Annual Report on Form 10-K for the fiscal year ended January 3 1, 2009. The Consulting Agreement is incorporated herein by reference.
On February 26, 2010,2012, we entered into a RetirementSeparation Agreement with Ernest Cruse, Executive Vice President, Store Operations, which terminated his Employment Agreement dated January 30, 2002.Mr. Hall. The approximate dollar value of the amount involvedtransaction is $3,400,000. We filed a copy of the Separation Agreement as Exhibit 10.24 to our Form 10-Q for the period ended July 28, 2012, which we filed with the SEC on September 6, 2012. Although Mr. Hall resigned on March 28, 2012, pursuant to the terms of his Separation Agreement he was eligible to participate in the transaction is $566,900. As Mr. Cruse is2012 Senior Executive Bonus Plan, but on a Named Executive Officer, we filed the Retirement Agreement as an Exhibit to our Annual Report on Form 10-K for the fiscal year ended January 30, 2010. The Retirement Agreement is incorporated herein by reference.pro rata basis (i.e., 11 weeks out of 53 weeks). In April of 2013, he was paid a bonus of $316,489.
Other than those transactions described above andto the extent they involve a direct or indirect material interest, those transactions related to their employment, in the case of executive officers, and those transactions related to their service on our Board, in the case of non-employee Directors, there were no transactions, since the beginning of our last fiscal year, or any currently proposed transaction, in which we were or will be made a participant and in which any Director, nominee for Director or executive officer, or any immediate family member of a Director, nominee for Director or executive officer had or will have a direct or indirect material interest.
Review, Approval or Ratification of Transactions with Related Persons
In General. Article X. Related Party, Other Material Transactions and Loans of the Governance Guidelines (“("Governance Guideline Article X”X") and our written Related Party and Material Transactions Policy (the “Policy”) contain our policies and procedures for the review, approval or ratification of any transaction required to be reported in this Proxy Statement. They provide as follows:
“"Related Party Transactions. No officer, director, or employee of the Company or any of its affiliate or subsidiary companies (collectively, the “Companies”"Companies") shall enter into any agreement, arrangement or contract with any person or entity pursuant to which any of the Companies may be obligated to:
| (i) | pay any money to a “Related"Related Party,”" or |
| (ii) | assign or lease any property belonging to any of the Companies to a Related Party, or |
| (iii) | allow any Related Party to use any property belonging to any of the Companies, |
if the aggregate fair market value of any monies paid to the Related Party and the property assigned or leased to or used by the Related Party exceeds Five Thousand Dollars ($5,000), without the express, prior, written approval of the Company’sCompany's Board of Directors. The term “Related Party”"Related Party" includes:
| (i) | any person who is an officer or director of any of the Companies (each, an “Insider”"Insider"); and |
| (ii) | any person who is a child, stepchild, parent, stepparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law of a director, executive officer or nominee for director, and any person (other than a tenant or employee) sharing the household of such director, executive officer or nominee for director (each, an “Immediate"Immediate Family Member”Member"); and |
| (iii) | any entity for which an Insider or Immediate Family Member is an attorney, broker, commissioned sales agent, director, manager, officer, partner or profits participant; and |
| (iv) | any entity in which an Insider or Immediate Family Member has beneficial ownership of five percent (5%) or more of the voting securities of the entity. |
Other Material Transactions. No officer, director, or employee of the Company or any of its affiliate or subsidiary companies (collectively, the “Companies”"Companies") shall enter into any agreement, arrangement or contract with any person or entity or authorize any transaction which the Company may be required to disclose to the Securities and Exchange Commission unless the agreement, arrangement, contract or transaction previously has been approved by the Company’sCompany's Board of Directors.
Audit Committee Approval. Notwithstanding anything to the contrary, if required by the Securities and Exchange Commission, New York Stock Exchange, or other regulatory authority, any transaction between the Company and a Related Party, regardless of the amount involved, shall be approved by the Audit Committee.”
"
No Loans to Directors, Executive Officers and Their Immediate Family Members. Governance Guideline Article X provides that the Company shall not, directly or indirectly, including through any subsidiary, extend or maintain credit, arrange for or guarantee the extension of credit, or renew an extension of credit, in the form of a personal loan to or for any Director, executive officer, or Immediate Family Member of any Director or executive
officer. As used in the Governance Guidelines and this Proxy Statement, “executive officer”"executive officer" means our President, Chief Operating Officer, principal financial officer, principal accounting officer (or, if there is no such accounting officer, the controller), any vice president in charge of a principal business unit, division or function (such as marketing, merchandising, administration or finance), any other officer who performs a policy-making function, or any other person who performs similar policy-making functions for us, in all cases including officers of our subsidiaries if they perform policy-making functions for us.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
Compensation Discussion and Analysis Executive Summary
Financial and Operational Highlights. The Company's strategy for its fiscal year ended February 2, 2013 ("Fiscal 2012") was to build on its 2011 achievements and to pursue meaningful sales and earnings growth. Reflecting the successful implementation of its business strategy, the Company achieved the following results in Fiscal 2012:
· | Total sales for the year increased 8.9% to $1.65 billion, the highest in the Company's history. |
· | Comparable store sales increased 5.7%, the highest since 2001. |
· | Gross profit margin was 27.9% (50 basis points better than Fiscal 2011). |
· | Selling general and administrative expense was 50 basis points better than Fiscal 2011. |
· | Earnings per diluted share was $1.19 versus $0.92 in Fiscal 2011, an increase of 29%. Excluding one-time adjustments, earnings per share was $1.33 (a 45% increase), the highest earnings per share in the Company's history. |
· | Direct-To-Consumer sales increased by $9.1 million to $23.1 million, an increase of 65% over Fiscal 2011. |
· | In its second full year, the Company's eCommerce platform, which is part of its Direct-to-Consumer sales, produced sales of $17.0 million, an increase of $8.7 million (104%) from Fiscal 2011. |
· | For the one-year period ended February 2, 2013, the Company had a total shareholder return ("TSR") of 51.46%, including the reinvestment of dividends. Over the three-year period ended February 2, 2013, annualized TSR was 83.15%, including the reinvestment of dividends. |
· | The Company opened 25 traditional stores and 31 Steele's stores during 2012 and had a net increase of 51 stores, growing from 813 stores in 40 states to 864 stores in 40 states. |
· | The management team was strengthened with the addition of Michael Glazer, as President and CEO, Steve Lawrence, as Chief Merchandising Officer, and Bill Gentner, as Chief Marketing Officer, and with the promotion of Russ Lundy to Executive Vice President, Stores. |
Changes to Executive Compensation Program During Fiscal 2012. In March 2012, the Compensation Committee conducted an annual review of the Company's executive compensation program to ensure that it supported the key objectives and principles set forth in "Compensation Objectives and Principles" on page 24 of this Proxy Statement. Other than adding a "Mission Based Goals" parameter to the FY 2012 Senior Executive Incentive Bonus Plan, it was determined that no significant changes were needed.
Resignation of Andrew Hall; Appointment of Michael Glazer. On March 28, 2012, Andrew Hall resigned as President and Chief Executive Officer to pursue other interests. On that day, Michael Glazer was appointed President and Chief Executive Officer on an interim basis, and assumed these roles permanently on April 19, 2012.
Overview of 2012 Compensation. The Company's executive compensation program demonstrates strong alignment between pay and performance. Base salaries are generally at or below the median of our Peer Group, while incentive compensation provides the opportunity for above median pay if the Company exceeds its targeted performance levels.
· | Base Salaries. Based on the Fiscal 2011 performance of the Company and competitive market data, base salary increases were granted effective April 1, 2012 to our then employed Named Executive Officers as follows: |
o | As Mr. Glazer became our President and Chief Executive Officer on an interim basis on March 28, 2012 at a base salary of $850,000, which was the same as Mr. Hall's base salary prior to his resignation. Mr. Glazer's base salary was not adjusted when he became our President and Chief Executive Officer on a permanent basis. |
o | Mr. Shein's base salary was increased from $350,000 to $355,000, a 1.43% increase. |
o | Mr. Record's base salary was increased from $572,000 to $585,000, a 2.27% increase. |
o | Mr. Searles' base salary remained at $450,000. |
Mr. Lawrence joined the Company on April 30, 2012, with a base salary of $560,000.
Details are shown in the table on page 32 of this Proxy Statement.
· | Annual Incentives. Our 2012 Senior Executive Incentive Bonus Plan consisted of the following three parameters: (i) Company profitability, as expressed in Pre-Tax Earnings measured against a Board approved target (sixty percent (60%) of award opportunity), (ii) relative revenue growth performance, measured in Comparable Store Sales versus a Board approved Performance Group (twenty percent (20%) of award opportunity) and (iii) Mission Based Goals, which was designed to support the accomplishment of Company goals (twenty percent (20%) of award opportunity). |
o | Target. For Fiscal 2012, Pre-Tax Earnings had to be at least $53.6 million, an increase of 13.4% over Fiscal 2011, for the target payout to be earned. The Comparable Store Sales component pays at the target level if the Company's ranking for total year-end comparable store sales change is at the fiftieth percentile (or middle mark) among the Performance Group. |
o | Results. Actual performance for Fiscal 2012 was as follows: Pre-Tax Earnings of $60.4 million, an increase of $13.1 million (27.7%) over Fiscal 2011, and a 5.7% increase in Comparable Store Sales (as compared to a 0.5% increase in Fiscal 2011). Based on this performance and the overall achievement of Mission Based Goals, annual incentive bonuses were paid to all of our Named Executive Officers for Fiscal 2012, including Andrew Hall, but on a pro rata basis. |
· | Long-term Incentives. For Fiscal 2012, the Company's long-term incentive program for its executive officers consisted primarily of Performance Shares and Restricted Stock to reward sustained, multi-year performance. The use of stock appreciation rights and stock options was discontinued except in extraordinary circumstances. |
o | Performance Shares measure Company total shareholder return over a three-year period versus the Performance Group. For the 2009-2011 performance cycle (paid in 2012), 37.5% of the target number of shares was earned. For the 2010-2012 performance cycle (paid in 2013), 135.7% of the target number of shares was earned. |
o | Restricted Stock is used from time-to-time, typically for promotions and new hires. Restricted Stock will generally vest over a four year period (i.e., 25% per year). |
· | Ownership Guidelines. We have a Stock Ownership and Retention Policy for Senior Management. Please see "Stock Ownership by Executive Officers" on page 43 of this Proxy Statement. |
· | No Hedging. We have an Anti-Hedging Policy. Please see "Hedging by Employees and Directors; Anti-Hedging Policy" on page 19 of this Proxy Statement. |
· | No Gross-Ups. Our Named Executive Officers are not entitled to gross-up payments with respect to their compensation. |
· | No Repricing Absent Shareholder Approval. It is the policy of our Board that we should not reprice or swap stock options or stock appreciation rights granted to our executive officers, Directors and employees without shareholder approval. |
· | Limited Perquisites. The compensation philosophy for our executive officers is more heavily weighted toward annual and long-term performance-based compensation than toward benefits and perquisites. |
· | Clawback Policy. We have a Compensation Recovery Policy (a "Clawback Policy") for our executive officers. Please see "Compensation Recovery Policy ("Clawback Policy") on page 25 of this Proxy Statement. |
· | Performance Group Revisions. Our Board adopted a revised Performance Group for Fiscal 2012 to measure our relative performance with respect to comparable store sales for purposes of the Senior Executive Incentive Bonus Plan and our total shareholder return for the purpose of awarding Performance Shares. The revised Performance Group more appropriately reflects the current relevant retail market environment. Please see "Adoption of Revised Performance Group" on page 27 of this Proxy Statement. |
· | Results of 2012 Say-on-Pay Vote. At the 2012 Annual Meeting of Shareholders, approximately 99% of the votes cast by the shareholders voted, on an advisory basis, to approve the compensation paid to our Named Executive Officers in Fiscal 2011. |
Our Fiscal 20092012 Named Executive Officers
The followingThis Compensation Discussion and Analysis (“("CD&A”&A") describes the material objectives and principles underlying our compensation policies and decisions and the material elements of the compensation of the following fivesix executive officers during our 2009 fiscal year (hereinafter, “Fiscal 2009”):
Fiscal 2012:
· | our Chief Executive Officer;Officer, |
· | our former Chief Executive Officer, |
· | our Chief OperatingFinancial Officer, and Chief Financial Officer; and |
· | theour next three most highly compensated executive officers other than our Chief Executive Officer, our former Chief Executive Officer and our Chief Financial Officer. |
These individuals are as follows and are collectively referred to in this Proxy Statement as our “Named"Named Executive Officers”Officers":
FISCAL 2012 NAMED EXECUTIVE OFFICERS
NameExecutive
| | Title |
Andrew T. HallMichael L. Glazer | | President and Chief Executive Officer |
Edward J. RecordAndrew T. Hall | | Former President and Chief OperatingExecutive Officer and |
Oded Shein | | Executive Vice President, Chief Financial Officer |
Richard A. MaloneyEdward J. Record | | Chief Operating Officer |
Steven P. Lawrence | | Chief Merchandising Officer |
Ernest R. CruseMichael M. Searles | | Executive Vice President Store Operations |
Ron D. Lucas | | Executive Vice President, Human Resourcesand Chief Operating Officer, South Hill Division |
This CD&A should be read in conjunction with the compensation tables beginning on page 3645 of this Proxy Statement.
Overview of Compensation Program
The Compensation Committee of our Board (for purposes of this CD&A, the “Committee”"Committee") administers the base salary, bonus, long-term incentive and other compensation and benefits programs with regard to our Named Executive Officers as well as our other executive officers. Its primary responsibilities and duties are set forth in “Information"Information Relating to the Board of Directors and Committees-Compensation Committee-Processes and Procedures for Executive Officer Compensation.”Compensation" on page 14 of this Proxy Statement. The Committee ensures that the total compensation paid to our Named Executive Officers is fair, reasonable and competitive in relation to our Peer Group.competitive. The Committee’sCommittee's recommendations for the total compensation of our Named Executive Offic ersOfficers are subject to the approval of our Board.
Compensation Objectives and Principles
Objectives. The objectives of our compensation program are as follows:
· | to enable us to recruit, motivate and retain the executive talent required to successfully manage and grow our business and to achieve our short and long-term business objectives; |
· | to maximize the long-term commitment of our executive officers to our success by providing compensation elements that align their interests with those ofand our shareholders in that theby linking compensation elements are directly related to our stock performance and other financial metrics that the Committee believes influence the creation of long-term shareholder value; and |
· | to reward our executive officers upon the achievement of short-term and long-term business objectives and enhanced shareholder value. |
Principles.The principles of our compensation program are as follows:
· | Compensation arrangements shall emphasize pay-for-performance and encourage retention of those executive officers who enhance our performance; |
· | Compensation arrangements shall maintain an appropriate balance between base salary and annual and long-term incentive compensation; |
· | Cash incentive compensation plans for our executive officers shall link pay to achievement of goals set in advance by the Committee; |
· | The Committee shall set annual and long-term performance goals for our Chief Executive OfficerCEO and evaluate his or her performance against those goals on an absolute basis as well as related to the performance of our Peer Group and our Performance Group (currently the Dow Jones Apparel Index);Group; |
· | Compensation arrangements shall align the interests of our executive officers with those of shareholders; |
· | In the event minimum thresholds for annual and long-term performance goals are not met, incentive compensation related to those goals shall not be paid;paid subject to the discretion of the Board and the Committee to approve the payment of all or partial incentive compensation when factors may be beyond management's control and taking into consideration Section 162(m) of the Internal Revenue Code or any other ramifications; |
· | It is the policy of our Board that we should not reprice or swap stock options or stock appreciation rights granted to our executive officers, Directors and employees without shareholder approval; |
· | The Committee shall meet at least once each year in executive session, without our Chief Executive Officer;CEO; |
· | Our Chief Executive OfficerCEO is not permitted to be present during deliberations and voting regarding his or her compensation. While our Chief Executive OfficerOur CEO may be present during deliberations and provide recommendations when voting on our other executive officers’officers' compensation, our Chief Executive Officer makes recommendations, but does not vote on their compensation; |
· | The compensation of our Chief Executive OfficerCEO and our other executive officers shall be recommended to our Board for final approval by the Committee comprised solely of Independent Directors; and |
· | In approving compensation, the recent compensation history of the executive officer, including special or unusual compensation payments, and all forms of compensation to which the executive officer may be entitled, shall be taken into consideration using tally sheets or other comparable tools the Committee deems appropriate. |
Key Considerations in Setting Compensation
In General
Based on the foregoing objectives and principles, the Committee has structured our compensation programs to motivate our Named Executive Officers to achieve the business goals set by our Board and to reward them for achieving those goals. The following is a summary of key considerations affecting the setting of compensation for our Named Executive Officers by the Committee. We describe in the section entitled “Committee"Committee Actions in Fiscal 2009
2012 Concerning Named Executive Officer Compensation”Compensation" beginning on page 2632 of this Proxy Statement additional considerations that the Committee evaluated in establishing Fiscal 20092012 compensation in the context of our performance and the economic environment at the time.
Emphasis on Future Pay Opportunity Versus Current Pay
The Committee strives to provide an appropriate mix of different compensation elements, including finding a balance amongbetween current versus long-term compensation and cash versus equity incentive compensation. Cash payments primarily reward more recent performance and equity awards encourage our Named Executive Officers to continue to deliver results over a longer period of time and serve as a retention tool. The Committee believes that Named Executive Officer compensation should be appropriately weighted on both long-term and short-term Company perfo rmanceperformance and operating results.
Discretion and Judgment
With the exception of our Senior Executive Incentive Bonus Plan and performance share awards, both of which depend on achieving specific quantitative performance objectives and Mission Based Goals in the case of the 2012 Senior Executive Incentive Bonus Plan, the Committee does not use formulas in determining the amount and mix of compensation. Thus, the Committee evaluates a broad range of both quantitative and qualitative factors, including reliability in delivering financial and growth targets, performance in the context of the economic environment relative to other companies, a track record of integrity, good judgment, the vision and ability to create further growth and the ability to lead others. In addition to such results, performance and objectives, the Committee may take into account any extraordinary, unusual or non-recurring items realized or incurred by the Company during the fiscal year deemed appropriate by the Committee in determining any incentive compensation. For annual equity incentive awards, the Committee primarily considers a Named Executive Officer’sOfficer's potential for future successful performance and leadership as part of the executive management team, taking into account past performance as a key indicator. In any event, the Committee exercises its discretion and judgment.
Significance of Our ResultsOverall Corporate Performance
The Committee primarily evaluates our Chief Executive OfficerCEO and the other Named Executive Officer’sOfficers' contributions to our overall performance rather than focusing only on their individual function. The Committee believes that each Named Executive Officer shares the responsibility to support our goals and performance as key members of our leadership team. While this compensation philosophy influences all of the Committee’sCommittee's compensation decisions, it has the biggest impact on annual equity incentive awards.
Compensation Policies and Practices as they Relate to the Company’sCompany's Risk Management
The Committee, the Board and management do not believe that there are any significant risks arising from the Company’sCompany's compensation policies and practices for the Company’sCompany's employees, including non-executive officers, that are reasonably likely to have a material adverse effect on the Company. Our compensation programs emphasize pay-for-performance, are balanced and are focused on the long term. Under this structure, the highest amount of compensation can be achieved through consistent superior performance over sustained periods of time. In addition, a significant percentage of compensation is tied to our long-term performance. This provides strong incentives to manage the Company for the long term, while avoiding excessive risk taking in th ethe short term. Goals and objectives reflect a balanced mix of quantitative and qualitative performance measures to avoid excessive weight on a single performance measure. Likewise, the elements of compensation are balanced among current cash payments and equity awards. With limited exceptions, the Committee retains discretion to adjust compensation for quality of performance and adherence to our values. The Committee, the Board and senior management monitor the Company’sCompany's compensation policies and practices on an ongoing basis to determine whether the Company’sCompany's risk management objectives are being met with respect to incentivizing the Company’sCompany's employees. The annual incentive is primarily linked toheavily weighted toward profitable growth (as opposed to sales) and the Company has a Compensation Recovery Policy as(a "Clawback Policy") that is described in the next paragraph.
Compensation Recovery Policy ("Clawback Policy")
Our Board has adopted a Compensation Recovery Policy (a "Clawback Policy") for Executive Officers.our executive officers. If our Board determines that an executive officer (an Executive Vice President or above) has engaged in fraudulent or intentional misconduct, the Board may take a range of actions to remedy the misconduct, prevent its recurrence, and impose such discipline on the wrongdoers as would be appropriate. Discipline would vary depending on the
facts and circumstances, and may include, without limit, (i) termination of employment, (ii) initiating an action for breach of fiduciary duty, and (iii) if the misconduct resulted in a material inaccuracy in our financial statements or performance metrics, which affect the executive officer’sofficer's compensation, seeki ngseeking reimbursement of any portion of any bonus or other incentive-based or equity-based compensation paid or awarded to the executive that is greater than would have been paid or awarded if calculated based on the accurate financial statements or performance metrics. These remedies would be in addition to, and not in lieu of, any actions imposed by law enforcement agencies, regulators or other authorities.
The Compensation Recovery Policy provides that notwithstanding anything in it to the contrary, in the event that the Company is required to prepare an accounting restatement due to the material noncompliance of the Company with any financial reporting requirement under the securities laws of the United States, the Company will recover from any current or former executive officer of the Company who received incentive-based compensation (including stock options, stock appreciation rights or any other type of equity awards awarded as compensation) during the 3-year period preceding the date on which the Company is required to prepare an accounting restatement, based on the erroneous data, the excess of what would have been paid to the executive officer under the accounting restatement.
Once the SEC has issued final rules as required by Dodd-Frank, the Compensation Recovery Policy will be reviewed for compliance with those rules.
No Gross-Up Payments
Our Named Executive Officers are not entitled to gross-up payments with respect to their compensation.
No Repricing Absent Shareholder Approval
It is the policy of our Board that we should not reprice or swap stock options or stock appreciation rights granted to our executive officers, Directors and employees without shareholder approval.
Results of and Response to the Most Recent Say-On-Pay Vote and Frequency of Say-On-Pay Vote
Most Recent Say-On-Pay Vote. At the 2012 Annual Meeting of Shareholders, approximately 99% of the votes cast by the shareholders voted, on an advisory basis, to approve the compensation paid to the Company's Named Executive Officers in Fiscal 2011 as disclosed in the 2012 Proxy Statement pursuant to Item 402 of SEC Regulation S-K, including the Compensation Discussion and Analysis, compensation tables and narrative discussion (the "2012 Say-On-Pay Vote"). The Committee and the Board believe that the 2012 Say-On-Pay Vote confirmed shareholder support for the Company's executive compensation policies and decisions. As a result, our Fiscal 2012 executive compensation policies and decision making approach remained consistent with those in Fiscal 2011, with the exception that the Committee added a "Mission Based Goals" parameter to the 2012 Senior Executive Incentive Bonus Plan.
Most Recent Frequency ofSay-On-Pay Vote. At the 2011 Annual Meeting of Shareholders, a majority of the votes cast by the shareholders voted, on an advisory basis, to hold an advisory vote to approve executive compensation annually. In line with this recommendation by the shareholders, the Board decided that it will include an advisory shareholder vote on executive compensation in its proxy materials annually until the next required advisory vote on the frequency of shareholder votes on executive compensation, which will occur no later than our 2017 Annual Meeting of Shareholders.
TableResponse to Future Say-On-Pay Votes. Although non-binding, the Committee and the Board will continue to consider the results of
Contentsthe say-on-pay votes in their future executive compensation policies and decisions.Role of Executive Officers in Compensation Decisions
The Committee believes that having the input of our management is important to the overall effectiveness of our executive officer compensation program. Our Chief Executive OfficerCEO and EVP Human Resources regularly attend Committee meetings (except for executive sessions) to participate in the presentation of materials and discussion of management’smanagement's point of view regarding compensation issues. Our Chief Executive OfficerCEO annually reviews and evaluates the performance of each Named Executive Officer (other than himself, as his own, whichperformance is reviewed and evaluated by the Committee). The conclusions reached and recommendations based on these reviews, including related base salary adjustments and annual incentive award amounts, are presented to the Committ ee.Committee for review and approval. The Committee can exercise its discretion in modifying any recommended adjustments orthese recommendations for compensation awards to our executive officers.
As stated in our principles, our Chief Executive Officer is not permitted to be present during deliberations and voting regarding his compensation. While our Chief Executive Officer may be present during deliberations and voting on the other executive officers’ compensation, our Chief Executive Officer makes recommendations, but does not vote on their compensation.26
Use of Tally Sheets
In addition to the recommendations of our Chief Executive Officer,CEO, the Committee reviews tally sheets, which are prepared for each of our currently employed Named Executive Officers by our Human Resources Department. The tally sheets present the Committee with specific dollar amounts for all elements of compensation, showing each Named Executive Officer’sOfficer's annual total compensation, the individual’sindividual's accumulated and outstanding compensation and the benefits to which the Named Executive Officer would be entitled upon various termination events.
The Committee uses the tally sheets to compare our overall executive compensation to the overall executive compensation of our Peer Group to ensure that our compensation is reasonable and competitive. The Committee also uses the tally sheets to evaluate past performance of our Named Executive Officers to determine if our compensation strategy achieved our goals in the past and to align executive compensation with our near and long-term goals.
Benchmarking Overall Compensation; Our 2009Fiscal 2012 Peer Group
In making overall compensation decisions, the Committee compares each element of total compensation to data from Hay Group’s published surveyGroup's annual Retail Industry Total Remuneration Survey (the "Hay Group Survey") as well as a peer group of publicly-traded apparel companies listed below (collectively, the “Peer Group”"Peer Group"). The Committee initially developed the Peer Group in August 2005 in order to benchmark executive compensation at peer companies and to assess the Company’sCompany's performance relative to the Peer Group. The Peer Group is representative of companies that we compete with for business and talent and our annual sales fall within the range of the companies in the Peer Group. The Peer Group is reviewed annually and updated as needed for certain business reasons, such as merg ers,mergers, acquisitions, etc. In general, the criteria for selecting the companies in the Peer Group are as follows:
· | U.S. based, publicly traded companies in the retail industry;industry, |
· | annual sales generally between one-half and two times our annual sales;sales, |
· | primarily do business in apparel and/or accessories;accessories, and |
· | companies from which key talent may be recruited. |
All of the companies in the Peer Group meet a majority of those criteria. The members of the Peer Group are as follows:
· | Abercrombie & Fitch Co. | ·Chico's FAS, Inc. | ChristopherNew York & Banks CorporationCompany, Inc. |
American Eagle Outfitters, Inc. | ·The Children's Place Retail Stores, Inc. | Pacific Sunwear of California, Inc. |
| | | | | |
· | American Eagle Outfitters,Ann Inc. | · | Collective Brands, Inc. | ·Christopher & Banks Corporation | Stein Mart, Inc. |
| | | | | |
· | AnnTaylor Stores Corporation | · | The Dress Barn,Ascena Retail Group, Inc. | ·Collective Brands, Inc. | The Talbots, Inc. |
| | | | | |
· | The Cato Corporation | · | The Gymboree Corporation | · | Tween Brands, Inc. |
| | | | | |
· | Charming Shoppes, Inc. | · | Hot Topic, Inc. | · | Urban Outfitters, Inc. |
| | | | | |
· | Chico's FAS,Charming Shoppes, Inc. | · | The Men's Wearhouse, Inc. | | |
| | | | | |
· | The Children’s Place Retail Stores, Inc. | · | New York & Company, Inc. | | |
The Peer Group provides direct incumbent information on a job title match basis (e.g., Chief Executive Officer,CEO, Chief Operating Officer, Chief Financial Officer) for key competitors. Hay Group’s annual Retail Industry Total Remuneration Survey (the “HayIn addition to reviewing the Peer Group Survey”) is used to provide an additional benchmark for our Named Executive Officers’ base salaries and annual variable pay target levels (both cash and equity). Theanalysis, the Committee considers data from fashion retailers in the Hay Group Survey, which provides compensation data on the broader retail marketplace (covering approximately 100 retail organizations, a majority ofmarket with which are specialty stores). It provideswe compete for executive talent including market data by job, controlling for differences in responsibility and revenue size.
Benchmarking Incentive-Based Compensation; Our Fiscal 2012 Performance Group
Adoption of Revised Performance Group
WhileIn a September 2011 meeting, our management provided the Committee uses the Peer Group and the HayBoard with their thoughts with respect to the Fiscal 2011 Performance Group. A general discussion was then held concerning whether or not the Company should continue to use the Apparel Index in Fiscal 2012. Management recommended, and the Committee agreed, to use the following attributes to develop a revised Performance Group Survey to benchmarkfor Fiscal 2012: market capitalization, sales volume, merchandise assortments, target customer, geography of store base and size of markets in which they operate.
In their January 2012 meetings and based upon the overall compensationrecommendation of our Named Executive Officers, it usesmanagement, the companiesCommittee and the Board adopted a revised Performance Group comprised of all of the Department Stores (7 in total) and all of the Apparel Stores (18 in total) contained in the Dow Jones Apparel1500 Retail Index.
The Dow Jones 1500 Retail Index (the “Index”"Retail Index"), a separate group of apparel retailers as identified below and collectively referred to herein as our “Performance Group”, to measure our relative performance with respect to comparable store sales for purposes of the Senior Executive Incentive Bonus Plan and our total shareholder return for the purpose of awarding performance shares. The Committee selected the Index in 2007 as our Performance Group because it is representative of companies that we compete with for business, talent and investor ca pital.
The Index is comprised of approximately 30 apparel retailers81 retail companies covering a broad and has been developed independentlyvaried range of retail sectors including Automotive, Home Improvement, Internet, Catalog, Electronics and other specialties that do not relate to apparel. That is why management recommended, and the Committee and the Board selected, only the Department Store Group and the Apparel Group segments of the Retail Index to form a revised Performance Group. Because the companies within the Retail Index are changed from time to time by Dow Jones, which has deemed itthe companies identified to be a relevant comparator group for individual investors to assess company performance. Dow Jones periodically modifiesin the compositionRetail Index on the first day of the Index. The current membersCompany's 2012 Fiscal Year (January 29, 2012) will be maintained as a fixed listing of companies for the duration of the Performance Groupdesignated time period. Those companies as of the beginning of Fiscal 2012 are as follows:
DOW JONES 1500 DEPARTMENT STORE AND APPAREL INDEX
·Department Store Group | Apparel Store Group |
| | |
Dillard's, Inc. | Abercrombie & Fitch Co. | · | | · | LimitedCollective Brands, Inc. |
| | | | | |
·J.C. Penney Corporation, Inc. | Aeropostale, Inc. | · | | · | The Men's Wearhouse,Foot Locker, Inc. |
| | | | | |
·Kohl's Corporation | American Eagle Outfitters, Inc. | ·The Gap, Inc. |
Macy's, Inc. | | ·Genesco, Inc. |
Nordstrom, Inc. |
Ascena Retail Group, Inc. (Dress Barn) | | | | | Limited Brands, inc. |
· | AnnTaylor Stores Corporation | · | | · | Polo Ralph Lauren Corporation
|
| | | | | |
·SAKS, Incorporated | The Buckle, Inc. | · | Genesco,The Men's Wearhouse, Inc | · | |
| | | | | |
·Sears Holdings Corporation | The Cato Corporation | · | | · | |
| | | | | |
· | Chico's FAS, Inc. | · | The Gymboree Corporation | · | Signet Jewelers Limited |
| | | | | |
· | The Children’s Place Retail Stores, Inc. | · | J. Crew Group, Inc. | · | The TJX Companies, Inc. |
| The Children's Place Retail Stores, Inc. | | | | |
· | Collective Brands, Inc. | · | Kohl’s Corporation | · | Inc. |
Compensation Elements
In General
All of the compensation and benefits programs for our Named Executive Officers described below meet our primary purpose to recruit and retain the executive talent required to successfully manage and grow our business and to achieve our short and long-term business objectives. Beyond that, different elements are designed for different purposes. The elements of compensation for our Named Executive Officers are as follows:
· | Base salary, perquisites and other benefits, which are designed to attract and retain executives over time; |
· | Annual incentive (bonus) compensation, which is designed to focus executives on the business objectives established by our Board for a particular year; |
· | Long-term incentive compensation, which consists of stock appreciation rights (“SARs”("SARs"), Restricted Stock, Performance Shares and stock options (with a current emphasis on restricted stock and performance shares and stock options,shares), is designed to focus executives on our long-term success, as reflected in increases to our stock price, growth in our earnings per share and other elements; and |
· | Termination and change in control compensation and benefits, which are designed to facilitate our ability to attract and retain executives as we compete for talented employees in a marketplace where those types of compensatory protections are commonly offered. Termination compensation and benefits are designed to ease an employee’semployee's transition due to an unexpected employment termination, while change in control compensation and benefits are designed to encourage employees to remain focused on our business in the event of rumored or actual fundamental corporate changes. |
The Committee establishes the amount and mix of base salary and variable compensation by referencing Peer Group practices for each element. The Committee does not have any specific formula for this determination. It considers factors relating to each Named Executive Officer’sOfficer's individual position and performance includingversus objectives, professional history and experience, relevant skill set, and scope of duties. In considering the total package of compensation, the Committee also considers the internal relationship of pay across all executive positions. Total compensation packages as well as each element of compensation (i.e., base salary, annual incentive
(bonus) compensation, long-term incentive compensation a ndand perquisites and other benefits) are intended to provide a competitive compensation package as compared to similarly-situated executives in similar positions at competitive companies in our Peer Group.
industry.
Base Salary
The Committee views a competitive base salary as an important component to attract and retain executive talent. Base salaries also serve as the foundation for the annual senior executive incentive (bonus) plan, which expresses the bonus opportunity as a percent of base salary. Base salary is not intended as the primary method of rewarding performance.
The Committee considers both internal equity and external competitiveness in determining the base salary of our Named Executive Officers. After consideringreceiving input from our Chief Executive Officer regarding the performance of the other Named Executive Officers, the Committee uses its judgment regarding individual performance, market competitiveness, length of service, job responsibilities and other factors to determine the appropriate base salary for each Named Executive Officer.
Annual Incentive (Bonus) Compensation
Annual incentive (bonus) compensation for our Named Executive Officers is determined each year according to a Senior Executive Incentive Bonus Plan (the “Bonus Plan”"Bonus Plan"). The current2012 Senior Executive Incentive Bonus Plan establishes an annual cash bonus amount and is paid based on the following twothree weighted parameters:
Parameter | Weight |
Company Pre-Tax Earnings Relative to Target | 75%60% |
Comparable Store Sales Relative to Performance Group | 25%20% |
Mission Based Goals | 20% |
In Marchthe spring of each year, the Committee evaluates our annual strategic plan to determine if these financial parameters are appropriate to measure achievement of our objectives and to motivate our executive officers. Based on discussions with our Chief Executive Officer andCEO, our Chief Operating Officer and our Chief Financial Officer, the Committee recommends, and the Board approves, the financial parameters to be included in the Bonus Plan.Plan for a given year. This final approval typically occurs at the Committee’s March meeting.Committee and the Board's spring meetings. An incentive matrix establishes threshold (minimum), target and maximum performance levels for each parameterthe Pre-Tax Earnings and Comparable Store Sales parameters based on the level of perceived difficulty in achieving our financial plan. The incentive matrix clearly outli nesoutlines a minimum level of performance below which no bonus will be paid and the relationship between the twothree parameters (e.g.(i.e., Pre-Tax Earnings Relative to Target, and Comparable Store Sales Relative to Performance Group)Group and Mission Based Goals) that will generate payouts.
Annual incentive compensation targets for each Named Executive Officer under the Bonus Plan are expressed as a percentage of each Named Executive Officer’sOfficer's base salary with the target percentage increasing with job scope and complexity. The Committee can exercise discretion to reduce or increase the amount of any awards under the Bonus Plan. For additional information on our 20092012 Senior Executive Incentive Bonus Plan, and the formula used to calculate annual bonus amounts, and bonuses awarded under that plan, please see “Committee"Committee Actions in Fiscal 20092012 Concerning Named Executive Officer Compensation-AnnualCompensation-Establishment of 2012 Senior Executive Incentive (Bonus) Compensation Paid in 2009 Under the 2008 Bonus Plan”Plan" beginning on page 2733 of this Proxy Statement and "Committee Actions in 2013 Concerning Named Executive Officer Compensation-2012 Bonus Plan Awards" on page 41 of this Proxy Statement.
At its Marchspring meeting, the Committee also reviews our stated financial results for the recently completed fiscal year, certifies the calculation of proposed bonus amounts and reports them to the full Board.
Long-Term Incentive Compensation
In General. The Committee considers long-term incentive compensation (“LTI”("LTI") critical to the alignment of executive compensation with the creation of shareholder value. Our long-term equity incentive compensation awards are currently granted pursuant to our Amended and Restated 2001 Equity Incentive Plan (the “2001 Plan”"2001 Plan"), which was approved by our shareholders at our 2004 Annual Meeting, and our Second Amended and Restated 2008 Equity Incentive Plan (the “2008 Plan”"2008 Plan"), which was approved by our shareholders at our 20092011 Annual Meeting.
At its Marchspring meeting, the Committee reviews the portfolio of long-term incentive vehicles, the targeted award size and the performance measures associated with any awards. The Committee also reviews recommendations provided by management and Hay Group regarding LTI design. Our Board’sBoard's practice ishas been to make annual grants of equity awards, including Restricted Stock, Performance Shares, stock options SARs, restrictedand stock and performance shares,appreciation rights (SARs) upon the recommendation of the Committee at that time. For Fiscal 2012, the Company's long-term incentive program for its executive officers consisted primarily of Performance Shares and Restricted Stock and the use of SARs and stock options was discontinued except in extraordinary circumstances.
The Committee believes that the use of multiple equity vehicles balances a focus on equity-driven growth with the retention and performance aspects of restricted stock.Restricted Stock. The grant date is the same date that our Board approves the awards. The equity award is priced at the closing price on the NYSE of our common stock on that date (the “Fair"Fair Market Value”Value"). From time to time, our Board will consider making grants under other special circumstances, such as when recruiting new executive talent, upon the promotion of an executive and to retain key individuals. Any and all other grants (other than the March grants) are effective as of the date of the event (e.g., new hire or promotion date) and are priced at the Fair Market Value of our common stock on that date.
Restricted Stock. Restricted Stock Options. Stock options represent the right to purchaseis a share of our common stock at a fixed price (the exercise price) for a specified period of time (the option term). The exercise price isthat has vesting restrictions tied to continued employment. Restricted Stock provides executive officers with the Fair Market Valueopportunity to earn full value shares of our common stockstock. The Committee views Restricted Stock as an excellent mechanism to align executive interests with those of shareholders by supporting increased share ownership for key executives. Restricted Stock is also an effective employee retention tool based on the datevesting schedule which occurs over a period of grant. The executive officer benefits only if our stock value appreciates fromseveral years. Depending on the grant date through the exercise date. In 2009, we did not grant stock options to any executive officers, but we have granted them in past years.
Most of the stock options we have awarded our Named Executive Officersagreement, Restricted Stock grants may either cliff-vest, which means they vest all at the rate of 25% per year over the first four years following the date of grant and some stock options vestonce at the end of three years followinga specified vesting period, or step vest, which means they vest in pro rata increments over a specified vesting period. The Committee's preferred vesting schedule is a four year pro rata vesting (25% per year) structure. If the date of grant. Stock options issued prior to January 29, 2005 will generally expire if not exercised ten years from the date of grant while stock options granted after January 29, 2005 will generally expire if not exercised seven years from the date of grant. If an executive officer dies, unvested stock options will immediately vest and the executive officer’s estate will have one year from the date of death to exercise all stock options. If an executive officer’s employment is terminated by reason of retirement or disability (retirement as determined by our Board) , unvested stock options will immediately vest and he or she will normally have one year from the date of termination to exercise all stock options. Upon the termination of an executive officer’s employmentleaves for any reason other than death, retirement (as determined by our Board) or disability before vesting, the unvested portion of the Restricted Stock award will be forfeited. If the executive officer dies, becomes disabled or retires, the Restricted Stock award will have sixty days from the date of termination to exercise all vested stock options.fully vest. In the event of a Change in Control, the restricted stock award will immediately vest and will be payable to the executive officer within thirty days of the Change in Control.
Performance Shares. As with Restricted Stock, Performance Shares provide executive officers with the opportunity to earn full value shares of our stock. However, a three-year performance cycle (the "Performance Cycle") is established at the beginning of each grant and the amount of the award is determined by our performance on total shareholder return relative to the Performance Group over the Performance Cycle. If an executive officer's employment is terminated for any reason other than death, retirement or disability before the end of the Performance Cycle, the Performance Share award is forfeited. If an executive officer's employment is terminated due to death, retirement or disability during the Performance Cycle, he or she will receive the target number of shares set forth in his or her Performance Share Award Agreement within thirty days of the triggering event. In the event of a Change in Control, the Target Number of Performance Shares will immediately vest and will be payable to the executive officer within thirty days of the Change in Control. The Committee views Performance Shares as that terma critical link between management compensation accumulation and the creation of shareholder value.
Stock Appreciation Rights ("SARs"). Although beginning in Fiscal 2012 the use of SARs was discontinued except in extraordinary circumstances, the following narrative is definedprovided because some of our Named Executive Officers hold SARS granted them prior to Fiscal 2012 as indicated in the "2012 Outstanding Equity Awards at Fiscal Year-End Table" beginning on page 49 of this Proxy Statement, the "2012 Option Exercises and Stock Vested Table" beginning on page 52 of this Proxy Statement all stock options will immediately vestand as referenced in "Potential Payments Upon Termination or Change In Control" beginning on page 54 of this Proxy Statement
and will be exercisable by the executive officer. In any event, the exercise must occur within the remaining term of the stock option. Any portion of the stock option not exercised within the remaining term of the stock option will terminate.
Stock Appreciation Rights (“SARs”).A stock appreciation right is similar to a stock option in that it allows the recipient to benefit from any appreciation in our stock price from the grant date through the exercise date. However, with a SAR, the executive officer is not required to actually purchase all of the exercised shares (as with a stock option), but rather he or she just receives the amount of the increase in the form of shares of our stock. Because the value that ma ySARs may not be earned through SARs is dependent upon an increasesettled in our stock price, the Committee views SAR grants as a critical link between management compensation accumulation and the creation of shareholder value.cash. The 2001 and 2008 Plans provide that SARs may not be granted at less than 100% of the Fair Market Value of our common stock on the date of grant.
SARs have a seven-year term and vest either (i) one-fourth (25%) on each of the first, second, third and fourth anniversaries of the date of the grant, or (ii) one-half (50%) on the second year and one-fourth (25%) on each of the third and fourth anniversaries of the date of the grant. If an executive officer dies, unvested SARs will immediately
SARs have a seven-year term and vest one-fourth (25%) on each of the first, second, third and fourth anniversaries of the date of the grant. If an executive officer dies, unvested SARs will immediately vest and the executive officer’s estate will have one year from the date of death to exercise all SARs. If an executive officer’s employment is terminated by reason of retirement or disability (retirement as determined by our Board), unvested SARs will immediately vest and he or she will normally have one year from the date of termination to exercise all SARs. Upon the termination of an executive officer’s30
vest and the executive officer's estate will have one year from the date of death to exercise all SARs. If an executive officer's employment is terminated by reason of retirement or disability (retirement as determined by our Board), unvested SARs will immediately vest and he or she will normally have one year from the date of termination to exercise all SARs. Upon the termination of an executive officer's employment for reason other than death, retirement or disability, the executive officer will have sixty days from the date of termination to exercise all vested SARs. I n the event of a Change in Control, all SARs will immediately vest and will be exercisable by the executive officer. In any event, the exercise must occur within the remaining term of the SARs. Any portion of the SARs not exercised within the remaining term of the SARs will terminate. |
Restricted Stock. Restricted stock is a share of our common stock that has vesting restrictions tied to continued employment. Restricted stock provides executive officers with the opportunity to earn full value shares of our common stock. Depending on the agreement, restricted stock grants may either cliff-vest, which means they vest all at once at the end of a specified vesting period, or step vest, which means they vest in pro rata increments over a specified vesting period. If the executive officer leaves for any reason other than death, retirement or disability before vesting (retirement as determined by our Board), the unvested portion of the restricted stock award will be forfeited. If the executive officer dies, becomes disabled or retires, the restricted stock award will fully vest. In the event of a Change in Control, the restricted stock awardall SARs will immediately vest and will be payable toexercisable by the executive officerofficer. In any event, the exercise must occur within thirty daysthe remaining term of the Change in Control.
Performance Shares. As with restricted stock, performance shares provide executive officers with the opportunity to earn full value shares of our stock. However, a three-year performance cycle (the “Performance Cycle”) is established at the beginning of each grant and the amountSARs. Any portion of the award is determined by our performance on total shareholder return relative toSARs not exercised within the then Performance Group over the Performance Cycle. If an executive officer’s employmen t is terminated for any reason other than death, retirement or disability before the endremaining term of the Performance Cycle, the performance share award is forfeited. If an executive officer’s employment is terminated due to death, retirement or disability during the Performance Cycle, he or sheSARs will receive the target number of shares set forth in his or her Performance Share Award Agreement within thirty days of the triggering event. In the event of a Change in Control, the Target Number of performance shares will immediately vest and will be payable to the executive officer within thirty days of the Change in Control.terminate.
Benefits and Perquisites
The Committee supports a compensation philosophy for our Named Executive Officersexecutive officers that is more heavily weighted toward annual and long-term performance-based compensation rather than toward benefits and perquisites.
The perquisites and other benefits we provide our Named Executive Officers are summarized in the 20092012 Summary Compensation Table, the 20092012 All Other Compensation Table and the 20092012 Nonqualified Deferred Compensation Table, including footnotes.footnotes, in this Proxy Statement. In addition, we provide our executive officers with core benefits available to all full-time employees (e.g., coverage for medical, dental, prescription drugs, basic life insurance and long-term disability coverage) as well as a supplemental Executive Officer Medical Plan. The supplemental Executive Officer Medical Plan is an insured plan which provides current officers at the Executive Vice President level and above reimbursement for medical and dental out of pocket expenses that are not covered by the underlying medical plan. Typical payments are for deductibles, co-pays and similar expenses.
Retirement Plans
Other than a frozen defined benefit plan in which Messrs. Cruse and Lucas are participants, weWe do not provide a qualified retirement program for our Named Executive Officers nor is there a supplemental executive retirement plan or any other retirement plan available to them other than our 401(k) Plan and our Nonqualified Deferred Compensation Plan. Please see the 20092012 Pension Benefits Table on page 4253 and “Retirement Benefits”"Retirement Benefits" beginning on page 4353 of this Proxy Statement.
Termination and Change Inin Control Arrangements
In General. Pursuantto theiremployment agreements, our Named Executive Officers are entitled to compensation and other benefits if their employment terminates or if there is a Change in Control, as described beginning on page 44 54of this Proxy Statementunder & #8220;Potential"Potential Payments upon Termination or Change In Control”in Control". TerminationTermination and Change in Control compensation and other benefits are established at the time a Named Executive Officer signs an employment agreement.
Termination. Our Named Executive Officers are entitled to compensation and other benefits in an amount the Committee believes is appropriate, taking into account the time it is expected to take a terminated employee to find another job. Compensation and other benefits upon termination are intended to ease the consequences to an employee of an unexpected termination of employment. We benefit in that the employment agreements contain restrictive covenants that continue for a period of time following termination.
Change in Control-In General. The Committee and our Board recognize the importance to us and our shareholders of avoiding the distraction and loss of key management personnel that may occur in connection with any rumored, threatened or actual Change in Control of the Company. To that end, the Committee and our Board believe that properly designed Change in Control provisions in our Named Executive Officer’sOfficer's employment agreements protect shareholder interests by enhancing executive focus during rumored or actual Change in Control activity through:
· | incentives to remain with us despite uncertainties while a transaction is under consideration or pending,pending; |
· | assurances of severance and other benefits in the event of termination,termination; and |
· | immediate vesting of equity elements of total compensation after a Change in Control. |
To diminish the potential distraction due to personal uncertainties and risks that inevitably arise when a Change in Control is rumored, threatened or pending, the Committee and our Board have provided our Named Executive Officers with what the Committee and our Board determined to be competitive Change in Control compensation and benefit provisions in their employment agreements. The employment agreements of our Named Executive Officers provide for specific enhanced payments and benefits in the event of a Change in Control.
Change in Control-Double Trigger. The enhanced termination benefits payable in connection with a Change in Control require a “double trigger”"double trigger" which means that (a)(i) if a Change in Control occurs, and (b)(ii) during the period beginning three (3)six (6) months before the Change in Control and ending twenty-four (24) months after the Change in Control, (at any time in the case of Mr. Maloney and Mr. Lucas), (i)(a) an executive officer’sofficer's employment agreement is terminated by us or our successor without good cause, or (ii)(b) the executive officer’sofficer's employment agreement is terminated by the executive officer with good reason, the executive officer will be eligible for the Change in Control compensation and benefits. A double trigger was selected in order to enhance the likelihood that an executive officer will remain with us after a Change in Control, since the executive officer will not receive the change in control compensation payments and benefits if he or she voluntarily resigns after the Change in Control event. Thus, the executive officer is protected from actual or constructive dismissal for twenty-four months after a Change in Control, while any new controlling party or group is better able to retain the services of a key corporate asset.
Gross-Up Payments
In General. A gross-up payment is a payment to an executive officer to compensate the executive officer for the amount of the taxes payable by him or her related to his or her receipt of compensation or other cash benefit. We would generally apply a gross-up payment to Named Executive Officers in only the following three situations:
· | Relocation expenses, which are taxable under the Code and qualify for reimbursement under our relocation policy, are grossed up for Federal, FICA, state and local tax rates, where applicable, on the executive officer’s reimbursement payments; |
· | Payments for estate planning allowances are grossed up for Federal, FICA, state and local tax rates, where applicable; and |
· | As further discussed in the next paragraph, any payment made due to a Change in Control, if subject to an excise tax, will be grossed-up to compensate the executive officer for the amount of the tax. |
Termination or Change in Control. If any payments made to a Named Executive Officer due to a Change in Control subjects the Named Executive Officer to any taxes due under Section 4999 of the Code (i.e., excise tax), we will pay to the Named Executive Officer a gross-up payment to compensate the executive officer for the amount of the taxes. The effects of Section 4999 generally are unpredictable and can have widely divergent and unexpected effects based on an executive officer’s personal compensation history. Therefore, to provide an equal level of benefit across individuals without regard to the effect of the excise tax, the Committee and our Board have determined that Section 4999 gross-up payments are appropriate for our Named Executive Officers.
Other Compensation Practices
Stock Ownership by Executive Officers
Our Board believes that an officer who has reached the level of Executive Vice President or above should be a shareholder and should have a financial stake in the Company. While the Board does not believe it appropriate to specify the level of stock ownership for those executive officers, the Board encourages those executive officers to either purchase stock in the open market or use their equity grants to acquire and retain, during their employment, shares of our common stock in an amount that the executive officer deems appropriate.
Stock Ownership by Directors
Our Board believes that Directors should be shareholders and have a financial stake in the Company in an amount that a Director deems appropriate. Each Director must develop and maintain a stock position in the Company with an original investment of at least four times the Annual Retainer, which is currently $40,000 for Independent Directors (the “Original Investment”), within three years of the date of the Director’s initial election to the Board. In determining whether the Director has achieved the Original Investment, the Director can include (i) a Director’s tax basis in any stock acquired by the Director in open market purchases, and (ii) the amount of any Director fees which the Director has designated to be used for the acquisition of restricted stock or Deferred Stock Units under our 2003 Amended and Restated Non-Employee Director Equity Compensation Plan. As of the date of this Proxy Statement, all of our Directors have met or exceeded the Original Investment requirement, with the exception of (i) Mr. Schwartz, who was appointed to the Board on July 5, 2007 and has until July 5, 2010 to meet the Original Investment requirement and (ii) Ms. Turpin, who was appointed to the Board on March 25, 2010 and has until March 25, 2013 to meet the Original Investment requirement.
Committee Actions in Fiscal 20092012 Concerning Named Executive Officer Compensation
In General
At its March 20092012 meeting, the Committee reviewed the market data and analyses provided by Hay Group and determined that our overall compensation program is reasonably competitive and consistent with the Committee’sCommittee's compensation objectives. In determining compensation for our Named Executive Officers for Fiscal 2009,2012, the Committee considered many factors, including:
· | our Board’sBoard's judgment and satisfaction with the Company’sCompany's performance; |
· | assessment of the individual executive officer’s performance;officer's performance and potential for future contribution to the Company; |
· | the nature and scope of the executive officer’sofficer's responsibilities and his or her effectiveness in leading our initiatives to successfully increase customer satisfaction, enhance our growth, and propose, implement and ensure compliance with our policies; |
· | desired competitive positioning of compensation; and |
· | future potential for the executive officer; and |
The Committee also considered the compensation practices and performances of our Peer Group and our Performance Group.
Base Salaries
The Committee, with input from Hay Group with respect to market salary data of our Peer Group, and Mr. Hall, in his capacity as our Chief Executive Officer, recommended to our Board, and our Board agreed, that in view of the depressed economic conditions there should be no salary adjustments for our Named Executive Officers. Therefore, the base salaries of our Named Executive Officers for Fiscal 2009 were as follows:
Executive | 2008 Base Salary | 2009 Base Salary | Base Salary Increase |
Mr. Hall | $650,000 | $750,000 | 0% (1) |
Mr. Record | $460,000 | $460,000 | 0% |
Mr. Maloney | $475,000 | $475,000 | 0% |
Mr. Cruse | $375,000 | $375,000 | 0% |
Mr. Lucas | $345,000 | $345,000 | 0% |
______________________________
(1) | On November 3, 2008 and as part of our succession plan, Mr. Hall was promoted to Chief Executive Officer and his title became President and Chief Executive Officer. In connection with his promotion, Mr. Hall’s base salary was increased from $650,000 to $750,000, an increase of 15%. |
Based on Hay Group’s analysis, it was determined that our base salaries are generally at or below the median of our Peer Group.
Annual Incentive (Bonus) Compensation Paid in 2009 Under the 2008 Bonus Plan
At their March 2008 meetings, the Committee recommended, and the Board approved, the 2008 Senior Executive Bonus Plan (the “2008 Bonus Plan”) as described in our 2009 Proxy Statement. As with the 2009 Bonus Plan described below, the 2008 Bonus Plan set threshold, target and maximum bonus opportunities as a percentage of each Named Executive Officer’s base salary based upon the achievement of specified Pre-Tax Earnings and our ranking within the Performance Group with respect to comparable store sales.
At its March 2009 meeting, the Committee (i) reviewed our annual Pre-Tax Earnings results, (ii) reviewed Fiscal 2008 Comparable Store Sales results versus our Performance Group, (iii) discussed the Dow Jones Apparel Group reporting methodologies, and (iv) reviewed the 2008 Bonus Plan achievement level. As we did not achieve the Threshold Pre-Tax Earnings and Comparable Store Sales parameters (collectively, the “Threshold Parameters”) under the 2008 Bonus Plan, the Named Executive Officers were not entitled to, and were not awarded, any performance-based bonuses under the 2008 Bonus Plan.
Establishment of 2009 Senior Executive Incentive Bonus Plan
At its March 2009 meeting, the Committee recommended, and the Board approved, the parameters for the 2009 Senior Executive Incentive Bonus Plan (the “2009 Bonus Plan”) and approved the annual cash incentive opportunities for the Named Executive Officers as set forth in the table below. The methodology and measurement parameters for the 2009 Bonus Plan are unchanged from the format of the 2008 Bonus Plan.
2009 Bonus Plan Parameters
While the methodology and measurement parameters for the 2009 Bonus Plan are unchanged from the 2008 Bonus Plan, the Pre-Tax Earnings Target Level for the Financial Plan was $46,700,000 (approximately 2008 earnings) under the 2009 Plan to provide incentive to our management team in view of the overall downturn in the economy. The 2009 Bonus Plan design was as follows:
Pre-Tax Earnings Parameter
This parameter of the bonus formula is weighted to determine three-quarters (75%) of the year-end bonus amount earned. Actual bonus payment will be prorated for Pre-Tax Earnings results between the Maximum and Threshold levels.
| Pre-Tax
2009 Earnings
| |
Target bonus amount will be paid by achieving Pre-Tax Earnings in 2009 equal to actual 2008 earnings. | $ 46,700,000 | Target Level |
Maximum bonus amount will be paid at 2 times Target by achieving Pre-Tax Earnings at 120% of Target Level. | $ 56,040,000 | 20% Above Target |
Minimum (Threshold) bonus amount begins at Pre-Tax Earnings at 80% of Target Level. Graduated payout begins at zero bonus and is prorated up to Target Level.
| $ 37,360,000 | 20% Below Target |
Comparable Store Sales Parameter
This parameter of the bonus formula is weighted to determine one-quarter (25%) of the year-end bonus amount earned. Measurement is based on fiscal year-end comparable store sales percent change, compared to our Performance Group. Actual bonus payment will be prorated for results between the Maximum and Threshold levels.
Target amount will be paid if our ranking for total year-end comparable store sales change is at the fiftieth percentile (or middle mark) among our Performance Group. |
Maximum amount (2 times Target) will be paid if our ranking of total year-end comparable store sales change is at the one-hundredth percentile (or highest rank) among our Performance Group. |
Threshold bonus amount (1/4 of Target) will be paid if our ranking of total year-end comparable store sales change is at the twenty-fifth percentile among our Performance Group. |
Potential 2009 Bonus Plan Bonuses
Depending on our Pre-Tax Earnings and our ranking among our Performance Group with respect to total year-end comparable store sales, our Named Executive Officers had the opportunity to earn bonuses under the 2009 Bonus Plan as follows, with actual bonus payment to be prorated for results between the Maximum and Threshold levels:
Executive | | Base Salary($) | | | Bonus Range % (1)
(Threshold/Target/Maximum)
| | | Bonus Range $ (2)
(Threshold/Target/Maximum)
| |
Mr. Hall | | | 750,000 | | | 0-80-160 | | | | 0-600,000-1,200,000 | |
Mr. Record | | | 460,000 | | | 0-65-130 | | | | 0-299,000-598,000 | |
Mr. Maloney | | | 475,000 | | | 0-60-120 | | | | 0-285,000-570,000 | |
Mr. Cruse | | | 375,000 | | | 0-50-100 | | | | 0-188,000-375,000 | |
Mr. Lucas | | | 345,000 | | | 0-50-100 | | | | 0-172,000-345,000 | |
_________________________
(1) | Percentage of Base Salary. |
(2) | Amounts have been rounded. Amount paid will depend upon the extent to which the Company achieves Pre-Tax Earnings and Comparable Store Sales parameters established by the Board. Actual bonus payments will be prorated for Pre-Tax Earnings and Comparable Store Sales results between the threshold and maximum levels. |
See “Committee Actions in 2010 Concerning Named Executive Officer Compensation – 2009 Bonus Plan Awards” on page 33 for bonuses approved by the Committee in 2010 for performance under the 2009 Bonus Plan.
Long-Term Incentive Compensation Awards
At its March 2009 meeting, the Committee (i) reviewed the final Total Shareholder Return (“TSR”) results for the three year performance cycle that ended on January 31, 2009 for the March 2006 Performance Based Restricted Share Grants for Senior Executives, (ii) discussed the attainment level based on our TSR results versus our Performance Group, (iii) reviewed the current standing and attainment levels for LTI grants made in March 2007 and March 2008 based on the TSR matrix of our Performance Group, (iv) discussed individual LTI grants for senior management executives recommended by management, (v) reviewed and discussed proposed SAR equity grants for mid management executives, (vi) reviewed estimated shares needed for 2009 award s, and (vii) reviewed shares available for future grants. To determine the size of each equity award, the Committee reviewed market data, previous year LTI decisions, the performance of the Named Executive Officers and recommendations from Hay Group.
Based upon the recommendation of the Committee, our Board granted LTI awards for fiscal year 2009 to our Named Executive Officers. The annual equity grants were a combination of Performance Shares and SARs and were granted as follows:
2009 LTI Awards
Executive | | Performance Shares at Target (1) | | SARs (2) | |
Mr. Hall | | 30,000 | | 100,000 | |
Mr. Record | | 15,000 | | 45,000 | |
Mr. Maloney | | 15,000 | | 45,000 | |
Mr. Cruse | | 10,000 | | 30,000 | |
Mr. Lucas | | 6,000 | | 18,000 | |
(1) | The Performance Shares cliff vest after a three-year measurement performance cycle (the “Performance Cycle”) which began on the first business day of our 2009 fiscal year (February 1, 2009) and ends on the last business day of our 2011 fiscal year (January 28, 2012). The number of Performance Shares earned will be based on our total shareholder return relative to our Performance Group at that time. The number of shares reflected in the table above are the “Target Shares”, which means the number of shares of our common stock the Named Executive Officer will earn (and receive) at the end of the Performance Cycle if our results are in the middle (fiftieth percentile) of the Performance Group. On a sliding scale, the shares earned can vary as follows: |
Percentile Ranking of Performance Group | | Performance Shares Earned * |
100% | | 200% |
75% | | 150% |
50% | | 100% |
25% | | 25% |
<25% | | 0% |
* As a percentage of Target Performance Shares shown in the 2009 LTI Awards table above.
(2) | SARs have a grant price of $9.77 (the closing price of our common stock on March 27, 2009) and vest ratably over a four year period (i.e., 25% per year). |
Performance Shares Earned in 2009 Upon Completion of the 2006 Performance Cycle
As the performance criteria for the three-year Performance Cycle that began on the first business day of our 2006 fiscal year (January 29, 2006) and ended on the last business day of our 2008 fiscal year (February 1, 2009) (the “2006 Performance Cycle”) were met, the Named Executive Officers who were granted Performance Shares at the beginning of the 2006 Performance Cycle were issued shares of our common stock at 111.2% attainment of the stock split adjusted Target Shares as follows:
Executive (1) | Target Shares (Split Adjusted) | Performance Attainment % | Payout Shares Earned |
Mr. Cruse | 7,500 | 111.2 | 8,340 |
Mr. Lucas | 4,500 | 111.2 | 5,004 |
(1) | Messrs. Hall, Record and Maloney were not employed by the Company at the beginning of the 2006 Performance Cycle and therefore, they were not entitled to receive shares. |
Significant 2010 Events Related to the Employment of our Named Executive Officers
Promotion of Edward Record. On February 15, 2010, Mr. Record was promoted to Chief Operating Officer. Mr. Record had been serving as our Executive Vice President and Chief Financial Officer. We have begun a search for a Chief Financial Officer, who will report to Mr. Record. Mr. Record will retain the Chief Financial Officer responsibilities until the successful conclusion of the search. In connection with Mr. Record’s promotion:
· | his base salary was increased from $460,000 to $550,000; |
· | he was awarded 100,000 SARs that have a grant price of $12.94, the closing price of the Company’s stock on February 12, 2010, and that will vest ratably over a four year period (i.e., 25% per year); |
· | he was awarded 25,000 shares of restricted stock that will cliff vest three years from the date of his promotion (i.e., February 15, 2013); and |
· | his target bonus potential under our 2010 Senior Executive Incentive Bonus Plan will be 70% of his base salary, which is an increase from 65% of his base salary under our 2009 Bonus Plan. |
Promotion of Richard Maloney. On February 15, 2010, Mr. Maloney was promoted to Chief Merchandising Officer. Mr. Maloney had been serving as President and Chief Operating Officer of our South Hill Division. We have begun a search for a Chief Operating Officer of the South Hill Division, who will report to Mr. Maloney. In connection with Mr. Maloney’s promotion:
· | his base salary was increased from $475,000 to $550,000; |
· | he was awarded 100,000 SARs that have a grant price of $12.94, the closing price of the Company’s stock on February 12, 2010, and that will vest ratably over a four year period (i.e., 25% per year); |
· | he was awarded 25,000 shares of restricted stock that will cliff vest three years from the date of his promotion (i.e., February 15, 2013); and |
· | his target bonus potential under our 2010 Senior Executive Incentive Bonus Plan will be 70% of his base salary, which is an increase from 60% of his base salary under our 2009 Bonus Plan. |
Retirement of Ernest Cruse. On February 26, 2010, we entered into a Retirement Agreement with Mr. Cruse, Executive Vice President, Store Operations, which terminated his Employment Agreement dated January 30, 2002. The approximate dollar value of the amount involved in the transaction is $566,900. Mr. Cruse retired effective March 1, 2010.
Committee Actions in 2010 Concerning Named Executive Officer Compensation
CEO Fiscal 2009 Performance and Compensation
The Compensation Committee focuses much of its time on CEO and senior executive compensation to assure that it reflects operating and financial performance and demonstrates our awareness of shareholder sentiment. In Fiscal 2008, the Company faced one of the most challenging environments in its history. As a result, no increases in base salaries and no bonuses were paid to our CEO or any of our other Named Executive Officers in Fiscal 2009.
The Board and Mr. Hall responded to the economic conditions in Fiscal 2009 by agreeing to a conservative business framework focusing on the following: fewer new store openings in Fiscal 2009, tight inventory levels, strong expense controls, protecting margin rates and aggressive promotional programs focused on our customer’s needs. This framework established a conservative business model for Fiscal 2009, which protected the Company’s long-term value and reputation. Under Mr. Hall’s leadership, management took actions and delivered the following results within this framework in Fiscal 2009:
· | successfully opened 27 new stores, |
· | reduced total SG&A expenses by $12.7 million versus Fiscal 2008, |
· | improved margin rate by 34 basis points over Fiscal 2008, and |
· | achieved both Dollars and Rate EBITDA growth versus Fiscal 2008. |
Additionally, during Fiscal 2009 management acquired the “Goody’s” trade name and also took important actions to hire and retain key leaders for the long term.
The Compensation Committee believes that Mr. Hall performed well in Fiscal 2009 by executing the Company’s business framework and by delivering a strong financial performance despite the depth and severity of the recession. Fiscal 2009 revenues were $1,431.9 million compared to $1,515.8 million in Fiscal 2008. Fiscal 2009 earnings were $28.7 million compared $29.8 million (which excludes the impact of a non-cash goodwill impairment charge of $95.4 million) in Fiscal 2008.
As a result of Mr. Hall’s performance in Fiscal 2009,
· | his base salary, which was last increased in November 2008 when he was promoted to Chief Executive Officer, was increased from $750,000 to $800,000 effective April 1, 2010; |
· | his threshold, target and maximum bonus percentages under the 2010 Senior Executive Bonus Incentive Plan were increased from the 2009 Bonus Plan (20%-80%-160% to 22.5%-90%-180%); |
· | he was granted 25,000 Performance Shares and 100,000 Stock Appreciation Rights on March 26, 2010 at a grant price of $15.50; and |
· | he earned and was paid a bonus of $408,000 under our 2009 Bonus Plan. |
Other Named Executive Officers Fiscal 2009 Performance and Compensation
Edward Record. As Chief Financial Officer during Fiscal 2009, Mr. Record’s responsibilities were to oversee the Company’s finance, information technology, internal audit, logistics, risk management and legal functions. He was instrumental in reducing Fiscal 2009 expenses by $12.7 million while operating 19 additional stores. He oversaw the Company’s purchase of the Goody’s trade name and increased free cash flow by $15 million, while reducing the Company’s net debt by $73 million versus Fiscal 2008. Mr. Record oversaw the development and installation of the Company’s new POS platform a nd reduction of over $12 million in freight and distribution costs, both of which are components of Gross Margin. The Compensation Committee believes that Mr. Record performed well in Fiscal 2009. Upon being promoted to Chief Operating Officer on February 15, 2010, he was given added responsibilities for real estate and store construction. He possesses outstanding management capacity and leadership abilities, and has been instrumental in successfully navigating our Company through the current challenging economic environment. His financial acumen will add tremendous value to our real estate and store construction functions.
As a result of Mr. Record’s promotion and added responsibilities and his performance in Fiscal 2009,
· | his base salary was increased from $460,000 to $550,000 effective February 15, 2010; |
· | his threshold, target and maximum bonus percentages under the 2010 Senior Executive Bonus Incentive Plan were increased from the 2009 Bonus Plan (16%-65%-130% to 17.5%-70%-140%); |
· | he was granted 100,000 Stock Appreciation Rights and 25,000 Restricted Shares on February 15, 2010 at a grant price of $12.94; |
· | he was granted 20,000 Performance Shares on March 26, 2010; and |
· | he earned and was paid a bonus of $203,300 under our 2009 Bonus Plan. |
Richard Maloney. As Chief Operating Officer of the South Hill Division during Fiscal 2009, Mr. Maloney’s responsibilities were to oversee all of the merchandising, planning and allocation functions in addition to store operations of the South Hill Division. The Compensation Committee believes that Mr. Maloney is responsible for the improvement in both sales and margins in the South Hill Division during Fiscal 2009 and that overall he performed well. Upon being promoted to Chief Merchandising Officer on February 15, 2010, he assumed responsibility for the merchandising, planning and allocation functions across the entire Company. He is a tremendously talented merchant and leader who has developed an in-depth understanding of our small town department store business model.
As a result of Mr. Maloney’s promotion and added responsibilities and his performance in Fiscal 2009,
· | his base salary was increased from $475,000 to $550,000 effective February 15, 2010; |
· | his threshold, target and maximum bonus percentages under the 2010 Senior Executive Bonus Incentive Plan were increased from the 2009 Bonus Plan (15%-60%-120% to 17.5%-70%-140%); |
· | he was granted 100,000 Stock Appreciation Rights and 25,000 Restricted Shares on February 15, 2010 at a grant price of $12.94; |
· | he was granted 20,000 Performance Shares on March 26, 2010; and |
· | he earned and was paid a bonus of $193,800 under our 2009 Bonus Plan. |
Ernest Cruse. After 44 years of dedicated service and invaluable contributions to our Company, Mr. Cruse retired effective March 1, 2010. During his long tenure at Stage, his many contributions have shaped the development, growth and success of our Company. He played a key role in our evolution and was instrumental in positioning us for future growth. The Compensation Committee believes that Mr. Cruse performed well in Fiscal 2009. Mr. Cruse earned and was paid a bonus of $127,500 under our 2009 Bonus Plan.
Ron Lucas. As Executive Vice President, Human Resources during Fiscal 2009, Mr. Lucas’ responsibilities were to oversee all recruitment, placement, training and development, benefits and compensation and associate relations for the entire Company. He was instrumental in the hiring and retention of key business leaders and maintaining positive morale in Fiscal 2009 during a difficult business environment. The Compensation Committee believes that Mr. Lucas performed well in Fiscal 2009.
As a result of Mr. Lucas’ performance in Fiscal 2009,
· | his base salary was increased from $345,000 to $357,100 effective April 1, 2010; |
· | he was granted 6,000 Performance Shares and 18,000 Stock Appreciation Rights on March 26, 2010 at a grant price of $15.50; and |
· | he earned and was paid a bonus of $117,300 under our 2009 Bonus Plan. |
At their March 2010 meetings, the Compensation Committee and the Board took the following actions with respect to the compensation of the Company’s Named Executive Officers:
Base Salaries
Based on Mr. Hall’stheir performance during the 2009 fiscal year, in the case of Mr. Hall, and the input of Mr. Hall, in his capacity as our Chief Executive Officer, with respect to the individual performance of the other Named Executive Officers during the 2009 fiscal year,Fiscal 2011, and with input from Hay Group with respect to market salary data of our Peer Group, the Committee recommended, and the Board approved, the following base salaries for theour Named Executive Officers for fiscal 2010. Unless otherwise indicated,Fiscal 2012. The base salaries were adjusted effective April 1, 2010.2012.
FISCAL 2012 BASE SALARIES
Executive/Title | 2009 Base Salary | 2010 Base Salary | Base Salary Increase |
Mr. Hall | $750,000 | $800,000 | 6.7% |
Mr. Record (1) | $460,000 | $550,000 | 19.6% |
Mr. Maloney (2) | $475,000 | $550,000 | 15.8% |
Mr. Cruse (3) | $375,000 | N/A | N/A |
Mr. Lucas | $345,000 | $357,100 | 3.5% |
Executive | 2011 Base Salary | 2012 Base Salary | Base Salary Increase |
Mr. Glazer (1) | N/A | $850,000 | N/A |
Mr. Hall (2) | $850,000 | N/A | N/A |
Mr. Shein | $350,000 | $355,000 | 1.43% |
Mr. Record | $572,000 | $585,000 | 2.27% |
Mr. Lawrence (3) | N/A | $560,000 | N/A |
Mr. Searles | $450,000 | $450,000 | N/A |
(1) | As Mr. Glazer became our President and Chief Executive Officer on an interim basis on March 28, 2012 at a base salary of $850,000, which was the same as Mr. Hall's base salary prior to his resignation. Mr. Glazer's base salary was not adjusted thereafter. |
| (1)(2) | Mr. Record was promoted to Chief Operating Officer ofHall resigned on March 28, 2012. The salary he received for his partial service in Fiscal 2012 is shown in the Summary Compensation Table. |
(3) | Mr. Lawrence joined the Company on February 15, 2010,April 30, 2012, with a base salary of $560,000. |
The Committee believes that the salaries of our Named Executive Officers are competitive though the Hay Group Survey (the "Survey") indicates some to be below the Survey median. There is a wide range of companies in terms of revenue and market capitalization in the Survey. Additionally, job responsibilities sometimes vary from company to company despite similar job titles.
Establishment of 2012 Senior Executive Incentive Bonus Plan
At its March 2012 meeting, the Committee recommended, and the Board approved, the parameters for the 2012 Senior Executive Incentive Bonus Plan (the "2012 Bonus Plan") and approved the annual cash incentive opportunities for the Named Executive Officers for Fiscal 2012 as set forth in the table below. The methodology and measurement parameters for the 2012 Bonus Plan were changed from the 2011 Bonus Plan in that (i) the weighting of the Pre-Tax Earnings Parameter was decreased from 66 2/3% under the 2011 Bonus Plan to 60% under the 2012 Bonus Plan (ii) the weighting of the Comparable Store Sales Parameter was decreased from 33 1/3% under the 2011 Bonus Plan to 20% under the 2012 Bonus Plan and (iii) a new parameter (Mission Based Goals) was added with a weighting of 20%.
2012 BONUS PLAN PARAMETERS
While the methodology and measurement parameters for the 2012 Bonus Plan were unchanged from the 2011 Bonus Plan except for the weighting described above and the addition of a Mission Based Goals parameter, the Pre-Tax Earnings Target Level was decreased from $71,200,000 under the 2011 Bonus Plan to $53,600,000 under the 2012 Bonus Plan (an increase of 13.4% over actual Fiscal 2011 Pre-Tax Earnings) to provide a realistic target based on Fiscal 2011 actual performance and market conditions. The 2012 Bonus Plan design is as follows:
Pre-Tax Earnings Parameter
This parameter of the bonus formula is weighted to determine sixty percent (60%) of the year-end bonus amount earned. Actual bonus payment will be prorated for Pre-Tax Earnings results between the Maximum and Threshold levels.
| Fiscal 2012 Pre-Tax Earnings | |
Minimum (Threshold) bonus amount will be paid at which time his Base Salary was increased from $460,000 to $550,000 due to his increased duties and responsibilities.¼ of Target at Fiscal 2012 Pre-Tax Earnings of 95% of Target Level, an increase of 7.7% vs. actual Fiscal 2011 Pre-Tax Earnings. | $50,900,000 | 5% Below Target |
Target bonus amount will be paid by achieving Fiscal 2012 Pre-Tax Earnings at an increase of 13.4% vs. actual Fiscal 2011 Pre-Tax Earnings. | $53,600,000 | Target Level |
Maximum bonus amount will be paid at 2 times Target by achieving Fiscal 2012 Pre-Tax Earnings at 110% of Target Level, an increase of 24.8% vs. actual Fiscal 2011Pre-Tax Earnings. | $59,000,000 | 10% Above Target |
Comparable Store Sales Parameter
This parameter of the bonus formula is weighted to determine twenty percent (20%) of the year-end bonus amount earned. Measurement is based on fiscal year-end comparable store sales percent change, compared to our Performance Group. Notwithstanding, in order to earn any portion of the Comparable Store Sales bonus payment, the Company must achieve 75% of the 2012 Pre-Tax Earnings Target level ($53,600,000). Actual bonus payment will be prorated for results between the Maximum and Threshold levels.
Threshold bonus amount (1/4 of Target) will be paid if our ranking of total year-end comparable store sales change is at the twenty-fifth percentile among our Performance Group, provided that 2012 Pre-Tax Earnings are $40,200,000 or higher. |
Target amount will be paid if our ranking for total year-end comparable store sales change is at the fiftieth percentile (or middle mark) among our Performance Group. |
Maximum amount (2 times Target) will be paid if our ranking of total year-end comparable store sales change is at the one-hundredth percentile (or highest rank) among our Performance Group. |
Mission Based Goals Parameter
Each senior executive officer established (jointly with our CEO and/or our COO) four to six specific objectives ("Mission Based Goals") related to their area of responsibility which supports the Company's Fiscal 2012 Financial Plan. In most cases, the majority of the Mission Based Goals were based on Fiscal 2012 financial results (e.g., total sales, comparable store sales, earnings, gross profit, SG&A expenses) and therefore the measurement of their achievement is quantifiable. Some Mission Based Goals were based on Fiscal 2012 operational results (e.g., net store growth, expansion of Steele's, expansion of eCommerce) and therefore the measurement of their achievement is also objective. A limited number of Mission Based Goals require a degree of management judgment to determine if they were achieved. These Mission Based Goals were reviewed by the CEO and the Committee to determine actual achievement. This parameter is weighted twenty percent (20%) of each executive's Target bonus amount.
Potential 2012 Bonus Plan Awards
Depending on our Pre-Tax Earnings, our ranking among our Performance Group with respect to total year-end Comparable Store Sales, and the extent to which they achieve their Mission Based Goals, our Named Executive Officers had the opportunity to earn bonuses under the 2012 Bonus Plan as follows, with actual bonus payment to be prorated for results between the Maximum and Threshold levels:
POTENTIAL 2012 BONUS PLAN AWARDS
Executive | | Base Salary($) | | | Bonus Range % (1) (Threshold/Target/Maximum) | | | Bonus Range $ (2) (Threshold/Target/Maximum) |
Mr. Glazer | | | 850,000 | | | 45% - 100% - 200% | | | | $382,500 - $850,000 - $1,700,000 |
Mr. Hall (3) | | | 850,000 | | | 9.4% - 20.8% - 41.5% | | | | $79,900 - $176,800 - $352,750 |
Mr. Shein | | | 355,000 | | | 22.5% - 50% - 100% | | | | $79,875 - $177,500 - $355,000 |
Mr. Record | | | 585,000 | | | 31.5% - 70% - 140% | | | | $184,275 - $409,500 - $819,000 |
Mr. Lawrence | | | 560,000 | | | 31.5% - 70% - 140% | | | | $176,400 - $392,000 - $784,000 |
Mr. Searles | | | 450,000 | | | 27% - 60% - 120% | | | | $121,500 - $270,000 - $540,000 |
_________________________
(1) | Percentage of base salary. |
| |
(2) | Amount to be paid depends upon the extent to which the Company achieves Fiscal 2012 Pre-Tax Earnings and Comparable Store Sales parameters established by the Board and the executive officer achieves the Mission Based Goals established by the executive officer (jointly with our CEO and/or our COO). Actual bonus payments will be prorated for Fiscal 2012 Pre-Tax Earnings and Comparable Store Sales results between the Threshold and Maximum levels. |
| |
(3) | Mr. MaloneyHall resigned on March 28, 2012. Pursuant to the terms of his Separation Agreement, he was promotedeligible to Chief Merchandising Officerparticipate in the 2012 Bonus Plan, but on a pro rata basis (i.e., 11 weeks out of the Company on February 15, 2010, at which time his Base Salary was increased from $475,000 to $550,000 due to his increased duties and responsibilities.53 weeks). |
| (3) | Mr. Cruse retired from the Company effective March 1, 2010. |
Based on Hay Group’s analysis, it was determined that our based salaries are generally at or below the median of our Peer Group.
2009Please see "Committee Actions in 2013 Concerning Named Executive Officer Compensation – 2012 Bonus Plan Awards
As our 2009 Pre-Tax Earnings ($45,827,000) were 98%Awards" on page 41 of our 2009 Financial Plan ($46,700,000),this Proxy Statement for the followingamounts of bonuses were awarded on March 26, 2010 for performanceactually paid under the 20092012 Bonus Plan at 68% of Bonus Target Levels:
2009 Bonus Plan Awards
Executive | Bonus Award | % of 2009 Base Salary |
Mr. Hall | $408,000 | 54.4% |
Mr. Record | $203,300 | 44.2% |
Mr. Maloney | $193,800 | 40.8% |
Mr. Cruse | $127,500 | 34.0% |
Mr. Lucas | $117,300 | 34.0% |
Plan.
Long-Term Incentive Compensation Awards
At its March 2012 meeting, the Committee (i) reviewed the final Total Shareholder Return ("TSR") results for the three year performance cycle that ended on January 28, 2012 for the March 2009 Performance Based Restricted Share Grants for Senior Executives, (ii) discussed the attainment level based on our TSR results versus our Performance Group, (iii) reviewed the current standing and attainment levels for LTI grants made in March 2010 and March 2011 based on the TSR matrix of our Performance Group, (iv) discussed individual LTI grants for senior management executives recommended by management, (v) reviewed estimated shares needed for 2012 awards, and (vi) reviewed shares available for future grants. To determine the size of each equity award, the
Committee reviewed market data, prior years' long-term equity incentive (“LTI”("LTI") decisions, the performance of the Named Executive Officers and recommendations from Hay Group.
Based upon the recommendation of the Committee and the approval of the Board, the following LTI awards were granted to the Named Executive Officers on March 28, 2012, or as otherwise indicated by footnote, in consideration of their 20092011 performance andand/or as incentive for their future performance:
2012 LTI AWARDS
2010 LTI Awards
Executive | Performance Shares (1) | Stock Appreciation Rights (2) |
Mr. Hall | 25,000 | 100,000 |
Mr. Record | 20,000 | (3) |
Mr. Maloney | 20,000 | (3) |
Mr. Lucas | 6,000 | 18,000 |
Executive | Target Performance Shares (55%)(1) | Restricted Stock (45%)(2) |
Mr. Glazer (3) | 73,333 | 93,333 |
Mr. Hall (4) | N/A | N/A |
Mr. Shein | 10,000 | 8,200 |
Mr. Record | 20,800 | 17,000 |
Mr. Lawrence (5) | 36,667 | 50,000 |
Mr. Searles | 10,000 | 8,200 |
(1) | The Performance Shares cliff vest after a three-year measurement performance cycle (the “Performance Cycle”"Performance Cycle") which began on the first business day of the Company’s current fiscal yearour 2012 Fiscal Year (January 31, 2010)29, 2012) and ends on the last business day of the Company’s 2012 fiscal year (February 2, 2013)our 2014 Fiscal Year (January 31, 2015). The number of Performance Shares earned will be based on the Company’sour total shareholder return relative to the performance group of companies established by the Compensation Committee (the “Performance Group”)"Performance Group". The number of shares reflected in the table above are the “Target Shares”"Target Shares", which means the number of shares of the Company’sCompany's common stock the Named Executive Officer will earn (and receive) at the end of the Performance Cycle if the Company’sCompany's results are in the middl emiddle (fiftieth percentile) of the Performance Group. On a sliding scale, the shares earned can vary as follows: |
Percentile Ranking of Performance Group | | Performance Shares Earned * |
100% | | 200% |
75% | | 150% |
50% | | 100% |
25% | | 25% |
< 25% | | 0% |
| * As a percentage of Target Performance Shares shown in the 2012 LTI Awards table above. |