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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)

Payment of Filing Fee (Check the appropriate box):

 

No fee required.

Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

 

(1)    Title of each class of securities to which transaction applies:
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Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):

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Fee paid previously with preliminary materials.

Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

 

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LOGO

 

       

2020

                   

NOTICE OF

ANNUAL MEETING OF

STOCKHOLDERS AND

PROXY STATEMENT

 

 

 


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LOGO

March 30, 2020

Dear Stockholders:

On behalf of your Board of Directors, I want to take this opportunity to invite you to attend our 2020 Annual Meeting of Stockholders virtually via the Internet. The meeting will be held on Friday, May 22, 2020, at 10:00 A.M., local time, You may attend, vote and submit questions during the annual meeting via the Internet at www.virtualshareholdermeeting.com/JCP2020. 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 2020 Annual Meeting of Stockholders

 

Date and Time:   

Friday, May 22, 2020

10:00 A.M., local time

Place:   

Virtually at www.virtualshareholdermeeting.com/JCP2020

Business:   

1.  To elect eleven 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 January 30, 2021;

  

3.  To approve the adoption of the J. C. Penney Company, Inc. 2020 Long-Term Incentive Plan;

  

4.  To approve the adoption of an amendment and extension of the Amended and Restated Rights Agreement in order to protect the tax benefits of our net operating loss carryforwards;

  

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

  

6.  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 23, 2020.
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 2020 Annual Meeting of Stockholders to be held on May 22, 2020.

The Notice of Annual Meeting, Proxy Statement and Annual Report on Form 10-K for the fiscal year ended

February 1, 2020 are available at www.proxyvote.com.

 

 

     LOGO

    Brandy L. Treadway

    Senior Vice President, General Counsel and Secretary

Plano, Texas

March 30, 2020

YOUR VOTE IS IMPORTANT

PLEASE SIGN, DATE, & RETURN YOUR PROXY CARD OR

VOTE BY TELEPHONE OR INTERNET


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Proxy Statement

Table of Contents

 

   

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

     12  
   

Beneficial Ownership of Common Stock

     13  
   

Proposal 1 – Election of Directors

     15  
   

Letter from Human Resources and Compensation Committee Chair

     22  
   

Compensation Discussion and Analysis

     23  
   

Summary Compensation Table

     40  
   

Grants of Plan-Based Awards for Fiscal
2019

     42  
   

Outstanding Equity Awards at Fiscal Year-End 2019

     44  
   

Option Exercises and Stock Vested for Fiscal 2019

     46  
   

Non-Qualified Deferred Compensation for Fiscal 2019

     48  
   

Potential Payments and Benefits on Termination of Employment

     50  
   

CEO Pay Ratio

     56  
   

Director Compensation for Fiscal 2019

     57  
   

Audit Function

     59  

Report of the Audit Committee

     59  

Audit and Other Fees

     60  
   

Proposal 2 – Ratification of Appointment of Independent Auditor

     62  
   

Proposal 3 – Approval of 2020 Long-Term Incentive Plan

     63  
   

Equity Compensation Plan Information

     70  
   

Proposal 4 – Approval of Amendment and Extension of Amended and Restated Rights Agreement

     71  
   

Proposal 5 – Advisory Vote on Executive Compensation

     76  
   

About the Annual Meeting

     77  
   

Other Business Matters

     81  

Stockholder Proxy Proposal Inclusion Deadline

     81  

Deadline for Proxy Access Director Nominations

     81  

Stockholder Business – Annual Meeting

     81  

Timing

     81  
   

Annex A – 2020 Long-Term Incentive Plan

     A-1  
   

Annex B – Amended and Restated Rights Agreement

     B-1  
 


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2020 Proxy Statement

 

 

2020 Proxy Statement

This Proxy Statement and the accompanying materials are being sent to JCPenney stockholders beginning on or about April 8, 2020. In this Proxy Statement, you will find information on the matters to be presented at the 2020 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;

 

 

Human Resources and Compensation Committee Charter;

 

 

 

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Corporate Governance

 

 

 

Statement of Business Ethics; and

 

 

Standards and Procedures for Director Nominations.

You can access each of these documents on our website at www.jcp.com by clicking on “Investors,” then “Governance,” then “Governance Documents.” 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

Under the Guidelines, the Company’s leadership structure may include either a Non-Executive Chairman of the Board and a separate CEO or a combined Chairman/CEO leadership role coupled with a Lead Independent Director. The Board makes the determination as to which leadership structure is in the best interest of the Company and periodically assesses its structure in light of the Company’s needs and circumstances. The Board believes that JCPenney’s current leadership structure of a Non-Executive Chairman of the Board and separate CEO role enhances the Board’s ability to ensure that the appropriate level of independent oversight is applied to all management decisions.

 

 

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2020 Proxy Statement

 


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Corporate Governance

 

 

Ronald W. Tysoe, a non-employee, independent director, has served as the Company’s Non-Executive Chairman of the Board since May 2018, and previously served as Lead Independent Director.

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;

 

 

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.

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 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.

 

 

 

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Corporate Governance

 

 

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 1, 2020.

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;

 

   

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;

 

 

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Corporate Governance

 

 

 

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 2020. 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 2019, the Board held five meetings and committees of the Board held a total of 21 meetings. Each director serving during fiscal 2019 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 2019, all ten of the 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

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.

 

 

 

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Corporate Governance

 

 

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 below under the heading “Proposal 1 - Election of Directors.” 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 five years, the Board has appointed ten new directors to the Board while seven 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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Corporate Governance

 

 

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

 

LOGO    LOGO

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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Corporate Governance

 

 

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

 

 

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 March 16, 2020:

 

      Audit
Committee
   Corporate
Governance
Committee
   Finance and
Planning
Committee
  

Human Resources

  and Compensation  

Committee

Paul J. Brown

         X    X

Amanda Ginsberg

      X       Chair

W. Paul Jones

      X       X

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   

Ronald W. Tysoe*

      Chair       X

 

*

Non-Executive Chairman of the Board

A copy of each committee’s Charter is available at the Company’s website at www.jcp.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” and “Director Compensation for Fiscal 2019.” 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.

 

 

 

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Board Committees

 

 

Audit Committee

Meetings in Fiscal 2019: 7

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.

 

Corporate Governance Committee

Meetings in Fiscal 2019: 3

Members: Ronald W. Tysoe (Chair), Amanda Ginsberg, W. Paul Jones, Wonya Y. Lucas, Debora A. Plunkett (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

 

 

 

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2020 Proxy Statement

 


Table of Contents

Board Committees

 

 

Finance and Planning Committee

Meetings in Fiscal 2019: 5

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 2019: 6

Members: Amanda Ginsberg (Chair), Paul J. Brown, W. Paul Jones, Wonya Y. Lucas, Ronald W. Tysoe (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

 

 

 

 

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Table of Contents

Compensation Committee Interlocks and Insider Participation

 

 

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.

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 2019, any compensation committee interlock or insider participation on the Human Resources and Compensation Committee or among the independent directors of the Board.

 

 

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Beneficial Ownership of Common Stock

 

 

Beneficial Ownership of Common Stock

The following table shows, as of March 16, 2020, 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 are nominees for re-election at the Annual Meeting, (c) the five most highly compensated executive officers serving during the last fiscal year and two 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 16, 2020.

 

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 16, 2020
     Percent of
outstanding
common stock(1)
 

BlackRock, Inc.

     43,655,123 (2)         13.84

State Street Corporation

     25,145,691 (3)         7.83

The Vanguard Group

     18,089,706 (4)         5.64

Directors(5)

       

Paul J. Brown

     300,561       275,561        *  

Amanda Ginsberg

     299,004       204,763        *  

W. Paul Jones

     120,412       120,412        *  

Wonya Y. Lucas

     265,707       265,707        *  

B. Craig Owens

     313,783       281,525        *  

Lisa A. Payne

     517,890       255,632        *  

Debora A. Plunkett

     271,041       271,041        *  

Leonard H. Roberts

     383,020       364,982        *  

Jill A. Soltau

     1,999,371              *  

Javier G. Teruel

     2,326,201       350,720        *  

Ronald W. Tysoe

     1,352,128       232,887        *  

Named Executive Officers(5)(6)

       

Bill Wafford

     403,226       403,226        *  

Brynn Evanson

     533,833       322,696        *  

Therace Risch

     335,752       103,259        *  

Michelle Wlazlo

     233,333       133,333        *  

Michael Fung

                  *  

Michael Robbins(7)

     125,531       80,506        *  

All present directors and executive officers as a group (18 persons)(8)

     9,727,952       3,626,348        3.00

 

*

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 16, 2020.

 

 

 

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Beneficial Ownership of Common Stock

 

 

(2)

Based on information set forth in an Amendment No. 8 to Schedule 13G filed with the SEC on February 4, 2020 by BlackRock, Inc. reporting sole power to vote or direct the vote of 43,655,123 shares of JCPenney common stock and sole power to dispose or direct the disposition of 44,422,584 shares of JCPenney common stock. The address of BlackRock, Inc. is 55 East 52nd Street, New York, New York 10055.

(3)

Based on information set forth in a Schedule 13G filed with the SEC on February 13, 2020 by State Street Corporation reporting shared power to vote or direct the vote of 23,970,360 shares of JCPenney common stock and shared power to dispose or direct the disposition of 9,167,046 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. 8 to Schedule 13G filed with the SEC on February 12, 2020 by The Vanguard Group reporting sole power to vote or direct the vote of 309,556 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 17,783,906 shares of JCPenney common stock and shared power to dispose or direct the disposition of 305,800 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 16, 2020. Does not include restricted stock units that will not vest within 60 days of March 16, 2020.

(6)

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

(7)

Stock ownership for Mr. Robbins reflects direct holdings as of August 4, 2019, 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.

(8)

Excludes shares of Mr. Robbins, who no longer serves as an executive officer of the Company.

 

 

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2020 Proxy Statement

 


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 2020 Annual Meeting. Each of the current directors has been nominated by the Board to serve as a continuing director for a new one-year term expiring at the 2021 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 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 table 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

 

LOGO

 

Age: 53

Committees:

  Finance and Planning

  Human Resources and Compensation

 

    

 

Paul J. Brown

Director of the Company since 2016

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

 

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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Age: 50

Committees:

  Corporate Governance

  Human Resources and Compensation (Chair)

 

    

 

Amanda Ginsberg

Director of the Company since 2015

Former Chief Executive Officer and Director, Match Group, Inc.

 

Business Experience:

 

Chief Executive Officer from 2018 to 2020 and Director from 2017 to 2020, of 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. Director of Uber Technologies, Inc.

 

 

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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Age: 59

Committees:

  Corporate Governance

  Human Resources and Compensation

 

    

 

W. Paul Jones

Director of the Company since July 2019

Retired Chief Executive Officer of Payless ShoeSource, Inc.

 

Business Experience:

 

Chief Executive Officer of Payless ShoeSource, Inc. (footwear retailer) from 2012 to 2017; President, Chairman and Chief Executive Officer from 2009 to 2012, and President and Chief Merchandising Officer from 2007 to 2009, of Shopko Stores, Inc. (retail store chain); Vice President and General Merchandise Manager, Sears Roebuck and Co. (department store chain), from 2004 to 2005 and Senior Vice President, Merchandising of Kohl’s Corporation (department store chain) from 1997 to 2004; served in positions of increasing responsibility with May Department Stores Company from 1986 to 1997. Payless ShoeSource, Inc. filed for bankruptcy in 2019.

 

 

Qualifications:

 

Mr. Jones has extensive experience in the retail industry, including executive and merchandising experience with several major U.S. retailers. He provides valuable insights and perspectives to the JCPenney Board as a result of his more than 25 years of distinguished leadership, management experience and operating expertise in the value retail segment.

   

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Age: 58

Committees:

  Corporate Governance

  Human Resources and Compensation

 

    

 

Wonya Y. Lucas

Director of the Company since 2017

President and Chief Executive Officer, Public Broadcasting Atlanta

 

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. Director of E.W. Scripps Company.

 

 

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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Proposal 1—Election of Directors

 

 

LOGO

 

Age: 65

Committees:

  Audit (Chair)

  Finance and Planning

 

    

 

B. Craig Owens

Director of the Company since 2014

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

 

Business Experience:

 

Senior Vice President, Chief Financial Officer and Chief Administrative Officer (2008 to 2014) of Campbell Soup Company (food); 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.; Director of Crown Holdings, 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 three other publicly-traded companies.

   

LOGO

 

Age: 61

Committees:

  Audit

  Finance and Planning

 

    

 

Lisa A. Payne

Director of the Company since 2016

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

 

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; 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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Proposal 1—Election of Directors

 

 

LOGO

 

Age: 60

Committees:

  Audit

  Corporate Governance

 

    

 

Debra A. Plunkett

Director of the Company since 2017

Principal, Plunkett Associates LLC

 

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. Director of CACI International, Inc. Director of Nationwide Insurance.

 

 

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 and academia.

   

LOGO

 

Age: 71

Committees:

  Audit

  Finance and Planning

 

    

 

Leonard H. Roberts

Director of the Company since 2002

Retired Chairman and Chief Executive Officer, RadioShack Corporation

 

Business Experience:

 

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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Proposal 1—Election of Directors

 

 

LOGO

 

Age: 53

 

    

 

Jill Soltau

Director of the Company since 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. (specialty retailer) from 2015 to October 2018. From 2013 to 2015, she served as President of Shopko Stores (retail store chain), 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.

   

LOGO

 

Age: 69

Committees:

  Audit

  Finance and Planning (Chair)

 

    

 

Javier G. Teruel

Director of the Company since 2008

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

 

Business Experience:

 

Partner of Spectron Desarrollo, SC (investment management and consulting) since 2007; Chairman of Alta Growth Capital (private equity) since 2012; 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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Proposal 1—Election of Directors

 

 

LOGO

 

Age: 66

Committees:

  Corporate Governance (Chair)

  Human Resources and Compensation

 

    

 

Ronald W. Tysoe

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.

 

Business Experience:

 

Vice Chairman of Finance and Real Estate of Federated Department Stores, Inc. (now Macy’s, Inc.) (retail store chain) 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 Pzena Investment Management Inc. from 2009 to 2013; Director of Scripps Networks Interactive, Inc. from 2008 to 2018; Director of Canadian Imperial Bank of Commerce from 2004 to 2019. 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

 

 

Letter from Human Resources and Compensation Committee Chair

Dear Fellow Stockholders,

On behalf of the Human Resources and Compensation Committee, thank you for your continued support. The Committee is comprised solely of independent directors, and we take seriously our responsibilities to our stockholders.

JCPenney is transforming, rebuilding the business with efforts centered around more deeply understanding our customer. Together with the senior leadership team, Jill Soltau, our Chief Executive Officer, developed and shared the Company’s strategy for restoring profitable and sustainable growth to the business, referred to as the JCPenney Plan for Renewal. In fiscal 2019, the Committee reviewed the Company’s executive compensation programs to ensure they were aligned with the achievement of performance goals to drive the renewal efforts and long-term stockholder value. Our review of these programs also considered compensation practices prevalent in the market and exhibited by our peers, and the current level of volatility and uncertainty in the retail sector. The following pages detail the Committee’s focus on designing executive compensation programs to unite leaders as a cohesive team responsible for driving results.

In fiscal 2019, the Company strengthened its executive team under Ms. Soltau’s leadership. Michelle Wlazlo joined the Company as our Chief Merchant in March 2019, Bill Wafford joined as our Chief Financial Officer in April 2019, and Jim DePaul joined as our Executive Vice President, Stores in August 2019. These newly hired executives, together with Ms. Soltau, Therace Risch, our Chief Information Officer, and Brynn Evanson, our Chief Human Resources Officer, possess over 130 years of collective retail experience, carry a strong track-record of driving customer-centered growth, and have a deep understanding of merchandising operations. With this executive team, we are confident that we have the right leaders with the right experience in place to drive results for the Company and our stockholders.

In addition, the Company engaged in outreach efforts during fiscal 2019 to ensure that we maintain continuous contact with our stockholders, have an informed understanding of their concerns, and respond appropriately to our learnings from these engagements. Our outreach included the Company’s top institutional investors, representing approximately 60% of our outstanding common stock. We plan to continue ongoing dialogue with our stockholders on our executive compensation programs.

As efforts under the Plan for Renewal continue, we are committed to ensuring we have the appropriate executive compensation programs in place to motivate and retain executives to drive sustainable and profitable growth and long-term stockholder value by reestablishing the fundamentals of the business and developing an emotional connection with customers.

 

 

LOGO

Amanda Ginsberg

Chair, Human Resources and Compensation Committee

 

 

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2020 Proxy Statement

 


Table of Contents

Compensation Discussion and Analysis

 

 

Compensation Discussion and Analysis

Table of Contents

 

   

Introduction

     23  
   

Compensation Discussion and Analysis Highlights

     24  
   

Company Highlights

     25  
   

Say on Pay and Stockholder Outreach

     25  
   

Our Executive Compensation Programs

     26  

Role of the Human Resources and Compensation Committee

     27  

Role of the Independent Compensation Consultant

     27  

Role of Management

     28  

Role of the Peer Group and Benchmarking

     28  

Internal Pay Relationships

     28  

Relationship of Executive Compensation to Risk

     29  

Tally Sheets

     29  
   

Compensation of Our Named Executive Officers

     29  

Components of 2019 Executive Compensation

     29  

Pay Mix

     30  

Base Salary

     30  

Annual Cash Bonus Awards

     31  

Long-Term Incentive Awards

     32  

Performance of Previously Granted Long-Term Incentive Awards

     34  
   

Other Compensation Program Elements

     35  

Retirement Benefits

     35  

Health and Welfare Benefits

     35  

Termination Arrangements

     35  

Perquisites

     36  
   

Equity Award Grant Policy

     37  
   

Stock Ownership Goals

     37  
   

Tax Implications of Our Executive Compensation Programs

     38  
   

Claw-Back Policy

     38  
   

Prohibition on Hedging and Pledging of Company Stock

     38  
 

 

Introduction

This Compensation Discussion and Analysis describes our executive compensation programs and the decisions affecting the compensation of our Named Executive Officers (NEOs) in fiscal 2019.

Our fiscal 2019 executive compensation programs were designed to incent our NEOs to drive results and to align executive pay with stockholder value. Fiscal 2019 compensation determinations were intended to provide the opportunity for rewards based on the achievement of pre-determined performance goals that laid the foundation for our Plan for Renewal strategies, while also recognizing the volatility and uncertainty in the retail sector.

Our NEOs as of the last day of fiscal 2019 are listed below:

 

   

Jill Soltau, Chief Executive Officer

 

   

Bill Wafford, Executive Vice President, Chief Financial Officer

 

   

Michelle Wlazlo, Executive Vice President, Chief Merchant

 

   

Therace Risch, Executive Vice President, Chief Information Officer

 

   

Brynn Evanson, Executive Vice President, Chief Human Resources Officer

 

 

 

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Table of Contents

Compensation Discussion and Analysis

 

 

Compensation Discussion and Analysis Highlights

 

 

1

 

How do we

determine pay?

 

 

 We designed our 2019 compensation programs to align executive pay with Company performance

 Our 2019 executive pay mix was structured with an emphasis on variable pay, dependent on achievement of pre-established performance goals

 We considered multiple factors, including but not limited to, individual performance, position, and responsibilities, when determining total compensation opportunities

 We benchmark executive pay against a peer group that represents the characteristics of our business, the labor market in which we compete, and similar size parameters in terms of revenue, market capitalization, and enterprise value relative to JCPenney

 

 

2

 

How did we

perform?

 

 

 In 2019, we announced the Company’s Plan for Renewal, articulating our steps to rebuild the fundamentals of our business and become more customer focused to restore profitable and sustainable growth

 We improved our gross margin rates by 210 basis points, lowered inventory by 11 percent, reduced expenses, defined our customer focus segment and tested new customer experience concepts

 We exceeded our 2019 bonus adjusted EBITDA goal

 

 

3

 

How did we

pay our NEOs?

 

 

 Incentive award payouts to our NEOs were based on bonus adjusted EBITDA, which is a measure of the Company’s operating profitability

  Our CEO’s 2019 annual cash bonus was based on full year results and was earned at 131.8% of target

  For NEOs (other than Ms. Soltau), Spring 2019 bonuses were earned at 151.5% of target, and Fall 2019 bonuses were earned at 131.6% of target

 The Company did not reach its 2019 bonus adjusted EBITDA performance goal for 2017 Performance-Based Restricted Stock Unit (PBRSU) awards, which was set at the time of grant; as a result, these awards were not earned

 Time-based restricted stock awards are dependent upon the Company’s stock price performance and have decreased in value versus the grant value

 

 

4

 

What did we

change for 2019?

 

 

To align the teams around our Plan for Renewal business strategies to deliver profitable and sustainable growth, fiscal 2019 annual cash bonuses were determined by the achievement of pre-established bonus adjusted EBITDA goals

 In 2019, our performance-based Long-Term Incentive (LTI) awards were converted from stock to cash to preserve shares and proactively manage stockholder dilution

 

 

5

 

How do we address risk and

governance?

 

 

 With an appropriate balance of short and long-term compensation, incentive award value realized by our NEOs was based on the achievement of specific financial performance goals and the value of the Company’s stock price at the end of a three-year performance period

 We follow practices that promote good governance and serve the interests of our stockholders, with caps on variable pay opportunities and policies on claw-backs, anti-pledging, anti-hedging, and stock ownership goals

     
 

 

6

 

Why should you approve our say on pay?

 

 

 2019 incentive award payouts for our NEOs were entirely dependent on achievement of pre-established financial performance goals

 The majority of our NEOs’ pay is at risk and dependent on financial performance

 Our executive compensation programs are aligned with stockholder interests, linking pay opportunities to profitable growth and long-term stockholder value

     

 

 

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Company Highlights

In November 2019, we announced our Plan for Renewal – our strategy for restoring profitable and sustainable growth to the business. Our Plan for Renewal is driven by five main components:

 

  1.

Offering compelling merchandise that allows our customers to make the most of every occasion and to live life their way;

 

  2.

Providing an engaging experience that customers want, both for themselves and to share with family and friends;

 

  3.

Driving traffic by using our physical stores, our flagship store jcp.com, and our mobile app to connect with our customers emotionally at every point of the shopping experience;

 

  4.

Fueling growth by developing a more efficient operating model, reinvesting in value-creating activities, and establishing a capital structure that supports the long-term needs of the Company; and

 

  5.

Building a results-minded culture that ensures every associate understands how their role contributes to our success and connects to our Plan for Renewal with an emphasis on accountability, urgency, and innovative problem solving across all levels of the organization.

We made progress on our foundational and transformational efforts in fiscal 2019. Below are key results from our fiscal 2019 business performance:

 

   

Increased inventory productivity by lowering inventory levels by over 11%.

 

   

Improved our gross margins by executing our markdown cadence differently, refining our pricing and promotion strategy, and improving shrink. As a result, we delivered a year-over-year decrease of 210 basis points in cost of goods sold as a percent of net sales.

 

   

Eliminated inefficient spending in certain areas and corrected overspending in others – positioning the Company to invest in driving growth in sales and earnings.

 

   

Defined our customer focus segment through our extensive quantitative and qualitative research: the All-in Shopping Enthusiast – serious shoppers who want a retailer that reflects the occasions in their lives.

 

   

Began designing an engaging customer experience by testing new ideas, assortments, and concepts.

Our fiscal 2019 results are accompanied by a renewed energy to maintain momentum for rebuilding the business, reestablishing the fundamentals of retail, and returning JCPenney to its rightful place in the retail industry.

Say on Pay and Stockholder Outreach

The annual say on pay proposal provides stockholders with the opportunity to express their views on our executive compensation programs. Historically, we have received strong support for our executive compensation programs. Over the prior five years, the Company’s say on pay proposals have received an average of 89% stockholder support.

At our 2019 Annual Meeting of Stockholders, 73% of our stockholders who cast an advisory vote on our say on pay proposal voted in favor of our executive compensation program. The Committee takes seriously say on pay vote results that are considerably lower than results in prior years. In response to both the 2019 say on pay results and feedback from proxy advisor firms, the Company engaged in outreach efforts during fiscal 2019 to maintain continuous contact with our stockholders, have an informed understanding of their concerns, and respond appropriately to our learnings from these engagements.

 

 

 

 

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During the year, we had multiple touchpoints with our stockholders. Our outreach included the Company’s top institutional investors, representing approximately 60% of our outstanding common stock:

 

   

We met with firms representing approximately 27% of our outstanding common stock to discuss our executive compensation and human capital management programs.

 

   

In addition, firms representing approximately 33% of our outstanding common stock who were contacted by the Company either confirmed they had no concerns or did not request a meeting.

Participants in our engagement efforts included members of the Company’s senior leadership team who play a key role in our executive compensation process. In addition to management, our Board of Directors was also represented in the engagement efforts. The following leaders engaged directly with our stockholders:

 

   

Chairman of the Board and Member of the Human Resources and Compensation Committee

 

   

Executive Vice President, Chief Human Resources Officer

 

   

Associate General Counsel and Secretary

 

   

Vice President, Compensation and Benefits

 

   

Head of Investor Relations

During our conversations, stockholders shared their feedback on the inducement awards included in our Chief Executive Officer’s offer of employment in fiscal 2018, expressing concern that these awards were not sufficiently tied to performance conditions. As described in our 2019 proxy statement, the inducement awards for Ms. Soltau were structured to replace a significant compensation arrangement she forfeited from her prior employer. As one-time grants, these awards are not representative or part of the annual compensation package of the Chief Executive Officer, and therefore we are confident that this concern is isolated, pertaining only to CEO compensation during the year of hire.

In fiscal 2019, the long-term value of sign-on awards granted to executives hired in fiscal 2019 was more meaningfully aligned to Company performance by delivering a portion of sign-on awards as long-term incentive performance cash awards or stock options.

Though feedback received in response to the 2019 say on pay vote was voiced after our 2019 executive compensation determinations were finalized, we continue to remain in dialogue with our investors, and their feedback and questions will continue to remain an important part of the review, design, and implementation of our executive compensation programs.

Our Executive Compensation Programs

At JCPenney, our executive compensation programs are designed to incent our executives to drive results and to align executive pay with stockholder value. For fiscal 2019, our executive compensation philosophy was further guided by a desire to retain and motivate executives during our transformation and unite our associates as a cohesive team while recognizing the volatility and uncertainty in the retail sector.

 

 

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The Company’s executive compensation programs include key features that align the interests of our NEOs with our stockholders.

 

 

What We Do

 

LOGO

 

 

 

 

What We Don’t Do

 

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 Majority of executive pay is based on Company financial performance and is at risk

 

 Multiple LTI vehicles link pay to both internal financial performance goals and to external market performance

 

 Impose robust stock ownership guidelines, with a holding requirement for the CEO until the guideline is met

 

 Have claw-back policy for both cash and equity awards

 

 Impose stringent restrictive covenants on those who receive awards under our LTI program

 

 Conduct an annual risk assessment of executive pay programs

 

 Review tally sheets for all named executive officers

 

 Engage an independent compensation consultant who reports only to the Human Resources and Compensation Committee

 

Ò   No excise tax gross-ups

 

Ò   No “single-trigger” change in control plans

 

Ò   No hedging or pledging of Company stock

 

Ò   No stock options granted below fair market value

 

Ò   No option repricing without stockholder approval

Role of the Human Resources and Compensation Committee

The Human Resources and Compensation Committee of the Board of Directors (the Committee) is responsible for establishing and implementing our executive compensation programs. 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. The Chief Executive Officer’s compensation is determined by all the independent directors of the Board of Directors (the Board), considering the Committee’s recommendations. As part of the Committee’s deliberations, the Chief Executive Officer makes compensation recommendations for the executive officers other than herself. The Committee considers these recommendations in making its determinations.

Role of the Independent Compensation Consultant

The Committee engages an independent consultant to assist in its review of and decisions on 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 2019, 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.

 

 

 

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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 consultants. FW Cook does not work for the Committee or the Board in any capacity.

Role of Peer Group and Benchmarking

The market for executive talent is competitive and understanding how other retailers compensate their leaders is important in the review, design, and assessment of executive compensation programs. Accordingly, we maintain a group of peers that represents the characteristics of our business and the labor market in which we compete for talent. The Committee considers various size parameters in determining the peer group including revenue, market capitalization and enterprise value, and focuses on retailers with business characteristics similar to JCPenney. 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.

For fiscal 2019, the Committee conducted an evaluation of our peer group to enhance the overall sample size and align more closely to the Company’s size and scope. Based on this review, the peer group was updated for purposes of benchmarking 2019 executive compensation and further refined for use in benchmarking 2020 executive compensation.

 

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In addition to peer group data, the Committee also considered retail industry surveys to benchmark pay for executive officer positions for which proxy peer group data are not available. Market data is referenced when making compensation determinations, and the Committee also considers Company performance as well as individual experience and performance relevant to the executive’s role.

Internal Pay Relationships

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

 

 

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Relationship of Executive Compensation to Risk

In connection with fulfilling its responsibilities, the Committee considers whether the design of the Company’s executive compensation programs 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 programs, 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 programs are aligned with the interests of stockholders, appropriately reward pay for performance, and do not promote unnecessary or excessive risk.

Tally Sheets

In fiscal 2019, the Committee continued its practice of reviewing tally sheets for executive officers with multiple years of compensation history with the Company. Tally sheets are intended to facilitate the Committee’s understanding of the nature and amounts of total compensation under our executive compensation programs and to assist the Committee in its overall evaluation of executive compensation programs. They provide a comprehensive view of target, actual, and potential compensation payouts under a variety of performance scenarios, including termination. The tally sheets also allow the Committee to understand the cumulative effect of prior pay decisions and stock performance over time, as well as the retention value of existing long-term incentives, severance, and change in control arrangements.

Compensation of our Named Executive Officers

Components of 2019 Executive Compensation

Total target compensation for our NEOs in fiscal 2019 was comprised of three primary pay elements, each designed in accordance with our pay for performance philosophy and executive compensation objectives, as described below.

 

       
     Pay Element   Objective   Performance Rewarded
         
FIXED   Annual   Base Salary   Recognize an individual’s
role and responsibility
  Increases based on individual
performance, scope and
complexity of each role,
market data, and internal pay
equity
         

AT-

RISK

 

 

Annual

 

 

Annual Cash Bonus

 

 

Reward achievement of short-term performance results

 

 

Achievement of 2019 pre-established bonus adjusted EBITDA goals

  Long-Term  

 

Time-Based Restricted Stock Units (TBRSUs)

 

 

Align executive pay with long-term stockholder value and retain executive talent

 

 

Stock price performance over time

 

 

Performance Cash

 

 

Reward achievement of long-term performance results and retain executive talent

 

 

Achievement of long-term bonus adjusted EBITDA goals

 

 

 

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Pay Mix

To reinforce our pay for performance philosophy, the majority of our NEOs’ fiscal 2019 pay opportunities were variable and dependent on the achievement of pre-established performance goals. Our Chief Executive Officer’s compensation for fiscal 2019 was predominately performance based, with at-risk variable pay elements accounting for approximately 87% of her total target compensation. On average, the compensation of our NEOs in fiscal 2019 was approximately 70% at risk.

For fiscal 2019, the targeted mix of base salary, annual cash bonus, and long-term incentive awards for our Chief Executive Officer and the NEOs as a group (on average) is displayed below. Consistent with our pay for performance philosophy, we believe the combination of fixed and performance-based pay elements strikes the appropriate balance between short and long-term results, and aligns executive pay with stockholder value.

 

2019 CEO Compensation Mix

 

 

2019 Other NEO Compensation Mix

 

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Base Salary

We review the base salaries of our NEOs annually to ensure they remain competitive to comparable positions in our peer group and market data. Individual performance, position to market, and relevant changes to the responsibilities or scope of an executive’s role are considered when determining executive base salary increases. The majority of our NEOs joined the Company in fiscal 2018 or fiscal 2019. Two of the NEOs received merit-based salary increases in fiscal 2019 in recognition of individual performance.

 

Executive

   2018 Base    2019 Base   

Percentage  

Change

Jill Soltau

    

$

1,400,000

    

$

1,400,000

    

 

0.0

%

Bill Wafford

    

 

    

$

650,000

    

 

Michelle Wlazlo

    

 

    

$

750,000

    

 

Therace Risch

    

$

690,000

    

$

710,000

    

 

2.9

%

Brynn Evanson

    

$

630,375

    

$

648,656

    

 

2.9

%

 

 

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Annual Cash Bonus Awards

Annual cash bonuses are determined and paid pursuant to the Management Incentive Compensation Program (MICP), which provides NEOs as well as other management associates the opportunity to earn cash awards based on the achievement of pre-established Company goals.

Our fiscal 2019 compensation programs were designed to align all associates around our business strategies that served as the foundation for our Plan for Renewal. We modified the annual cash bonus program for fiscal 2019, uniting our associates as a cohesive team with pay opportunities tied to the performance of bonus adjusted EBITDA.

We selected bonus adjusted EBITDA as the most appropriate metric to measure of the Company’s operating profitability. Over the short term, bonus adjusted EBITDA ensures that our team works to deliver profitable and sustainable growth while managing operating expenses.

For purposes of the annual cash bonus program, bonus adjusted EBITDA is defined as earnings before interest, taxes, depreciation, and amortization, excluding qualified and supplemental pension plan expense, bonus and equity expense, real estate, 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 expenses 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.

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

Performance Periods. Ms. Soltau’s annual cash bonus opportunity for fiscal 2019 was measured based on full-year results. Consistent with prior years, our fiscal 2019 annual cash bonus program for NEOs was measured across two separate performance periods, Spring and Fall. The Spring performance period measured performance for the first half of fiscal 2019 and represented 40% of the overall annual cash bonus target. The Fall performance period measured performance for the second half of fiscal 2019 and represented the remaining 60% of the overall annual cash bonus target. Any earned payouts for both performance periods are made after the end of the fiscal year.

Annual Cash Bonus Targets. The table below reflects the 2019 annual cash bonus targets for our NEOs based on each executive’s position and responsibilities.

 

Executive

 

Annual Bonus

      Target as a % of      

Salary

Jill Soltau

   

 

150

%

Bill Wafford

   

 

85

%

Michelle Wlazlo

   

 

100

%

Therace Risch

   

 

85

%

Brynn Evanson

   

 

75

%

Fiscal 2019 Performance Goals and Results. We set performance goals for fiscal 2019 bonus adjusted EBITDA with a focus on restoring the discipline required to lay the strong foundation for our renewal. The performance

 

 

 

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goal for Ms. Soltau’s fiscal 2019 annual cash bonus, as well as the performance goals for the Spring and Fall performance periods for the NEOs (other than Ms. Soltau), were each established at the beginning of their respective performance periods. A threshold achievement level of the performance goal was required for any portion of the bonus awards to be paid. The maximum payout under the annual cash bonus program was 200% of the bonus target, which equates to achievement at or above 150% of the performance goal. In fiscal 2019, bonus adjusted EBITDA results exceeded expectations due to improved gross margin, higher credit income, and savings achieved in selling, general, and administrative expenses. The performance goals and actual performance results, including corresponding payout levels for the fiscal 2019 performance periods, are as set forth below. Total 2019 annual cash bonus payouts for all NEOs are reflected in the Summary Compensation Table.

 

      Threshold
Performance
(40% Payout)
    

Performance

Goal
(100% Payout)

     Maximum
Performance
(200% Payout)
     Performance
Results
     Payout %      

2019 Spring bonus adjusted EBITDA ($ in millions)

   $ 171      $ 228      $ 343      $ 302.8        151.5%      

2019 Fall bonus adjusted EBITDA ($ in millions)

   $ 262      $ 349      $ 524      $ 417.9        131.6%      

 

      Threshold
Performance
(40% Payout)
     Performance
Goal
(100% Payout)
     Maximum
Performance
(200% Payout)
     Performance
Results
     Payout %      

2019 bonus adjusted EBITDA for CEO annual cash bonus ($ in millions)

   $ 434      $ 578      $ 867      $ 721        131.8%      

Long-Term Incentive Awards

To align the compensation of our executives with the long-term success of the Company and the interests of our stockholders, long-term incentive awards were granted to our NEOs in fiscal 2019. These awards place a significant portion of our NEOs’ total compensation “at risk”, dependent on the achievement of long-term performance goals and stock price performance.

Long-Term Incentive Award Mix. Fiscal 2019 long-term incentive awards were delivered as a mix of performance-based and time-based vehicles. Performance-based awards strengthen the link between executive pay and Company performance and provide for longer term retention of executives. Time-based awards also provide for longer term retention and incent stock price performance over time. In addition, recipients of long-term equity awards are subject to the same potential for increases and decreases in stock price over time as our stockholders are. In 2019, our performance-based awards were converted from stock to cash to preserve shares and proactively manage stockholder dilution. This change is a temporary measure and not intended to be a permanent change to our award mix. Annual long-term incentive awards granted to our NEOs in fiscal 2019 were comprised of performance cash and time-based restricted stock units, each weighted at 50% of the total award opportunity. The following paragraphs describe each award.

Time-Based Restricted Stock Units. Each time-based restricted stock unit (TBRSU) represents the right to receive one share of our common stock on a future 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. TBRSUs generally maintain some level of value in all market conditions and as such, provide for a strong retention mechanism. Since the ultimate value of the award depends on the market value of our common stock on the vesting date, awards of TBRSUs effectively align the interest of our executives with our stockholders. To determine the number of TBRSUs granted to each of our NEOs, the dollar value allocated to these awards is divided by the closing share price of our common stock on the date of grant.

 

 

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Performance Cash Awards. Performance cash awards granted in fiscal 2019 are measured based on the attainment of bonus adjusted EBITDA goals for fiscal 2019 through 2021. The Committee chose bonus adjusted EBITDA as the performance metric for our 2019 long-term incentive awards.

Whereas the use of bonus adjusted EBITDA under the annual cash bonus program was intended to align our associates to build a strong foundation, bonus adjusted EBITDA under the long-term incentive plan is intended to provide a consistent measure of our progress over time, safeguarding against business decisions that provide “quick wins” that are ultimately detrimental to our long-term health and profitability. These two uses of bonus adjusted EBITDA complement each other, motivating different behaviors to ensure progress is made on short-term goals without losing sight of delivering long-term value to the Company and its stockholders.

For performance cash awards granted in fiscal 2019, the definition of bonus adjusted EBITDA is consistent with the definition used for the annual cash bonus program described earlier in the “Annual Cash Bonus Awards” section. The performance cash awards vest 0% to 200% of target based upon the extent to which bonus adjusted EBITDA for each of the three years in the 2019-2021 performance cycle meets or exceeds the specified performance goals. The maximum payout is 200% of target. The performance goals and actual performance results for fiscal 2019, the first year of the three-year performance cycle, are set forth below.

 

      Threshold
Performance
(40% Payout)
     Performance
Goal
(100% Payout)
     Maximum
Performance
(200% Payout)
     Performance
Results
     Payout %      

2019 bonus adjusted EBITDA for 2019 Performance Cash Award ($ in millions)

   $ 434      $ 578      $ 867      $ 721        133.7%      

The portion of the 2019 performance cash awards earned based on fiscal 2019 results will not be paid until after the end of fiscal 2021, which is the last year of the three-year performance cycle. Similarly, the portions of the awards earned based on fiscal 2020 results and fiscal 2021 results, respectively, will not be paid until after the end of fiscal 2021.

2019 Long-Term Incentive Award Values. The potential number of units used for annual long-term incentive awards for each executive was based on the award mix, as well as on a pre-defined intended long-term incentive dollar value for the executive. The intended long-term incentive 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 long-term incentive planning for the year.

The table below sets forth the dollar values of the 2019 annual long-term incentive awards granted to NEOs.

 

Executive

   Dollar Value
of Time-Based
Restricted
Stock Units
     Dollar Value of
Performance
Cash Awards (1)
     Long-Term
Incentive Dollar
Value of 2019
Annual Award
 

Jill Soltau

  

$

3,750,000

 

  

$

3,750,000

 

  

$

7,500,000

 

Bill Wafford (2)

  

 

 

  

 

 

  

 

 

Michelle Wlazlo

  

$

500,000

 

  

$

500,000

 

  

$

1,000,000

 

Therace Risch

  

$

700,000

 

  

$

700,000

 

  

$

1,400,000

 

Brynn Evanson

  

$

490,000

 

  

$

490,000

 

  

$

980,000

 

 

(1)

Performance cash awards are required to be disclosed in the Summary Compensation Table in the year such awards are earned rather than the year in which they were granted. Therefore, our Summary Compensation Table for fiscal 2019 includes the value earned under the 2019 performance period for the 2019 Performance Cash awards.

(2)

Mr. Wafford joined the Company on April 8, 2019 and did not receive an annual long-term incentive award for fiscal 2019. A portion of Mr. Wafford’s inducement award was structured to mirror the same mix as the 2019 annual long-term incentive awards delivered to current executives.

 

 

 

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Restrictive Covenants. By accepting any long-term incentive award, each NEO agrees to comply with the following restrictive covenants which continue for 18 months following termination of employment, except for the obligation not to disclose Company confidential or proprietary information, which continues indefinitely:

 

   

Confidentiality: cannot disclose confidential or proprietary information of the Company;

 

   

Non-interference with business relations: must refrain from activities designed to influence or persuade any person not to do business or to reduce its business with the Company;

 

   

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

 

   

Non-compete: cannot undertake work for a competing business.

Performance of Previously Granted Long-Term Incentive Awards

Performance-Based Restricted Stock Units.

The mix of long-term incentive awards delivered to our NEOs in previous years included performance-based restricted stock units (PBRSUs). These awards were granted to our executive officers based on a determined equity dollar value, which was then divided 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 based on the extent to which the Company achieved the performance goal established for the program.

2017 Performance-Based Restricted Stock Unit Award Results. In fiscal 2017, the Company granted PBRSUs to our executive officers, with vesting conditions based on the achievement of a fiscal 2019 bonus adjusted EBITDA goal, which was determined at the beginning of fiscal 2017. For PBRSUs granted in fiscal 2017, the definition of bonus adjusted EBITDA is consistent with the definition used for the annual cash bonus program. Please see “Annual Cash Bonus Awards” above for this definition.

The threshold, target, and maximum payout opportunities, along with actual performance results, are displayed below. Since the 2019 bonus adjusted EBITDA performance threshold was not achieved, no portion of the 2017 PBRSU award was earned. Three of our current NEOs joined the Company either in late 2018 or in 2019. Only Ms. Evanson and Ms. Risch were granted a PBRSU award in 2017.

 

      Threshold
Performance
(25% Payout)
     Performance
Goal
(100% Payout)
     Maximum
Performance
(200% Payout)
     Performance
Results
     Payout %  

2019 bonus adjusted EBITDA for PBRSUs granted in 2017 ($ in millions)

   $ 1,130      $ 1,412      $ 1,694      $ 721        0.0%  

2018 Performance-Based Restricted Stock Unit Award Results. In fiscal 2018, the Company granted PBRSUs to our executive officers, with vesting conditions based on the achievement of pre-established, annual, bonus adjusted EBITDA goals set at the beginning of 2018 based on year-over-year growth. For PBRSUs granted in fiscal 2018, the definition of bonus adjusted EBITDA is consistent with the definition used for the annual cash bonus program. Please see “Annual Cash Bonus Awards” above for this definition.

 

 

 

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The threshold, target, and maximum payout opportunities, along with actual performance results for 2018 and 2019 are displayed below. The performance thresholds were not achieved for 2018 and 2019. Three of our current NEOs joined the Company either in late 2018 or in 2019. Only Ms. Evanson and Ms. Risch were granted a PBRSU award in 2018.

 

      Threshold
Performance
(25% Payout)
     Performance
Goal
(100% Payout)
     Maximum
Performance
(200% Payout)
     Performance
Results
     Payout %  

2019 bonus adjusted EBITDA for PBRSUs granted in 2018 ($ in millions)

   $ 915      $ 938      $ 1,086      $ 721        0.0%  

2018 bonus adjusted EBITDA for PBRSUs granted in 2018 ($ in millions)

   $ 915      $ 963      $ 1,059      $ 653        0.0%  

Other Compensation Program Elements

In addition to the three principal elements of our executive compensation programs, we also offer the following elements, detailed below, to our NEOs, 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 elements of our executive compensation programs, 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 NEOs, 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 Non-Qualified Deferred Compensation Table.

Health and Welfare Benefits

Our NEOs 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

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

 

 

 

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Compensation Discussion and Analysis

 

 

change in control of the Company. Accordingly, we have put in place separate arrangements consisting of individual Executive Termination Pay Agreements for our Chief Executive Officer and Executive Vice Presidents, and a Change in Control Plan to address termination situations not precipitated by the conduct of the NEO.

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 Change in Control Plan (CIC Plan) 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;

 

   

replacement of a majority of the Board;

 

   

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

 

   

complete liquidation or dissolution of the Company.

All current NEOs participate in the CIC Plan. The CIC Plan does not provide for the payment of excise tax gross-ups. The CIC Plan and the termination pay agreements are described in more detail in “Potential Payments and Benefits on Termination of Employment”.

Perquisites

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

Annual Health Exam

In fiscal 2019, the NEOs were eligible to receive an allowance 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.

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, Mr. Wafford and Ms. Wlazlo did not maintain a residence near the Company’s home office in Plano, 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 base policy. These amounts are reflected as All Other Compensation in the Summary Compensation Table.

 

 

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Compensation Discussion and Analysis

 

 

Equity Award Grant Policy

The Committee has adopted a Policy Statement that 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.

 

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

 

   

Equity awards to the Chief Executive Officer must be approved by the independent directors of the Board.

 

   

Equity awards to executive officers other than the Chief Executive Officer, 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 Chief Executive Officer and/or the Executive Vice President, Chief Human Resources Officer 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.

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 Chief Executive Officer should retain at least 50% of net shares received pursuant to an equity award payout or exercise if the Chief

 

 

 

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Executive Officer is below the above-described ownership goal at the time of receipt. As of the end of fiscal 2019, our CEO is in compliance with the stock ownership goal required of her role. Due to the decline in the price of the Company’s stock in fiscal 2019, all the other NEOs are below their respective stock ownership goals as of the end of fiscal 2019.

Tax Implications of Our Executive Compensation Programs

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 Chief Executive Officer and certain of our other most highly paid executive officers. To maintain flexibility in compensating NEOs in view of the overall objectives of our compensation programs, 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.

Claw-Back Policy

One of the objectives of our executive compensation programs 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. The Company’s Statement or Business Ethics also prohibits associates from entering into options trading or short selling or other similar derivative transactions in Company securities, entering into hedging transactions, purchasing Company shares on margin, holding Company shares in a margin account or pledging Company shares as collateral for a loan.

 

 

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Report of the Human Resources and Compensation Committee

 

 

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.jcp.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 2019 fiscal year and the Company’s 2020 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

     Ronald W. Tysoe     

W. Paul Jones

     

 

 

 

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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

  2019     1,400,000       0       3,750,000       0       4,477,800       107,804  (4)      9,735,604  

Chief Executive Officer

  2018     413,636       6,000,000       9,999,999       0       0       336,783       16,750,418  
               

Bill Wafford*

  2019     529,356       750,000       1,500,000       0       881,332       41,823  (5)      3,702,512  

Executive Vice President, Chief Financial Officer

               
               

Michelle Wlazlo**

  2019     687,500       300,000       900,000       400,000       1,209,771       19,468  (6)      3,516,739  

Executive Vice President, Chief Merchant

               
               

Therace Risch

  2019     706,667       0       700,000       0       1,161,445       14,083  (7)      2,582,196  

Executive Vice President, Chief Information Officer

  2018     684,750       250,000       1,000,002       0       141,428       17,154       2,093,335  
  2017     622,500       0       1,399,998       199,999       391,225       30,265       2,643,987  
               

Brynn Evanson

  2019     645,609       0       490,000       0       902,388       41,690  (8)      2,079,688  

Executive Vice President, Chief Human Resources Officer

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

Michael Fung*

  2019     189,091       0       0       0       0       111,483  (9)      300,574  

Former Interim Executive Vice President, Chief Financial Officer

  2018     200,417       0       0       0       0       31,320       231,737  
               
               

Michael Robbins***

  2019     154,962       0       700,000       0       684,921       695,844  (10)      2,235,727  

Former Executive Vice President, Chief Stores and Chief Supply Chain Officer

  2018     667,833       250,000       775,003       0       132,879       30,263       1,855,978  
  2017     610,000       0       1,399,998       199,999       381,865       41,048       2,632,910  
               
               

 

*

Mr. Wafford joined the Company as Executive Vice President, Chief Financial Officer on April 8, 2019. Mr. Fung served as Interim Executive Vice President, Chief Financial Officer from October 30, 2018 until April 8, 2019. From April 8, 2019 through April 29, 2019, Mr. Fung served as Interim Senior Vice President, Principal Accounting Officer. Mr. Fung left the company, effective April 30, 2019.

**

Ms. Wlazlo joined the Company as Executive Vice President, Chief Merchant on March 1, 2019.

***

Mr. Robbins left the Company, effective August 4, 2019.

(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 1, 2020, for a discussion of the underlying 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, assuming the maximum level of the performance goals will be achieved, are as follows: Ms. Risch - $1,000,000; Ms. Evanson - $700,000; and Mr. Robbins - $700,000.

 

 

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Summary Compensation Table

 

 

(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 2019. This amount further includes Company contributions or allocations to Ms. Soltau’s account in the Savings Plan for fiscal 2019: $5,833. This amount further includes amounts paid in respect of taxes imputed to Ms. Soltau with respect to transportation expenses: $11,236. This amount further includes transportation expenses in the amount of $32,330 as well as the following perquisites: security services, $43,256 and annual health exam, $5,149.

(5)

The amount shown in this column for Mr. Wafford includes the value of relocation benefits, $27,455, as well as amounts paid in respect of taxes imputed to Mr. Wafford with respect to relocation benefits: $14,368.

(6)

The amount shown in this column for Ms. Wlazlo includes the value of relocation benefits, $11,551, as well as amounts paid in respect of taxes imputed to Ms. Wlazlo with respect to relocation benefits: $2,917. This amount further indicates the value of the following perquisite received by Ms. Wlazlo in fiscal 2019: annual health exam, $5,000.

(7)

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 2019 of $14,083.

(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 2019 of $14,076 and $23,998, respectively. This amount further indicates the value of the following perquisite received by Ms. Evanson in fiscal 2019: annual health exam, $3,616.

(9)

The amount shown in this column for Mr. Fung includes a payment of $15,503 in recognition of certain compensation that Mr. Fung forewent because of his temporary employment with the Company. In lieu of his participation in the Management Incentive Compensation Program and in recognition of certain compensation Mr. Fung forewent because of his temporary employment with the Company, the amount in this column includes an additional payment made to Mr. Fung upon his separation from service: $91,474. This amount further includes the value of the following perquisite received by Mr. Fung in fiscal 2019: annual health exam, $4,506.

(10)

The amount shown in this column for Mr. Robbins includes the value of his severance award received in 2019 under the Executive Termination Pay Agreement that Mr. Robbins entered into in connection with the commencement of his employment. The amount further includes Company contributions or allocations to Mr. Robbins’s account in the Savings Plan for fiscal 2019 of $11,125 and the value of the following perquisite received by Mr. Robbins in fiscal 2019: annual health exam, $2,969.

 

 

 

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Grants of Plan-Based Awards for Fiscal 2019

 

 

Grants of Plan-Based Awards for Fiscal 2019

 

                Estimated Future Payouts
Under Non-Equity
Incentive Plan Awards(2)
         

All

Other
Option
Awards:

Number

of

Securities
Underlying
Options(4)
(#)

             
  Name and Principal
  Position
  Grant
Date(1)
    Date of
Committee
Approval
    Thres-
hold
($)
    Target
($)
    Maximum
($)
   

All Other
Stock
Awards:
Number

of
Shares of
Stock or
Units(3)
(#)

   

Exercise
or

Base
Price

of Option
Awards
($/share)

    Grant
Date Fair
Value of
Stock
Awards(5)
($)
 

Jill Soltau

Chief Executive Officer

    3/5/2019  (6)      2/25/2019       1,500,000       3,750,000       7,500,000          
    3/5/2019  (7)      2/25/2019             2,232,143           3,750,000  
    N/A  (8)        840,000       2,100,000       4,200,000          

Bill Wafford

Executive Vice President, Chief Financial Officer

    4/11/2019  (9)      3/21/2019             806,452           1,000,000  
    4/11/2019  (9)      3/21/2019       200,000       500,000       1,000,000          
    4/11/2019  (9)      3/21/2019             403,226           500,000  
    N/A  (10)        57,314       143,286       286,572          
    N/A  (11)        132,600       331,500       663,000          

Michelle Wlazlo

Executive Vice President, Chief Merchant

    3/5/2019  (6)      2/25/2019       200,000       500,000       1,000,000          
    3/5/2019  (7)      2/25/2019             297,619           500,000  
    3/6/2019  (12)      1/25/2019             242,424           400,000  
    3/6/2019  (12)      1/25/2019               400,000       1.65    
    N/A  (10)        102,857       257,143       514,286          
    N/A  (11)        180,000       450,000       900,000          

Therace Risch

Executive Vice President, Chief Information Officer

    3/5/2019  (6)      2/25/2019       280,000       700,000       1,400,000          
    3/5/2019  (7)      2/25/2019             416,667           700,000  
    N/A  (10)        96,560       241,400       482,800          
    N/A  (11)        144,840       362,100       724,200          

Brynn Evanson

Executive Vice President, Chief Human Resources Officer

    3/5/2019  (6)      2/25/2019       196,000       490,000       980,000          
    3/5/2019  (7)      2/25/2019             291,667           490,000  
    N/A  (10)        77,839       194,597       389,194             0  
    N/A  (11)        116,758       291,895       583,790          

Michael Fung

Former Interim Executive Vice President, Chief Financial Officer

                     

Michael Robbins

Former Executive Vice President, Chief Financial Officer Stores and Chief Supply Chain Officer

    3/5/2019  (6)      2/25/2019       280,000       700,000       1,400,000          
    3/5/2019  (7)      2/25/2019             416,667           700,000  
    N/A  (10)        96,560       241,400       482,800          
                 
                 

 

 

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Grants of Plan-Based Awards for Fiscal 2019

 

 

 

(1)

The Committee has adopted a policy regarding the grant date for annual grants of equity awards to associates. For fiscal 2019, the policy stated that the grant date for annual grants of equity awards to associates was the third full trading date following the public disclosure of the Company’s financial results for the fiscal year prior to the Committee’s approval.

(2)

Reflects award opportunities of grants under the MICP.

(3)

Grants of time-based restricted stock units under the Company’s 2018 Long-Term Incentive Plan or as equity inducement awards.

(4)

Grants of stock options under the Company’s 2018 Long-Term Incentive Plan.

(5)

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

(6)

Grant of long-term performance cash awards under the MICP.

(7)

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

(8)

Grant of award for the full year performance period under the MICP.

(9)

In connection with the commencement of his employment with the Company, Mr. Wafford received a grant of 1,209,678 time-based restricted stock units as a stand-alone equity inducement award. Also in connection with the commencement of his employment with the Company, Mr. Wafford received a grant of long-term performance cash under the MICP.

(10)

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

(11)

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

(12)

In connection with the commencement of her employment with the Company, Ms. Wlazlo received a grant of 242,424 time-based restricted stock units and 400,000 stock options both granted under the Company’s 2018 Long-Term Incentive Plan.

 

 

 

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Table of Contents

Outstanding Equity Awards at Fiscal Year End 2019

 

 

Outstanding Equity Awards at Fiscal Year End 2019

 

    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 ($)(1)
    Equity Plan
Incentive
Awards:
Number of
Unearned
Shares,
Units or
Other Rights
that Have
Not Vested
(#)(2)
    Equity Plan
Incentive
Awards:
Market or
Payout
Value of
Unearned
Shares,
Units or
Other
Rights that
Have Not
Vested ($)(1)
 

Jill Soltau

               

Chief Executive Officer

               

2018

    0       0       N/A       N/A       4,474,273  (3)      3,355,705       0       0  

2019

    0       0       N/A       N/A       2,232,143  (4)      1,674,107       0       0  

Bill Wafford

               

Executive Vice President, Chief Financial Officer

               

2019

    0       0       N/A       N/A       1,209,678  (5)      907,259       0       0  

Michelle Wlazlo

               

Executive Vice President, Chief Merchant

               

2019

    0       400,000  (6)      1.65       3/5/2029       540,043  (7)      405,032       0       0  

Therace Risch

               

Executive Vice President, Chief Information Officer

               

2015

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

2016

    35,000       0       10.84       3/2/2026       0       0       0       0  

2017

    45,506       22,753  (8)      5.96       3/5/2027       167,785  (9)      125,839       0       0  

2018

    0       0       N/A       N/A       131,367  (10)      98,525       7,737  (11)      5,803  

2019

    0       0       N/A       N/A       416,667  (12)      312,500       0       0  

Brynn Evanson

               

Executive Vice President, Chief Human Resources Officer

               

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  

2014

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

2015

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

2016

    35,000       0       10.84       3/2/2026       0       0       0       0  

2017

    39,818       19,909  (13)      5.96       3/5/2027       29,362  (14)      22,022       0       0  

2018

    0       0       N/A       N/A       91,957  (15)      68,968       5,416  (16)      4,062  

2019

    0       0       N/A       N/A       291,667  (17)      218,750       0       0  

 

 

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Outstanding Equity Awards at Fiscal Year End 2019

 

 

    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 ($)(1)
    Equity Plan
Incentive
Awards:
Number of
Unearned
Shares,
Units or
Other Rights
that Have
Not Vested
(#)(2)
    Equity Plan
Incentive
Awards:
Market or
Payout
Value of
Unearned
Shares,
Units or
Other
Rights that
Have Not
Vested ($)(1)
 

Michael Fung

               

Former Interim Executive Vice President, Chief Financial Officer

               

2018

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

2019

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

Michael Robbins

               

Former Executive Vice President, Chief Stores and Chief Supply Chain Officer

               

2016

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

2017

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

2018

    0       0       N/A       N/A       0       0       2,557  (18)      1,918  

2019

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

 

(1)

Based on the closing market price of Company common stock on January 31, 2020, which was $0.75.

(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-half on October 18, 2020 and October 18, 2021.

(4)

Restricted stock units that vest on March 5, 2022.

(5)

403,226 restricted stock units that vest on April 11, 2022 and 806,452 restricted stock units that vest one-third each on April 11, 2020, April 11, 2021, and April 11, 2022.

(6)

Stock options that vest one-third each on March 6, 2020, March 6, 2021, and March 6, 2022.

(7)

297,619 restricted stock units that vest on March 5, 2022 and 242,424 restricted stock units that vest on March 6, 2022.

(8)

Stock options that vest on March 6, 2020.

(9)

Restricted stock units that vest on March 6, 2020.

(10)

69,638 restricted stock units that vest on March 7, 2021 and 61,729 restricted stock units that vest one-half each on 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)

Restricted stock units that vest on March 5, 2022.

(13)

Stock options that vest on March 6, 2020.

(14)

Restricted stock units that vest on March 6, 2020.

(15)

48,747 restricted stock units that vest on March 7, 2021 and 43,210 restricted stock units that vest one-half each on June 14, 2020 and June 14, 2021.

(16)

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

(17)

Restricted stock units that vest on March 5, 2022.

(18)

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

 

 

 

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Table of Contents

Option Exercises and Stock Vested for Fiscal 2019

 

 

Option Exercises and Stock Vested for Fiscal 2019

 

       Option Awards            Stock Awards  

Name and Principal Position

     Number of
Shares
Acquired on
Exercise (#)
      

Value

Realized
on
Exercise ($)

            Number of
Shares
Acquired
on Vesting
(#)
   

Value

Realized
on
Vesting

($)

 

Jill Soltau

       0          0            1,203,803  (1)      1,203,803  (2) 

Chief Executive Officer

                   1,033,333  (1)      1,033,333  (2) 

Bill Wafford

       0          0            0       0  

Executive Vice President, Chief Financial Officer

                  

Michelle Wlazlo

       0          0            0       0  

Executive Vice President, Chief Merchant

                  

Therace Risch

       0          0            30,864  (3)      34,568  (4) 

Executive Vice President, Chief Information Officer

                   16,144  (5)      24,862  (6) 
                   23,396  (7)      27,373  (8) 

Brynn Evanson

       0          0            21,605  (9)      24,198  (10) 

Executive Vice President, Chief Human Resources Officer

                   16,144  (11)      24,862  (12) 
                  

Michael Fung

       0          0            0       0  

Former Interim Executive Vice President, Chief Financial Officer

                  

Michael Robbins

       0          0            27,032  (13)      19,550  (14) 

Former Executive Vice President, Chief Stores and Chief Supply Chain Officer

                   23,019  (15)      16,648  (16) 
                   57,870  (17)      41,852  (18) 
                   30,864  (19)      34,568  (20) 
                   5,144  (21)      3,720  (22) 
                   108,128  (23)      78,198  (24) 
                   16,144  (25)      24,862  (25) 

 

(1)

Represents portion of 2018 time-based restricted stock unit equity inducement award that vested on October 18, 2019. The equity inducement award was granted in relinquishment of certain benefits and compensation provided by Ms. Soltau’s previous employer and as an inducement to join the Company.

(2)

Based on the closing market price of JCPenney common stock on October 18, 2019, which was $1.00.

(3)

Represents portion of 2018 time-based restricted stock unit equity retention award that vested on June 14, 2019.

(4)

Based on the closing market price of JCPenney common stock on June 14, 2019, which was $1.12.

(5)

Represents portion of 2016 time-based restricted stock unit award that vested on March 1, 2019.

(6)

Based on the closing market price of JCPenney common stock on March 1, 2019, which was $1.54.

(7)

Represents portion of 2015 time-based restricted stock unit equity inducement award that vested on December 10, 2019. 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.

(8)

Based on the closing market price of JCPenney common stock on December 10, 2019, which was $1.17.

(9)

Represents portion of 2018 time-based restricted stock unit equity retention award that vested on June 14, 2019.

(10)

Based on the closing market price of JCPenney common stock on June 14, 2019, which was $1.12.

 

 

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Option Exercises and Stock Vested for Fiscal 2019

 

 

(11)

Represents portion of 2016 time-based restricted stock unit award that vested on March 1, 2019.

(12)

Based on the closing market price of JCPenney common stock on March 1, 2019, which was $1.54.

(13)

Represents portion of 2017 time-based restricted stock unit award that vested on August 2, 2019.

(14)

Based on the closing market price of JCPenney common stock on August 2, 2019, which was $0.72.

(15)

Represents portion of 2018 time-based restricted stock unit award that vested on August 2, 2019.

(16)

Based on the closing market price of JCPenney common stock on August 2, 2019, which was $0.72.

(17)

Represents portion of 2019 time-based restricted stock unit award that vested on August 2, 2019.

(18)

Based on the closing market price of JCPenney common stock on August 2, 2019, which was $0.72.

(19)

Represents portion of 2018 time-based restricted stock unit equity retention award that vested on June 14, 2019.

(20)

Based on the closing market price of JCPenney common stock on June 14, 2019, which was $1.12.

(21)

Represents portion of 2018 time-based restricted stock unit equity retention award that vested on August 2, 2019.

(22)

Based on the closing market price of JCPenney common stock on August 2, 2019, which was $0.72.

(23)

Represents portion of 2017 time-based restricted stock unit award that vested on August 2, 2019.

(24)

Based on the closing market price of JCPenney common stock on August 2, 2019, which was $0.72.

(25)

Represents portion of 2016 time-based restricted stock unit award that vested on March 1, 2019.

(26)

Based on the closing market price of JCPenney common stock on March 1, 2019, which was $1.54.

 

 

 

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Non-Qualified Deferred Compensation for Fiscal 2019

 

 

Non-Qualified Deferred Compensation for Fiscal 2019

 

Name

   Executive
Contributions
in last FY
($)
     Registrant
Contributions
in last FY
($)
    

Aggregate
Earnings in
last FY

($)(1)

    

Aggregate
Withdrawals/

Distributions

($)

    

Aggregate
Balance at
last FYE

($)(2)

 

Jill Soltau

     0        0        0        0        0  

Bill Wafford

     0        0        0        0        0  

Michelle Wlazlo

     0        0        0        0        0  

Therace Risch

     0        0        0        0        0  

Brynn Evanson

     0        0        78,100        0        587,508  

Michael Fung

     0        0        0        0        0  

Michael Robbins

     0        0        13,850        0        124,680  

 

(1)

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

(2)

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 ($280,000 for 2019) 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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Non-Qualified Deferred Compensation for Fiscal 2019

 

 

   

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 NEOs.

 

 

 

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Potential Payments and Benefits on Termination of Employment

 

 

Potential Payments and Benefits on Termination of Employment

Under our executive compensation programs, 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

To attract the best people, the Company offers its Chief Executive Officer and each of its Executive Vice Presidents the right to enter into an Executive Termination Pay Agreement with the Company, which we refer to 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, 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.

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.

 

 

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Potential Payments and Benefits on Termination of Employment

 

 

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 or (b) 18 months following termination if the executive is an Executive 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 and 18 months for Executive Vice Presidents    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    Same

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.

 

 

 

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Potential Payments and Benefits on Termination of Employment

 

 

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 pro-rated 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.

Ms. Evanson has an Executive Termination Pay Agreement in the form used by the Company prior to December 2015. Ms. Soltau, Mr. Wafford, Ms. Wlazlo, and Ms. Risch have Executive Termination Pay Agreements as revised in December 2015.

Change in Control; Termination Following a Change in Control

All our NEOs currently participate in the Company’s CIC Plan. None of our NEOs are entitled to a tax gross-up payment in respect of any excise taxes imposed on the benefits payable under the CIC Plan.

 

 

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Potential Payments and Benefits on Termination of Employment

 

 

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 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.

For the NEOs, 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;

 

 

 

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Potential Payments and Benefits on Termination of Employment

 

 

   

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, the 2018 Long-Term Incentive Plan and the 2019 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.

To describe the payments and benefits that are triggered for each termination event for each of the Company’s NEOs, we have created the table below estimating the payments and benefits that would be paid to each of our NEOs under each applicable element of our compensation programs. The table assumes that the NEO’s employment terminated on February 1, 2020, which was the last business day of the Company’s last completed fiscal year.

 

 

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Potential Payments and Benefits on Termination of Employment

 

 

          Base
Salary
($)
    Annual
Cash
Incentive
($)
    Stock
Options
($)
    Restricted
Stock ($)
    Non-Equity
Long-Term
Incentives
($)
    Pension
and Benefit
Restoration
Plans ($)
    Mirror
Savings
Plan ($)
    Other
($)(1)
    Excise
Tax
(Cutback)
($)
    Total
($)
 
 

Jill Soltau

                   
 

Involuntary Termination without Change in Control

    2,800,000       4,200,000       0       3,867,238       1,145,835       0       0       205,889       0       12,218,962  
 

Involuntary Termination with Change in Control

    4,186,000       9,046,800       0       5,029,812       3,750,000       0       0       247,968       (994,249     21,266,331  
 

Death

    0       2,100,000       0       3,867,238       1,145,835       0       0       161,539       0       7,274,612  
 

Permanent Disability

    0       2,100,000       0       3,867,238       1,145,835       0       0       161,539       0       7,274,612  
 

Good Reason without Change in Control

    2,800,000       4,200,000       0       3,867,238       1,145,835       0       0       205,889       0       12,218,962  
 

Good Reason After Change in Control

    4,186,000       9,046,800       0       5,029,812       3,750,000       0       0       247,968       (994,249     21,266,331  
 

Bill Wafford

                   
 

Involuntary Termination without Change in Control

    975,000       828,750       0       907,259       500,000       0       0       88,202       0       3,299,211  
 

Involuntary Termination with Change in Control

    1,943,500       2,305,307       0       907,259       500,000       0       0       135,056       (285,694     5,505,428  
 

Death

    0       552,500       0       907,259       500,000       0       0       41,656       0       2,001,415  
 

Permanent Disability

    0       552,500       0       907,259       500,000       0       0       41,656       0       2,001,415  
 

Good Reason After Change in Control

    1,943,500       2,305,307       0       907,259       500,000       0       0       135,056       (285,694     5,505,428  
 

Michelle Wlazlo

                   
 

Involuntary Termination without Change in Control

    1,125,000       1,125,000       0       250,022       152,778       0       0       91,605       0       2,744,405  
 

Involuntary Termination with Change in Control

    2,242,500       3,224,271       0       405,032       500,000       0       0       132,939       0       6,504,743  
 

Death

    0       750,000       0       250,022       152,778       0       0       47,597       0       1,200,397  
 

Permanent Disability

    0       750,000       0       250,022       152,778       0       0       47,597       0       1,200,397  
 

Good Reason After Change in Control

    2,242,500       3,224,271       0       405,032       500,000       0       0       132,939       0       6,504,743  
 

Therace Risch

                   
 

Involuntary Termination without Change in Control

    1,065,000       1,046,678       0       311,121       373,611       0       0       43,087       0       2,839,498  
 

Involuntary Termination with Change in Control

    2,122,900       2,646,710       0       581,355       950,000       0       0       58,666       0       6,359,631  
 

Death

    0       603,500       0       311,121       373,611       0       0       10,923       0       1,299,156  
 

Permanent Disability

    0       603,500       0       311,121       373,611       0       0       10,923       0       1,299,156  
 

Good Reason After Change in Control

    2,122,900       2,646,710       0       581,355       950,000       0       0       58,666       0       6,359,631  
 

Brynn Evanson

                   
 

Involuntary Termination without Change in Control

    972,984       845,617       0       358,487       665,000       0       587,508       77,301       0       3,506,896  
 

Involuntary Termination with Change in Control

    1,939,481       2,133,559       0       340,883       665,000       0       587,508       109,644       0       5,776,076  
 

Death

    0       486,492       0       153,555       261,528       0       587,508       19,958       0       1,509,041  
 

Permanent Disability

    0       486,492       0       153,555       261,528       0       587,508       19,958       0       1,509,041  
 

Good Reason After Change in Control

    1,939,481       2,133,559       0       340,883       665,000       0       587,508       109,644       0       5,776,076  

 

(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 846 department stores in 49 states and Puerto Rico as of February 1, 2020, 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 67% of our total workforce. In accordance with SEC rules, the Company is using the same median employee used in the 2019 proxy statement for purposes of pay ratio disclosure, determined as of February 2, 2019. Accordingly, our median associate in fiscal 2019 was determined to be a part-time hourly associate.

When we determined our median employee, 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. 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. There have been no changes to our associate population or associate compensation arrangements since that time that the Company believes would significantly impact the pay ratio disclosure.

For fiscal 2019, our last completed fiscal year:

 

   

The median of the annual total compensation of all associates of the Company (other than our CEO) was $11,482; and

 

   

The annual total compensation of our CEO, as reported in the Summary Compensation Table included earlier in this Proxy Statement, was $9,735,604.

Based on this information, for fiscal 2019 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 848 to 1.

 

 

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Director Compensation for Fiscal 2019

 

 

Director Compensation for Fiscal 2019

 

Name

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

Paul J. Brown(3)

  

 

80,000

 

  

 

150,000

 

     

 

10,000

 

  

 

240,000

 

Amanda Ginsberg(4)

  

 

105,000

 

  

 

150,000

 

     

 

0

 

  

 

255,000

 

W. Paul Jones(5)

  

 

52,608

 

  

 

105,963

 

     

 

10,000

 

  

 

168,571

 

Wonya Y. Lucas(6)

  

 

80,000

 

  

 

150,000

 

     

 

9,200

 

  

 

239,200

 

B. Craig Owens(7)

  

 

105,000

 

  

 

150,000

 

     

 

10,000

 

  

 

265,000

 

Lisa A. Payne(8)

  

 

85,000

 

  

 

150,000

 

     

 

10,000

 

  

 

245,000

 

Debora A. Plunkett(9)

  

 

80,000

 

  

 

150,000

 

     

 

10,000

 

  

 

240,000

 

Leonard H. Roberts(10)

  

 

85,000

 

  

 

150,000

 

     

 

10,000

 

  

 

245,000

 

Javier G. Teruel(11)

  

 

2

 

  

 

252,123

 

     

 

0

 

  

 

252,125

 

R. Gerald Turner(12)

  

 

20,000

 

  

 

0

 

     

 

10,000

 

  

 

30,000

 

Ronald W. Tysoe(13)

  

 

195,000

 

  

 

150,000

 

     

 

0

 

  

 

345,000

 

 

(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 2019, 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 2019, which was based on the closing price of JCPenney common stock on the date of grant, which for all non-employee directors except W. Paul Jones was $0.88. The date of grant of the annual stock grant to all non-employee directors, with the exception of W. Paul Jones, was the third trading date following the Company’s Annual Meeting of Stockholders. W. Paul Jones’s service to the Board commenced on July 5, 2019, and the market value of his award was pro-rated accordingly, and was granted to him on the third full trading date following the commencement of his service to the Board.

(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 has 275,561 restricted stock unit awards outstanding as of February 1, 2020.

(4)

Ms. Ginsberg has 204,763 restricted stock unit awards outstanding as of February 1, 2020.

(5)

Mr. Jones has 120,412 restricted stock unit awards outstanding as of February 1, 2020.

(6)

Ms. Lucas has 265,707 restricted stock unit awards outstanding as of February 1, 2020.

(7)

Mr. Owens has 281,525 restricted stock unit awards outstanding as of February 1, 2020.

(8)

Ms. Payne has 255,632 restricted stock unit awards outstanding as of February 1, 2020.

(9)

Ms. Plunkett has 271,041 restricted stock unit awards outstanding as of February 1, 2020.

(10)

Mr. Roberts has 374,741 stock awards, consisting of 364,982 restricted stock unit awards and 9,759 restricted stock awards, outstanding as of February 1, 2020.

(11)

Mr. Teruel has elected to receive 100% 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 has 350,720 restricted stock unit awards outstanding as of February 1, 2020.

(12)

Mr. Turner’s service to the Board ended on May 24, 2019.

(13)

Mr. Tysoe has 232,887 restricted stock unit awards outstanding as of February 1, 2020.

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 non-employee directors against the practices of the Company’s retail-focused peer group. Recommendations to modify non-employee director compensation take into account the results of such benchmarking.

 

 

 

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Director Compensation for Fiscal 2019

 

 

For fiscal 2019, the annual compensation arrangements for non-employee directors included the following, to the extent applicable:

 

   

An annual cash retainer of $80,000;

 

   

An annual award of restricted stock units with a market value at the time of grant of $150,000;

 

   

An annual cash retainer of $25,000 for the chair of the Audit Committee;

 

   

An annual cash retainer of $20,000 for the chair of the Human Resources and Compensation Committee;

 

   

An annual cash retainer of $15,000 for the chairs of the Corporate Governance Committee and the Finance and Planning Committee;

 

   

An annual cash retainer of $30,000 for the Lead Independent Director, as applicable;

 

   

An annual cash retainer of $100,000 for the Non-Executive Chairman of the Board; and

 

   

An annual cash retainer of $5,000 for directors who are Representatives under an Indemnification Trust Agreement among the Company, its wholly owned subsidiary, J. C. Penney Corporation, Inc., and SunTrust Bank, as trustee (currently Directors Ginsberg, Payne and Roberts).

Director compensation covers the period from June 1 to May 31 following the election of directors at the annual meeting in May. The cash retainers are payable quarterly. Non-employee directors are reimbursed for expenses incurred for attending any meeting which they attend in their official capacities as directors.

Director equity awards granted prior to 2017 do not vest until the director’s service ends. Beginning with the 2017 annual restricted stock unit grant for non-employee directors, each non-employee director may elect (i) to have their equity award vest on the first anniversary of the date of grant, (ii) to have their equity award vest when the director’s service ends or (iii) to have a portion of the award vest on the first anniversary of the date of grant with the remaining portion vesting when the director’s service ends. Non-employee directors may not transfer, sell, assign or otherwise dispose of any shares of common stock received in connection with an annual equity award while serving as a director, except for a sale in limited circumstances where necessary for the non-employee director to pay any income taxes arising in connection with the annual equity award.

The Board has adopted formal stock ownership goals for non-employee directors of the Company. The stock ownership goals specify that, within a four-year period from the date of election to the Board, non-employee directors should hold an amount of Company stock having a value of at least three times the annual retainer. All of the current non-employee directors have met or are on track to meet that goal.

Election to Receive Common Stock; Deferral

Directors may elect to receive all or a portion of their cash retainers in Company common stock. One director has currently elected to receive all or part of his cash retainers in Company common stock. A director may also elect to defer payment of all or part of their cash retainers under the terms of a deferred compensation plan for directors. No current director has elected such deferral.

Directors’ Matching Fund

Members of the Board may be involved with charitable organizations to which they provide support in the form of personal charitable contributions. The Company has established the Directors’ Matching Fund to benefit and recognize the mutual interest of directors and the Company in supporting worthy charitable and educational institutions. Under the Directors’ Matching Fund, directors may request the Company to match dollar-for-dollar their personal charitable contributions up to $10,000 per fiscal year. All or part of the matching contributions may be allocated to one or several organizations that have been determined to be charitable organizations under Section 501(c)(3) of the Code or that are a political subdivision of the state. Matches may only be made on personal gifts that have been paid within that fiscal year, not pledged.

 

 

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Audit Function

 

 

Audit Function

Report of the Audit Committee

Composition and Qualifications

The Audit Committee of the Board is composed of five independent directors and operates under a written charter, in accordance with applicable rules of the SEC and the NYSE. The Corporate Governance Committee and the full Board considers membership for the Audit Committee annually. The current members of the Audit Committee are Lisa A. Payne, Debora A. Plunkett, Leonard H. Roberts, Javier G. Teruel and B. Craig Owens, who serves as its Chair. The Board of Directors has determined that each member is “financially literate” and that each of Ms. Payne and Messrs. Owens, Roberts and Teruel qualifies as an “audit committee financial expert,” as those terms are defined by the NYSE and the SEC.

Purpose

The purpose of the Audit Committee is to assist the Board in monitoring: (i) the Company’s accounting and financial reporting processes, including internal control over financial reporting; (ii) the Company’s compliance with legal and regulatory requirements; (iii) the independence and qualifications of the Company’s independent auditor; and (iv) the performance of the Company’s internal auditors and independent auditor.

Responsibilities

Management is responsible for maintaining adequate internal control over financial reporting. KPMG LLP is responsible for expressing opinions on the conformity of the Company’s audited consolidated financial statements with U.S. generally accepted accounting principles and on the effectiveness of the Company’s internal control over financial reporting. The Audit Committee’s responsibility is to monitor and oversee these processes. The Audit Committee is also solely responsible for the selection and termination of the Company’s independent auditor, including the approval of audit fees and non-audit services provided by and fees paid to the independent auditor.

In evaluating and selecting the Company’s independent auditor, the Audit Committee considers, among other things, historical and recent performance of the current independent auditor, an analysis of known significant legal or regulatory proceedings related to the independent auditor, external data on audit quality and performance, including Public Company Accounting Oversight Board (PCAOB) reports, industry experience, audit fee revenues, independent auditor capabilities and audit approach, and the independence and tenure of the independent auditor.

Review of Financial Information

In this context, the Audit Committee has met and held discussions with management of the Company, who represented to the Audit Committee that the Company’s audited consolidated financial statements were prepared in accordance with U.S. generally accepted accounting principles. The Audit Committee has reviewed and discussed the audited consolidated financial statements, management’s assessment of the effectiveness of the Company’s internal control over financial reporting, and KPMG LLP’s evaluation of the Company’s internal control over financial reporting with both management and the independent auditor.

The Audit Committee also discussed with the independent auditor the matters required to be discussed by the applicable requirements of the PCAOB and the SEC. The Audit Committee has received the written disclosures and the letter from the independent auditor required by applicable requirements of the PCAOB regarding the independent auditor’s communications with the Audit Committee concerning independence, and the Audit

 

 

 

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Audit Function

 

 

Committee discussed with the independent auditor its independence, including the extent to which the independent auditor provides non-audit services to the Company. The Audit Committee also participated in the certification process relating to the filing of certain reports pursuant to the Exchange Act.

Inclusion of Consolidated Financial Statements in Form 10-K

Based on the review and discussions referred to above, the Audit Committee recommended to the Board that the audited consolidated financial statements be included in the Company’s Annual Report on Form 10-K for the year ended February 1, 2020 for filing with the SEC.

Independent Auditor

The Audit Committee also recommends that the Company’s stockholders ratify KPMG LLP as the Company’s independent auditor for the 2020 fiscal year.

Audit Committee

 

B. Craig Owens, Chair    Leonard H. Roberts
Lisa A. Payne    Javier G. Teruel
Debora A. Plunkett   

Audit and Other Fees

The following table presents fees for professional services rendered by KPMG LLP:

 

        Fiscal 2018        Fiscal 2019  

Audit Fees(1)

    

$

3,172,400

 

    

$

1,675,400

 

Audit-Related Fees(2)

    

$

115,000

 

    

$

165,000

 

Total Audit and Audit-Related Fees

    

$

3,287,400

 

    

$

1,840,400

 

Tax Fees

         

Tax Compliance Fees(3)

    

 

 

    

$

140,000

 

All Other Fees

    

 

 

    

 

 

Total Fees(4)

    

$

3,287,400

 

    

$

1,980,400

 

 

(1)

Audit fees include fees for the audits of the Company’s annual consolidated financial statements, for professional services rendered for the audits of internal control over financial reporting, for quarterly reviews, for review of SEC filings, for statutory audits and other related matters.

(2)

Audit-related fees in fiscal 2018 and 2019 were for the audit of financial statements of a related entity and for consultation regarding adoption of new financial accounting and regulatory standards.

(3)

Tax fees for 2019 consist of fees for services related to tax planning and consultation services. There were no fees for tax services in fiscal 2018.

(4)

All fees were approved by the Audit Committee.

Audit Committee’s Pre-Approval Policies and Procedures

The Audit Committee must pre-approve all services to be performed by the Company’s independent auditor in advance of the service being performed. The Audit Committee also pre-approves the related fees for specific permitted services or the maximum amount of fees for categories of permitted services. Permitted services may include services in any one or more of the following categories: (a) audit; (b) audit related; (c) tax; and (d) any

 

 

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Audit Function

 

 

other permitted non-audit services to be performed by the independent auditor. If additional fees are needed, the Audit Committee must approve the increased amounts prior to the previously approved specific or maximum fee being reached and before the work may continue. For tax and any other permitted non-audit services, the guideline followed by the Audit Committee is total fees for these services, which are permitted by SEC and PCAOB rules on auditor independence, will not exceed 30% of total fees paid to the independent auditor for the current year. At the discretion and approval of the Audit Committee, the 30% guideline can be raised in any given year in situations where it makes business sense to use the independent auditor to complete permitted tax or other non-audit services.

The Audit Committee may delegate pre-approval authority to the Chair of the Audit Committee. The Chair shall report any pre-approval decisions to the Audit Committee at its next regularly scheduled meeting. Approval by the Audit Committee may also be made at its regularly scheduled meetings or otherwise, including by telephonic or other electronic communications.

 

 

 

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Proposal 2—Ratification of Appointment of Independent Auditor

 

 

Proposal 2 — Ratification of Appointment of Independent Auditor

KPMG LLP, independent certified public accountants, member of the SEC Practice Section of the AICPA Division for CPA firms, and registrant with the PCAOB, has been the auditor of the Company’s consolidated financial statements since 1916. Its appointment as the Company’s independent auditor for the fiscal year ending January 30, 2021 has been approved by the Audit Committee of the Board. The Audit Committee believes this appointment is in the best interests of the Company and its stockholders. Stockholder ratification of such appointment is requested.

It is anticipated that a representative of KPMG LLP will attend the meeting, will be available to respond to appropriate questions, and will have an opportunity to make a statement should he or she so desire.

The Board recommends a vote FOR the ratification of the appointment of KPMG LLP.

 

 

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Proposal 3—Approval of 2020 Long-Term Incentive Plan

 

 

Proposal 3 — Approval of 2020 Long-Term Incentive Plan

Introduction and Rationale for the Plan

Our 2019 J. C. Penney Company, Inc. Long-Term Incentive Plan (the Plan) was approved by stockholders at our 2019 annual meeting and authorized for issuance up to 26,650,000 shares of our common stock for stock-based incentive compensation to eligible associates and non-associate directors. In order to increase the number of shares of common stock available to grant as equity compensation to executives and non-associate directors, our Board has adopted, subject to stockholder approval, the J. C. Penney Company, Inc. Long-Term Incentive Plan, to be effective May 22, 2020 (the 2020 Plan).

We recognize that our executives are key to rebuilding our business, to leading the Company’s Plan for Renewal, and are critical to the overall success of JCPenney. We use stock as both a retention tool and an incentive to encourage behaviors that will benefit our stockholders and the Company. Our ability to offer equity as a long-term component of compensation also helps us recruit talent critical to driving the Company’s long-term growth. Furthermore, awarding long-term incentives in the form of stock promotes responsible use of cash. We believe that our ability to offer long-term equity incentives encourages a balanced focus on short-term goals, long-term goals, and performance that cannot be as effectively achieved with cash awards alone.

The principal features of the 2020 Plan are summarized below, but such description is qualified in its entirety by reference to the full text of the 2020 Plan which is included as Annex A to this Proxy Statement. All capitalized terms not defined in this Proposal 3 will have the meanings set forth in Annex A to this Proxy Statement.

The 2020 Plan is intended to provide long-term incentives to associates and non-associate directors of the Company in order to align the interests of such associates and non-associate directors with those of the Company’s stockholders, to motivate associates to achieve business objectives promoting the long-term growth, profitability and success of the Company, and to assist the Company in retaining and attracting the best associates and non-associate directors.

The 2020 Plan will be administered by, or under the direction of, a committee of the Board constituted in such a manner as to comply at all times with Rule 16b-3 or any successor rule promulgated by the SEC under the Exchange Act, as in effect from time to time. The Board has designated the Human Resources and Compensation Committee of the Board as the plan committee (the Plan Committee).

The 2020 Plan allows for grants of stock options, stock appreciation rights (SARs) and stock awards (collectively, Equity Awards) and cash incentive awards (together with Equity Awards, collectively, Awards) to associate participants and Equity Awards to non-associate director participants. Under the 2020 Plan, Awards to associate participants may be subject to conditions such as continued employment, qualifying termination, passage of time and/or satisfaction of performance criteria as specified in the 2020 Plan or set by the Plan Committee.

The Board recommends a vote FOR the proposal to approve the 2020 Plan.

 

 

 

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Proposal 3—Approval of 2020 Long-Term Incentive Plan

 

 

Principal Features of the 2020 Plan

General. The principal features of the 2020 Plan are:

 

   

Fungible share design in which each stock option and SAR will count as one share issued and each stock award, including restricted stock and restricted stock units, will count as 1.33 shares issued;

 

   

Reserves a total of 19,037,594 shares of common stock, or 25,320,000 options, for use under the 2020 Plan;

 

   

Minimum one-year vesting for Equity Awards, except in certain limited situations;

 

   

Annual limit on Equity Awards granted to each non-associate director of $500,000 based on grant date fair value;

 

   

Performance Awards are to be tied to Performance Goals to be set by the Plan Committee;

 

   

Independent administration of the 2020 Plan by the Plan Committee;

 

   

Limits Incentive Stock Options (ISOs) to no more than 25,320,000 options;

 

   

Limits performance-based cash incentive awards to any participant in any calendar year to the product of $2,000,000 and the number of years in the performance cycle of the award;

 

   

Limits stock option and SAR awards to any one participant to no more than 4,000,000 options during any fiscal year;

 

   

Limits performance-based Equity Awards to any one participant to no more than 3,000,000 shares during any fiscal year;

 

   

Provides that shares subject to Awards under the 2020 Plan or under prior plans that are cancelled or forfeited, or terminate, lapse or expire for any reason, or settle without delivery of the shares of common stock underlying such Award, may again be available for issuance;

 

   

Prohibits repricing, exchange and buyout of stock options and SARs without prior stockholder approval;

 

   

Stock option and SAR terms may not exceed 10 years from the date of grant, except in certain limited circumstances; and

 

   

Prohibits payouts of dividend or dividend equivalents on unvested Equity Awards.

Participants. The 2020 Plan provides for two classes of participants: Associate Participants and Non-Associate Director Participants. For each class of participants, eligibility to participate in the 2020 Plan is determined by the Plan Committee, in its sole discretion, that an individual’s participation will further the purposes of the 2020 Plan. Currently, it is anticipated that approximately 500 Associates and 10 Non-Associate Directors will be eligible to participate in the 2020 Plan.

Associate Participants

General. Associate participants in the 2020 Plan are generally to be selected management employees of the Company and its subsidiaries as determined by the Plan Committee.

Stock Options. Option grants will generally be made in amounts based on an associate participant’s position, responsibilities or salary and such other factors as the Plan Committee may deem relevant. An associate participant may receive one or more option grants and may receive Non-Qualified Stock Options (NSOs) and ISOs, as determined by the Plan Committee. The Plan Committee may determine any other terms, conditions or restrictions relating to option grants as it may deem appropriate, subject to certain restrictions set forth in the 2020 Plan.

Price. The option price under each option may not be less than 100% of the fair market value of JCPenney common stock on the date of grant, which is the closing price of JCPenney common stock on the NYSE on the applicable date. The closing price of JCPenney common stock on March 23, 2020, as reported on the NYSE, was

 

 

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$0.40 per share. The exercise price of the shares as to which a Stock Option is exercised may be paid in cash, with shares of JCPenney common stock already owned by the associate or through withholding of shares that would otherwise be received as a result of the Stock Option exercise, except as otherwise set forth in the Award Notice or Award Agreement pertaining to the Stock Option.

Stock Awards. The Plan Committee may award shares of common stock or stock units to such associate participants and on such bases as it may determine. The Plan Committee may determine the types of awards made, the number of shares, and any other terms, conditions or restrictions relating to the awards, as it may deem appropriate.

Stock Appreciation Rights. SARs may be granted to such associate participants and on such terms and conditions as the Plan Committee may determine and may be granted independently or in tandem with related awards or options, either concurrently with or after the related award or option date. A SAR will generally entitle an associate participant to receive the number of shares of JCPenney common stock equal in value to the excess of the fair market value of each share of JCPenney common stock covered by the SAR on the date of exercise over the exercise price of the SAR, but may, at the discretion of the Plan Committee, be settled in cash.

Cash Incentive Awards. The Plan Committee may also grant cash incentive awards to such associate participants on such terms and conditions as it may determine. Cash incentive awards are annual or long-term performance-based awards expressed in U.S. dollars.

Performance-Based Awards. Any Award granted pursuant to the 2020 Plan may be made in the form of a performance-based Award. Performance-based Awards are made based on the measurement of performance against certain Performance Goals over a Performance Period. The Plan Committee may use one or more of several business criteria for the purpose of establishing a Performance Goal, including:

Earnings Per Share;

Total Stockholder Return;

Operating Income;

Net Income;

Cash Flow;

Gross Profit;

Gross Profit Return on Investment (or Inventory);

Return on Equity;

Return on Capital;

Sales;

Revenues;

Gross Margin;

Gross Margin Return on Investment (or Inventory);

Earnings Before Interest, Taxes, Depreciation and Amortization;

Earnings Before Interest and Taxes; and

Operating Profit.

The Plan Committee may establish any special adjustments in calculating whether Performance Goals have been met including taking into consideration the effect of any event not directly related to the operations of the Company or not within the reasonable control of management. A performance-based cash incentive award may not have a Performance Period of less than one year.

Terms of Options and SARs. An option or SAR granted under the 2020 Plan will become exercisable on such terms and at such times as the Plan Committee may determine. In the event of employment termination due to

 

 

 

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death, disability, retirement or other circumstances, as deemed appropriate by the Plan Committee, the 2020 Plan authorizes post-termination exercise periods, but not beyond the options’ or SARs’ original expiration date. In no event may an ISO be exercised more than 10 years after its grant date. Generally, an NSO and a SAR may not be exercised more than 10 years after its grant date, or such shorter time period as determined by the Plan Committee.

Transferability. No unearned Stock Award or vested or unvested Stock Option, or any portion thereof, may be assigned or transferred except by will or the laws of descent or distribution, or by such other means as the Plan Committee, in its discretion, may approve. No Stock Option or SAR shall be exercisable during the associate participant’s lifetime except by the associate participant or the associate participant’s guardian or legal representative, or other third party, as the Plan Committee may determine.

Deferral. Unless specifically provided for in the Award Notice or Award Agreement or unless the Plan Committee otherwise determines, no Equity Award shall provide any feature for the deferral of compensation as defined by Treasury Regulation section 1.409A-1(b). Any deferral will be for such period and in accordance with the terms and conditions as the Plan Committee may determine and must be in compliance with Section 409A of the Internal Revenue Code, as in effect from time to time (the Code). The terms and conditions applicable to such deferral and the terms and conditions evidencing compliance with Code Section 409A shall be set forth in the Award Notice or Award Agreement or the Plan Committee’s determinations. The method of payment for, and type and character of, any Award may not be altered by any deferral unless specifically permitted under Code Section 409A and the Treasury Regulations thereunder.

Term of Plan. The 2020 Plan will terminate on May 31, 2030. After this date, no Awards may be made under the 2020 Plan.

Change in Control. Upon an involuntary termination of an associate participant’s employment within two years following a Change in Control, the associate participant shall have the right to exercise any and all Stock Options and SARs held by such associate participant, and all Stock Awards held by such associate participant shall immediately vest, be deemed to have been earned, and any Stock Awards held that are subject to Performance Goals will be deemed satisfied as if target performance was achieved and shall be settled in full in cash, shares, or a combination thereof as provided for in the applicable Award Notice within thirty (30) days following employment termination (except to the extent that settlement of the award must be made pursuant to its original schedule in order to comply with Code Section 409A), notwithstanding that the applicable performance period, service period, or other restrictions and conditions have not been completed or satisfied

Federal Income Tax Consequences

The following discussion summarizes the United States federal income tax consequences under current federal tax law generally arising with respect to awards granted under the 2020 Plan. This summary is not intended to be exhaustive and the exact tax consequences to any participant will depend on various factors and the participant’s particular circumstances. This summary is based on present laws, regulations and interpretations and is not a complete description of federal tax consequences. This summary of federal tax consequences may change in the event of a change in the Code or regulations thereunder or interpretations thereof. We urge participants in the 2020 Plan to consult their tax advisors with respect to any state, local and foreign tax considerations or particular federal tax implications of awards made under the 2020 Plan prior to taking action with respect to an award. The 2020 Plan is not intended to be a “qualified plan” under Section 401(a) of the Code.

Non-Qualified Stock Options. An associate participant will not be subject to tax at the time an NSO is granted, and no tax deduction is then available to the Company. On the exercise of an NSO, the associate participant will realize ordinary income in an amount equal to the difference between the exercise price and the fair market value

 

 

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of the shares acquired on the date of exercise. The Company will generally be entitled to deduct an amount equal to the ordinary income realized by the associate participant in the Company’s tax year in which the associate participant realizes the ordinary income. On disposition of shares acquired on exercise, appreciation or depreciation after the date of exercise will generally be treated by the associate participant as a capital gain or loss, as applicable.

Incentive Stock Options. An associate participant will not be subject to regular income tax at the time an ISO is granted or exercised, and no tax deduction is then available to the Company; however, the associate participant may be subject to the alternative minimum tax (AMT) on the excess of the fair market value of the shares received on exercise of the ISO (the ISO Shares) over the exercise price. On disposition of ISO Shares, the associate participant will generally recognize capital gain or loss in an amount equal to the difference between the exercise price and the sale price, as long as the participant has not disposed of the shares within two years after the date of grant or within one year after the date of exercise (a disqualifying disposition) and has been employed by the Company or a subsidiary at all times from the grant date until the date three months before the date of exercise (one year in the case of disability).

If the associate participant disposes of ISO Shares in a disqualifying disposition, the participant will recognize ordinary income equal to the excess of the fair market value of the ISO Shares on the date the ISO is exercised over the exercise price with any remaining gain or loss being treated as capital gain or loss, respectively. The Company is not entitled to a tax deduction on either the exercise of an ISO or on the disposition of ISO Shares, except to the extent that the participant recognizes ordinary income on disposition of the shares. If in the event an option intended to be an ISO fails to qualify as an ISO, for example if the associate participant does not satisfy both the employment requirements in connection with the exercise of the ISO and the holding period requirement, the ISO will be taxed as an NSO as described above.

Payment of the Exercise Price with Stock. If an associate participant surrenders common stock that the associate participant already owns as payment for the exercise price of a stock option, the associate participant will not recognize gain or loss as a result of the surrender, except under certain circumstances related to the surrender of ISO Shares for which the holding period requirement has not been satisfied. A number of shares received on exercise of the option equal to the number of shares surrendered will have a tax basis equal to the tax basis of the surrendered shares. The holding period for those shares will include the holding period for the shares surrendered. The remaining shares received will have a basis equal to the amount includible in the associate participant’s taxable income on receipt of such shares. The associate participant’s holding period for the remaining shares will commence on the date of exercise.

Stock Awards. An associate participant will be taxed on the fair market value of the shares of common stock in the taxable year in which the grant occurs, unless the underlying shares are substantially nonvested (i.e. both nontransferable and subject to a substantial risk of forfeiture). An associate participant who wishes to recognize income with respect to substantially non-vested shares in the taxable year in which the grant occurs may, however, do so by making a special election, a so-called Section 83(b) Election, to pay tax in the year the grant is made.

An associate participant who is subject to Section 16(b) of the Exchange Act who receives stock will recognize ordinary income equal to the fair market value of the shares of stock received at the later of (i) the applicable date, or (ii) the earlier of: (a) the date on which the shares are transferable, or (b) the date on which the restrictions lapse, unless the associate participant makes a Section 83(b) Election to report the fair market value of such shares received as ordinary income in the taxable year of receipt. The Company may deduct an amount equal to the income recognized by the associate participant, provided that the associate participant is a covered employee under Section 162(m) of the Code and the associate participant’s compensation is within the statutory limitations of Section 162(m) of the Code.

 

 

 

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On the sale or disposition of shares of stock, an associate participant will recognize taxable income equal to the difference between the amount realized by the associate participant on the disposition of the stock and the associate participant’s basis in the stock. The basis of the restricted shares will be equal to the fair market value of the shares of stock on the date the associate participant recognizes ordinary income as described above. The gain or loss will be taxable to the associate participant as a capital gain or deductible by the associate participant as a capital loss (either short-term or long-term, depending on the holding period of the stock), provided that the associate participant held the stock as a capital asset.

Restricted Stock Unit Awards. An associate participant will not be subject to tax at the time a restricted stock unit is granted, and no tax deduction is then available to the Company. On vesting of the restricted stock unit, an associate participant will generally realize ordinary income equal to the value of the shares of common stock or cash received. The basis of any shares delivered in payment for restricted stock units will be equal to the fair market value of the shares on the date the associate participant recognizes ordinary income as described above. The Company will deduct an amount equal to the income recognized by the associate participant, provided that the associate participant is a covered employee under Section 162(m) of the Code and the associate participant’s compensation is within the statutory limitations of Section 162(m) of the Code.

Stock Appreciation Rights and Other Stock-Based Awards. An associate participant will not be subject to tax at the time a SAR is granted, and no tax deduction is then available to the Company. On exercise of a SAR, the associate participant will generally realize ordinary income equal to the value of the shares of common stock or cash received. The Company will deduct an amount equal to the income recognized by the associate participant, provided that the associate participant is a covered employee under Section 162(m) of the Code and the associate participant’s compensation is within the statutory limitations of Section 162(m) of the Code.

Section 162(m) of the Code

Section 162(m) of the Code generally disallows a public company’s tax deduction for compensation paid to its covered employees as defined in Section 162(m) of the Code to the extent such compensation exceeds $1,000,000 in any tax year. While the Company understands that Awards will generally be subject to the deduction limitations of Section 162(m), the Company reserves the right to make grants that are not tax deductible, and the Company’s tax deductions for those grants may be limited or eliminated as a result of the application of Section 162(m).

Section 409A of the Code

For associate participants who are “key employees,” as defined in Section 409A of the Code and regulations promulgated under that Section, distributions of certain deferral amounts may occur no earlier than six months following the key employee’s separation from service from the Company. It is the intent of the Company that no Awards under the 2020 Plan be subject to Section 409A of the Code unless and to the extent that the Plan Committee specifically determines otherwise.

The terms and conditions of any Award that the Plan Committee determines will be subject to Section 409A will be set forth in the applicable Award Notice or Award Agreement and will be designed to comply in all respects with Section 409A. If the Award fails to comply with the applicable requirements of Section 409A, the deferred compensation for the year in which the failure to comply with Section 409A occurs and for all preceding taxable years under the Award and any other plan or arrangement required to be aggregated with the Award may be includible in the participant’s gross income for the taxable year in which the failure occurs, to the extent such amounts are not subject to a substantial risk of forfeiture and have not previously been included in the participant’s gross income. The amounts so included are also subject to an additional income tax equal to twenty percent of the amount required to be included in gross income and to interest equal to the underpayment rate

 

 

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specified by the IRS plus one percentage point, on the underpayments of income tax that are deemed to have occurred because the compensation was not included in income for the taxable year when it was first deferred, or if later, when the compensation was no longer subject to a substantial risk of forfeiture.

Non-Associate Director Participants

General. Each director who is presently not an employee of the Company (Non-Associate Director) will generally be awarded an annual Equity Award in an amount which the Board determines and pursuant to such terms, conditions and restrictions as determined by the Board. Annual Equity Awards granted to each Non-Associate Director may not exceed $500,000 based on grant date fair value. An initial grant will also automatically be granted to each new Non-Associate Director participant on his or her first being elected as a director in a pro rata amount of the annual Equity Award for that year, based on the date of election.

Non-Transferability. A Non-Associate Director participant may not transfer, sell, assign, pledge or otherwise encumber or dispose of any shares of common stock received in connection with an annual Equity Award while serving as a director, except for a sale only in limited circumstances where necessary for the Non-Associate Director to pay any federal, state or local income taxes arising in connection with the Award.

Federal Income Tax Consequences. The federal income tax implications for Non-Associate Director participants are substantially similar to those for associate participants, except that Non-Associate Director participants may not receive ISOs or cash incentive awards. Any election to defer compensation and any election to defer distributions will be made in compliance with Section 409A of the Code, if applicable.

Miscellaneous

The Board may amend the 2020 Plan from time to time as it deems advisable and may terminate the 2020 Plan at any time. Amendments to increase the total number of shares of the common stock reserved under the 2020 Plan or that otherwise constitute material changes to the 2020 Plan under applicable tax or securities laws or the listing standards of the NYSE require stockholder approval. Except as otherwise provided in or permitted by the 2020 Plan or by the terms, if any, of an Award under the 2020 Plan, no termination or amendment of the 2020 Plan or change in the terms of an outstanding Award may adversely affect the rights of the holder of any Award without the consent of the holder. If the 2020 Plan is approved by stockholders, no further awards will be granted under any prior plan after the effective date of the 2020 Plan.

 

 

 

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Equity Compensation Plan(s) Information

 

 

Equity Compensation Plan Information

The following table shows the number of options and other awards outstanding as of February 1, 2020 under the 2019 Plan and other outstanding equity compensation plans, as well as the number of shares remaining available for grant under the 2019 Plan. Upon approval of the 2020 Plan, all shares available to issue under the 2019 Plan would cancel.

 

Plan Category

  Number of
securities to
be issued
upon exercise
of outstanding
options,
warrants and
rights
(a)
    Weighted-
average
exercise price
of outstanding
options,
warrants and
rights
(b)
    Number of
securities
remaining
available for
future
issuance
under  equity
compensation
plans
(excluding
securities
reflected in
column (a))
(c)
 

Equity compensation plans approved by security holders

 

 

21,126,001

(1) 

 

$

13.95

(2) 

 

 

20,276,446

(3) 

Equity compensation plans not approved by security holders

 

 

3,560,436

(4) 

 

$

                —

 

 

 

                    —

 

 

 

 

   

 

 

   

 

 

 

Total

    24,686,437    

$

13.95

 

    20,276,446  
 

 

 

   

 

 

   

 

 

 

 

(1)

Includes 14,010,617 restricted stock units.

(2)

Represents the weighted average exercise price of outstanding stock options only. The weighted average remaining term is 4.9 years.

(3)

At the May 24, 2019 Annual Meeting of Stockholders, our stockholders approved the 2019 Plan, which has a fungible share design in which each stock option will count as one share issued and each stock award will count as 1.49 shares issued. The 2019 Plan reserved 17,885,906 shares or 26,650,000 options for issuance to associates and non-associate directors. In addition, shares underlying any outstanding stock award or stock option grant from prior plans that are canceled prior to vesting or exercise become available for use under the 2019 Plan. No shares remain available for future issuance from prior plans.

(4)

On October 18, 2018, the Company made an inducement equity award of 3,100,000 restricted stock units to our Chief Executive Officer, Jill Soltau, one-third of which vested on October 18, 2019, one third of which will vest on October 18, 2020, and one third of which will vest on October 18, 2021. On April 11, 2019, the Company made an inducement equity award of 1,200,000 restricted stock units to our Chief Financial Officer, Bill Wafford, 800,000 of which will vest one-third on April 11, 2020, one-third on April 11, 2021, and one-third on April 11, 2022 and 400,000 of which will vest on April 11, 2022. On May 2, 2019, the Company made an inducement equity award of 284,091 restricted stock units to our Principal Accounting Officer and Controller, Steve Whaley, which will vest on May 2, 2022. On June 6, 2019, the Company made an inducement equity award of 750,000 restricted stock units to Shawn Gensch, which were scheduled to vest one-third on June 6, 2020, one-third on June 6, 2021, and one-third on June 6, 2022. The full value of this award has been forfeited as of March 1, 2020. In March 2020, the Board established the 2020 Equity Inducement Plan (2020 EIP) and reserved 7,000,000 shares of common stock solely for the granting of inducement stock options, stock appreciation rights and other stock awards. As of March 2020, no awards have been granted under the 2020 EIP to new associates.

 

 

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Proposal 4—Approval of Amendment and Extension of Amended and Restated Rights Agreement

 

 

Proposal 4 — Approval of Amendment and Extension of Amended and Restated Rights Agreement

Introduction

Our past business operations generated significant net operating losses and unrealized tax losses (collectively, NOLs). Under federal tax laws, we generally can use our NOLs and certain related tax credits to offset ordinary income tax paid in our prior two tax years or on our future taxable income for up to 20 years, when they “expire” for such purposes. Until they expire, we can “carry forward” NOLs and certain related tax credits that we do not use in any particular year to offset taxable income in future years. As of February 1, 2020, we had more than $2 billion in NOLs. While we cannot estimate the exact amount of NOLs that we can use to reduce our future income tax liability because we cannot predict the amount and timing of our future taxable income, we believe our NOLs are very valuable assets.

Our ability to utilize our NOLs to offset future federal taxable income may be significantly limited if we experience an “ownership change,” as determined under Section 382 of the Internal Revenue Code of 1986, as amended (the Code). Under Section 382, an “ownership change” occurs if a stockholder or a group of stockholders that is deemed to own at least 5% of our common stock increases its ownership by more than 50 percentage points over its lowest ownership percentage within a rolling three-year period. If an ownership change occurs, Section 382 would impose an annual limit on the amount of our NOLs that we can use to offset taxable income equal to the product of the total value of our outstanding equity immediately prior to the ownership change (reduced by certain items specified in Section 382) and the federal long-term tax-exempt interest rate in effect for the month of the ownership change. A number of complex rules apply to calculating this annual limit.

In order to reduce the likelihood that an ownership change would occur, the Board, after careful consideration, chose to adopt the J. C. Penney Company, Inc. Amended and Restated Rights Agreement on January 27, 2014, and to adopt the First Amendment to Rights Agreement on January 23, 2017. The adoption of the Amended and Restated Rights Agreement was approved by the stockholders of the Company at our 2014 Annual Meeting of Stockholders held on May 16, 2014 and the First Amendment to Amended and Restated Rights Agreement was approved by the stockholders at our 2017 Annual Meeting of Stockholders held on May 19, 2017. We refer to the Amended and Restated Rights Agreement, as amended by the First Amendment to Amended and Restated Rights Agreement, herein as the “Rights Agreement.” By its terms, the Rights Agreement would have expired on January 25, 2020. Subject to certain limited exceptions, the Rights Agreement is designed to deter any person from buying our common stock (or any interest in our common stock) if the acquisition would result in a stockholder (or several stockholders, in the aggregate, who hold their stock as a “group” under the federal securities laws) beneficially owning 4.9% or more of our then-outstanding common stock without approval of the Board.

If an ownership change were to occur, the limitations imposed by Section 382 could result in a material amount of our NOLs expiring unused and, therefore, significantly impair the value of our NOLs. While the complexity of Section 382’s provisions and the limited knowledge any public company has about the ownership of its publicly traded stock make it difficult to determine whether an ownership change has occurred, we believe that the ownership change percentage as of February 1, 2020 was approximately 1% and therefore we currently believe that an ownership change has not occurred. However, if no action is taken to continue to preserve our NOLs, it is possible that we could experience an ownership change in the future.

After careful consideration, the Board determined that the most effective way to continue to protect the benefits of our NOLs for long-term stockholder value is to adopt an amendment (the Amendment) to the Rights Agreement to extend the term of the Rights Agreement by three years to January 25, 2023. On November 8, 2019, the Board approved the Amendment. The Company entered into the Amendment on January 24, 2020. The terms of the

 

 

 

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2020 Proxy Statement    

 

 

 

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Table of Contents

Proposal 4—Approval of Amendment and Extension of Amended and Restated Rights Agreement

 

 

Rights Agreement, as amended by the Amendment, are summarized below, but such description is qualified in its entirety by reference to the full text of the Rights Agreement, as amended by the Amendment, which is included as Annex B to this Proxy Statement.

The Amendment requires stockholder approval for the Rights Agreement, pursuant to which the Company has issued certain stock purchase rights with terms designed to deter transfers of our common stock that could result in an ownership change, to remain in effect. The Rights Agreement will expire immediately following the final adjournment of the Annual Meeting if stockholder approval of the Amendment is not received. The Amendment makes no other changes to the Rights Agreement other than the extension of the term of the Rights Agreement to January 25, 2023.

The Board urges our stockholders to carefully read this proposal, the items discussed below under the heading “Certain Considerations Related to the Extension of the Rights Agreement,” and the full terms of the Rights Agreement, as amended by the Amendment, attached as Annex B to this Proxy Statement. It is important to note that the Rights Agreement does not offer a complete solution, and an ownership change may occur even if the Amendment is approved. The Rights Agreement may deter, but ultimately cannot block, transfers of our common stock that might result in an ownership change. The limitations of this measure are described in more detail below.

The Board recommends a vote FOR the proposal to amend and extend the Rights Agreement.

Description of the Rights Agreement

The Rights Agreement is intended to act as a deterrent to any person or group becoming the beneficial owner of 4.9% or more of our outstanding common stock (an Acquiring Person) without the approval of the Board, other than as a result of (x) repurchases of stock by the Company, (y) a stock dividend, stock split, reverse stock split or similar transaction or (z) certain inadvertent actions by certain stockholders. However, no person who, at the time of the first public announcement of the Rights Agreement, beneficially owned 4.9% or more of the outstanding shares of common stock will be deemed an Acquiring Person, unless and until such person acquires beneficial ownership of additional shares of common stock, with certain exceptions. In addition, no person who beneficially owns 4.9% or more of the outstanding shares of common stock will be deemed an Acquiring Person if the Board, in its sole discretion, so determines in light of the intent and purposes of the Rights Agreement or other circumstances facing the Company.

The Rights. The Board authorized the issuance of one right per each outstanding share of our common stock payable to our stockholders of record as of the close of business on September 3, 2013. Subject to the terms, provisions and conditions of the Rights Agreement, if these rights become exercisable, each right would initially represent the right to purchase from us a unit consisting of one one-thousandth of a share of our Series C Junior Participating Preferred Stock for a purchase price of $55.00 per unit. If issued, each fractional share of preferred stock would generally give a stockholder approximately the same dividend, voting and liquidation rights as does one share of our common stock. However, prior to exercise, a right does not give its holder any rights as a stockholder, including without limitation any dividend, voting or liquidation rights.

Exercisability. The rights will not be exercisable until the earlier of (i) the close of business on the tenth business day after public announcement that a person has become an Acquiring Person (the date of such public announcement is referred to herein as the Stock Acquisition Date) or (ii) the close of business on the tenth business day (or such later date as the Board shall determine) after a third party makes a tender or exchange offer which, if consummated, would result in such third party becoming an Acquiring Person. In this Proxy Statement, we refer to the date on which the rights become exercisable as the Distribution Date.