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SCHEDULE 14A

(Rule 14a-101)

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

Filed by the Registrant ☒

Filed by a party other than the Registrant ☐

Check the appropriate box:

 

Preliminary Proxy Statement

Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

Definitive Proxy Statement

Definitive Additional Materials

Soliciting Material under §240.14a-12

J. C. Penney Company, Inc.

 

 

(Name of Registrant as Specified in Its Charter)

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

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No fee required.

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LOGO

NOTICE OF 2019 ANNUAL MEETING OF STOCKHOLDERS AND PROXY STATEMENT

 

 


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LOGO

April 1, 2019

Dear Stockholders:

On behalf of your Board of Directors, I want to take this opportunity to invite you to attend our 2019 Annual Meeting of Stockholders. The meeting will be held on Friday, May 24, 2019, at 10:00 A.M., local time, at the JCPenney Home Office, located at 6501 Legacy Drive, Plano, Texas 75024. We will be asking you to vote on and to support several proposals for our Company and it is important that your shares be represented. We urge you to vote your shares via the toll-free telephone number, over the Internet, or by mail, as provided in the enclosed materials.

You will find information regarding the matters to be voted on at the meeting in the formal Notice of Meeting and Proxy Statement, which are included in the following pages.

We appreciate your support of JCPenney.

 

LOGO

Ronald W. Tysoe

Chairman of the Board


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J. C. PENNEY COMPANY, INC.

6501 Legacy Drive

Plano, Texas 75024-3698

J. C. PENNEY COMPANY, INC.

Notice of 2019 Annual Meeting of Stockholders

 

Date and Time:   

Friday, May 24, 2019

10:00 A.M., local time

Place:   

JCPenney Home Office

6501 Legacy Drive

Plano, Texas 75024-3698

Business:   

1.  To elect ten directors nominated by the Board of Directors for a one-year term as described in the accompanying proxy materials;

  

2.  To ratify the appointment of KPMG LLP as independent auditor for the fiscal year ending February 1, 2020;

  

3.  To approve the adoption of the J. C. Penney Company, Inc. 2019 Long-Term Incentive Plan;

  

4.  To hold an advisory vote on executive compensation; and

  

5.  To consider any other business properly brought before the meeting.

Record Date:    In order to vote, you must have been a stockholder at the close of business on March 25, 2019.
Voting By Proxy:    It is important that your shares be represented and voted at the meeting. If you received the proxy materials by mail, you can vote your shares by telephone, over the Internet, or by completing, signing, dating and returning your completed proxy card. If you received the proxy materials over the Internet, a proxy card was not sent to you, and you may vote your shares only by telephone or over the Internet. To vote by telephone or Internet, follow the instructions included in the Proxy Statement or on the Internet. You can revoke a proxy at any time prior to its exercise at the meeting by following the instructions in the Proxy Statement.

 

Important Notice Regarding the Availability of Proxy Materials for the 2019 Annual Meeting of Stockholders to be held on May 24, 2019.

The Notice of Annual Meeting, Proxy Statement and Annual Report on Form 10-K for the fiscal year ended February 2, 2019 are available at www.proxyvote.com.

 

LOGO

Salil R. Virkar, Secretary

Plano, Texas

April 1, 2019

YOUR VOTE IS IMPORTANT

PLEASE SIGN, DATE, & RETURN YOUR PROXY CARD OR

VOTE BY TELEPHONE OR INTERNET


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PROXY STATEMENT

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Corporate Governance

     1  

Governing Documents

     1  

Corporate Governance Guidelines

     2  

Board Leadership Structure

     2  

Board and Committee Self-Assessments

     3  

Board of Directors’ Role in Risk Oversight

     3  

Policies and Procedures with Respect to Related Person Transactions

     4  

Board Independence

     4  

Meeting Attendance

     5  

Executive Sessions

     5  

Communications with the Board of Directors

     5  

Communications with the Audit Committee

     6  

Board Diversity, Refreshment, Director Qualifications and Process for Nominations

     6  

Board Committees

     9  

Compensation Committee Interlocks and Insider Participation

     10  

Section 16(a) Beneficial Ownership Reporting Compliance

     11  

Beneficial Ownership of Common Stock

     12  

Proposal 1 – Election of Directors

     14  

Letter from Human Resources and Compensation Committee Chair

     20  

Compensation Discussion and Analysis

     22  

Summary Compensation Table

     43  

Grants of Plan-Based Awards for Fiscal 2018

     45  

Outstanding Equity Awards at Fiscal Year-End 2018

     47  

Option Exercises and Stock Vested for Fiscal 2018

     50  

Nonqualified Deferred Compensation for Fiscal 2018

     52  

Potential Payments and Benefits on Termination of Employment

     54  

CEO Pay Ratio

     60  

Director Compensation for Fiscal 2018

     61  

Audit Function

     64  

Report of the Audit Committee

     64  

Audit and Other Fees

     65  

Proposal 2 – Ratification of Appointment of Independent Auditor

     67  

Proposal 3 – Approval of 2019 Long-Term Incentive Plan

     68  

Equity Compensation Plan(s) Information

     75  

Proposal 4 – Advisory Vote on Executive Compensation

     76  

About the Annual Meeting

     77  

Other Business Matters

     81  

Stockholder Proxy Proposal Deadline

     81  

Stockholder Business – Annual Meeting

     81  

Annex A – 2019 Long-Term Incentive Plan

     A-1  


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2019 PROXY STATEMENT

This Proxy Statement and the accompanying materials are being sent to JCPenney stockholders beginning on or about April 8, 2019. In this Proxy Statement, you will find information on the matters to be presented at the 2019 Annual Meeting of Stockholders (the Annual Meeting) and information to assist you in voting your shares.

CORPORATE GOVERNANCE

More than 115 years ago, James Cash Penney founded JCPenney on the principle of the Golden Rule: treat others the way you would like to be treated. While JCPenney has gone through many changes throughout its history, the foundation built on honesty, trust and integrity has never wavered. Our corporate governance principles continue to reflect the highest ethical standards rooted in our rich heritage as we seek to achieve excellence in our work, products and services for our customers and our stockholders.

Our key corporate governance policies and practices include:

 

Stockholder Rights     Annual election of all directors
 

 

Majority vote standard in uncontested elections

 

 

Director resignation policy

 

 

No unequal voting rights

 

 

No supermajority vote requirements

 

 

3%/3 year proxy access bylaw

 

Board Structure and Practices     All directors are independent other than the CEO
    Diverse and experienced Board
    Independent Chairman of the Board with clearly defined responsibilities
    Independent directors regularly meet in executive sessions
    Annual Board and Committee self-assessments
    Annual evaluation of CEO
    Corporate governance guidelines
    Mandatory retirement age policy
    No significant related party transactions

Governing Documents

The key documents that make up our corporate governance framework are our:

 

   

Corporate Governance Guidelines, including our:

   

Standards for the Determination of Director Independence,

   

Lead Independent Director Policy and

   

Policy on Review and Consideration of Related Person Transactions;

   

Restated Certificate of Incorporation, as amended;

   

Bylaws, as amended;

   

Audit Committee Charter;

   

Finance and Planning Committee Charter;

   

Corporate Governance Committee Charter;

 

 

 

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Human Resources and Compensation Committee Charter;

   

Statement of Business Ethics; and

   

Standards and Procedures for Director Nominations.

You can access each of these documents on our website at www.jcpenney.com by clicking on “Investors,” then “Governance.” You can also obtain a free copy of any of these documents by sending a written request to JCPenney’s Corporate Secretary at P.O. Box 10001, Dallas, Texas 75301.

Corporate Governance Guidelines

Our Corporate Governance Guidelines (the Guidelines) set forth JCPenney’s primary principles and policies regarding corporate governance, which are the foundation of our commitment to best practices. The Guidelines are reviewed annually by the Corporate Governance Committee and the Board of Directors (the Board). The matters covered by the Guidelines include:

 

   

director responsibilities;

   

the size of the Board;

   

director independence and minimum qualifications;

   

factors to be considered in selecting candidates to serve on the Board;

   

the Company’s voting standard for the election of directors;

   

director resignations upon change of principal employment or personal circumstances;

   

mandatory retirement age for directors;

   

directors’ outside directorships and outside audit committee service;

   

Board organization, including committees of the Board and the role and responsibilities of the lead independent director;

   

policies relating to Board meetings;

   

executive sessions for directors;

   

ethical principles to be followed by directors;

   

policies and procedures for reviewing related person transactions and conflicts of interest;

   

claw-back policy on recovery of compensation in the event of a financial restatement;

   

the Board’s access to management and independent advisors;

   

stockholders’ and other interested parties’ communications to non-employee directors;

   

director orientation and continuing education;

   

prohibition on loans to directors and executive officers;

   

stock ownership goals for directors and members of the Company’s senior management team;

   

prohibition on hedging and pledging of Company stock;

   

management succession and CEO evaluation; and

   

annual self-assessments of the Board and each Board committee.

Board Leadership Structure

Effective May 22, 2018, the Board of Directors elected Ronald W. Tysoe, a non-employee, independent director, to serve as the Company’s Non-Executive Chairman of the Board. Mr. Tysoe previously served as Lead Director pursuant to the Company’s Lead Independent Director Policy. The duties of the Non-Executive Chairman of the Board include:

 

   

presiding over all meetings of the Board and regular executive sessions of the non-employee, independent members of the Board;

 

 

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approving the scheduling of Board meetings as well as the agenda and materials for each Board meeting and executive session of the Board’s non-employee, independent directors;

   

calling and presiding over meetings of the non-employee, independent directors as he/she deems necessary;

   

meeting regularly with the CEO and serving as a liaison and channel of communication between the non-employee, independent directors and the CEO;

   

presiding over all meetings of stockholders and communicating with stockholders as appropriate; and

   

approving and coordinating the retention of advisors and consultants who report directly to the non-employee, independent members of the Board, except as otherwise required by applicable law or New York Stock Exchange (NYSE) listing standards.

The Company’s leadership structure previously consisted of a combined Chairman/CEO leadership role coupled with a Lead Director. The Board of Directors, in connection with the departure of Marvin Ellison as Chairman of the Board and CEO and as part of its continuing review of corporate governance matters, decided to separate the Chairman and CEO roles and elect a Non-Executive Chairman of the Board after careful consideration and upon recommendation by the Corporate Governance Committee. The Board believes that JCPenney’s current leadership structure enhances the Board’s ability to ensure that the appropriate level of independent oversight is applied to all management decisions.

Board and Committee Self-Assessments

Each year, the Board and the Board’s Audit, Corporate Governance, Finance and Planning, and Human Resources and Compensation Committees conduct self-assessments to evaluate their effectiveness and to identify opportunities for improvement. This self-assessment may be conducted in the form of written or oral questionnaires administered by Board members, management or third parties. Directors respond to questions designed to elicit information to be used in improving Board and committee effectiveness. Self-assessment topics generally include, among other matters, Board composition and structure, meeting topics and process, information flow, Board oversight of risk management and strategic planning, succession planning and access to management.

Director feedback solicited from the self-assessment process is discussed during Board executive sessions and, where appropriate, addressed with management. The Corporate Governance Committee oversees the development and administration of the self-assessment process, including determining the format. More recently, the Corporate Governance Committee has determined that written questionnaires are a highly effective method of conducting the self-assessments.

Board of Directors’ Role in Risk Oversight

The Board oversees an enterprise-wide approach to risk management, designed to support the achievement of organizational objectives, including strategic objectives, to improve long-term organizational performance and to enhance stockholder value. A fundamental part of risk management is not only understanding the risks a company faces and what steps management is taking to manage those risks but also understanding what level of risk is appropriate for the company. The involvement of the full Board in reviewing the Company’s business strategy is an integral aspect of its assessment of management’s tolerance for risk and also its determination of what constitutes an appropriate level of risk for the Company. In addition to management’s discussion of risk with the full Board throughout the year, the independent directors also discuss risk management during their executive sessions without management present over which the Non-Executive Chairman of the Board presides. The

 

 

 

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Board’s committees also consider risk appropriate to their respective jurisdictions throughout the year. In that regard, the Audit Committee has oversight responsibility with respect to risks associated with financial accounting, data privacy and cybersecurity matters. The Human Resources and Compensation Committee reviews risks related to executive compensation and the design of compensation plans and arrangements.

Policies and Procedures with Respect to Related Person Transactions

The Board recognizes that related person transactions can present a heightened risk of conflicts of interest. Accordingly, as a general matter, our directors and executive officers are to avoid any activity, interest or relationship that would create, or might appear to others to create, a conflict with the interests of JCPenney. There were no related person transactions for the Company’s fiscal year ended February 2, 2019.

Our written Policy on Review and Consideration of Related Person Transactions (the RPT Policy) is included as Appendix C to the Guidelines. For purposes of Securities and Exchange Commission (SEC) rules as well as the RPT Policy, a “related person transaction” is any transaction in which the Company was, is or will be a participant and the amount involved exceeds $120,000 and in which any related person had, has or will have a direct or indirect material interest. The term “related person” means:

 

   

any person who is, or at any time since the beginning of the Company’s last fiscal year was, a director or executive officer of the Company or a nominee to become a director of the Company,

   

any person who is known to be the beneficial owner of more than 5% of any class of the Company’s voting securities and

   

any immediate family member of any of the foregoing persons.

We review all relationships and transactions in which the Company and a related person are participants to determine whether such persons have a direct or indirect material interest. To identify potential related person transactions, we request certain information from our directors and executive officers. We then review the information provided for any related person transactions. The Corporate Governance Committee reviews and determines whether to approve or ratify any related person transaction that is required to be disclosed. Any member of the Corporate Governance Committee who is a related person with respect to a transaction under review may not participate in the deliberations or vote respecting approval or ratification of the transaction.

Board Independence

The Board reviews the independence of each non-employee director annually to confirm that the director continues to meet our standards as well as the requirements of the NYSE. No member of the Board will be considered independent unless the Board determines that he or she has no material relationship with the Company that would affect his or her independence and that he or she otherwise satisfies JCPenney’s director independence standards as well as all applicable laws, rules and regulations. Our “Standards for the Determination of Director Independence” are included as Appendix A to the Guidelines.

The factors the Board considers in determining whether a director is independent include:

 

   

Whether within the preceding three years,

   

the director is or was an employee of JCPenney;

 

 

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a member of the director’s immediate family is or was an executive officer of JCPenney;

   

the director or an immediate family member of the director received more than $120,000 per year in direct compensation from JCPenney (other than compensation for service as a director or pension or other forms of deferred compensation for prior service);

   

the director or an immediate family member of the director was a partner or employee of JCPenney’s external auditor and personally worked on JCPenney’s audit within that time;

   

the director or an immediate family member of the director is or was employed as an executive officer of another company where any of JCPenney’s present executive officers serve on the compensation committee of that company’s board of directors;

   

the director or an immediate family member of the director is or was an employee or executive officer of another company that makes payments to, or receives payments from, JCPenney in excess of the greater of $1 million or 2% of that company’s consolidated gross revenues;

   

Whether the director or an immediate family member of the director is a current partner of JCPenney’s external auditor;

   

Whether the director is a current employee of JCPenney’s external auditor;

   

Whether an immediate family member of the director is a current employee of JCPenney’s external auditor and personally works on JCPenney’s audit; and

   

Whether the director serves as an officer, director or trustee of a charitable organization or as a member of that organization’s fund-raising entity or committee that received contributions from JCPenney in excess of the greater of $1 million or 2% of the charity’s gross revenues.

The Board has reviewed each director’s independence for fiscal 2019. Applying the standards listed above as well as the requirements of the NYSE, the Board has determined that each of the directors, except for Ms. Soltau, is independent.

Meeting Attendance

During fiscal 2018, the Board held eleven meetings and committees of the Board held a total of 33 meetings. Each director serving during fiscal 2018 attended at least 75% of the total number of meetings of the Board and committees on which he or she served.

All directors are strongly encouraged to attend the Annual Meeting, but we do not have a formal attendance requirement. In 2018, ten of the eleven then-serving members of the Board attended the Annual Meeting.

Executive Sessions

The non-employee, independent directors meet in executive session with no Company associates present as a part of each regularly scheduled Board meeting. The Company’s Non-Executive Chairman of the Board, Ronald W. Tysoe, presides over these sessions.

Communications with the Board of Directors

Any Company stockholder or other interested party who wishes to communicate with the Board or with an individual director may direct such communications by telephone to 1-800-527-0063, by facsimile to 972-431-1133, by email to jcpdirectors-sm@jcpenney.com, or by writing to:

Corporate Secretary

J. C. Penney Company, Inc.

P.O. Box 10001

Dallas, TX 75301

 

 

 

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The communication must be clearly addressed to the Board of Directors or to a specific director(s). If a response is desired, the individual should also provide contact information such as name, address and telephone number.

All such communications will be reviewed initially by the Company’s Corporate Secretary and entered into a log for tracking purposes. The Board has asked the Corporate Secretary to forward to the appropriate director(s) all correspondence, except for items unrelated to the Board’s functions, business solicitations, advertisements and materials that are profane. The Corporate Secretary prepares a periodic summary report of all such communications for the Board.

Communications with the Audit Committee

Complaints and concerns relating to the Company’s accounting, internal accounting controls or auditing matters should be communicated to the Audit Committee of the Board. Any such communication may be made on an anonymous basis and may be reported to the Audit Committee through the Company’s Vice President, Audit by calling 1-800-527-0063, by website at www.jcpline.com or by writing to:

Vice President, Audit

J. C. Penney Company, Inc.

P.O. Box 250335

Plano, TX 75025-0335

All such concerns will be reviewed under the direction of the Audit Committee and oversight by the Vice President, Audit, the General Counsel, or such other persons as the Audit Committee determines to be appropriate. Confidentiality is maintained to the fullest extent possible, consistent with the need to conduct an adequate review. Prompt and appropriate corrective action will be taken when and as deemed appropriate in the judgment of the Audit Committee. The Vice President, Audit will prepare a periodic summary report of all such communications for the Audit Committee.

Board Diversity, Refreshment, Director Qualifications and Process for Nominations

JCPenney is committed to creating an inclusive work environment where everyone is respected and valued. A workforce that understands JCPenney’s diverse customer base helps ensure that the Company’s products, services and message are relevant in every community where the Company does business.

The Board’s philosophy on diversity mirrors the Company’s philosophy. In connection with the selection of nominees for director, the Corporate Governance Committee strives to identify and recruit high-caliber individuals whose diverse talents, perspectives, experiences and backgrounds would preserve and enhance the inclusive environment in which the Board currently functions. Additional information on the experiences and backgrounds of the director nominees can be found under “Proposal 1 - Election of Directors” beginning on page 14. The director nominees identified in this Proxy Statement reflect the importance of diversity to the Board.

The Board also aims to maintain an appropriate balance of tenure across our directors. In the last four years, the Board has appointed nine new directors to the Board while six directors have retired from or left the Board during the same period. Further, our Corporate Governance Guidelines provide that it is the Board’s policy that no individual who would be age 73 or older at the time of his or her election or re-election will be eligible to stand for election or re-election to the Board. The Board may waive the age limitation if it deems a waiver to be in the best interests of the Company and its stockholders.

 

 

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The charts below reflect the gender composition and board tenure of the director nominees.

 

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  Average tenure: 5.3 years

As provided in the Guidelines, nominees for director, including those directors who are eligible to stand for re-election, are selected based on, among other things, consideration of the following factors:

 

   

character and integrity;

   

business and management experience;

   

demonstrated competence in dealing with complex problems;

   

familiarity with the Company’s business;

   

diverse talents, backgrounds and perspectives;

   

freedom from conflicts of interest;

   

regulatory and stock exchange membership requirements for the Board;

   

sufficient time to devote to the affairs of the Company; and

   

reputation in the business community.

In considering whether to nominate directors who are eligible to stand for re-election, the Corporate Governance Committee also considers the quality of past director service, attendance at Board and committee meetings, compliance with the Guidelines (including satisfying the expectations for individual directors), as well as input from other Board members concerning the director’s performance and independence.

Although the Board retains ultimate responsibility for approving candidates for election, the Corporate Governance Committee conducts the initial screening and evaluation process. In doing so, the Corporate Governance Committee considers candidates recommended by directors and the Company’s management, as well as any recommendations from Company stockholders. Additionally, the Corporate Governance Committee takes into account the Board’s current composition and the capabilities and attributes of serving Board members, as well as additional capabilities and attributes considered necessary or desirable in light of existing Company needs and the goal of preserving and enhancing Board diversity. The Corporate Governance Committee may engage one or more search firms to assist in the identification and recruitment of director candidates.

 

 

 

 

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To recommend a candidate for election to the Board, a stockholder must submit the following information to the Corporate Secretary of the Company at least 90 days in advance of the Annual Meeting:

 

   

The stockholder’s name and address;

   

A representation that the stockholder is a holder of record of JCPenney stock entitled to vote at the Annual Meeting and intends to appear in person or by proxy at the Annual Meeting;

   

The name and address of the stockholder’s nominee for director;

   

A description of any arrangements or understandings between the stockholder and the director nominee or any other person (naming such person(s)) relating to the election of the nominee to the Board;

   

The biographical and other information about the nominee that would be required to be included in a proxy statement filed pursuant to the proxy rules of the SEC; and

   

The nominee’s consent to serve on the Board.

In general, candidates recommended by stockholders will be evaluated under the same process as candidates recommended by existing directors, Company management or third-party search firms. However, the Corporate Governance Committee will additionally seek and consider information concerning the relationship between a stockholder’s recommended nominee and the stockholder to determine whether the nominee can effectively represent the interests of all stockholders. Also, except in unusual circumstances, the Corporate Governance Committee will not evaluate a stockholder-recommended candidate unless and until the stockholder advises that the potential candidate has indicated a willingness to serve as a director, to comply with the expectations and requirements for Board service and to provide all the information required to conduct an evaluation.

In addition, pursuant to the Company’s proxy access Bylaw, a stockholder, or a group of up to 20 stockholders, owning at least 3% of the Company’s outstanding common stock continuously for at least three years may nominate and include in the Company’s proxy materials for an annual meeting of stockholders a number of directors up to the greater of two directors and 20% of the Board, provided that the stockholder(s) and nominee(s) satisfy the Bylaw requirements.

A notice from an eligible stockholder under the Company’s proxy access Bylaw must be received by the Corporate Secretary of the Company no later than 120 days and no earlier than 150 days prior to the first anniversary of the date the Company’s definitive proxy statement was first sent to stockholders in connection with the previous year’s annual meeting of stockholders. If the date of the annual meeting of stockholders is more than 30 days before or after the anniversary of the preceding year’s annual meeting, the notice must be received no earlier than 150 days prior to such annual meeting and no later than the later of 120 days prior to such annual meeting or 10 days following the day on which public disclosure of the date of the annual meeting was first made. The notice must include certain information, representations and agreements required by Article III, Section 17 of the Company’s Bylaws, including information about the stockholder or group of stockholders and any proposed director nominee.

 

 

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BOARD COMMITTEES

The Board has four principal standing committees. Committee members consist entirely of non-employee directors and the Board has determined that each of the members of these committees is “independent,” as defined under our standards of independence and under NYSE listing standards. The following table reflects committee membership as of April 1, 2019:

 

     Audit
Committee
   Corporate
Governance
Committee
   Finance and
Planning
Committee
   Human Resources
and Compensation
Committee

Paul J. Brown

         X    X

Amanda Ginsberg

      X       Chair

Wonya Y. Lucas

      X       X

B. Craig Owens

   Chair       X   

Lisa A. Payne

   X       X   

Debora A. Plunkett

   X    X      

Leonard H. Roberts

   X       X   

Javier G. Teruel

   X       Chair   

R. Gerald Turner

      X       X

Ronald W. Tysoe*

      Chair      

 

*

Non-Executive Chairman of the Board

A copy of each committee’s Charter is available at the Company’s website at www.jcpenney.com. Also available on the Company’s website are procedures for the confidential and anonymous reporting of matters relating to questionable accounting, internal accounting controls or auditing matters. For a discussion of the processes and procedures for determining executive and director compensation and the roles of management and compensation consultants in determining or recommending the amount or form of compensation, see “Compensation Discussion and Analysis” beginning on page 22 and “Director Compensation for Fiscal 2018” beginning on page 61. The mailing address for all of these committees is c/o Corporate Secretary, J. C. Penney Company, Inc., P.O. Box 10001, Dallas, Texas 75301.

 

Audit Committee    Meetings in Fiscal 2018: 8
Members*: B. Craig Owens** (Chair), Lisa A. Payne**, Debora A. Plunkett, Leonard H. Roberts**, Javier G. Teruel** (All Independent)

 

Primary Responsibilities

 

•  Selection and retention of the independent auditor for the annual audit of the Company’s consolidated financial statements

•  Approval of audit fees and non-audit services and fees paid to the independent auditor

•  Review the independent auditor’s strategy and plan, scope, audit results, performance and independence

•  Review internal audit reports on the adequacy of internal controls

•  Review the Company’s ethics program

•  Review the status of significant legal matters

•  Review the Company’s major financial risks, as well as risks associated with data privacy and cybersecurity matters

•  Review the scope of the internal auditor’s plans and budget and results of its audits

•  Review the effectiveness of the Company’s program for correcting audit findings

•  Participate in the certification process relating to the filing of certain periodic reports pursuant to the Securities Exchange Act of 1934, as amended (Exchange Act)

 

  *

The Board has determined that each member of this Committee is “financially literate” as defined by the NYSE.

  **

The Board has determined that each of these Committee members qualifies as an “audit committee financial expert” as defined by the SEC.

 

 

 

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Board Committees

 

Corporate Governance Committee

 

   Meetings in Fiscal 2018: 3
Members: Ronald W. Tysoe (Chair), Amanda Ginsberg, Wonya Y. Lucas, Debora A. Plunkett, R. Gerald Turner (All Independent)

 

Primary Responsibilities

 

•  Perform the functions of a nominating committee

•  Consider matters of corporate governance

•  Review developments in the governance area as they affect relations between the Company and its stockholders

•  Develop and recommend to the Board corporate governance principles and practices for the Company

•  Make recommendations to the Board with respect to the size, composition, organization and responsibilities of the Board and its directors

•  Make recommendations to the Board with respect to the qualifications of directors, candidates for election as directors, the compensation of directors, and annual independence determinations

•  Oversee the annual performance self-assessment process by the Board and each of the Audit, Corporate Governance, Finance and Planning, and Human Resources and Compensation Committees

 

Finance and Planning Committee

 

   Meetings in Fiscal 2018: 2
Members: Javier G. Teruel (Chair), Paul J. Brown, B. Craig Owens, Lisa A. Payne, Leonard H. Roberts (All Independent)

 

Primary Responsibilities

 

•  Review the Company’s financial policies

•  Review the Company’s financial strategies

•  Review the Company’s capital structure

 

Human Resources and Compensation Committee

 

   Meetings in Fiscal 2018: 9
Members: Amanda Ginsberg (Chair), Paul J. Brown, Wonya Y. Lucas, R. Gerald Turner (All Independent)

 

Primary Responsibilities

 

•  Review and administer the Company’s annual and long-term incentive compensation plans

•  Review the administration and operation of certain of the Company’s retirement and welfare plans

•  Set performance goals and objectives for the CEO

•  Evaluate the performance of the CEO in light of set performance goals and objectives

•  Take action or make recommendations with respect to the compensation of executive officers, including making a non-binding recommendation to the independent directors of the Board regarding the compensation level of the CEO

•  Review succession plans for key Company executives, including the CEO

•  Review the annual financial and investment performance results of the Company’s retirement and welfare plans, including the annual actuarial valuation reports applicable to such plans

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The Human Resources and Compensation Committee determines compensation for officers of the Company at the level of Senior Vice President and above, other than the CEO. The compensation of the CEO is determined by all of the independent directors of the Board, taking into account the Human Resources and Compensation Committee’s recommendations.

 

 

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2019 Proxy Statement

 


Table of Contents

Board Committees

 

The Human Resources and Compensation Committee is composed entirely of persons who are neither Company associates nor former or current officers of the Company. None of the independent directors of the Board are Company associates or former or current officers of the Company. There is not, nor was there during fiscal 2018, any compensation committee interlock or insider participation on the Human Resources and Compensation Committee or among the independent directors of the Board.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Exchange Act requires JCPenney’s directors and officers and persons who beneficially own more than ten percent of a registered class of the Company’s equity securities to file initial reports of ownership and reports of changes in ownership with the SEC. The Company assists its directors and officers by monitoring transactions and completing and filing Section 16 reports on their behalf. We believe that all filing requirements were met during fiscal 2018.

 

 

 

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Table of Contents

Beneficial Ownership of Common Stock

 

BENEFICIAL OWNERSHIP OF COMMON STOCK

The following table shows, as of March 25, 2019, the beneficial ownership of shares of JCPenney common stock by (a) each stockholder known to the Company to beneficially own more than 5% of JCPenney common stock, (b) each present director, all of whom, other than R. Gerald Turner, are nominees for re-election at the Annual Meeting, (c) the five most highly compensated executive officers serving during the last fiscal year, one other officer serving during the last fiscal year who is also deemed to be a named executive officer, and four former executive officers who are also deemed to be named executive officers, and (d) all present directors and executive officers of the Company as a group. Beneficial ownership means that the individual has or shares voting power or investment power with respect to the shares of common stock or the individual has the right to acquire the shares of common stock within 60 days of March 25, 2019.

 

Name

   Number of shares
beneficially
owned
  Number of shares included in
previous column which the
individual or group has/have the
right to acquire within 60 days of
March 25, 2019
   Percent of
outstanding
common stock(1)

BlackRock, Inc.

       43,382,574 (2)             13.71 %

State Street Corporation

       27,706,626 (3)             8.42 %

The Vanguard Group

       23,071,541 (4)             7.29 %

Directors(5)

             

Paul J. Brown

       130,106       105,106             *

Amanda Ginsberg

       128,549       96,291             *

Wonya Y. Lucas

       95,252       95,252             *

B. Craig Owens

       143,328       111,070             *

Lisa A. Payne

       117,435       85,177             *

Debora A. Plunkett

       100,586       100,586             *

Leonard H. Roberts

       212,565       194,527             *

Jill A. Soltau(6)

                         *

Javier G. Teruel

       633,137       180,265             *

R. Gerald Turner(7)

       207,827       167,330             *

Ronald W. Tysoe

       181,673       124,415             *

Named Executive Officers(5)(8)

             

Michael Fung

                         *

Therace M. Risch

       143,816       80,506             *

Michael Robbins

       125,531       80,506             *

Brynn Evanson

       475,104       302,787             *

Brandy Treadway

       43,632       32,072             *

Marvin Ellison(9)

       2,814,785       911,826             *

Jeffrey Davis(10)

       50,000                   *

Marci Grebstein(11)

       20,425       20,425             *

Joseph McFarland(12)

       96,215       90,215             *

Jerry Murray(13)

       21,549       15,443             *

Michael Amend(14)

       157,918       48,930             *

All present directors and executive officers as a group(15)

       2,738,541       1,755,890        1.41 %

 

*

Less than 1%.

(1)

Calculated based on Rule 13d-3(d)(1)(i) using the number of outstanding shares of common stock as of March 25, 2019.

(2)

Based on information set forth in an Amendment No. 7 to Schedule 13G filed with the SEC on January 31, 2019 by BlackRock, Inc. reporting sole power to vote or direct the vote of 38,667,665 shares of JCPenney common stock and sole power to dispose or direct the disposition of 43,382,574 shares of JCPenney common stock. The address of BlackRock, Inc. is 55 East 52nd Street, New York, New York 10055.

 

 

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Beneficial Ownership of Common Stock

 

(3)

Based on information set forth in a Schedule 13G filed with the SEC on February 13, 2019 by State Street Corporation reporting shared power to vote or direct the vote of 26,634,506 shares of JCPenney common stock and shared power to dispose or direct the disposition of 13,489,602 shares of JCPenney common stock. The address of State Street Corporation is State Street Financial Center, One Lincoln Street, Boston, Massachusetts 02111.

(4)

Based on information set forth in an Amendment No. 5 to Schedule 13G filed with the SEC on February 11, 2019 by The Vanguard Group reporting sole power to vote or direct the vote of 318,601 shares of JCPenney common stock, shared power to vote or direct the vote of 38,600 shares of JCPenney common stock, sole power to dispose or direct the disposition of 22,756,696 shares of JCPenney common stock and shared power to dispose or direct the disposition of 314,845 shares of JCPenney common stock. The address of The Vanguard Group is 100 Vanguard Boulevard, Malvern, Pennsylvania 19355.

(5)

Except as set forth in the footnotes below, each person has sole investment and voting power with respect to the common stock beneficially owned by such person. Includes only those stock options that are exercisable or become exercisable within 60 days of March 25, 2019. Does not include restricted stock units that will not vest within 60 days of March 25, 2019.

(6)

Ms. Soltau joined the Company in October 2018. None of the equity awards granted to Ms. Soltau upon commencement of her employment have vested as of March 25, 2019 and none will vest within 60 days of such date.

(7)

Includes 1,742 shares of JCPenney common stock that Dr. Turner holds under the Company’s Dividend Reinvestment Plan with respect to which he shares voting and investment power.

(8)

In addition to Ms. Soltau, who also serves as a director.

(9)

Stock ownership for Mr. Ellison reflects direct holdings as of June 1, 2018, the last day on which he served as an executive officer of the Company, along with stock options exercisable and restricted stock units that would vest within 60 days of such date.

(10)

Stock ownership for Mr. Davis reflects direct holdings as of October 1, 2018, the last day on which he served as an executive officer of the Company, along with stock options exercisable and restricted stock units that would vest within 60 days of such date.

(11)

Stock ownership for Ms. Grebstein reflects direct holdings as of February 3, 2019, the last day on which she served as an executive officer of the Company, along with stock options exercisable and restricted stock units that would vest within 60 days of such date.

(12)

Stock ownership for Mr. McFarland reflects direct holdings as of August 1, 2018, the last day on which he served as an executive officer of the Company, along with stock options exercisable and restricted stock units that would vest within 60 days of such date.

(13)

Stock ownership for Mr. Murray reflects direct holdings as of October 30, 2018, the last day on which he served as an executive officer of the Company, along with stock options exercisable and restricted stock units that would vest within 60 days of such date.

(14)

Stock ownership for Mr. Amend reflects direct holdings as of March 16, 2018, the last day on which he served as an executive officer of the Company, along with stock options exercisable and restricted stock units that would vest within 60 days of such date.

(15)

Excludes shares of Messr. Ellison, Davis, McFarland, Murray and Amend and Ms. Grebstein, who no longer serve as executive officers of the Company.

 

 

 

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Table of Contents

Proposal 1 - Election of Directors

 

PROPOSAL 1 — ELECTION OF DIRECTORS

The terms of each of the Company’s current directors will expire at the 2019 Annual Meeting. Each of the current directors, other than R. Gerald Turner, who will be retiring from the Board effective May 24, 2019, has been nominated by the Board to serve as a continuing director for a new one-year term expiring at the 2020 Annual Meeting of Stockholders. Each nominee elected as a director will continue in office until his or her successor has been elected and qualified, or until his or her earlier death, resignation or retirement. We are not aware of any reason why any of these nominees would not accept the nomination. However, if any of the nominees does not accept the nomination, or is otherwise unavailable for election, the persons designated as proxies will vote for any substitute nominee recommended by the Board. Proxies cannot be voted for a greater number of persons than the number of nominees named.

In determining whether to nominate each of the current directors, other than Mr. Turner, for another term, the Board considered the factors discussed above in “Board Diversity, Refreshment, Director Qualifications and Process for Nominations” and concluded that each of the current directors standing for re-election possesses unique talents, backgrounds, perspectives, attributes and skills that will enable each of them to continue to provide valuable insights to Company management and play an important role in helping the Company achieve its long-term goals and objectives. As described below in the experience and qualifications of each of our director nominees, each nominee has achieved an extremely high level of success in his or her career. The chart below depicts the full range of skills, qualifications and expertise represented by the director nominees.

Range of Skills, Qualifications and Expertise Represented by Our Nominees

 

•  Retail Industry Experience

  

•  Audit/Financial Reporting

•  Customer Relations

  

•  Financial Management/Capital Markets

•  Human Resources and Compensation

  

•  Accounting/Tax

•  Global Operations Management

  

•  E-Commerce Experience

•  Executive Experience

  

•  Brand Management

•  Board Experience

  

•  Enterprise Risk Management

•  Corporate Governance

  

•  Strategic Planning

•  Public Company Board Service

  

•  Store Operations

•  Sales Experience

  

•  Merchandising

•  Logistics Management

  

•  Marketing

•  Consumer Industry Experience

  

•  Sourcing

•  Cybersecurity

  

•  Media Industry Experience

•  Crisis Management

  

•  Mergers & Acquisitions

•  Public Affairs

  

•  Real Estate Industry Experience

•  Academic Experience

  

•  Government/Political Experience

It is the Board’s policy that no individual who would be age 73 or older at the time of his or her election or re-election will be eligible to stand for election or re-election to the Board. The Board may waive the age limitation if it deems a waiver to be in the best interests of the Company and its stockholders. There is no family relationship between any director or executive officer of the Company.

The Board recommends a vote FOR each of the nominees for director.

 

 

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Proposal 1 - Election of Directors

 

Nominees for Director

 

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Paul J. Brown, 52 - Director of the Company since 2016.

Chief Executive Officer and Co-Founder, Inspire Brands, Inc.

Committees:  Finance and Planning, Human Resources and Compensation

 

Business Experience:  Chief Executive Officer and Co-Founder of Inspire Brands, Inc. (food industry) (formerly Arby’s Restaurant Group, Inc.) since 2013; President, Brands and Commercial Services of Hilton Worldwide (hospitality) from 2008 to 2013; President of Expedia North America and Expedia Inc. Partner Services Group (Internet-based travel reservations) from 2005 to 2008; Partner of McKinsey & Co. (consulting) from 2001 to 2005; Director of Lindblad Expedition Holdings, Inc. from 2015 to 2017; Director of H&R Block, Inc.

 

Qualifications:  Mr. Brown has extensive executive experience in consumer industries, including food, hospitality and travel, having served as CEO or as an executive of several major U.S. companies. He brings to the JCPenney Board significant operations, financial management, e-commerce, brand management and enterprise risk management experience. He also currently serves on the board of another publicly-traded company.

 

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Amanda Ginsberg, 49 - Director of the Company since 2015.

Chief Executive Officer and Director, Match Group, Inc.

Committees:  Corporate Governance, Human Resources and Compensation (Chair)

 

Business Experience:  Chief Executive Officer since 2018 and Director since 2017, Match Group, Inc. (Internet-based dating service); Chief Executive Officer of Match Group Americas from 2015 to 2017; Chief Executive Officer of The Princeton Review (test preparation and college admission services) from 2014 to 2015; Chief Executive Officer of Tutor.com (Internet-based on-demand instructional solutions) from 2013 to 2015; Chief Executive Officer from 2012 to 2013 and Senior Vice President and General Manager from 2008 to 2012 of Match.com (Internet-based dating service); Vice President and General Manager of Chemistry.com (Internet-based dating service) from 2006 to 2008; Director of Care.com, Inc. from 2012 to 2014.

 

Qualifications:  Ms. Ginsberg has extensive operational and senior management experience with consumer Internet companies, including service as Chief Executive Officer of a leading provider of Internet-based dating products, a leading test preparation company and a leading on-demand learning solutions company. She brings extensive knowledge of online consumer engagement to the JCPenney Board as well as considerable executive experience managing operations and strategic planning.

 

 

 

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Proposal 1 - Election of Directors

 

 

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Wonya Y. Lucas, 57 - Director of the Company since 2017.
President and Chief Executive Officer, Public Broadcasting Atlanta
Committees:  Corporate Governance, Human Resources and Compensation

 

Business Experience:  President and Chief Executive Officer, Public Broadcasting Atlanta (media company) since 2015; President of Lucas Strategic Consultants LLC (media strategy consulting) from 2013 to 2015; President and Chief Executive Officer of TV One (television network) from 2011 to 2013; Executive Vice President and Chief Operating Officer, Discovery Channel and Science Channel, of Discovery Communications, Inc. (media company) from 2010 to 2011; Executive Vice President and Global Chief Marketing Officer of Discovery Communications, Inc. from 2008 to 2010; Executive Vice President, General Manager of The Weather Channel Companies (television network) from 2004 to 2008; Executive Vice President, Strategic Marketing, of The Weather Channel Companies from 2002 to 2004; Turner Broadcasting System, a division of Time Warner, Inc. (mass media company) from 1994 to 2002, with which she served in a variety of marketing and strategy roles.

 

Qualifications:  Ms. Lucas has more than 20 years of media and marketing experience, having served as Chief Marketing Officer of several well-known television networks and in multiple media and marketing roles with a large broadcasting network. She also has over 15 years of leadership and executive experience, having served as Chief Executive Officer of two media companies and in an executive role for two well-known television networks. With her background, Ms. Lucas brings extensive insights and perspectives on marketing, interfacing with media companies, and operations to the JCPenney Board.

 

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B. Craig Owens, 64 - Director of the Company since 2014.

Retired Chief Financial Officer and Chief Administrative Officer, Campbell Soup Company

Committees:  Audit (Chair), Finance and Planning

 

Business Experience:  Retired Senior Vice President, Chief Financial Officer and Chief Administrative Officer (2008 to 2014) of Campbell Soup Company; Executive Vice President and Chief Financial Officer of Delhaize Group (grocery retailer) from 2001 to 2008; served in various positions of increasing importance with The Coca-Cola Company (beverages) and its bottlers from 1981 to 2001; Director of Pall Corporation from 2011 to 2015; Director of Dean Foods Company; Director of AptarGroup, Inc.; Trustee of Washington and Lee University.

 

Qualifications:  Mr. Owens has extensive experience in the consumer food and beverage industries, including service as Chief Financial Officer of a leading publicly-traded consumer food company. He also has considerable knowledge of the retail industry, having served as Chief Financial Officer of a leading international grocery retailer. He brings significant financial expertise to the JCPenney Board including all aspects of financial reporting, accounting, corporate finance and capital markets, as well as considerable experience managing supply chain and information technology organizations. As a result of his executive experience, he also has a deep understanding of operations and strategic planning. He also currently serves on the boards of two other publicly-traded companies.

 

 

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Proposal 1 - Election of Directors

 

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Lisa A. Payne, 60 - Director of the Company since 2016.

Retired Vice Chairman and Chief Financial Officer, Taubman Centers, Inc.

Committees: Audit, Finance and Planning

 

Business Experience:  Chairman of the Board of Soave Enterprises, LLC (diversified management and investment company) and President of Soave Real Estate Group from 2016 to 2017; Retired Vice Chairman and Chief Financial Officer (2005 to 2016) of Taubman Centers, Inc. (real estate investment trust), where she held various positions since 1997, including Director from 1997 to 2016 and Executive Vice President and Chief Financial and Administrative Officer from 1997 to 2005; Vice President of Goldman, Sachs & Co. (finance) from 1996 to 1997, where she held various positions between 1986 and 1996; Director of Masco Corporation and Rockwell Automation, Inc.; Trustee of Munder Series Trust and Munder Series Trust, II from 2005 to 2014.

 

Qualifications:  Ms. Payne has extensive accounting and financial experience in the regional mall and real estate industries, including service as the Chief Financial Officer of a leading retail management and real estate development company. She also brings extensive corporate finance experience from her past experience as an investment banker with a leading investment banking firm. As a result of her executive experience, she also has a deep understanding of operations and strategic planning. Ms. Payne’s Board and Board committee experience also provides her with significant insight as to governance and compliance-related matters of public companies.

 

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Debora A. Plunkett, 59 - Director of the Company since 2017.

Principal, Plunkett Associates LLC

Committees:  Audit, Corporate Governance

 

Business Experience:  Principal, Plunkett Associates LLC (cybersecurity consulting) since 2016; Senior Fellow, Harvard University since 2017; Adjunct Professor, University of Maryland College Graduate School since 2014; Senior Advisor to the Director of the United States National Security Agency (NSA) from 2014 to 2016, with which she served in positions of increasing importance since 1984, including Director, Information Assurance Directorate, from 2010 to 2014, Deputy Director of Information Assurance from 2008 to 2010, and in various senior executive, supervisory and analytic roles from 1984 to 2008; Director, Office of Transnational Threats, United States National Security Council at the United States White House from 2000 to 2001.

 

Qualifications:  Ms. Plunkett has more than 30 years of cybersecurity experience, having served as a Director on the United States National Security Council of the White House and in multiple cybersecurity roles with the United States National Security Agency. In addition, her past experience provides her with perspective into the challenges of managing large, complex, multi-faceted organizations. Ms. Plunkett also brings to the Board a valuable and different perspective due to her extensive background in public policy.

 

 

 

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Proposal 1 - Election of Directors

 

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Leonard H. Roberts, 70 - Director of the Company since 2002.

Retired Chairman and Chief Executive Officer, RadioShack Corporation

Committees:  Audit, Finance and Planning

 

Business Experience:  Retired Chairman and Chief Executive Officer of RadioShack Corporation (consumer electronics), with which he served as Executive Chairman of the Board from 2005 to 2006, Chairman of the Board and Chief Executive Officer from 1999 to 2005, President from 1993 to 2000, and a Director from 1997 to 2006; Chairman and Chief Executive Officer of Shoney’s, Inc. (restaurants) from 1990 to 1993; President and Chief Executive Officer of Arby’s, Inc. (restaurants) from 1985 to 1990; Director of Rent-A-Center, Inc. from 2006 to 2017; Director of Tarrant County Safe City Commission; Director and Former Chairman of the Board of Directors of Texas Health Resources.

 

Qualifications:  Mr. Roberts has extensive executive and board experience in the retail industry, including service as the Chairman and as the CEO of a publicly-traded consumer electronics retailer and CEO positions with two restaurant operators. With this background, he has insights and perspectives on delivering merchandise and services to consumers, which he brings to the JCPenney Board. As a result of his extensive executive experience, he also brings financial expertise to the Board.

 

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Jill Soltau, 52, Director of the Company since October 2018.

Chief Executive Officer of JCPenney

 

Business Experience:  Chief Executive Officer since October 2018 of JCPenney. President and Chief Executive Officer of JoAnn Stores, Inc. from 2015 to October 2018. From 2013 to 2015, she served as President of Shopko Stores, with which she served in positions of increasing responsibility, including Executive Vice President, Chief Merchandising Officer from 2009 to 2013 and Senior Vice President, General Merchandise Manager, Apparel and Accessories from 2007 to 2009. Prior to that, she held positions of increasing responsibility with national and regional retailers including Sears Holdings, Kohl’s Corporation and Carson Pirie Scott. Director of Autozone, Inc.

 

Qualifications:  Ms. Soltau has extensive experience in the retail industry, including executive experience with a major U.S. retailer. She brings considerable knowledge of merchandising, operations and strategic planning. She also currently serves on the board of another publicly-traded company.

 

 

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Proposal 1 - Election of Directors

 

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Javier G. Teruel, 68 - Director of the Company since 2008.

Partner, Spectron Desarrollo, SC and Chairman, Alta Growth Capital

Committees:  Audit, Finance and Planning (Chair)

 

Business Experience:  Partner of Spectron Desarrollo, SC (investment management and consulting) since 2007; Chairman of Alta Growth Capital (private equity) since 2012; Retired Vice Chairman (2004 to 2007) of Colgate-Palmolive Company (consumer products), with which he served in positions of increasing importance since 1971, including as Executive Vice President responsible for Asia, Central Europe, Africa and Hill’s Pet Nutrition, Vice President of Body Care in Global Business Development in New York, President and General Manager of Colgate-Mexico, President of Colgate-Europe, and Chief Growth Officer responsible for the company’s growth functions; Director of Starbucks Corporation; Director of Nielsen Holdings.

 

Qualifications:  Mr. Teruel has extensive executive experience in the consumer products industry. He brings to the JCPenney Board considerable product development, merchandising and marketing skills and perspectives. His broad international experience also provides unique insights relevant to the Company’s product sourcing initiatives. Mr. Teruel brings the benefits of service on the boards of other publicly-traded companies to the JCPenney Board, including financial expertise resulting from his service as the former chair of the audit committee of one of the boards.

 

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Ronald W. Tysoe, 65 - Non-Executive Chairman of the Board since May 2018, Director of the Company since 2013.

Former Vice Chairman of Finance and Real Estate, Federated Department Stores, Inc.

Committees:  Corporate Governance (Chair)

 

Business Experience:  Vice Chairman of Finance and Real Estate of Federated Department Stores, Inc. (now Macy’s, Inc.) from 1990 to 2006 and Chief Financial Officer from 1990 to 1997; Senior Advisor of Perella Weinberg Partners LP (global, independent advisory and asset management firm) from 2006 to 2007; Director of Scripps Networks Interactive, Inc. from 2008 to 2018; Director of Canadian Imperial Bank of Commerce; Director of Cintas Corporation; Director of Taubman Centers, Inc.

 

Qualifications:  Mr. Tysoe has extensive experience in the retail industry, including executive and board experience with a major U.S. retailer. He provides valuable insights and perspectives to the Board as a result of his considerable financial and real estate experience. He also brings the benefits of service on the boards of other publicly-traded companies, including expertise in corporate strategy, compensation and corporate governance.

 

 

 

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Letter from Human Resources and Compensation Committee Chair

 

Dear Fellow Stockholders,

On behalf of the Human Resources and Compensation Committee of your Board, let me first thank you for your continued support. Our Committee is comprised solely of independent directors, and we take seriously our responsibilities to our stockholders. Our goal is to design pay programs that reward executives when JCPenney successfully executes on its strategic priorities and financial goals.

Retail Environment and Leadership Transitions

As you are aware, the retail industry continues to undergo significant transformation. As we review JCPenney’s executive compensation program and make decisions regarding executive pay, we continue to be mindful of the dramatic changes occurring within the industry, both online and in brick-and-mortar stores. Given this dynamic and fast-changing landscape, it is critical that we attract and retain talent that brings deep retail experience, innovative thinking, consumer-centric focus and the ability to drive world class execution.

In 2018, the Company’s leadership team experienced several significant changes. Effective June 2018, Marvin Ellison resigned as Chairman of the Board and Chief Executive Officer of the Company. In connection with Mr. Ellison’s departure, in order to both retain critical executives as well as maintain stability during the Chief Executive Officer change, the Board of Directors established the Office of the Chief Executive Officer (OCEO). The OCEO consisted of four JCPenney senior leaders who managed the Company’s day to day operations while the search for a new Chief Executive Officer was conducted. Additionally, Ronald Tysoe, who had been serving as the Lead Independent Director, was elected as the Company’s Non-Executive Chairman of the Board. In October 2018, Jill Soltau joined the Company as its new Chief Executive Officer, bringing decades of retail and merchandising experience from a host of retail companies. Her apparel background and expertise are a significant asset to JCPenney as it seeks to rebuild market share in a competitive retail environment and reinforce its rightful place as one of America’s leading department stores.

In addition to the Chief Executive Officer transition, we also experienced numerous other executive transitions including the following:

 

   

On March 16, 2018, Michael Amend, our Executive Vice President, Omnichannel, left the Company.

   

On August 1, 2018, Joseph McFarland, our Executive Vice President, Chief Customer Officer and member of the OCEO, resigned from the Company.

   

On October 1, 2018, Jeffrey Davis, our Executive Vice President, Chief Financial Officer and member of the OCEO, resigned from the Company. Jerry Murray, our Senior Vice President, Finance, served as the Company’s Interim Chief Financial Officer from October 1, 2018 until October 30, 2018. On October 30, 2018, we hired Michael Fung to serve as Interim Executive Vice President, Chief Financial Officer of the Company while we conduct an external search for a permanent Chief Financial Officer.

The level of changes in the industry and within JCPenney reinforced the need for our Committee to examine our compensation programs in 2018 and make adjustments where necessary, and to provide special awards to retain our critical leadership talent.

Programs Designed to Compete for Talent

In order to attract and retain our leadership team, we pay our executives commensurate with the market for executive talent. The following pages detail the Company’s executive compensation

 

 

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Letter from Human Resources and Compensation Committee Chair

 

program, which we believe allows the Company to compete for talent while remaining strongly aligned with the long-term interests of investors as well as near-term business performance.

 

   

Annual bonus payouts based only on financial goals.  Awards under the annual cash bonus plan for senior executives are based solely on financial performance. Bonus payments for 2018 could only be earned if sales and operating profit results exceeded explicit, seasonally-based goals. We believe we have set challenging targets for the program and that the payouts under the program vary as intended based on the business results achieved.

 

   

Long-term incentive awards tied to long-term financial performance.  The vast majority of the Company’s long-term incentive program rewards only for longer-term performance. The 2018 performance-based restricted stock unit awards are tied to the Company’s EBITDA performance over the next three years. Again, we set challenging targets that reflect company goals and financial performance. Additionally, in 2018 we introduced performance cash awards to our long-term incentive plan, which are based on the Company’s cumulative free cash flow performance for fiscal 2018 through 2020. The objective of this addition was to continue to provide competitive pay opportunities to executives that align with our strategy, while mitigating share dilution.

 

   

Peer group and benchmarking.  We benchmark pay for executives against a carefully-constructed peer group limited to retailers. In selecting the peer group used for 2018 compensation decisions, the Committee placed a higher priority on industry and the similarity of business models and products sold, rather than strict size constraints that did not fully consider the magnitude and scope of JCPenney’s operations. For 2019, the Committee re-evaluated the composition of the peer group and determined that certain changes should be made in order to enhance the overall sample size and to reorient the group to be more reflective of the Company’s current size and scope. To ensure objectivity as compensation levels are set, the Committee’s independent compensation consultant takes the lead in conducting any analyses used to establish competitive market pay levels for members of the senior leadership team.

 

   

Retention awards.  In June 2018, in connection with the creation of the OCEO, the Company granted equity and cash retention awards to key members of the management team. These retention awards were granted to reflect the critical nature of the leaders’ roles and to focus efforts on continuing to drive the Company’s strategies during the Chief Executive Officer search and transition. In order to drive retention, the equity awards granted vest over a three-year period and each executive would have to be employed at the Company through June 2019 to retain the cash component.

Each year, we conduct a rigorous review of market practices to ensure that the Company’s programs remain current and relevant. It is important that we strike the balance between being competitive in the market to attract and retain great talent while ensuring compensation and incentive structures are tied to driving results. We also critique our incentive designs each year with the goal of identifying any changes that would better support our business and compensation objectives, both immediate and longer-term.

We are committed to the Company’s journey of reinvention while ensuring we have the compensation programs in place to drive long-term stockholder value.

 

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Amanda Ginsberg

Chair, Human Resources and

Compensation Committee

 

 

 

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Compensation Discussion and Analysis

 

COMPENSATION DISCUSSION AND ANALYSIS

Table of Contents

 

Executive Summary

     22  

2018 Say-on-Pay Vote and Stockholder Outreach

     28  

Establishing our Executive Compensation Program

     29  

Compensation of Our Named Executive Officers

     31  

Base Salary

     31  

Annual Cash Bonus Awards

     31  

Long-Term Incentive Awards

     34  

Other Compensation Program Elements

     38  

Equity Award Grant Policy

     40  

Tally Sheets

     41  

Stock Ownership Goals

     41  

Tax Implications of Our Compensation Policies

     41  

Claw-Back Policy

     42  

Prohibition on Hedging and Pledging of Company Stock

     42  

Executive Summary

Our compensation philosophy is integrated with JCPenney’s core values and business objectives. Our core values were first stated in The Penney Idea, which was adopted in 1913 and which includes the principle that we will “reward men and women in our organization through participation in what the business produces.” This principle endures today in our executive compensation policies that link pay for performance and align the pay of our named executive officers with the interests of our stockholders.

Leadership Changes. The Company’s leadership team experienced several changes in fiscal 2018. In connection with Marvin Ellison’s resignation from his position as Chairman of the Board and Chief Executive Officer of the Company, effective June 1, 2018, the Board of Directors established the Office of the Chief Executive Officer (OCEO) and appointed Jeffrey Davis, Joseph McFarland, Therace Risch, and Michael Robbins as its members. In addition, Ronald Tysoe, who had been serving as the Lead Independent Director, was elected as the Company’s Non-Executive Chairman of the Board. The OCEO was then dissolved on October 15, 2018, the date that Jill Soltau joined the Company as Chief Executive Officer.

In addition to the Chief Executive Officer transition, additional leadership changes in fiscal 2018 included:

 

   

The resignations of Mr. McFarland as Executive Vice President, Chief Customer Officer of the Company, effective August 1, 2018, and Mr. Davis as Executive Vice President and Chief Financial Officer of the Company, effective October 1, 2018;

   

The appointment of Jerry Murray as the Company’s Interim Chief Financial Officer from October 1, 2018 until October 30, 2018;

   

The hiring of Michael Fung as Interim Executive Vice President, Chief Financial Officer of the Company, effective October 30, 2018; and

   

As noted in the Company’s 2018 proxy statement, the departure of Michael Amend, former Executive Vice President, Omnichannel, on March 16, 2018.

 

 

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Our named executive officers serving as of the last day of the fiscal year ended February 2, 2019 are listed below.

 

            Name               Title
Jill Soltau(1)   Chief Executive Officer
Michael Fung(2)   Interim Executive Vice President, Chief Financial Officer
Therace Risch(3)   Executive Vice President, Chief Information Officer and Chief Digital Officer and Former Member of the OCEO
Michael Robbins(3)   Executive Vice President, Chief Stores and Supply Chain Officer and Former Member of the OCEO
Brynn Evanson   Executive Vice President, Human Resources
Marci Grebstein(4)   Executive Vice President, Chief Marketing Officer
Brandy Treadway   Senior Vice President, General Counsel

 

  (1)

Ms. Soltau began serving as the Company’s Chief Executive Officer on October 15, 2018.

  (2)

Mr. Fung began serving as the Company’s Interim Executive Vice President, Chief Financial Officer on October 30, 2018.

  (3)

Ms. Risch and Mr. Robbins each served as a Member of the OCEO from June 1, 2018 to October 15, 2018.

  (4)

Ms. Grebstein left the Company, effective February 3, 2019.

New Executive Officer Compensation.

Chief Executive Officer. Jill Soltau began serving as the Company’s Chief Executive Officer on October 15, 2018. In connection with the commencement of Ms. Soltau’s employment, she was provided with the following compensation:

 

   

Base salary. 2018 annualized base salary of $1,400,000; actual salary received for fiscal 2018: $413,636.

   

Annual bonus. Participation in the annual bonus program beginning with the 2019 fiscal year with a target annual bonus equal to 150% of base salary. Ms. Soltau did not participate in the annual bonus program for fiscal 2018.

   

Cash signing bonus. A one-time cash signing bonus of $6,000,000 as an inducement to join the Company and in relinquishment of certain benefits and compensation provided by her previous employer.

   

Equity signing bonus. An equity award of restricted stock units having a grant date fair value of $10,000,000, granted on October 18, 2018 as an inducement to join the Company and in relinquishment of certain benefits and compensation provided by her previous employer. The award vests annually over a three-year period provided she remains continuously employed with the Company during that time.

   

Equity awards. Participation in the annual long-term equity incentive award program in a manner consistent with other senior executive officers and commensurate with Ms. Soltau’s position, beginning with the 2019 fiscal year with a target grant date fair value of $7,500,000.

   

Relocation benefits. Reimbursement of relocation expenses in accordance with the Company’s executive relocation policy and an additional lump sum payment of $240,000 for any costs not covered by the policy.

 

 

 

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Compensation Discussion and Analysis

 

Interim Chief Financial Officer. Michael Fung began serving as the Company’s Interim Executive Vice President, Chief Financial Officer on October 30, 2018. Per his employment agreement, he will remain in this role until the earlier of 30 days following the start date of a permanent Chief Financial Officer or 180 days from the effective date of the agreement. In connection with Mr. Fung’s employment, he was provided with the following compensation:

 

   

Base salary. Salary of $65,000 per month during the term of employment, prorated for any partial month; actual salary received for fiscal 2018: $200,417.

   

Monthly bonus. Bonus of $10,000 per month, prorated for any partial month and payable as a lump sum within 30 days following termination of employment, which bonus amount will be forfeited if Mr. Fung is terminated for cause or voluntarily terminates employment prior to the expiration of the term set forth in his employment agreement.

   

Stipend. Stipend of $5,417 per month in recognition of certain board-related compensation that Mr. Fung is foregoing as a result of his employment with the Company, prorated for any partial month, and payable as a lump sum within 30 days following termination of employment.

   

Relocation benefits. Reimbursement for out-of-pocket expenses reasonably incurred during employment, including up to $5,000 per month for temporary housing and up to $4,000 per month for commuting expenses.

   

No incentive program participation. Mr. Fung is not eligible to participate in the bonus program or long-term equity incentive programs offered by the Company.

Supplemental Retention Awards.

The Human Resources and Compensation Committee of the Board of Directors (the Committee) believes that the retention of key executives is critical to the Company’s future success. In June 2018, in connection with the resignation of Marvin Ellison as Chairman of the Board and Chief Executive Officer and the creation of the OCEO, the Committee granted supplemental retention awards to the members of the OCEO to reflect the critical nature of their roles, as outlined in the table below. In the Committee’s view, each of these executives possessed unique skills and experience that were necessary to maintain stability within the organization during the search for a new Chief Executive Officer.

 

Name

   Equity(1)      Cash      Total      Rationale for Award

Therace Risch

   $ 250,000      $ 250,000      $ 500,000      Service on OCEO and Retention

Michael Robbins

   $ 250,000      $ 250,000      $ 500,000      Service on OCEO and Retention

Jeffrey Davis*

   $ 250,000      $ 250,000      $ 500,000      Service on OCEO and Retention

Joseph McFarland*

   $ 250,000      $ 250,000      $ 500,000      Service on OCEO and Retention

 

*

Awards to Messrs. Davis and McFarland were forfeited in connection with their resignations from the Company in 2018.

(1)

Grant date fair market value.

The awards were comprised of 50% time-based restricted stock units and 50% cash. The overall size of the award represented 50% of each executive’s 2018 long-term equity incentive award target. The time-based restricted stock units will vest in three equal installments on each anniversary of the grant date, provided that the executive remains continuously employed with the Company until that time. The Committee chose to use time-based restricted stock units for these awards since the units have value in all market conditions and provide a strong retention mechanism. Since the ultimate value of the award depends on the market value of our common stock on the vesting date, the interests of participants are aligned with stockholders.

 

 

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The cash awards were structured to vest when the OCEO was dissolved, which occurred on October 15, 2018; however, in order to maximize the retention goal for the supplemental retention awards, the cash awards must be paid back to the Company in full if the executive voluntarily terminates his or her employment prior to June 1, 2019. As noted above, the equity and cash awards to Messrs. Davis and McFarland were forfeited in connection with their resignations from the Company in 2018, prior to the dissolution of the OCEO.

In addition to the awards to the members of the OCEO, the following named executive officers received the supplemental retention awards outlined in the table below to further motivate and retain them during the Chief Executive Officer search and transition.

 

Name

   Equity(1)      Cash      Total      Rationale for Award

Brynn Evanson

   $ 175,000      $ 175,000      $ 350,000      Retention

Marci Grebstein

   $ 175,000      $ 175,000      $ 350,000      Retention

Brandy Treadway

   $ 125,000      $ 125,000      $ 250,000      Retention

Jerry Murray

          $ 150,000      $ 150,000      Retention

 

(1)

Grant date fair market value.

Similar to the awards for the members of the OCEO, the awards for these individuals (with the exception of Mr. Murray) were comprised of 50% time-based restricted stock units and 50% cash. As with the OCEO awards, these awards were sized to represent 50% of each executive’s 2018 annual long-term incentive program target. The other terms of the awards are consistent with those described above for members of the OCEO.

Mr. Murray’s award consisted of 100% cash, structured to vest 50% when the OCEO was dissolved and 50% on June 1, 2020. The amount paid upon the dissolution of the OCEO has the same pay back clause as the cash awards for the other named executive officers.

Business Performance. In fiscal 2018, we focused on stabilizing our business, both financially and operationally. Our decisions included eliminating non-core and low gross margin product categories, significantly reducing unproductive inventory and continuing the revitalization of our women’s apparel business. While we are pleased with these actions, we know we need to move faster to reestablish the fundamentals of retail, build capabilities focused on satisfying our customers’ wants and needs and ensure that our digital and store operations operate seamlessly to provide an experience that wins with customers. For fiscal 2018, full year results did not meet our compensation program targets and payouts reflected that performance. The Company had total net sales of $11.66 billion, a net loss of $255 million, or ($0.81) per share, and an adjusted net loss of $296 million, or ($0.94) per share, all of which were below fiscal 2017 levels.

Please see pages 34-37 of the Company’s Annual Report on Form 10-K for a discussion of non-GAAP financial measures.

Summary of Key Compensation Decisions and Outcomes for Fiscal 2018.

As highlighted above, 2018 was a year of extraordinary change for JCPenney. In addition to the special compensation actions described above, the following key compensation decisions and outcomes occurred during fiscal 2018 with respect to our named executive officers serving as of the last day of the fiscal year:

 

   

The Committee approved salary increases for the named executive officers ranging from 2.5% to 12.7%.

 

 

 

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Compensation Discussion and Analysis

 

   

Cash bonus targets for the named executive officers were set at the beginning of fiscal 2018 to reflect the individual’s position and responsibilities. Adjustments to the targets were made during the year, as necessary, to reflect changes to those responsibilities.

   

Each of the current named executive officers (other than Ms. Soltau and Mr. Fung who did not participate in the 2018 cash bonus program) earned cash bonuses equal to 61.3% of their respective Spring performance period target opportunities and 0% of their respective Fall performance period target opportunities. Overall payouts earned by the named executive officers (other than Ms. Soltau and Mr. Fung) in fiscal 2018 were 24.5% of the annual cash bonus opportunity.

   

Long-term equity incentive award targets for the named executive officers were set at the beginning of fiscal 2018 to reflect the individual’s position and responsibilities. Adjustments to the targets were made during the year, as necessary, to reflect changes to those responsibilities.

   

Based on 2018 EBITDA results, each of the named executive officers earned 0% of their respective target performance-based restricted stock unit awards for the fiscal 2018 performance cycle.

   

The Company sold its corporate aircraft and eliminated its Key Associate Protection Program, pursuant to which the Company’s Chief Executive Officer was required to use Company aircraft for all business and personal travel.

In addition, the following key compensation decisions and outcomes occurred during fiscal 2018 with respect to the individuals who were no longer serving as named executive officers as of the last day of the fiscal year:

 

   

In light of the Company’s performance in fiscal 2017, Mr. Ellison received no increase in salary for fiscal 2018.

   

In light of the fact that Mr. Davis did not join the Company as Executive Vice President, Chief Financial Officer until the latter part of 2017, he did not receive an increase in salary for fiscal 2018.

   

Mr. McFarland was promoted to Executive Vice President, Chief Customer Officer, in fiscal 2018 and received a 7.0% salary increase in connection with his promotion.

   

Mr. Murray received a 3.5% merit-based salary increase, effective March 1, 2018, as well as a subsequent salary increase of 13.1% in connection with his service as Interim Chief Financial Officer, effective October 1, 2018. Mr. Murray also received a stipend of $15,000 per month during the time that he served as Interim Chief Financial Officer (October 1, 2018 to October 30, 2018).

   

None of the named executive officers who left the Company voluntarily before the end of fiscal 2018 received any payout under the annual cash bonus program for fiscal 2018. These individuals also forfeited their annual long-term equity incentive awards upon departure.

 

 

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Components of 2018 Compensation and Alignment with Performance. The following table outlines the key components of our named executive officers’ 2018 compensation, and highlights the impact of our performance during this fiscal year on each element.

 

Element   Key Characteristics   Link to Performance
Base Salary  

•  Fixed component payable in cash

 

•  Set based on responsibilities of the position with consideration of peer group and market survey data

 

•  Reflects individual experience and performance

 

•  Merit increases for select named executive officers based on individual performance

Annual Bonus  

•  Performance-based cash program

 

•  Split into Spring and Fall performance periods weighted 40% and 60%, respectively, to reflect seasonal business cycle

 

•  For both periods, awards are tied to the following financial metrics:

 

—  Sales: 75%

 

—  Operating Profit: 25%

 

•  Overall payouts earned by named executive officers were 24.5% of target annual awards

Long-term Incentives

Performance-based

Restricted Stock

Units (PBRSUs)

 

•  Performance-based equity grants that focus on long-term value creation and growth strategy

 

•  Cover 3-year performance periods, and can be earned for achieving pre-set financial goals

 

—  2018 grants tied to adjusted EBITDA goals for each of fiscal 2018, 2019 and 2020

 

—  2016 grants tied to adjusted EBITDA goal for fiscal 2018

 

•  Shares earned are distributed at end of 3-year performance period

 

•  Based on 2018 EBITDA results, the 2018 portion of the 2018 grant was earned at 0% of target, reflecting the pay for performance aspect of the grant

 

•  Based on 2018 EBITDA results, the 2016 grant was earned at 0% of target, reflecting the pay for performance aspect of the grant

     

Performance Cash

 

•  Cash awards that can be earned for achieving pre-set financial goals

 

•  2018 grant tied to cumulative free cash flow goals for 2018 through 2020

 

•  Earned cash awards distributed at end of 3-year performance period

 

•  Awards earned based on achievement of pre-set performance goals for the three-year period, with payout determined at the end of fiscal 2020

     

Time-based

Restricted Stock

Units (TBRSUs)

 

•  Equity awards that deliver value based on stock price

 

•  3-year cliff vesting promotes retention

 

•  Aligns economic interests of executives with stockholders

 

•  Year-end value was 64% lower than grant date value, commensurate with stock price decline during the year

 

 

 

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Key Features of Our Executive Compensation Program. The Company’s executive compensation program includes key features that align the interests of the named executive officers with stockholders.

 

What We Do

 

  Majority of pay is based on Company financial performance and is not guaranteed

 

  Balance the focus of our short-term and long-term incentive programs by using different performance metrics for each plan

 

  Multiple long-term incentive vehicles link pay to internal performance goals and/or to external market performance

 

  Impose robust stock ownership guidelines, with holding requirement for Chief Executive Officer until guideline is met

 

  Have clawback policy for both cash and equity awards

 

  Impose stringent restrictive covenants on those who receive awards under our long-term incentive program

 

  Conduct annual risk assessment of executive pay programs

 

  Review tally sheets for executive officers

 

  Independent compensation consultant who reports only to the Human Resources and Compensation Committee

What We Don’t Do

 

û   No excise tax gross ups

 

û   No “single trigger” change in control plans

 

û   No hedging or pledging of Company stock

 

û   No stock options granted below fair market value

 

û   No option repricing without stockholder approval
 

 

2018 Say-on-Pay Vote and Stockholder Outreach

Approximately 90% of votes cast by the Company’s stockholders at the 2018 annual meeting were cast in favor of the Company’s executive compensation program. The Committee continues to evaluate the Company’s compensation programs in light of the Company’s evolving business circumstances but made no specific changes given the high level of stockholder support for our existing programs. The Committee’s goal is to ensure the Company has the appropriate compensation programs in place to most effectively link pay-for-performance, to create stockholder value over the long-term, to be consistent with good governance practices, to attract and retain critical talent and to align with the Company’s business strategies. We believe a continuing, constructive dialogue with our long-term stockholders on matters such as executive compensation and corporate governance matters will ensure that our programs remain aligned with their interests. We welcome stockholder feedback as a way to provide us with further insight and understanding of their views on our programs.

 

 

 

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Establishing Our Executive Compensation Program

Role of the Human Resources and Compensation Committee.  The Committee is responsible for establishing and implementing our executive compensation program. Each member of the Committee is independent under the listing standards of the New York Stock Exchange (NYSE).

The Committee determines compensation for officers of the Company at the level of Senior Vice President and above, other than the Chief Executive Officer (CEO). The compensation of the CEO is determined by all of the independent directors of the Board of Directors (the Board), taking into account the Committee’s recommendations.

As part of the Committee’s deliberations, the CEO makes compensation recommendations for the executive officers other than herself. The Committee considers these recommendations in making its determinations.

Role of Independent Compensation Consultant.  The Committee engages an independent consultant to assist in its deliberations and decision-making regarding executive compensation. The Committee’s consultant provides current market research and analyses against which executive compensation programs and proposals can be evaluated, including a review of competitive market trends and design practices, a review of the Company’s peer group, and market benchmarking for officers at the level of Senior Vice President and above. The independent consultant does not assist the Board on director compensation matters. The Committee has sole authority to retain and terminate its consultant and sole authority to approve the fees and other terms of the engagement of its consultant. The independent consultant reports directly to the Committee and does not work for the Company’s management in any capacity.

For fiscal 2018, the Committee retained Meridian Compensation Partners LLC (Meridian) as its independent consultant. In retaining Meridian as its consultant, the Committee considered all factors relevant to Meridian’s independence from management in accordance with the listing standards of the NYSE.

Role of Management.  Management makes recommendations to the Committee regarding the design and implementation of our executive compensation programs. Management works with its outside executive compensation consultant, Frederic W. Cook & Co., Inc. (FW Cook), in making recommendations that are consistent with the Company’s philosophy and objectives. The Committee may review data and analyses provided by management and its consultant. FW Cook does not work for the Committee or the Board in any capacity.

Role of Peer Companies and Benchmarking.  Understanding the competitive market for executive talent in our industry is critical to ensuring that we can attract and retain a strong leadership team. Accordingly, we benchmark the competitiveness of pay for our named executive officers, and for our various compensation programs in general, against the practices of a carefully-constructed and select group of retailers we view as our peers.

For 2018, the Committee selected the following companies as our benchmarking peers:

 

Ascena Retail Group, Inc.    L Brands, Inc.    Sears Holdings Corporation
Bed Bath & Beyond Inc.    Macy’s, Inc.    Staples, Inc.
Best Buy Co., Inc.    Nordstrom, Inc.    Target Corp.
Gap, Inc.    Office Depot Inc.    TJX Companies, Inc.
Kohl’s Corp.    Ross Stores, Inc.   

 

 

 

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In selecting this peer group, the Committee focused on retailers with business characteristics similar to ours and that align with the Company’s strategic direction. In general, the peer group includes mall anchors, department stores and other retailers who offer the same or similar products in most cases, whose customers are influenced by similar broad economic trends in spending and whose operations are primarily domestic.

The Committee considered various size parameters in choosing the peer group. Although the focus was on peers with revenues, market cap and enterprise values that typically range between 0.33x to 3.0x ours at the time of selection, the 2018 peer group deliberately included a few companies outside this range because we viewed them as key competitors for executive talent. Further, although market cap is often cited in peer group selection, at present the Committee views enterprise value as more relevant in light of our current capital structure, with the result that a significant majority of the peers fell within the prescribed range of enterprise values.

The Committee reviews and approves the peer group each year, and in so doing considers information provided by the Committee’s independent consultant and management. For 2019, the Committee re-evaluated the composition of the peer group and determined that certain changes should be made in order to enhance the overall sample size and to reorient the group to be more reflective of the Company’s current size and scope. Based on this conclusion, Staples, Inc. and Target Corp. were removed from our peer group for 2019 and Burlington Stores, Inc., Dick’s Sporting Goods, Inc., Ulta Beauty, Inc. and Williams-Sonoma Inc. were added.

We also review retail industry surveys to benchmark pay for executive officer positions for which proxy peer group data are not available. The Committee uses market data as one point of reference when making compensation decisions but also considers individual and Company performance as well as individual growth and experience relevant to the associate’s position.

For fiscal 2018, a key element of our compensation benchmarking philosophy was to target total direct compensation for our executive officers at or around the median percentile of the national market represented by our peer group and/or survey data for relevant positions. Where necessary, we may target total direct compensation above or below the median percentile to reflect role complexity, individuals’ experience in the role, internal equity, individual performance, and other factors deemed relevant by the Committee.

Internal Pay Relationships.  Our compensation philosophy reflects the importance of offering a competitive target compensation package. In general, the differences in pay between the named executive officers relative to each other and to the CEO, as well as to non-managerial associates, are based on market differences for the particular job, job responsibilities and scope, and adjustments for individual experience and performance, rather than a pre-determined ratio or multiple.

Relationship of Executive Compensation to Risk.  In connection with fulfilling its responsibilities, the Committee considers whether the design of the Company’s executive compensation program encourages executives to engage in excessive risk-taking. The Committee reviews the overall program design, as well as the balance between short-term and long-term compensation, the metrics used to measure performance and the total award opportunity under the Company’s incentive compensation program, and other features designed to mitigate risk such as incentive caps, vesting requirements, stock ownership guidelines, the Company’s insider trading policy, the Company’s claw-back policy and the Company’s prohibition on hedging and pledging of Company securities by directors and senior management. Based on its review, the Committee believes that the Company’s executive compensation program is aligned with the interests of stockholders, appropriately rewards pay for performance and does not promote unnecessary or excessive risk.

 

 

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Compensation of Our Named Executive Officers

In 2018, our executive compensation program had three principal components:

 

   

Base salary;

   

Annual cash bonus awards; and

   

Long-term equity incentive awards.

Consistent with our pay-for-performance philosophy, the majority of the compensation opportunity in fiscal 2018 for our named executive officers was linked to Company performance. We believe that our combination of annual cash bonus awards and long-term incentive awards strikes the appropriate balance between our near-term focus on Company performance and our long-term focus on stockholder value creation.

Base Salary.  We review base salaries annually, and focus on ensuring that they are competitive based on market data for comparable positions at companies in our peer group. Merit increases are intended to reward individual performance and ensure that the individual’s base salary remains competitive for the position and level of responsibility. Periodically, we also make adjustments to ensure that the salary for a key role remains competitive with the market.

Several of our named executive officers received merit increases in fiscal 2018 to reward individual performance, as outlined below. The Summary Compensation Table presents the named executive officers’ actual salaries for fiscal 2018.

 

Name*

   Prior Year
Base Salary
   Salary After
Adjustment
   Percentage
Change
  

Basis for Adjustment

Therace Risch(1)

     $ 627,000      $ 690,000        10.0 %    Merit increase and promotion

Michael Robbins(2)

     $ 612,000      $ 690,000        12.7 %    Merit increase and promotion

Brynn Evanson

     $ 615,000      $ 630,375        2.5 %    Merit increase

Marci Grebstein(3)

     $ 500,000      $ 550,000        10.0 %    Merit increase

Brandy Treadway

     $ 400,000      $ 420,000        5.0 %    Merit increase

 

*

Jill Soltau and Michael Fung did not join the Company until October 2018.

(1)

Ms. Risch was promoted to Executive Vice President, Chief Information Officer and Chief Digital Officer, effective March 1, 2018. Ms. Risch also served as a member of the OCEO from June 1, 2018 to October 15, 2018.

(2)

Mr. Robbins was promoted to Executive Vice President, Chief Stores and Supply Officer, effective January 21, 2019. Mr. Robbins also served as a member of the OCEO from June 1, 2018 to October 15, 2018.

(3)

Ms. Grebstein left the Company, effective February 3, 2019.

Annual Cash Bonus Awards.  Annual cash bonuses are determined and paid pursuant to the Management Incentive Compensation Program (MICP), which provides named executive officers as well as other management associates the opportunity to earn cash awards based on the achievement of specified Company goals. For fiscal 2018, the annual cash bonus was again split into a Spring performance period and a Fall performance period to better align with key near-term objectives and to reflect the volatility of the retail sector. The plans are structured as follows:

 

   

The Spring period measured performance for the first and second fiscal quarters, and the Fall period measured performance for the third and fourth fiscal quarters.

   

To align with the Company’s business cycle, the Spring and Fall performance periods accounted for 40% and 60%, respectively, of each named executive officer’s annual target bonus opportunity.

 

 

 

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To increase retention, payouts for the named executive officers for both performance periods are only made after the end of the fiscal year.

The program structure provides each participant with an annual “target bonus opportunity” that is a percentage of the individual’s base pay. The range of potential payouts for each of the named executive officers is presented in the Grants of Plan-Based Awards Table.

The fiscal 2018 annual target bonus opportunity for each of our current named executive officers who participated in the 2018 annual cash bonus program is shown below. Ms. Soltau and Mr. Fung did not participate in the annual cash bonus program in fiscal 2018. Bonus targets for the named executive officers were set at the beginning of fiscal 2018 to reflect the individual’s position and responsibilities. Adjustments to the targets were made during the year, as necessary, to reflect promotions or other changes to those responsibilities. The target opportunity percentages set forth below reflect the named executive officers’ target bonus opportunity percentages at fiscal year end. In the event that a named executive officer’s target percentage was increased during the course of the year in connection with a promotion or an increase in responsibilities, the target bonus opportunity percentage for that individual was prorated accordingly. The named executive officers who left the Company voluntarily before the end of fiscal 2018 did not receive any payout under the annual cash bonus program for fiscal 2018.

 

Name

   Annual Target
Bonus Opportunity
(% of Salary)

Therace Risch

       85 %

Michael Robbins

       85 %

Brynn Evanson

       75 %

Marci Grebstein

       75 %

Brandy Treadway

       60 %

For the named executive officers, both the Spring and Fall performance periods provided that awards could be earned based on performance against pre-established goals for the Company’s sales and operating profit. The metrics were weighted as follows:

 

Metric

   Weighting

Sales

       75 %

Operating Profit

       25 %

The increase in weighting on sales from 50% to 75% in 2018 was intended to drive revenue growth, increases in market share and the development of new initiatives, while also maintaining a focus on profitability. Results for each metric in the annual cash bonus program are measured separately.

For purposes of the bonus program, operating profit was defined as operating income/(loss) excluding qualified and supplemental pension expense, bonus and equity expense, real estate and other, and restructuring and management transition charges. The Committee chose to exclude those items because they are not directly related to the Company’s ongoing core business operations, which consist of selling merchandise and services to consumers through the Company’s department stores and website. In addition, qualified and supplemental pension plan expense are determined using numerous complex assumptions about changes in pension assets and liabilities that are subject to factors beyond the Company’s control, such as market volatility.

Performance goals for each of the Spring and Fall plans were established at the beginning of the respective performance periods, taking into account both historical results and the Company’s plans at

 

 

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the beginning of each period as well as expectations in light of the then-current business climate and the Company’s strategic initiatives. The target Operating Profit goals for the 2018 Spring and Fall performance were set at or above the actual results achieved for the comparable periods in 2017. The Sales goals for the 2018 Spring and Fall performance periods were set above the comparable store sales results for the same periods in 2017. At the end of each performance period, a payout factor ranging from 25% to 200% of the target bonus opportunity was calculated for each metric based on performance results achieved. For each component, no payout would occur for results below the threshold goal.

Spring Performance Period.  The performance goals, potential payout levels and actual awards earned for the Spring performance period are indicated below. Based on the Company’s performance and the relative weightings of each of the performance metrics, each of the current named executive officers (other than Ms. Soltau and Mr. Fung) earned cash bonuses equal to 61.3% of their respective Spring performance period target opportunities. As previously stated, neither Ms. Soltau nor Mr. Fung were eligible to receive an award for the Spring performance period.

 

Performance Metric

  Weighting   Threshold
(25%)
  Target
(100%)
  Maximum
(200%)
  Actual   Payout %

Sales ($ in millions)

      75 %     $ 5,141     $ 5,278     $ 5,584     $ 5,213       70.5 %

Operating Profit ($ in millions)

      25 %     $ 12     $ 104     $ 237     $ 20       33.6 %

Cash Bonus earned as percent of Spring Bonus opportunity (40% weighting)

 

      61.3 %

Fall Performance Period. The performance goals, potential payout levels and actual awards earned for the Fall performance period are indicated below. Based on the Company’s performance and the relative weightings of each of the performance metrics, each of the current named executive officers (other than Ms. Soltau and Mr. Fung) earned cash bonuses equal to 0% of their respective Fall performance period target opportunities.

 

Performance Metric

  Weighting   Threshold
(25%)
  Target
(100%)
  Maximum
(200%)
  Actual   Payout %

Sales ($ in millions)

      75 %     $ 6,441     $ 6,598     $ 6,866     $ 6,157       0 %

Operating Profit ($ in millions)

      25 %     $ 167     $ 305     $ 450     $ 77       0 %

Cash Bonus earned as percent of Fall Bonus opportunity (60% weighting)

 

      0 %

Note: For both the Spring and Fall plans, the payout percentage is interpolated on a straight-line basis for points in between those shown in the table above.

As a result of the Company’s full year performance and the relative weightings of each of the performance metrics, each of the current named executive officers (other than Ms. Soltau and Mr. Fung) earned cash bonuses equal to 24.5% of their respective annual cash bonus opportunities. The total annual cash bonus payouts for 2018 for each of the named executive officers are reflected in the Summary Compensation Table under the column “Non-Equity Incentive Plan Compensation.”

Free Cash Flow Performance Kicker.  In addition to the Spring and Fall performance periods, the annual cash bonus program for fiscal 2018 included a one-time performance kicker to incentivize cash generation. The performance kicker paid out only if the Company achieved at least $240 million in free cash flow for fiscal 2018. Free cash flow was calculated as cash flow provided by or used in operating activities less capital expenditures plus proceeds from the sale of operating assets not to exceed $60 million. The potential kicker amount was equal to 25% of the participants target bonus amount. No payout would occur if the Company did not achieve the targeted free cash flow amount and no additional payout would occur if the Company exceeded the target amount.

 

 

 

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For fiscal 2018, the Company generated $27 million of free cash flow for purposes of the performance kicker. Accordingly, none of the named executive officers earned the free cash flow performance kicker.

Long-Term Incentive Awards.  For fiscal 2018, the annual long-term incentive awards to our named executive officers were made under the 2016 Long-Term Incentive Plan (the 2016 Plan). The 2016 Plan provided equity-based awards to eligible associates, including the named executive officers, other Company officers and senior management associates. Generally, whether an associate is granted an award and the size of the award granted are functions of the associate’s position, performance and potential.

The potential number of shares used for annual long-term incentive awards for each participant was based on a predefined intended “equity dollar value” for the participant. The intended equity dollar value is determined by position and expected future contributions, taking into consideration competitive market data for comparable positions at companies in our peer group and the Company’s overall equity plan budget for the year. The actual equity dollar value of the award granted to each eligible associate can be higher or lower than the associate’s intended equity dollar value based on the associate’s performance and potential.

For fiscal 2018, the Committee modified the mix of long-term incentive awards granted to the named executive officers to further strengthen the link between those awards and the Company’s long-term performance as well as provide an additional retention incentive to key leaders. As a result, the long-term incentive awards granted to the named executive officers in fiscal 2018 included performance-based restricted stock units, time-based restricted stock units and performance-based cash awards in the following mix:

 

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Performance-based cash awards replaced non-qualified stock options in 2018. This new vehicle is a cash-based award requiring the achievement of pre-established free cash flow goals over a cumulative three-year period through the end of fiscal 2020.

The Committee believed this mix, 75% of which was tied to financial metrics, best balanced our dual goals of ensuring that executives maintain a long-term focus on stockholder value creation and retaining key leaders.

 

 

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The table below sets forth the dollar values of the annual long-term incentive awards granted to the current named executive officers in fiscal 2018 (other than Ms. Soltau who joined the Company in October 2018 and did not participate in the long-term incentive award program for fiscal year 2018, and Mr. Fung, who does not participate in the long-term incentive award program). Ms. Risch received an annual award with equity dollar values that were higher than her equity dollar values in 2017 in connection with her promotion to Executive Vice President, Chief Information Officer and Chief Digital Officer in fiscal 2018. The named executive officers who left the Company voluntarily prior to the end of the fiscal year forfeited their annual long-term equity incentive awards.

 

Name

   Dollar Value of
Performance-
Based Restricted
Stock Units
   Dollar Value of
Time-Based
Restricted
Stock Units
   Dollar Value of
Performance
Cash Awards(1)
   Total Dollar
Value of LTI
Awards

Therace Risch(2)

     $ 500,000      $ 250,000      $ 250,000      $ 1,000,000

Michael Robbins(3)

     $ 350,000      $ 175,000      $ 175,000      $ 700,000

Brynn Evanson

     $ 350,000      $ 175,000      $ 175,000      $ 700,000

Marci Grebstein

     $ 350,000      $ 175,000      $ 175,000      $ 700,000

Brandy Treadway

     $ 250,000      $ 125,000      $ 125,000      $ 500,000

 

(1)

Performance cash awards are required to be disclosed in the Summary Compensation Table in the year such awards are paid out rather than the year in which they were granted. Therefore our 2018 Summary Compensation Table does not include the grant of these awards, and the amount earned, if any, will be disclosed for fiscal year 2020.

(2)

Ms. Risch was promoted to Executive Vice President, Chief Information Officer and Chief Digital Officer in fiscal 2018. Ms. Risch also served as member of the OCEO from June 1, 2018 to October 15, 2018.

(3)

Mr. Robbins was promoted to Executive Vice President, Chief Stores and Supply Officer in fiscal 2018. Mr. Robbins also served as a member of the OCEO from June 1, 2018 to October  15, 2018.

Please see the Summary Compensation Table and the Grants of Plan-Based Awards Table for more information about these awards.

The following paragraphs describe each type of award in greater detail.

Performance-Based Restricted Stock Units. To determine the number of performance-based restricted stock units granted to each named executive officer, we divided 50% of their respective total annual target equity dollar value by the closing share price of our common stock on the date of grant. The actual awards earned can vary above or below the target award based on the extent to which the Company achieves the performance measure goal established for the program. The Committee chose adjusted EBITDA as the performance measure for the performance-based restricted stock unit awards to align with the Company’s long-term EBITDA goals and to drive profitable growth.

Adjusted EBITDA is defined for this purpose as earnings before interest, taxes, depreciation and amortization, excluding qualified and supplemental pension plan expense, bonus and equity expense, real estate and other, and restructuring and management transition charges. The Committee chose to exclude those items because they are not directly related to the Company’s ongoing core business operations, which consist of selling merchandise and services to consumers through the Company’s department stores and website. In addition, qualified and supplemental pension plan expense are determined using numerous complex assumptions about changes in pension assets and liabilities that are subject to factors beyond the Company’s control, such as market volatility.

 

 

 

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The Company designed the performance-based restricted stock unit awards to achieve growth and reward performance over a three-year period of time. The performance period for the performance-based restricted stock units consists of three one-year performance cycles beginning with fiscal 2018. The goal for the performance measure for the first performance cycle was set at the beginning of fiscal 2018. The goals for the second and third performance cycles will be set at the beginning of each performance cycle pursuant to a pre-determined formula based on growth above the actual results for the preceding performance cycle. Set forth below are the 2018 performance goals and payout factors for the performance-based restricted stock unit awards.

 

Performance Metric

   Threshold
(25%)
   Target
(100%)
   Maximum
(200%)
   Actual    Payout %

2018 Adjusted EBITDA ($ in millions)

     $ 915      $ 963      $ 1,059      $ 653        0 %

Note: The payout percentage is interpolated on a straight-line basis for points in between the threshold and maximum goals.

At the end of each performance cycle, the percentage of the target award earned is determined pursuant to the payout matrix established by the Committee. The payout matrix sets forth a range of payout percentages relative to the Company’s actual results for the performance period. The payout percentages under the payout matrix range from 25% to 200% of the target award with a 100% payout for achieving the target performance goal. The range of potential payouts is presented in the Grants of Plan-Based Awards Table.

For fiscal 2018, the Company’s actual adjusted EBITDA was $653 million. This performance resulted in a payout of 0% for the 2018 performance cycle. Accordingly, each of the named executive officers earned 0% of their target performance-based restricted stock unit award for the fiscal 2018 performance cycle.

Performance Cash.  In fiscal 2018, we introduced performance cash as part of our long-term incentive award program. The actual awards earned can vary above or below the target award based on the extent to which the Company achieves the performance goal for the program.

Performance with respect to these awards will be measured against the Company’s cumulative free cash flow for fiscal 2018 through 2020. The Committee chose free cash flow as the performance measure for the performance cash awards to align with the Company’s long-term goal of generating cash to pay down debt.

Free cash flow is defined for this purpose as cash flow provided by and or used in operating activities less capital expenditures plus proceeds from the sale of operating assets not to exceed $60 million in any given year during the performance cycle.

The cumulative free cash flow goal for fiscal 2018 through 2020 was set at the beginning of fiscal 2018, is viewed as challenging to achieve, and requires significant growth over the performance period. At the end of fiscal 2020, the percentage of the target award earned will be determined pursuant to the payout matrix established for the program. The payout matrix sets forth a range of payout percentages relative to the Company’s actual results for the performance period. The payout percentages under the payout matrix range from 25% to 200% of the target award with a 100% payout for achieving the target performance goal.

No payout will occur for results below the threshold goal. The range of potential payouts is presented in the Grants of Plan-Based Awards Table.

Earned performance cash awards will vest on the third anniversary of the date of grant provided that the participant remains continuously employed with the Company through that date.

 

 

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Time-Based Restricted Stock Units.  Each time-based restricted stock unit represents the right to receive one share of our common stock on the vesting date. The units vest in full on the third anniversary of the grant date provided the participant remains continuously employed with the Company until that time. These units have value in all market conditions; thus, they provide a strong retention mechanism. Since the ultimate value of the award depends on the market value of our common stock on the vesting date, the interests of participants are also aligned with stockholders.

To determine the number of time-based restricted stock units granted to each of the named executive officers, we divided the dollar value allocated to these awards by the closing share price of our common stock on the date of grant.

Restrictive Covenants.  By accepting any long-term incentive awards, each named executive officer agrees to comply with the following restrictive covenants:

 

   

Obligation not to disclose confidential or proprietary information of the Company;

   

Obligation to refrain from activities designed to influence or persuade any person not to do business or to reduce its business with the Company;

   

Obligation to refrain from attempting to influence or persuade any of the Company’s employees to leave their employment with the Company and to refrain from directly or indirectly soliciting or hiring employees of the Company; and

   

Obligation not to undertake work for a competing business.

Each of the above restrictive covenants continues for 18 months, or 12 months in the case of Mr. Murray and Ms. Treadway, following termination of employment, except for the obligation not to disclose confidential or proprietary information, which continues indefinitely.

2016 Performance-Based Restricted Stock Unit Awards Earned.  In 2016, the Company granted performance-based restricted stock units to our executive officers at the time. Of our current named executive officers, only Ms. Evanson, Ms. Risch and Mr. Robbins received the 2016 award. The performance-based restricted stock units could be earned only to the extent we achieved pre-set performance goals for adjusted EBITDA for fiscal 2018.

Adjusted EBITDA is defined for this purpose as earnings before interest, taxes, depreciation and amortization, excluding qualified pension expense, bonus expense, real estate and other, net gains on the sale of non-operating assets, asset impairments, the effect of reclassifications of certain expenses, and restructuring and management transition charges. The Committee chose to exclude those items because they are not directly related to the Company’s ongoing core business operations, which consist of selling merchandise and services to consumers through the Company’s department stores and website. In addition, qualified pension expense is determined using numerous complex assumptions about changes in pension assets and liabilities that are subject to factors beyond the Company’s control, such as market volatility.

The performance goals for the 2018 performance cycle were set at the beginning of fiscal 2016. Below are the range of 2018 performance goals, related payout factors and 2018 actual performance for the 2016 performance-based restricted stock unit awards.

 

Performance Metric

   Threshold
(25%)
   Target
(100%)
   Maximum
(200%)
   Actual    Payout %

2018 Adjusted EBITDA ($ in millions)

     $ 1,365      $ 1,740      $ 2,065      $ 653        0 %

Note: The payout percentage is interpolated on a straight-line basis for points in between the threshold and maximum goals.

 

 

 

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At the end of the performance cycle, the percentage of the target award earned was determined pursuant to the payout matrix established for the awards. Based on the Company’s performance in fiscal 2018, each of Ms. Evanson, Ms. Risch and Mr. Robbins earned 0% of their respective 2016 target performance-based restricted stock unit awards.

For equity awards outstanding for each of the named executive officers as of the end of fiscal 2018, see the Outstanding Equity Awards at Fiscal Year-End Table. Actual awards vesting or exercised during the fiscal year are presented in the Option Exercises and Stock Vested Table.

Other Compensation Program Elements

In addition to the three principal components of our compensation program, we also offer the following to our named executive officers, to help us attract and retain the most talented individuals:

 

   

Retirement benefits;

   

Health and welfare benefits, including medical and dental benefits, paid time off, and group term life insurance benefits;

   

Termination arrangements; and

   

Perquisites.

Retirement Benefits.  As with the principal components of our compensation program, our retirement benefits are intended to provide an industry competitive level of benefits.

The principal retirement benefits that we currently offer to our associates, including our named executive officers, are through our defined contribution 401(k) plan (Savings Plan) and our non-qualified defined contribution plan (Mirror Savings Plan). Both the Savings Plan and Mirror Savings Plan offer eligible associates the opportunity to defer a portion of their base salary and annual cash bonus compensation as a means of saving for retirement.

The Savings Plan also includes a Company matching contribution feature of 100% per dollar deferred up to a maximum of 5% of deferrals. The Mirror Savings Plan has a similar feature with respect to compensation in excess of the Internal Revenue Code (the Code) compensation limit for qualified plans.

The Mirror Savings Plan is discussed in more detail in the narrative following the Nonqualified Deferred Compensation Table.

Health and Welfare Benefits.  Our named executive officers are entitled to participate in active associates’ health and welfare benefit plans, including paid time off, medical, dental, group term life insurance and disability insurance, on the same terms and conditions as those made available to associates generally. We provide these benefits as part of a competitive package of health and welfare benefits.

Termination Arrangements.  In order to attract top retail talent, we recognize the need to provide protection to our executives in the event of involuntary termination of employment without cause or voluntary termination for good reason or following a change in control of the Company. Accordingly, we have put in place separate arrangements consisting of individual Executive Termination Pay

 

 

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Agreements for our CEO and Executive Vice Presidents, individual Termination Pay Agreements for our Senior Vice Presidents, and a Change in Control Plan to address termination situations not precipitated by the conduct of the named executive officer.

The termination pay agreements provide severance benefits to the executive in exchange for the executive’s agreement to comply with certain restrictive covenants. The benefits payable under the termination pay agreements are not available if the executive receives the benefits under the Change in Control Plan.

Change in Control Plan.  The Company has in place a Change in Control Plan (the CIC Plan) that provides benefits if the executive’s employment is involuntarily terminated within two years following a change in control of the Company. The CIC Plan further provides that cash severance benefits will not exceed 2.99 times the sum of base salary and target bonus.

The CIC Plan defines a change of control as:

 

   

the acquisition by any person, entity or group of 30% or more of the Company’s outstanding common stock;

   

the replacement of a majority of the Board;

   

a reorganization, merger or consolidation, or the sale of all or substantially all of the Company’s assets, subject to certain exceptions; or

   

a complete liquidation or dissolution of the Company.

Of the current named executive officers, Ms. Soltau, Ms. Evanson, Ms. Risch and Mr. Robbins participate in the CIC Plan.

The CIC Plan does not provide for the payment of excise tax gross-ups to named executive officers. The CIC Plan and the termination pay agreements are described in more detail in “Potential Payments and Benefits on Termination of Employment” beginning on page 54.

Perquisites.  We provide certain additional benefits to enable our executives to devote their energy and attention to the Company.

Company Aircraft.  For the first four months of fiscal 2018, the Company maintained a Key Associate Protection Program (the KAPP), pursuant to which the Company’s CEO was required to use Company aircraft for all business and personal travel. In view of the KAPP requirement to use Company aircraft, Mr. Ellison, who was CEO at that time, was also party to an aircraft time sharing agreement with the Company, which required him to reimburse the Company for any personal use of the corporate aircraft in excess of $150,000 during each fiscal year. Income was imputed to associates, including the CEO, for personal use of Company aircraft in accordance with IRS regulations. The Company does not provide a tax gross-up with respect to such imputed income. During fiscal 2018, the Company sold all its aircraft and eliminated the KAPP.

For total compensation purposes, we calculate the aggregate incremental cost to the Company of personal use of Company aircraft by determining the incremental nautical miles flown, including any “deadhead” legs, and multiplying that number by the cost to the Company per nautical mile. These amounts, exclusive of any amounts reimbursed by Mr. Ellison are reflected as All Other Compensation in the Summary Compensation Table below. The amount reflected for total compensation purposes is often higher than the amount imputed to associates under IRS regulations.

 

 

 

 

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A nautical mile is a unit of length used for maritime and aviation purposes. The cost per nautical mile excludes fixed costs which do not change based on usage, such as pilots’ or other associates’ salaries, purchase costs of the aircraft, or non-trip-related hangar expenses. It is derived from the aircraft’s variable operating costs, which include:

 

   

Aircraft fuel expenses;

   

Supplies and catering;

   

Crew travel expenses;

   

Landing and parking expenses; and

   

Aircraft maintenance and external labor.

Annual Health Exam.  In fiscal 2018, the named executive officers were eligible to receive an allowance of up to $5,000 (or $3,000 in the case of Mr. Fung) each calendar year for an annual health exam. The Company does not provide a tax gross-up on this benefit. We value the benefit based on the actual charges incurred by the Company for the services provided, which is reflected as All Other Compensation in the Summary Compensation Table below.

Relocation.  The Company provides tiered relocation benefits to all associates based on the associate’s position within the organization. At the commencement of their respective employments with the Company, Ms. Soltau and Mr. Fung did not maintain a residence near the Company’s Home Office in Texas. The Company provided relocation benefits to them for their commuting and temporary housing expenses consistent with Company policy for executives. We value the benefits based on the actual charges incurred by the Company for the benefits provided reduced by the amount of charges permitted under the Company’s policy for the lowest level of benefits provided under the base policy. These amounts are reflected as All Other Compensation in the Summary Compensation Table below.

Equity Award Grant Policy

The Committee has adopted a Policy Statement which sets forth its practices regarding the timing of, and approval process for, equity awards. In certain cases, the Committee may waive such policy. The following table sets forth the current Policy Statement.

 

Grant

  

Grant Date

Annual Grant

   Third full trading date following the later of (i) public disclosure of the Company’s financial results for the fiscal year prior to the Committee’s approval or (ii) the Committee’s approval.

Off-cycle grants other than to new hires

   Tenth full trading date of the calendar month if the promotion or award is effective or approved by the seventh trading day of the month; otherwise, tenth full trading date of the following calendar month.

Off-cycle grants for new hires

  

For Senior Vice Presidents and above, third full trading date following the date of hire.

 

For all other associates, tenth full trading date of the calendar month if the date of hire is on or before the seventh trading day of the month; otherwise, tenth full trading date of the following calendar month.

 

 

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The Committee also adheres to the following approval policies in making equity awards to associates:

 

   

Equity awards to the CEO must be approved by the independent directors of the Board.

   

Equity awards to executive officers other than the CEO, including new hires, must be approved by the Committee.

   

The aggregate annual grant of equity awards to associates must be approved by the Committee.

   

Authority has been delegated by the Committee to the CEO and/or the Executive Vice President, Human Resources to approve (i) equity awards to new hires who are not executive officers and (ii) off-cycle equity awards to associates who are not executive officers.

Tally Sheets

In 2018, the Committee reviewed tally sheets for our named executive officers and for select other executives. These tally sheets provide a comprehensive view of target, actual and contingent executive compensation payouts under a variety of termination and performance scenarios. The tally sheets allow the Committee to understand the cumulative effect of prior pay decisions and stock performance, as well as the retentive ability of existing long-term incentives, severance and change in control arrangements. The tally sheets are intended to facilitate the Committee’s understanding of the nature and amounts of total compensation under our executive compensation program and to assist the Committee in its overall evaluation of our program.

Stock Ownership Goals

The Company strives to align pay with the long-term interests of stockholders. The Board has adopted formal stock ownership goals for senior executives of the Company. The stock ownership goals specify that, within a five-year period, executives should hold an amount of Company stock having a value of:

 

Role

   Stock Ownership Goal  

Chief Executive Officer

     6x base salary  

Executive Vice President

     3x base salary  

Senior Vice President

     1x base salary  

In addition to directly owned stock, shares held in Company qualified and non-qualified savings plans and unvested time-based restricted stock units are included in calculating ownership levels. Unexercised stock options do not count toward the ownership goals. The stock ownership goals also specify that the CEO should retain at least 50% of net shares received pursuant to an equity award payout or exercise if the CEO is below the above-described ownership goal at the time of receipt. Due to the decline in the price of the Company’s stock in fiscal 2018, all of the named executive officers were below their respective stock ownership goals as of the end of fiscal 2018.

Tax Implications of Our Compensation Policies

Section 162(m) of the Code places a limit of $1,000,000 on the amount of compensation that we may deduct in any given year with respect to the CEO and certain of our other most highly paid executive officers. To maintain flexibility in compensating executive officers in view of the overall objectives of our compensation program, the Committee has reserved the right to grant compensation that is not tax deductible should it determine that doing so will better meet the Company’s objectives.

 

 

 

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Claw-Back Policy

One of the objectives of our compensation program is to make a substantial portion of compensation dependent on the Company’s overall financial performance. In the event of a financial restatement arising out of the willful actions, including without limitation, fraud or intentional misconduct, or the gross negligence of any participant in the Company’s compensation plans or programs, it is the Board’s policy that the Committee shall have the authority to determine the appropriate action to take. The compensation plans or programs covered under this policy include, without limitation, cash bonus and stock incentive plans, welfare plans or deferred compensation plans. The Committee’s actions under the policy may include requiring relinquishment (claw-back) of previously awarded equity-based incentive compensation and/or repayment of previously paid cash compensation to a participant under such plans and programs.

Prohibition on Hedging and Pledging of Company Stock

The Board considers it inappropriate for directors or executive officers to enter into speculative transactions in Company securities. The Company’s Corporate Governance Guidelines prohibit directors and senior management from engaging in short sales, options trading or other similar derivative transactions in Company securities, or hedging or monetization transactions, such as zero-cost collars and forward sale contracts, in which the individual continues to own the underlying security without the full risks and rewards of ownership. In addition, the Company’s directors and senior management may not purchase Company securities on margin, hold Company shares in a margin account or pledge Company shares as collateral for a loan because a margin sale or foreclosure sale may occur at a time when such director or officer is prohibited from trading under the Company’s insider trading policy.

REPORT OF THE HUMAN RESOURCES AND COMPENSATION COMMITTEE

The Human Resources and Compensation Committee of the Board assists the Board in discharging the Board’s responsibilities relating to compensation of the Company’s executives, reviews plans and proposals on management succession and major organizational or structural changes, and oversees the administration, financial and investment performance and operation of the Company’s retirement and welfare plans. Each member of the Committee is considered independent for purposes of applicable NYSE listing standards as well as the Standards for Determination of Director Independence. You can learn more about the Committee’s purpose, responsibilities, composition and other details by reading the Human Resources and Compensation Committee’s charter, which is available online at www.jcpenney.com.

The Human Resources and Compensation Committee has reviewed the Compensation Discussion and Analysis and discussed the same with management. Based on our review and discussions with management, we recommended to the Board of Directors that the Compensation Discussion and Analysis be included in the Company’s Annual Report on Form 10-K for the 2018 fiscal year and the Company’s 2019 Proxy Statement. This report is submitted by the following independent directors, who comprise the Human Resources and Compensation Committee:

 

Amanda Ginsberg, Chair    Wonya Y. Lucas
Paul J. Brown    R. Gerald Turner

 

 

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2019 Proxy Statement

 


Table of Contents

Summary Compensation Table

 

SUMMARY COMPENSATION TABLE

 

Name and Principal Position

  Year     Salary
($)
    Bonus
($)
    Stock
Awards
($)(1)
    Option
Awards
($)(1)
    Non-Equity
Incentive Plan
Compensation
($)(2)
    All Other
Compensation
($)(3)
    Total
($)
 

Jill Soltau*

    2018       413,636       6,000,000       9,999,999       0       0       335,743 (4)       16,749,378  

Chief Executive Officer

               

Michael Fung**

    2018       200,417       0       0       0       0       31,320 (5)       231,737  

Interim Executive Vice

               

President, Chief

               

Financial Officer

               

Therace Risch*

    2018       684,750       250,000       1,000,002       0       141,428       17,154 (6)       2,093,335  

Executive Vice President,

    2017       622,500       0       1,399,998       199,999       391,225       30,265       2,643,987  

Chief Information Officer

    2016       600,000       0       525,003       175,000       108,918       13,156       1,422,077  

and Chief Digital Officer

               

and Former Member

               

of the OCEO

               

Michael Robbins*

    2018       667,833       250,000       775,003       0       132,879       30,263 (7)       1,855,978  

Executive Vice President,

    2017       610,000       0       1,399,998       199,999       381,865       41,048       2,632,910  

Chief Stores and Supply

               

Chain Officer and Former

               

Member of the OCEO

               

Brynn Evanson

    2018       627,813       175,000       700,002       0       115,879       47,484 (8)       1,666,178  

Executive Vice President,

               

Human Resources

               

Marci Grebstein***

    2018       541,667       175,000       700,002       0       101,104       6,071 (9)       1,523,843  

Executive Vice President,

               

Chief Marketing Officer

               

Brandy Treadway

    2018       416,667       125,000       500,000       0       58,598       18,833 (10)       1,119,098  

Senior Vice President,

               

General Counsel

               

Marvin Ellison****

    2018       488,826       0       5,249,998       0       0       74,551 (11)       5,813,375  

Former Chairman of the

    2017       1,450,000       0       5,249,997       1,750,001       2,111,073       257,264       10,818,335  

Board and Chief Executive

    2016       1,446,667       0       5,249,996       1,750,000       614,177       309,986       9,370,826  

Officer

               

Jeffrey Davis*****

    2018       485,227       0       1,000,002       0       0       80,381 (12)       1,565,611  

Former Executive Vice

    2017       365,909       50,000       375,001       124,999       305,156       53,317       1,274,382  

President, Chief

               

Financial Officer and

               

Member of the OCEO

               

Joseph McFarland******

    2018       363,807       0       1,000,002       0       0       0       1,363,809  

Former Executive Vice

    2017       677,083       0       1,249,999       249,999       425,854       0       2,602,936  

President, Chief Customer

    2016       650,000       0       749,998       250,000       117,995       56,692       1,824,685  

Officer and Member of

               

the OCEO

               

Jerry Murray**

    2018       382,113       75,000       187,499       0       43,341       35,251 (13)       723,204  

Senior Vice President,

               

Finance and Former

               

Interim Chief Financial

               

Officer

               

Michael Amend*******

    2018       78,750       0       0       0       0       2,029,398 (14)       2,108,148  

Former Executive Vice

    2017       625,000       0       1,474,999       225,001       393,096       47,378       2,765,474  

President, Omnichannel

               

 

*

Ms. Soltau began serving as the Company’s CEO on October 15, 2018. In order to maintain stability and leadership during the search for a new CEO, the Board established the OCEO, effective June 1, 2018, which initially consisted of Ms. Risch and Messrs. Davis, McFarland and Robbins. The OCEO was dissolved on October 15, 2018.

**

Mr. Fung joined the Company as Interim Executive Vice President, Chief Financial Officer on October 30, 2018. Mr. Murray served as Interim Chief Financial Officer from October 1, 2018 to October 30, 2018.

***

Ms. Grebstein left the Company, effective February 3, 2019.

****

Mr. Ellison resigned as Chairman of the Board and CEO, effective June 1, 2018.

*****

Mr. Davis resigned from his position as Executive Vice President, Chief Financial Officer, effective October 1, 2018.

******

Mr. McFarland resigned as Executive Vice President, Chief Customer Officer, effective August 1, 2018.

*******

Mr. Amend left the Company on March 16, 2018.

(1)

See Note 2 to the Consolidated Financial Statements of J. C. Penney Company, Inc. and subsidiaries, as included in the Company’s Annual Report on Form 10-K for the fiscal year ended February 2, 2019, for a discussion of the assumptions underlying the valuation of stock options. The value of stock awards is calculated in accordance with FASB ASC Topic 718 and applicable FASB guidance. The values of the performance-based restricted stock unit awards are based upon the probable outcome of the performance goals as of the grant date consistent with the estimate of aggregate compensation cost to be recognized over the service period determined as of the grant date under FASB ASC Topic 718, excluding the effect of estimated forfeitures. That value is the same as the value calculated assuming the target level of performance under the award. The values of the performance-based restricted stock unit awards as of the grant date,

 

 

 

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Table of Contents

Summary Compensation Table

 

  assuming that the maximum level of the performance goals will be achieved, are as follows: Ms. Risch - $1,000,000; Mr. Robbins - $700,000; Ms. Evanson - $700,000; Ms. Grebstein - $700,000; Ms. Treadway - $500,000; and Mr. Murray - $250,000.
(2)

The amounts shown in this column reflect payments made under the MICP.

(3)

For a discussion of the valuation of perquisites, see “Compensation Discussion and Analysis - Other Compensation Program Elements.”

(4)

The amount shown in this column for Ms. Soltau includes Company matching charitable contributions in the amount of $10,000 on behalf of Ms. Soltau under the Directors’ Matching Fund in fiscal 2018 and $68,880 in payment of legal expenses incurred by Ms. Soltau in connection with the negotiation of her offer letter from the Company. The amount further includes the value of relocation benefits, $252,169, received by Ms. Soltau during fiscal 2018, and amounts paid in respect of taxes imputed to Ms. Soltau with respect to relocation expenses, $3,362, as well as the following perquisite: security services, $1,332.

(5)

The amount shown in this column for Mr. Fung includes a stipend of $16,987 in recognition of certain compensation that Mr. Fung is foregoing as a result of his temporary employment with the Company. The amount further indicates the value of the following perquisite received by Mr. Fung during fiscal 2018: temporary relocation, $14,333.

(6)

The amount shown in this column for Ms. Risch includes Company contributions or allocations to Ms. Risch’s account in the Savings Plan for fiscal 2018 of $14,013. The amount further includes the value of the following perquisite received by Ms. Risch during fiscal 2018: annual health exam, $3,142.

(7)

The amount shown in this column for Mr. Robbins includes Company contributions or allocations to Mr. Robbins’ accounts in the Savings Plan and Mirror Savings Plan for fiscal 2018 of $14,075 and $11,718, respectively. The amount further includes the value of the following perquisite received by Mr. Robbins during fiscal 2018: annual health exam, $4,470.

(8)

The amount shown in this column for Ms. Evanson includes Company contributions or allocations to Ms. Evanson’s accounts in the Savings Plan and Mirror Savings Plan for fiscal 2018 of $13,814 and $33,670, respectively.

(9)

The amount shown in this column for Ms. Grebstein includes Company contributions or allocations to Ms. Grebstein’s account in the Savings Plan for fiscal 2018 of $2,292. The amount further includes the value of the following perquisite received by Ms. Grebstein during fiscal 2018: annual health exam, $3,779.

(10)

The amount shown in this column for Ms. Treadway includes Company contributions or allocations to Ms. Treadway’s account in the Savings Plan for fiscal 2018 of $13,833. The amount further includes the value of the following perquisite received by Ms. Treadway during fiscal 2018: annual health exam, $5,000.

(11)

The amount shown in this column for Mr. Ellison includes Company contributions or allocations to Mr. Ellison’s account in the Savings Plan for fiscal 2018 of $6,167. The amount further includes an installment payment from the Mirror Savings Plan of $20,461, and the value of the following perquisite received by Mr. Ellison during fiscal 2018: personal use of corporate aircraft, $47,923. For security purposes, Mr. Ellison participated in a Key Associate Protection Program, which required that he use Company aircraft for all business and personal travel. Income is imputed for personal use of Company aircraft. The Company does not provide a tax gross-up with respect to such imputed income.

(12)

The amount shown in this column for Mr. Davis includes Company contributions or allocations to Mr. Davis’ account in the Mirror Savings Plan for fiscal 2018 of $6,761. The amount further includes the value of relocation benefits, $45,942, received by Mr. Davis during fiscal 2018, and amounts paid in respect of taxes imputed to Mr. Davis with respect to relocation expenses, $27,678

(13)

The amount shown in this column for Mr. Murray includes Company contributions or allocations to Mr. Murray’s accounts in the Savings Plan and Mirror Savings Plan for fiscal 2018 of $13,993 and $16,258, respectively. The amount further includes the value of the following perquisite received by Mr. Murray during fiscal 2018: annual health exam, $5,000.

(14)

The amount shown in this column for Mr. Amend includes the value of the lump sum cash severance payment under the Executive Termination Pay Agreement that Mr. Amend entered into in connection with the commencement of his employment. The amount further includes an installment payment from the Mirror Savings Plan of $10,838, and Company contributions or allocations to Mr. Amend’s account in the Savings Plan for fiscal 2018 of $11,125.

 

 

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2019 Proxy Statement

 


Table of Contents

Grants of Plan-Based Awards

 

GRANTS OF PLAN-BASED AWARDS FOR FISCAL 2018

 

Name

  Grant
Date(1)
  Date of
Committee
Approval
  Estimated Future Payouts
Under Non-Equity
Incentive Plan  Awards
  Estimated Future Payouts
Under Equity
Incentive Plan Awards(2)
  All
Other
Stock
Awards:
Number of
Shares of
Stock or
Units(3)
(#)(3)
  Grant
Date Fair
Value of
Stock
and
Options
Awards
($)(4)
  Thres-
hold
($)
  Target
($)
  Maximum
($)
  Thres-
hold
(#)
  Target
(#)
  Maximum
(#)

Jill Soltau

      10/18/2018 (5)        9/29/2018                               6,711,409       9,999,999

Chief Executive Officer

                                       

Michael Fung Interim

                                         

Executive Vice President, Chief Financial Officer

                                       

Therace Risch

      3/7/2018       2/26/2018                   34,819       139,276       278,552           500,001

Executive Vice

President, Chief

Information and Chief

Digital Officer and

Former Member of

the OCEO

      3/7/2018       2.26/2018                               69,638       250,000
      6/14/2018       5/20/2018                               92,593       250,001
      N/A (6)            57,702       230,809       461,618                    
      N/A (7)            87,975       351,900       703,800                    
      N/A (8)                145,677                        
      3/7/2018 (9)            62,500       250,000       500,000                    

Michael Robbins

      3/7/2018       2/26/2018                   24,373       97,493       194,986           350,000

Executive Vice

President, Chief Stores

and Supply Chain

Officer and Former

Member of the OCEO

      3/7/2018       2/26/2018                               48,747       175,002
      6/14/2018       5/20/2018                               92,593       250,001
      N/A (6)            54,214       216,857       433,714                    
      N/A (7)            87,975       351,900       703,800                    
      N/A (8)                142,189                        
      3/7/2018 (9)            43,750       175,000       350,000                    

Brynn Evanson

      3/7/2018       2/26/2018                   24,373       97,493       194,986           350,000

Executive Vice

President, Human

Resources

      3/7/2018       2/26/2018                               48,747       175,002
      6/14/2018       5/20/2018                               64,815       175,001
      N/A           47,278       189,113       378,225                    
      N/A           70,917       283,669       567,338                    
      N/A               118,195                        
      3/7/2018           43,750       175,000       350,000                    

Marci Grebstein

      3/7/2018       2/26/2018                   24,373       97,493       194,986           350,000

Executive Vice

President, Chief

Marketing Officer

      3/7/2018       2/26/2018                               48,747       175,002
      6/14/2018       5/20/2018                               64,815       175,001
      N/A (6)            41,250       165,000       330,000                    
      N/A (7)            61,875       247,500       495,000                    
      N/A (8)                103,125                        
      3/7/2018 (9)            43,750       175,000       350,000                    

Brandy Treadway

      3/7/2018       2/26/2018                   17,410       69,638       139,276           250,000

Senior Vice

President, General

Counsel

      3/7/2018       2/26/2018                               34,819       125,000
      6/14/2018       5/20/2018                               46,296       124,999
      N/A (6)            23,908       95,631       191,262                    
      N/A (7)            37,800       151,200       302,400                    
      N/A (8)                61,708                        
      3/7/2018 (9)            31,250       125,000       250,000                    

Marvin Ellison

      3/7/2018       2/26/2018                   243,733       974,930       1,949,860           3,499,999

Former Chairman

of the Board and Chief

Executive Officer

      3/7/2018       2/26/2018                               487,465       1,749,999
      N/A (10)            634,375       2,537,500       5,075,000                    
      N/A (8)                634,375                        
      3/7/2018 (9)            437,500       1,750,000       3,500,000                    

Jeffrey Davis

      3/7/2018       2/26/2018                   34,819       139,276       278,552           500,001

Former Executive

Vice President,

Chief Financial

Officer and

Member of the OCEO

      3/7/2018       2/26/2018                               69,638       250,000
      6/14/2018       5/20/2018                               92,593       250,001
      N/A (6)            57,346       229,385       458,769                    
      N/A (7)            0       0       0                    
      N/A (8)                57,346                        
      3/7/2018 (9)            62,500       250,000       500,000                    

 

 

 

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45

 


Table of Contents

Grants of Plan-Based Awards

 

Name

  Grant
Date(1)
    Date of
Committee
Approval
    Estimated Future Payouts
Under Non-Equity
Incentive Plan  Awards
    Estimated Future Payouts
Under Equity
Incentive Plan Awards(2)
    All
Other
Stock
Awards:
Number of
Shares of
Stock or
Units(3)
(#)(3)
    Grant
Date Fair
Value of
Stock
and
Options
Awards
($)(4)
 
  Thres-
hold
($)
    Target
($)
    Maximum
($)
    Thres-
hold
(#)
    Target
(#)
    Maximum
(#)
 

Joseph McFarland

    3/7/2018       2/26/2018             34,819       139,276       278,552         500,001  

Former Executive

Vice President,

Chief Customer

Officer and Member of

the OCEO

    3/7/2018       2/26/2018                   69,638       250,000  
    6/14/2018       5/20/2018                   92,593       250,001  
    N/A (6)         0       0       0            
    N/A (7)         0       0       0            
    N/A (8)           0              
    3/7/2018 (9)         62,500       250,000       500,000            

Jerry Murray

    3/7/2018       2/26/2018             8,705       34,819       69,638         125,000  

Senior Vice

President, Finance and

Former Interim Chief

Financial Officer

    3/7/2018       2/26/2018                   17,409       62,498  
    N/A (6)         17,683       70,732       141,464            
    N/A (7)         31,875       127,500       255,000            
    N/A (8)           49,558              
    3/7/2018 (9)         15,625       62,500       125,000            

Michael Amend

                       

Former Executive

Vice President,

Omni-channel

                   
                   
                   

 

(1)

The Committee has adopted a policy regarding the grant date for annual grants of equity awards to associates. For fiscal 2018, the policy stated that the grant date for annual grants of equity awards to associates was the third full trading date following approval of the grant by the Committee. See “Equity Award Grant Policy” on page 40 for information on the Committee’s policy regarding the grant date for off-cycle equity awards.

(2)

Grants of performance-based restricted stock units under the Company’s 2016 Long-Term Incentive Plan.

(3)

Grants of time-based restricted stock units under the Company’s 2016 Long-Term Incentive Plan and 2018 Long-Term Incentive Plan.

(4)

The grant date value is calculated in accordance with applicable FASB guidance.

(5)

Grant of time-based restricted stock units in connection with the commencement of Ms. Soltau’s employment. Ms. Soltau’s award was comprised of 3,611,409 restricted stock units granted under the Company’s existing 2018 Long-Term Incentive Plan and 3,100,000 restricted stock units were granted as a standalone equity inducement award.

(6)

Grant of award for the Spring performance period under the MICP.

(7)

Grant of award for the Fall performance period under the MICP.

(8)

Grant of performance-based kicker award under the MICP.

(9)

Grant of performance cash awards under the MICP.

(10)

Grant of award for the 2018 performance period under the MICP.

 

 

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2019 Proxy Statement

 


Table of Contents

Outstanding Equity Awards at Fiscal Year-End

 

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END 2018

 

    Option Awards   Stock Awards

Name

  Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
  Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
  Option
Exercise
Price ($)
  Option
Expiration
Date
  Number
of

Shares or
Units of
Stock
That
Have

Not
Vested (#)
  Market
Value of

Shares or
Units of
Stock That
Have Not
Vested ($)(1)
  Equity
Incentive
Plan
Awards:
Number

of
Unearned
Shares,
Units  or

Other
Rights

That
Have
Not
Vested
(#)(2)
  Equity
Incentive
Plan
Awards:
Market or

Payout
Value of

Unearned
Shares,
Units  or

Other
Rights

That
Have Not
Vested ($)(1)

Jill Soltau

                               

Chief Executive Officer

                               

2018

      0       0       N/A       N/A       6,711,409 (3)        8,859,060       0       0

Michael Fung

                               

Interim Executive Vice President, Chief Financial Officer

                               

2018

      0       0       N/A       N/A       0       0       0       0

Therace Risch

                               

Executive Vice President, Chief Information Officer and Chief Digital Officer and Former Member of the OCEO

                               

2015

      0       0       N/A       N/A       23,396 (4)        30,883       0       0

2016

      23,333       11,667 (5)        10.84       3/2/2026       16,144 (6)        21,310       0       0

2017

      22,753       45,506 (7)        5.96       3/5/2027       167,785 (8)        221,476       16,779 (9)        22,147

2018

      0       0               162,231 (10)        214,145       23,212 (11)        30,640

Michael Robbins

                               

Executive Vice President, Chief Store and Supply Chain Officer and Former Member of the OCEO

                               

2016

      23,333       11,667 (12)        10.84       3/2/2026       16,144 (13)        21,310       0       0

2017

      22,753       45,506 (14)        5.96       3/5/2027       167,785 (15)        221,476       16,779 (16)        22,147

2018

      0       0       N/A       N/A       141,340 (17)        186,569       16,249 (18)        21,449

Brynn Evanson

                               

Executive Vice President, Human Resources

                               

2010

      2,765       0       30.72       3/15/2020       0       0       0       0

2011

      5,702       0       36.58       3/14/2021       0       0       0       0

2012

      10,702       0       37.63       3/12/2022       0       0       0       0

2013

      42,262       0       14.43       4/2/2023       0       0       0       0

2015

      166,538       0       7.77       3/18/2025       0       0       0       0

2016

      23,333       11,667 (19)        10.84       3/2/2026       16,144 (20)        21,310       0       0

2017

      19,909       39,818 (21)        5.96       3/5/2027       29,362 (22)        38,758       14,681 (23)        19,379

2018

      0       0       N/A       N/A       113,562 (24)        149,902       16,249 (25)        21,449

Marci Grebstein

                               

Executive Vice President, Chief Marketing Officer

                               

2017

      20,425       40,850 (26)        4.59       6/19/2027       27,233 (27)        35,948       13,616 (28)        17,973

2018

      0       0       N/A       N/A       113,562 (29)        149,902       16,249 (30)        21,449

 

 

 

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Table of Contents

Outstanding Equity Awards at Fiscal Year-End

 

    Option Awards   Stock Awards

Name

  Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
  Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
  Option
Exercise
Price ($)
  Option
Expiration
Date
  Number
of

Shares or
Units of
Stock
That
Have

Not
Vested (#)
  Market
Value of

Shares or
Units of
Stock That
Have Not
Vested ($)(1)
  Equity
Incentive
Plan
Awards:
Number

of
Unearned
Shares,
Units  or

Other
Rights

That
Have
Not
Vested
(#)(2)
  Equity
Incentive
Plan
Awards:
Market or

Payout
Value of

Unearned
Shares,
Units  or

Other
Rights

That
Have Not
Vested ($)(1)

Brandy Treadway

                               

Senior Vice President, General Counsel

                               

2012

      1,884       0       37.63       3/12/2022       0       0       0       0

2013

      3,890       0       14.43       4/2/2023       0       0       0       0

2015

      9,233       0       7.77       3/18/2025       0       0       0       0

2017

      8,532       17,065 (31)        5.96       3/5/2027       12,584 (32)        16,611       0       0

2018

      0       0       N/A       N/A       81,115 (33)        107,072       11,606 (34)        15,320

Jerry Murray

                               

Senior Vice President, Finance and Former Interim Chief Financial Officer

                               

2016

      8,333       4,167 (35)        10.84       3/2/2026       5,766 (36)        7,611       0       0

2017

      7,110       14,221 (37)        5.96       3/5/2027       10,487 (38)        13,843       5,243 (39)        6,921

2018

      0       0       N/A       N/A       17,409 (40)        22,980       5,803 (41)        7,660

Michael Amend

                               

Former Executive Vice President, Omni-channel

                               

2016

      24,306       0       10.84       3/15/2020       0       0       0       0

2017

      27,730       0       5.96       3/15/2020       0       0       6,816 (42)        8,997

 

(1)

Based on the closing market price of Company common stock on February 1, 2019, which was $1.32.

(2)

The reported number of units assumes achievement of the threshold level of performance, in accordance with SEC requirements. The number of units earned can increase or decrease based on the Company’s achievement of the performance measure.

(3)

Restricted stock units that vest one-third on October 18, 2019, October 18, 2020 and October 18, 2021.

(4)

Restricted stock units that vest on December 10, 2019.

(5)

Stock options that vest on March 3, 2019.

(6)

Restricted stock units that vest on March 3, 2019.

(7)

Stock options that vest one-half on March 6, 2019 and March 6, 2020.

(8)

Restricted stock units that vest on March 6, 2020.

(9)

Performance-based restricted stock units that vest on March 6, 2020 if the performance measure is achieved.

(10)

69,638 restricted stock units vest on March 7, 2021 and 92,593 restricted stock units will vest one-third on June 14, 2019, June 14, 2020 and June 14, 2021.

(11)

Performance-based restricted stock units that vest on March 7, 2021 if the performance measure is achieved.

(12)

Stock options that vest on March 3, 2019.

(13)

Restricted stock units that vest on March 3, 2019.

(14)

Stock options that vest one-half on March 6, 2019 and March 6, 2020.

(15)

Restricted stock units that vest on March 6, 2020.

(16)

Performance-based restricted stock units that vest on March 6, 2020 if the performance measure is achieved.

(17)

48,747 restricted stock units vest on March 7, 2021 and 92,593 restricted stock units will vest one-third on June 14, 2019, June 14, 2020 and June 14, 2021.

(18)

Performance-based restricted stock units that vest on March 7, 2021 if the performance measure is achieved.

(19)

Stock options that vest on March 3, 2019.

(20)

Restricted stock units that vest on March 3, 2019.

(21)

Stock options that vest one-half on March 6, 2019 and March 6, 2020.

(22)

Restricted stock units that vest on March 6, 2020.

(23)

Performance-based restricted stock units that vest on March 6, 2020 if the performance measure is achieved.

(24)

48,747 restricted stock units vest on March 7, 2021 and 64,815 restricted stock units will vest one-third on June 14, 2019, June 14, 2020 and June 14, 2021.

(25)

Performance-based restricted stock units that vest on March 7, 2021 if the performance measure is achieved.

(26)

Stock options that vest one-half on June 20, 2019 and June 20, 2020.

(27)

Restricted stock units that vest on June 20, 2020.

 

 

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Outstanding Equity Awards at Fiscal Year-End

 

(28)

Performance-based restricted stock units that vest on June 20, 2020 if the performance measure is achieved.

(29)

48,747 restricted stock units vest on March 7, 2021 and 64,815 restricted stock units will vest one-third on June 14, 2019, June 14, 2020 and June 14, 2021.

(30)

Performance-based restricted stock units that vest on March 7, 2021 if the performance measure is achieved.

(31)

Stock options that vest one-half on March 6, 2019 and March 6, 2020.

(32)

Restricted stock units that vest on March 6, 2020.

(33)

34,819 restricted stock units vest on March 7, 2021 and 46,296 restricted stock units will vest one-third on June 14, 2019, June 14, 2020 and June 14, 2021.

(34)

Performance-based restricted stock units that vest on March 7, 2021 if the performance measure is achieved.

(35)

Stock options that vest on March 3, 2019.

(36)

Restricted stock units that vest on March 3, 2019.

(37)

Stock options that vest one-half on March 6, 2019 and March 6, 2020.

(38)

Restricted stock units that vest on March 6, 2020.

(39)

Performance-based restricted stock units that vest on March 6, 2020 if the performance measure is achieved.

(40)

Restricted stock units that vest on March 7, 2021.

(41)

Performance-based restricted stock units that vest on March 7, 2021 if the performance measure is achieved.

(42)

Performance-based restricted stock units that vest on March 6, 2020 if the performance measure is achieved.

 

 

 

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Table of Contents

Option Exercises and Stock Vested

 

OPTION EXERCISES AND STOCK VESTED FOR FISCAL 2018

 

     Option Awards      Stock Awards  

Name

   Number of
Shares
Acquired on
Exercise (#)
     Value Realized
on
Exercise ($)
     Number of
Shares
Acquired on
Vesting (#)
    Value Realized
on
Vesting ($)
 

Jill Soltau

     0        0        0       0  

Chief Executive Officer

          

Michael Fung

     0        0        0       0  

Interim Executive Vice

          

President, Chief Financial

          

Officer

          

Therace Ricsh

     0        0        23,396 (1)       31,819 (2)  

Executive Vice President,

          

Chief Information Officer

          

and Chief Digital Officer

          

and Former Member

          

of the OCEO

          

Michael Robbins

     0        0        33,647 (3)       43,405 (4)  

Executive Vice President,

          

Chief Stores and Supply

          

Chain Officer and Former

          

Member of the OCEO

          

Brynn Evanson

     0        0        57,627 (5)       178,067 (6)  

Executive Vice President, Chief

           36,680 (7)       113,341 (8)  

Human Resources

           53,495 (9)       70,613 (10)  

Marci Grebstein

     0        0        0       0  

Executive Vice President,

          

Chief Marketing Officer

          

Brandy Treadway

     0        0        4,183 (11)       12,925 (12)  

Senior Vice President,

           8,748 (13)       11,285 (14)  

General Counsel

          

Marvin Ellison

     0        0        555,694 (15)       1,717,094 (16)  

Former Chairman of

           217,181 (17)       671,089 (18)  

the Board and Chief

          

Executive Officer

          

Jeffrey Davis

     0        0        0       0  

Former Executive Vice

          

President, Chief Financial

          

Officer and Member of the OCEO

          

Joseph McFarland

     0        0        0       0  

Former Executive Vice

          

President, Chief Customer

          

Officer and Member of the OCEO

          

Michael Amend

     0        0        151,699 (19)       459,648 (20)  

Former Executive Vice

           11,211 (21)       33,970 (22)  

President, Omnichannel

           62,103 (23)       188,175 (24)  

Jerry Murray

     0        0        0       0  

Senior Vice President,

          

Finance and Former

          

Interim Chief Financial Officer

          

 

  (1)

Represents portion of 2015 time-based restricted stock unit equity inducement award that vested on December 10, 2018. The equity inducement award was granted in relinquishment of certain benefits and compensation provided by Ms. Risch’s previous employer and as an inducement to join the Company.

  (2)

Based on the closing market price of JCPenney common stock on December 10, 2018, which was $1.36.

  (3)

Represents 2015 time-based restricted stock unit equity inducement award that vested on November 17, 2018. The equity inducement award was granted in relinquishment of certain benefits and compensation provided by Mr. Robbins’s previous employer and as an inducement to join the Company.

  (4)

Based on the closing market price of JCPenney common stock on November 16, 2018, which was $1.29.

  (5)

Represents 2015 Performance-based restricted stock award that vested on March 19, 2018.

  (6)

Based on the closing market price of JCPenney common stock on March 19, 2018, which was $3.09.

  (7)

Represents 2015 time-based restricted stock unit award that vested on March 19, 2018.

  (8)

Based on the closing market price of JCPenney common stock on March 19, 2018, which was $3.09.

  (9)

Represents portion of 2016 time-based restricted stock unit award that vested on January 15, 2019.

  (10)

Based on the closing market price of JCPenney common stock on January 15, 2019, which was $1.32.

  (11)

Represents 2015 time-based restricted stock unit award that vested on March 19, 2018.

  (12)

Based on the closing market price of JCPenney common stock on March 19, 2018, which was $3.09.

  (13)

Represents 2015 time-based restricted stock unit award that vested on November 17, 2018.

  (14)

Based on the closing market price of JCPenney common stock on November 16, 2018, which was $1.29.

  (15)

Represents 2015 Performance-based restricted stock award that vested on March 19, 2018.

  (16)

Based on the closing market price of JCPenney common stock on March 19, 2018, which was $3.09.

 

 

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Option Exercises and Stock Vested

 

  (17)

Represents 2015 time-based restricted stock unit award that vested on March 19, 2018.

  (18)

Based on the closing market price of JCPenney common stock on March 19, 2018, which was $3.09.

  (19)

Represents portion of 2015 time-based restricted stock unit equity inducement award that vested on March 15, 2018. The equity inducement award was granted in relinquishment of certain benefits and compensation provided by Mr. Amend’s previous employer and as an inducement to join the Company.

  (20)

Based on the closing market price of JCPenney common stock on March 15, 2018, which was $3.03.

  (21)

Represents portion of 2016 time-based restricted stock unit award that vested on March 15, 2018.

  (22)

Based on the closing market price of JCPenney common stock on March 15, 2018, which was $3.03.

  (23)

Represents portion of 2017 time-based restricted stock unit award that vested on March 15, 2018.

  (24)

Based on the closing market price of JCPenney common stock on March 15, 2018, which was $3.03.

 

 

 

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Table of Contents

Nonqualified Deferred Compensation

 

NONQUALIFIED DEFERRED COMPENSATION FOR FISCAL 2018

 

Name

   Executive
Contributions
in last FY
($)(1)
   Registrant
Contributions
in last FY
($)(2)
   Aggregate
Earnings
in last FY
($)(3)
  Aggregate
Withdrawals/
Distributions

($)
   Aggregate
Balance
at last FYE
($)(4)

Jill Soltau

       0        0        0                       0        0

Michael Fung

       0        0        0       0        0

Therace Risch

       0        0        0       0        0

Michael Robbins

       11,718        11,718        (691 )       0        110,830

Brynn Evanson

       33,670        33,670        (9,219 )       0        461,411

Marci Grebstein

       0        0        0       0        0

Brandy Treadway

       0        0        (125 )       0        7,856

Marvin R. Ellison

       0        0        (2,459 )       20,461        108,368

Jeffrey Davis

       39,773        6,761        (1,857 )       0        53,764

Joseph McFarland

       0        0        0       0        0

Michael Amend

       504        0        (504 )       10,838        40,401

Jerry Murray

       16,258        16,258        126       0        58,807

 

(1)

The amounts shown are included in the salary and incentive compensation numbers shown in the Summary Compensation Table.

(2)

The amounts shown are included in the All Other Compensation numbers shown in the Summary Compensation Table.

(3)

These amounts are not included in the Summary Compensation Table since they do not constitute above market interest or preferential earnings.

(4)

The balance reported includes named executive officer contributions to the Mirror Savings Plan; these amounts were included in the Summary Compensation Table as salary and incentive compensation in the fiscal year earned. Company contributions to the Mirror Savings Plan were included in the All Other Compensation column of the Summary Compensation Table in the fiscal year paid.

Mirror Savings Plan.  The Mirror Savings Plan is a non-qualified defined contribution plan which provides eligible associates the opportunity to defer a portion of their base salary and incentive compensation exceeding the Code compensation limit as a means of saving for retirement.

Accordingly, eligible associates earning more than the Code compensation limit ($275,000 for 2018) may defer up to 75% of their compensation above the limit through the Mirror Savings Plan.

The Mirror Savings Plan includes a Company match feature of 100% per dollar deferred up to a maximum of 5% of deferrals on compensation over the Code compensation limit. This matching contribution is credited each pay period. The Company may make additional discretionary matching contributions. Participants vest in the Mirror Savings Plan Company matching contribution and related investment earnings as follows:

 

   

For contributions made for plan years 2016 and earlier, participants become 100% vested in the match after three years of service; and

   

For contributions made for plan years 2017 and after, participants are 100% vested in the match immediately.

For plan years 2016 and earlier, the Mirror Savings Plan included a non-contributory retirement account in which eligible participants received a Company contribution in an amount equal to 2% of the participant’s compensation in excess of the Code compensation limit after one year of service. Participating associates are fully vested in this Company contribution after three years. Beginning with plan year 2017, the retirement account provision of the Mirror Savings Plan was discontinued.

Generally, all unvested Company matching contributions are forfeited when the participant terminates employment. The Mirror Savings Plan provides that all matching contributions are immediately vested and non-forfeitable if a participant terminates employment due to:

 

   

Retirement at age 65,

   

Qualifying for permanent and total disability while working for the Company,

 

 

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Nonqualified Deferred Compensation

 

   

The work unit or type of work the associate was doing being discontinued (as determined by the Company), or

   

Death.

Deferrals and Company matching contributions are credited to the participant’s Mirror Savings Plan account and invested according to the participant’s investment elections. Earnings on the balance in the participant’s Mirror Savings Plan accounts are based on hypothetical investments in the same funds offered under the Savings Plan. Participants can change their investment elections daily.

Generally, a Mirror Savings Plan participant can only receive a distribution following an unforeseen emergency event (as defined under the Code), a change in control, or termination of employment. The only form of payment under the Mirror Savings Plan is a five-year annual installment option. No withdrawals or distributions were taken during the year by any of the named executive officers.

 

 

 

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Table of Contents

Potential Payments and Benefits on Termination of Employment

 

POTENTIAL PAYMENTS AND BENEFITS ON TERMINATION OF EMPLOYMENT

Under our compensation program, described above in “Compensation Discussion and Analysis ,” payments and the provision of benefits can be triggered by the termination of an associate’s employment. These payments and benefits may vary depending on the reason for termination as described below.

Except as described below, in the event of an associate’s voluntary termination or the termination of an associate’s employment for cause, the associate is only entitled to receive payments for accrued base salary and vacation through the date of termination and any amounts payable under the terms of the Mirror Savings Plan regardless of whether or not the termination follows a change in control of the Company.

In the event that an associate’s termination is the result of retirement, death or permanent disability, the associate is entitled to additional payments and benefits, regardless of whether or not the termination follows a change in control of the Company.

In the event that an associate is involuntarily terminated without cause, the associate is entitled to additional payments and benefits, which may vary depending on whether or not the termination follows a change in control of the Company. If an associate terminates employment with good reason following a change in control of the Company or, in the case of Ms. Soltau, if she voluntarily terminates employment with good reason at any time, the associate is also entitled to additional payments and benefits.

Termination without a Change in Control

In an effort to attract the best people, the Company offers its CEO and each of its Executive Vice Presidents the right to enter into an Executive Termination Pay Agreement with the Company and each of its Senior Vice Presidents the right to enter into a Termination Pay Agreement with the Company. We refer to the Executive Termination Pay Agreements and the Termination Pay Agreements collectively as the TPAs. The forms of the agreements were reviewed by the Committee’s independent consultant and approved by the Committee. The TPAs are intended to provide the executive with severance benefits in exchange for the executive’s agreement to comply with certain restrictive covenants. The benefits payable under these agreements are not available if the executive receives the benefits under the CIC Plan, which is described later in this section.

The primary purpose of the TPAs is to provide for severance benefits in the event of involuntary termination of the executive’s employment without cause. For purposes of the TPAs entered into by the CEO and Executive Vice Presidents, cause includes:

 

   

An intentional act of fraud, embezzlement, theft or other material violation of law;

   

Intentional damage to the Company’s assets;

   

Intentional disclosure of confidential information in violation of the Company’s policies;

   

Material breach of the executive’s obligations under the TPA;

   

Breach of the executive’s duty of loyalty to the Company;

   

Failure of the executive to substantially perform the duties of his or her job (other than as a result of physical or mental incapacity); or

   

Intentional breach of Company policies or willful misconduct by the executive that is in either case materially injurious to the Company.

 

 

 

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Potential Payments and Benefits on Termination of Employment

 

For purposes of the TPAs entered into by Senior Vice Presidents, cause includes:

 

   

Failure of the executive to substantially perform the duties of his or her job;

   

Failure or refusal of the executive to perform specific directives of the Board or the Company that are consistent with the scope and nature of his or her duties;

   

Conviction of a felony;

   

Breach of the executive’s fiduciary duties to the Company;

   

Violation of the Company’s Statement of Business Ethics;

   

Any act or omission that results in assessment of a criminal penalty against the Company;

   

Violation of an applicable law or regulation;

   

Any act or omission that adversely affects or could reasonably be expected to adversely affect the Company’s reputation; or

   

Willful misconduct, gross negligence or any act of dishonesty or disloyalty.

Under the TPAs, if an executive is involuntarily terminated without cause or, in the case of Ms. Soltau, voluntarily terminates employment for good reason, he or she will receive the benefits set forth in the table immediately below. The standard forms of TPAs were revised in December 2015. The table below sets forth the benefits to be received by an executive based on the form of TPA to which he or she is a party.

 

Benefits

  

Form of TPA prior to December 2015

  

Form of TPA after December 2015

Lump sum payment for unpaid salary and vacation    Accrued base salary and earned but unused paid time off through termination date    Same
Payment for base salary and annual cash incentive*    Lump sum equal to annualized base salary plus target annual cash incentive compensation (at 100% of the target incentive opportunity in effect at the time of termination) with respect to a period of (a) 24 months for the CEO (b) 18 months following termination if the executive is an Executive Vice President or higher, or (c) 12 months following termination if the executive is a Senior Vice President    Equal monthly installments during the severance period
Lump sum payment for current year annual cash incentive*    Average of actual incentive compensation payments for the 3 prior fiscal years or, if the associate has been employed for less than 3 fiscal years at the time of termination, the average of the actual payments for the fiscal years, or portion thereof, that the associate has been employed    Executive’s actual annual cash incentive compensation payable for the fiscal year of termination prorated for the period of service during the fiscal year
Payment of insurance premiums*    Lump sum payment for Company-paid portion of premiums toward medical, dental and life insurance coverages for 24 months for the CEO 18 months for Executive Vice Presidents and 12 months for Senior Vice Presidents, grossed-up for federal income taxes    Continuation of payments by Company for its portion of premiums for medical and dental insurance coverage if executive elects continuation coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (COBRA)
Lump sum payment for outplacement and financial counseling services*    $25,000 for CEO and Executive Vice Presidents; $15,000 for Senior Vice Presidents    Same

 

 

 

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Table of Contents

Potential Payments and Benefits on Termination of Employment

 

Benefits

  

Form of TPA prior to December 2015

  

Form of TPA after December 2015

Vesting of equity awards granted in connection with commencement of employment*    Immediate vesting    Same
Vesting of other equity awards*    Immediate vesting    Immediate vesting of pro-rated portion reflecting length of employment

 

*

Conditioned on execution of a release and expiration of the revocation period under the release, but payable no later than two and one-half months after the year of termination.

As noted above, Ms. Soltau’s Executive Termination Pay Agreement also provides the above-described benefits if she voluntarily terminates employment with the Company for good reason. For purposes of Ms. Soltau’s Executive Termination Pay Agreement, good reason consists of:

 

   

A reduction in base salary or target annual cash incentive opportunity;

   

Involuntary relocation of more than 50 miles;

   

A materially adverse change in the executive’s duties or responsibilities;

   

The Company’s failure to nominate Ms. Soltau for election to the Board; or

   

Failure to make any material payments when due.

For Ms. Soltau to receive benefits under her Executive Termination Pay Agreement in connection with a termination for good reason, she must terminate employment within 180 days of the date the good reason event occurred. Notice of a good reason event must be provided to the Company within 30 days of the event and the Company must be given a 30-day opportunity to correct the situation.

In addition to providing severance payments in the event of an involuntary termination without cause, the TPAs also include certain limited benefits in the event of death or termination due to permanent disability. In such case, the executive will receive a lump sum cash payment as soon as practicable after termination equal to prorated annual incentive compensation for service during the year at 100% of the executive’s target incentive compensation opportunity.

By entering into a TPA, the executive agrees to the following restrictive covenants:

 

   

Obligation not to disclose confidential or proprietary information of the Company, which continues indefinitely following termination of employment;

   

Obligation to refrain from activities designed to influence or persuade any person not to do business or to reduce its business with the Company, which continues for the applicable severance period following termination of employment;

   

Obligation to refrain from attempting to influence or persuade any of the Company’s employees to leave their employment with the Company and to refrain from directly or indirectly soliciting or hiring employees of the Company, which continues for the applicable severance period following termination of employment; and

   

Obligation not to undertake work for a competing business, which continues for the applicable severance period following termination of employment.

The standard forms of TPAs used by the Company prior to December 2015 provided that the noncompetition covenant may be waived by the executive; however, he or she must then forego any severance benefits available under the TPA. Beginning with the forms of TPAs as revised in December 2015, the restrictive covenants also extend to a voluntary termination of employment in addition to involuntary separation without cause. In the event the executive breaches any of the covenants listed above, the Company will not be obligated to make any further payments under the agreement and may seek to recover damages from the executive.

 

 

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Potential Payments and Benefits on Termination of Employment

 

Ms. Evanson has an Executive Termination Pay Agreement in the form used by the Company prior to December 2015. Ms. Soltau, Ms. Risch and Mr. Robbins have Executive Termination Pay Agreements as revised in December 2015. Ms. Treadway currently has a TPA in the form utilized for Senior Vice Presidents of the Company.

Change in Control; Termination Following a Change in Control

Each of Ms. Soltau, Ms. Evanson, Ms. Risch, and Mr. Robbins currently participate in the Company’s CIC Plan. Ms. Grebstein also participated in the CIC Plan. None of our named executive officers are entitled to a tax gross-up payment in respect of any excise taxes imposed on the benefits payable under the CIC Plan.

The CIC Plan provides benefits to the Company’s executives if their employment is terminated as a result of an involuntary separation from service by the Company other than for cause within two years of the occurrence of a change in control of the Company. The CIC Plan also provides benefits to an executive if the executive terminates employment with the Company for Good Reason following a change of control. Good Reason consists of:

 

   

A material reduction in the executive’s base salary or target annual cash incentive opportunity;

   

Involuntary relocation of more than 50 miles;

   

A materially adverse change in the executive’s duties or responsibilities;

   

A material diminution in the budget over which the executive has responsibility;

   

A material adverse change in the executive’s supervisor’s duties or responsibilities, including a change in the supervisor to whom the executive is required to report; or

   

Failure of the Company to continue a material benefit or a material reduction in the benefits in which the executive participated prior to the occurrence of the change in control, unless replaced by a substantially equivalent benefit.

For an executive to receive benefits under the CIC Plan, a Good Reason event with respect to such executive must occur within two years of the occurrence of a change in control of the Company, and if the Good Reason event is not cured by the Company following timely notice of the event by the executive, the executive must terminate employment within the later of (i) two years of the change in control or (ii) 180 days of the date the Good Reason event occurred.

Notice of a Good Reason event must be provided to the Company within 90 days of the event and the Company must be given a 30-day opportunity to correct the situation without having to pay benefits under the CIC Plan.

Change in control is defined as:

 

   

the acquisition by any person, entity or group of 30% or more of the Company’s outstanding common stock;

   

the replacement of a majority of the Board;

   

a reorganization, merger or consolidation, or the sale of all or substantially all of the Company’s assets, subject to certain exceptions; or

   

a complete liquidation or dissolution of the Company.

For purposes of the CIC Plan, cause includes the failure of the executive to substantially perform the duties of his or her job, failure of the executive to follow Company policy, engagement by the executive in illegal conduct, or gross misconduct injurious to the Company.

 

 

 

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Potential Payments and Benefits on Termination of Employment

 

For the named executive officers, the CIC Plan entitles them to receive cash severance of 2.99 times annualized base salary plus target annual cash incentive opportunity (at 100%) at the time of termination.

In addition to the cash severance payments, all participants in the CIC Plan are entitled to receive the following at the time of termination:

 

   

Accrued base salary and pay in respect of earned but unused paid time off through the date of termination;

   

With respect to annual incentive compensation:

   

the average of the participant’s actual annual incentive compensation payments under the MICP for the three fiscal years prior to the fiscal year of termination; or

   

if termination occurs on the last day of the fiscal year, the actual annual cash incentive compensation, if greater;

   

A lump sum payment in respect of additional paid time off, if any, under the Company’s paid time off policies;

   

A lump sum payment representing the incremental value of additional years of Company matching contributions credited to the executive (equal to the executive’s cash severance multiple) with respect to the Mirror Savings Plan, to the extent the executive participates in that plan;

   

A lump sum payment representing the Company-financed portion of the premium toward medical, dental and life insurance coverages for the number of years equal to the applicable cash severance multiple for the executive, grossed-up for federal income taxes; and

   

A lump sum payment of $25,000 toward outplacement and financial counseling services, and, to the extent applicable and allowable by law, reimbursement of legal fees and expenses incurred in defense of the executive’s rights under the plan.

Additionally, participants in the CIC Plan are eligible for up to one year of additional age and service credit for purposes of determining retiree eligibility under the Company’s medical, dental, life insurance, and lifetime discount programs.

In addition to the benefits provided by the CIC Plan, some of the Company’s other plans and programs, such as the Company’s equity compensation plans, also include specific benefits payable to associates in the event of a change in control of the Company. The Company’s 2012 Long-Term Incentive Plan, 2014 Long-Term Incentive Plan, 2016 Long-Term Incentive Plan and the 2018 Long-Term Incentive Plan provide that vesting of outstanding equity awards is accelerated if the participant’s employment is terminated as a result of an involuntary separation from service by the Company other than for Cause within two years of the occurrence of a change in control of the Company.

For purposes of these plans, a change of control is defined as:

 

   

the acquisition by a person or group of more than 50% of the total voting power of the Company’s common stock;

   

the acquisition by a person or a group within a twelve-month period of 30% of the total voting power of the Company’s common stock or the replacement of a majority of the Board within a twelve-month period unless approved by a majority of the Board; or

   

the acquisition by a person or group of 40% or more of the assets of the Company.

The plans also provide for vesting acceleration of outstanding awards if the participant terminates employment with the Company for Good Reason within two years of the occurrence of a change in control of the Company. The definition of Good Reason under these plans is the same as the definition under the CIC Plan.

 

 

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Potential Payments and Benefits on Termination of Employment

 

In order to describe the payments and benefits that are triggered for each termination event for each of the Company’s named executive officers, we have created the table below estimating the payments and benefits that would be paid to each of our named executive officers under each applicable element of our compensation program. The table assumes that the named executive officer’s employment terminated on February 1, 2019, which was the last business day of the Company’s last completed fiscal year.

 

    Base
Salary
($)
    Annual
Cash
Incentive

($)
    Restricted
Stock

($)
    Non-Equity
Long-Term
Incentives
($)
    Mirror
Savings
Plan

($)
    Other
($)(1)
    Excise
Tax
Cutback
($)
    Total
($)
 

Jill Soltau

               

Involuntary Termination without Change in Control

    2,800,000       4,200,000       8,859,060       0       0       86,020       0       15,945,080  

Involuntary Termination with Change in Control

    4,186,000       6,279,000       8,859,060       0       0       128,058       0       19,452,118  

Death

    0       2,100,000       8,859,060       0       0       26,923       0       10,985,983  

Permanent Disability

    0       2,100,000       8,859,060       0       0       26,923       0       10,985,983  

Good Reason without Change in Control

    2,800,000       4,200,000       8,859,060       0       0       86,020       0       15,945,080  

Good Reason After Change in Control

    4,186,000       6,279,000       8,859,060       0       0       128,058       0       19,452,118  

Michael Fung

             

Involuntary Termination without Change in Control

    0       0       0       0       0       0       0       0  

Involuntary Termination with Change in Control

    0       0       0       0       0       0       0       0  

Death

    0       0       0       0       0       0       0       0  

Permanent Disability

    0       0       0       0       0       0       0       0  

Good Reason After Change in Control

    0       0       0       0       0       0       0       0  

Therace Risch

             

Involuntary Termination without Change in Control

    1,035,000       1,021,178       335,386       76,389       0       51,659       0       2,519,613  

Involuntary Termination with Change in Control

    2,063,100       1,967,492       632,579       250,000       0       75,435       0       4,988,606  

Death

    0       586,500       335,386       76,389       0       18,577       0       1,016,852  

Permanent Disability

    0       586,500       335,386       76,389       0       18,577       0       1,016,852  

Good Reason After Change in Control

    2,063,100       1,967,492       632,579       250,000       0       75,435       0       4,988,606  

Michael Robbins

             

Involuntary Termination without Change in Control

    1,035,000       1,012,629       304,960       53,472       110,830       69,693       0       2,586,585  

Involuntary Termination with Change in Control

    2,063,100       1,960,538       557,268       175,000       110,830       120,950       0       4,987,686  

Death

    0       586,500       304,960       53,472       110,830       23,885       0       1,079,647  

Permanent Disability

    0       586,500       304,960       53,472       110,830       23,885       0       1,079,647  

Good Reason After Change in Control

    2,063,100       1,960,538       557,268       175,000       110,830       120,950       0       4,987,686  

Brynn Evanson

             

Involuntary Termination without Change in Control

    945,563       825,051       416,178       175,000       461,411       62,780       0       2,885,982  

Involuntary Termination with Change in Control

    1,884,821       1,616,460       326,809       175,000       461,411       115,141       0       4,579,643  

Death

    0       472,781       173,001       53,472       461,411       16,972       0       1,177,637  

Permanent Disability

    0       472,781       173,001       53,472       461,411       16,972       0       1,117,637  

Good Reason After Change in Control

    1,884,821       1,616,460       326,809       175,000       461,411       115,141       0       4,579,643  

Marci Grebstein

             

Involuntary Termination without Change in Control

    825,000       719,854       137,909       53,472       0       35,577       0       1,771,812  

Involuntary Termination with Change in Control

    1,644,500       1,404,534       297,0677       175,000       0       40,179       0       3,561,279  

Death

    0       412,500       137,909       53,472       0       10,577       0       614,458  

Permanent Disability

    0       412,500       137,909       53,472       0       10,577       0       614,458  

Good Reason After Change in Control

    1,644,500       1,404,534       297,067       175,000       0       40,179       0       3,561,279  

Brandy Treadway

             

Involuntary Termination

    420,000       310,598       66,324       45,889       7,856       20,532       0       871,199  

Death

    0       252,000       66,324       45,889       7,856       0       0       372,069  

Permanent Disability

    0       252,000       66,324       45,889       7,856       0       0       372,069  

 

(1)

The amounts shown in this column include amounts payable with respect to health and life insurance, outplacement, and vacation, as applicable.

 

 

 

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CEO Pay Ratio

 

CEO PAY RATIO

As required by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the Dodd-Frank Act), we are providing the following information about the relationship of the median annual total compensation of our associates and the annual total compensation of Jill Soltau, our Chief Executive Officer.

As one of the largest department store and e-commerce retailers in the United States, including operating 864 department stores in 49 states and Puerto Rico as of February 2, 2019, our associate population consists of a significant number of part-time associates, many of which are also compensated on an hourly basis. Approximately 92% of our associates are compensated on an hourly basis and part-time associates represent approximately 66% of our total workforce. Accordingly, our median associate in fiscal 2018 was determined to be a part-time hourly associate.

For fiscal 2018, our last completed fiscal year:

 

   

the median of the annual total compensation of all associates of the Company (other than our CEO) was $12,939; and

   

the annual total compensation of our CEO, as reported in the Summary Compensation Table included earlier in this Proxy Statement, was $16,749,378.

Based on this information, for fiscal 2018, the ratio of the annual total compensation of Ms. Soltau, our Chief Executive Officer, to the median of the annual total compensation of all associates was 1294 to 1. In addition, we have calculated a supplemental pay ratio, which you will find below under “Supplemental Pay Ratio Disclosure.” The supplemental pay ratio compares the median employee compensation to the target total compensation of our CEO.

To calculate this ratio, we determined that, as of February 2, 2019, our associate population consisted of approximately 96,200 individuals working at the Company through our consolidated subsidiaries, with approximately 99% of these individuals located in the United States and approximately 1% of these individuals located outside the United States. This population consisted of our full-time, part-time, and temporary associates as of such date.

Our associate population, after taking into consideration the adjustments permitted by SEC rules (as described below), consisted of approximately 95,100 individuals. As permitted by SEC rules, we have chosen to exclude all of the associates who are employed outside of the United States from the determination of the median associate. The jurisdictions from which we have excluded associates and the approximate number of associates excluded from each jurisdiction are: Bangladesh (20), China (71), Guatemala (11), Hong Kong (127), India (723), Pakistan (16), South Korea (40), Taiwan (44) and Vietnam (12).

To identify the median associate from our associate population, we analyzed the amount of salary, wages and tips of our associates as reflected in our payroll records as reported to the Internal Revenue Service on Form W-2 for the 2018 calendar year. We also annualized the compensation for permanent associates who joined the Company, or were on an unpaid leave of absence for any period of time, after January 1, 2018. We did not perform any full-time equivalency adjustments for part-time associates.

Using this compensation measure, which was consistently applied to all of the associates included in the relevant population, we determined that the median associate was a part-time hourly associate.

 

 

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CEO Pay Ratio

 

Once we identified our median associate, we combined all of the elements of such associate’s compensation for fiscal 2018 in accordance with the SEC’s rules, resulting in annual total compensation of $12,939. With respect to the annual total compensation of our CEO, we used the amount reported in the “Total” column of our 2018 Summary Compensation Table included in this Proxy Statement.

Supplemental Pay Ratio Disclosure

We understand that the CEO pay ratio is intended to provide greater transparency to annual CEO pay and how it compares to the pay of the median employee. As such, we are providing a supplemental ratio that compares the CEO’s total target pay of $11,000,000, which includes Ms. Soltau’s annualized base salary, annual target bonus and annual equity grant target, but excludes the special one-time cash signing bonus and equity signing bonus, which were inducements to join the Company, to the pay of the median associate. We believe this supplemental ratio reflects a more representative comparison. The resulting supplemental CEO pay ratio is 850 to 1.

Because the SEC rules for identifying the median of the annual total compensation of our associates and calculating the pay ratio based on that median allow companies to adopt a variety of methodologies, to apply certain exclusions, and to make reasonable estimates and assumptions that reflect their employee populations and compensation practices, the pay ratio reported by other companies may not be comparable to the pay ratio for our Company, as other companies are headquartered in different locations, have different employee populations and compensation practices and may utilize different methodologies, exclusions, estimates and assumptions in calculating their pay ratios.

DIRECTOR COMPENSATION FOR FISCAL 2018

 

Name

   Fees Earned
or Paid
in Cash ($)
   Stock Awards
($)(1)
   Option
Awards
($)
   All Other
Compensation
($)(2)
   Total
($)

Paul J. Brown(3)

       80,000        149,999        0        10,000        239,999

Amanda Ginsberg(4)

       105,000        149,999        0        0        254,999

Wonya Y. Lucas(5)

       80,000        149,999        0        10,000        239,999

B. Craig Owens(6)

       102,500        149,999        0        10,000        262,499

Lisa A. Payne(7)

       85,000        149,999        0        10,000        244,999

Debora A. Plunkett(8)

       80,000        149,999        0        10,000        239,999

Leonard H. Roberts(9)

       85,000        149,999        0        10,000        244,999

Javier G. Teruel(10)

       2        244,997        0        0        244,999

R. Gerald Turner(11)

       85,000        149,999        0        10,000        244,999

Ronald W. Tysoe(12)

       302,500        149,999        0        0        452,499

 

(1)

Each non-employee director receives an annual stock grant consisting of a number of restricted stock units having a market value nearest to $150,000. For fiscal 2018, the number of units was determined by dividing $150,000 by the closing price of Company common stock on the date of grant (rounded to the nearest whole unit). The amounts shown in this column include the fair value of the annual stock award for fiscal 2018, which was based on the closing price of JCPenney common stock on the date of grant, which was $2.42. The date of grant of the annual stock grant to non-employee directors is the third trading date following the Company’s Annual Meeting of Stockholders.

(2)

Includes the value of Company matching contributions under the Directors’ Matching Fund. Under this program, directors may request the Company to match dollar-for-dollar their personal charitable contributions up to $10,000 per fiscal year.

(3)

Mr. Brown had 105,106 restricted stock unit awards outstanding as of February 2, 2019.

(4)

Ms. Ginsberg had 96,291 restricted stock unit awards outstanding as of February 2, 2019.

(5)

Ms. Lucas had 95,252 restricted stock unit awards outstanding as of February 2, 2019.

(6)

Mr. Owens had 111,070 restricted stock unit awards outstanding as of February 2, 2019.

(7)

Ms. Payne had 85,177 restricted stock unit awards outstanding as of February 2, 2019.

(8)

Ms. Plunkett had 100,586 restricted stock unit awards outstanding as of February 2, 2019.

(9)

Mr. Roberts had 194,528 stock awards, consisting of 184,769 restricted stock unit awards and 9,759 restricted stock awards, outstanding as of February 2, 2019.

(10)

Mr. Teruel has elected to receive 100 percent of his cash retainers in shares of Company common stock. The amount shown in the Stock Awards column includes the fair value of stock received in lieu of cash. Fractional shares are paid out in cash. Mr. Teruel had 180,265 restricted stock unit awards outstanding as of February 2, 2019.

(11)

Dr. Turner had 167,331 stock awards, consisting of 152,511 restricted stock unit awards, 13,220 restricted stock awards and 1,600 option awards outstanding as of February 2, 2019.

(12)

Mr. Tysoe had 124,415 restricted stock unit awards outstanding as of February 2, 2019.

 

 

 

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Director Compensation

 

Cash Retainers and Stock Award

Directors who are Company associates do not receive directors’ fees. The Corporate Governance Committee has the responsibility for recommending to the Board the appropriate compensation for non-employee directors. In recommending the appropriate compensation for non-employee directors, the Corporate Governance Committee benchmarks the compensation for our