Best Buy DEF 14A 2015
Documents found in this filing:
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
NOTICE OF 2015 REGULAR MEETING OF SHAREHOLDERS
For shares held through a broker, bank or other nominee, you may vote by submitting voting instructions to your broker, bank or other nominee.
Regardless of whether you expect to attend the meeting in person, please vote your shares in one of the ways outlined above.
To My Fellow Shareholders:
It has been 17 years since I joined the Best Buy Board of Directors. In that time I have had great pride in my association with this company and deep admiration for what it has been able to accomplish. Best Buy is a genuine American success story and it has been enormously gratifying to play even a small role in its journey.
In recent years that journey has included a number of steep challenges. However, we have been fortunate to have guiding us Hubert Joly, our President and CEO. Only months after taking the helm in the fall of 2012, he stood before investors and laid out the framework for a return to growth. He called this effort “Renew Blue” and the Company has followed this path as it took us from turnaround to transformation.
Since launching Renew Blue, customer satisfaction has improved, vendor relationships have been strengthened, employee morale is up, investors have seen a meaningful return, and Best Buy continues to act as a leader in protecting our planet’s resources.
Each of these successes mirror closely what we said we would do:
Hubert would be the first to say that he was not alone in achieving these successes. He is fortunate to have working with him perhaps the most effective management team in corporate America today. In fact, there are a handful of companies in this country that are well known for their successful turnaround and, with an executive team like Best Buy’s, I am confident our Company will someday join this impressive list.
As I look to summarize for my fellow shareholders where Best Buy is, and where I believe it is going, I would say the following:
I saw the same values and determination 17 years ago when I sat down for lunch with Best Buy’s Founder, Dick Schulze, and his trusted colleague, Elliot Kaplan. That day in March 1998, Dick invited me to join the Board, and, when I accepted, I could not have imagined how rewarding that decision would be. My thanks to Dick and Elliot for their faith in me and for their enduring friendship.
Now, nearly two decades later, I have decided it is time to retire from the Best Buy Board of Directors. This decision has been a hard one for me. I have enjoyed my time with this Company more than I can express. As a man who has had more than his fair share of good fortune and rewarding experiences, I count the days spent with Best Buy as some of the most pleasant of my professional career.
As difficult as my decision was, it was made easier knowing that the Chairman’s gavel goes to Hubert, a man of proven integrity, wisdom and energy. I am exceedingly pleased the Board has appointed him to this key role and know that he and Russ Fradin, who will serve as our Lead Independent Director, will carry on the work Hubert and I have partnered on.
The people of Best Buy are resilient and battle tested. They understand and embrace their unique role in the fabric of American culture and commerce. They are determined to do more than simply survive in a changing retail landscape; they are determined to thrive in it. And thrive they will, with the guidance of my colleagues on the Board, the professionalism of an exceptional management team and the support of you, the shareholder.
In the end, however, it is the 125,000 men and women of Best Buy in whose hands our Company’s future truly rests. It is they in whom I have the greatest confidence and it is they who I offer this one final, grateful salute.
Hatim A. Tyabji
Chairman of the Board
Best Buy Co., Inc.
ATTENDING THE REGULAR MEETING OF SHAREHOLDERS
TABLE OF CONTENTS
BEST BUY CO., INC.
7601 Penn Avenue South
Richfield, Minnesota 55423
REGULAR MEETING OF SHAREHOLDERS — JUNE 9, 2015
This proxy statement is furnished in connection with the solicitation of proxies by the Board of Directors ("Board") of Best Buy Co., Inc. ("Best Buy," "we," "us," "our" or the "Company") to be voted at our 2015 Regular Meeting of Shareholders (the "Meeting") to be held on Tuesday, June 9, 2015, at 9:00 a.m., Central Time, at the Best Buy Corporate Campus — Convention Center, 7601 Penn Avenue South, Richfield, Minnesota, 55423 or at any postponement or adjournment of the Meeting. The proxy materials, including the proxy statement, our annual report and form of proxy, were either made available to you over the Internet or mailed to you beginning on or about April 28, 2015.
What is the purpose of the Meeting?
At the Meeting, shareholders will vote on the items of business outlined in the Notice of 2015 Regular Meeting of Shareholders ("Meeting Notice") included as the cover page to this proxy statement. In addition, management will report on our business and respond to questions from shareholders.
Why did I receive this proxy statement and a proxy card or the Notice of Internet Availability?
You received this proxy statement and a proxy card or the Notice of Internet Availability because you owned shares of Best Buy common stock as of April 13, 2015, the record date for the Meeting, and are entitled to vote on the items of business at the Meeting. This proxy statement describes the items of business that will be voted on at the Meeting and provides information on these items so that you can make an informed decision.
Who may vote?
In order to vote at the Meeting, you must have been a shareholder of record of Best Buy as of April 13, 2015, which is the record date for the Meeting. If your shares are held in "street name" (that is, through a bank, broker or other nominee), you will receive instructions from the bank, broker or nominee that you must follow in order for your shares to be voted as you choose.
When is the record date?
The Board has established April 13, 2015, as the record date for the Meeting.
How many shares of Best Buy common stock are outstanding?
As of the record date, there were 352,334,352 shares of Best Buy common stock outstanding. There are no other classes of capital stock outstanding.
On what items of business am I voting?
How does the Board recommend that I vote?
Our Board recommends that you vote your shares:
If you are a record holder and you sign and submit your proxy card without indicating your voting instructions, your shares will be voted as indicated above.
How do I vote?
If you are a shareholder of record (that is, if your shares are owned in your name and not in "street name"), you may vote:
: Via the Internet at www.proxyvote.com;
) By telephone (within the U.S. or Canada) toll-free at 1-800-690-6903;
. By signing and returning the enclosed proxy card if you have received paper materials; or
? By attending the Meeting and voting in person.
If your shares are held in a brokerage account by a broker, bank or other nominee, you should follow the voting instructions provided by your broker, bank or other nominee.
If you wish to vote by telephone or via the Internet, you must do so before 11:59 p.m., Eastern Time, on Monday, June 8, 2015. After that time, telephone and Internet voting will not be permitted, and a shareholder of record wishing to vote must submit a signed proxy card or vote in person during the Meeting. Shareholders of record will be on a list held by the inspector of elections. "Street name" shareholders, also known as beneficial owners, must obtain a proxy from the institution that holds their shares, whether it is their brokerage firm, a bank or other nominee, and present it to the inspector of elections with their ballot in order to vote at the Meeting. Voting in person by a shareholder at the Meeting will replace any previous votes submitted by proxy.
In accordance with the SEC rules, we are making available to all shareholders who have not affirmatively opted to receive paper materials, all of their proxy materials via the Internet. However, you may opt to receive paper copies of proxy materials, at no cost to you, by following the instructions contained in the Notice of Internet Availability that we have mailed to all shareholders. We encourage you to take advantage of the option to vote your shares electronically through the Internet or by telephone. Doing so will result in cost savings for the Company.
How are my voting instructions carried out?
When you vote via proxy, you appoint the Chairman of the Board, Hatim A. Tyabji, and the Secretary of the Company, Keith J. Nelsen (collectively, the "Proxy Agents"), as your representatives to vote at the Meeting. The Proxy Agents will vote your shares at the Meeting, or at any postponement or adjournment of the Meeting, as you have instructed them on the proxy card. If you return a properly executed proxy card without specific voting instructions, the Proxy Agents will vote your shares in accordance with the Board's recommendations as disclosed in this proxy statement. If you submit a proxy, your shares will be voted regardless of whether you attend the Meeting. Even if you plan to attend the Meeting, it is advisable to vote your shares via proxy in advance of the Meeting in case your plans change.
If an item properly comes up for vote at the Meeting, or at any postponement or adjournment of the Meeting, that is not described in the Meeting Notice, including adjournment of the Meeting and any other matters incident to the conduct of the Meeting, the Proxy Agents will vote the shares subject to your proxy in their discretion. Discretionary authority for them to do so is contained in the proxy.
How many votes do I have?
You have one vote for each share you own, and you can vote those shares for each item of business to be addressed at the Meeting.
How many shares must be present to hold a valid Meeting?
For us to hold a valid Meeting, we must have a quorum. In order to have a quorum, a majority of the outstanding shares of our common stock that are entitled to vote need to be present or represented by proxy at the Meeting. Your shares will be counted as present at the Meeting if you:
Broker non-votes, as defined below, will be included in determining the presence of a quorum at the Meeting so long as there is at least one routine matter which the broker, bank or other nominee can vote on, as is the case with the Meeting. In addition, abstentions on any matter are included in determining the presence of a quorum.
How many votes are required to approve an item of business and what are the effects of abstentions and broker non-votes on the voting results?
Pursuant to our Amended and Restated Articles of Incorporation ("Articles") and our Amended and Restated By-laws ("By-laws"), each item of business to be voted on by the shareholders at the meeting, with the exception of Item 1, requires the affirmative vote of the holders of a majority of the voting power of the shares of Best Buy common stock present at a meeting and entitled to vote. Item 1, the election of directors, requires the affirmative vote of a majority of votes cast with respect to the director.
Under the rules of the New York Stock Exchange (“NYSE”), if you are a beneficial owner of shares and you do not provide your voting instructions to your broker, bank or nominee, that firm has discretion to vote your shares for certain routine matters. The ratification of the appointment of Deloitte & Touche, LLP as our independent registered public accounting firm is considered a routine matter under NYSE rules. On the other hand, your broker, bank or nominee does not have discretion to vote your shares for non-routine matters. The election of directors and the advisory vote related to executive compensation are not considered routine matters under NYSE rules.
When a broker, bank or nominee votes a beneficial owner's shares on certain but not all of the proposals, because it is unable to vote due to the beneficial owner's failure to provide voting instructions on a matter as to which the broker, bank or nominee has no discretion to vote otherwise, the missing votes are referred to as “broker non-votes.”
Abstentions will have the same effect as votes against Items 2 and 3, described in this proxy statement, but will have no effect on Item 1. Broker non-votes will have no effect on Items 1 and 3.
What if I change my mind after I vote via proxy?
If you are a shareholder of record, you may revoke your proxy at any time before your shares are voted by:
If your shares are held in a brokerage account by a broker, bank or other nominee, you should follow the instructions provided by your broker, bank or other nominee.
Where can I find the voting results of the Meeting?
We plan to publish the final voting results in a Current Report on Form 8-K ("Form 8-K") filed within four business days of the Meeting. If final voting results are not available within the four business day timeframe, we plan to file a Form 8-K disclosing preliminary voting results within the required four business days, to be followed as soon as practicable by an amendment to the Form 8-K containing final voting results.
How are proxies solicited?
We expect to solicit proxies primarily by Internet and mail, but our directors, officers, other employees and agents may also solicit proxies in person, by telephone, through electronic communication and by facsimile transmission. We will request that brokerage firms, banks, other custodians, nominees, fiduciaries and other representatives of shareholders forward the Notice of Internet Availability and, as applicable, the proxy materials and annual reports on Form 10-K themselves, to the beneficial owners of our common stock. Our directors and employees do not receive additional compensation for soliciting shareholder proxies. We have retained Georgeson, Inc. to act as our proxy solicitor and to provide us with advisory services for an estimated fee of $30,000, plus reimbursement of out-of-pocket expenses.
Who will pay for the cost of soliciting proxies?
We pay all of the costs of preparing, printing and distributing our proxy materials and of our proxy solicitor, Georgeson, Inc., as described above. We will reimburse brokerage firms, banks and other representatives of shareholders for reasonable expenses incurred as defined in the NYSE schedule of charges.
How can multiple shareholders sharing the same address request to receive only one set of proxy materials and other investor communications?
You may elect to receive future proxy materials, as well as other investor communications, in a single package per address. This practice, known as "householding," is designed to reduce our paper use and printing and postage costs. To make the election, please indicate on your proxy card under "Householding Election" your consent to receive such communications in a single package per address. Once we receive your consent, we will send a single package per household until you revoke your consent or request separate copies of our proxy materials by notifying our Investor Relations Department in writing at 7601 Penn Avenue South, Richfield, MN, 55423, or by telephone at 612-291-6147. We will start sending you individual copies of proxy materials and other investor communications following receipt of your revocation.
Can I receive the proxy materials electronically?
Yes. All shareholders may access our proxy materials electronically via the Internet. We encourage our shareholders to access our proxy materials via the Internet because it reduces the expenses for, and the environmental impact of, our shareholder meetings. You may opt to receive paper copies of proxy materials, including our Annual Report, proxy statement and proxy card at no cost to you, by following the instructions on your Notice of Internet Availability.
An electronic version of this proxy statement is posted on our website at www.investors.bestbuy.com.
Where can I find additional information about Best Buy?
Our reports on Forms 10-K, 10-Q and 8-K, and other publicly available information should be consulted for other important information about Best Buy. You can find these reports and additional information about us on our website at www.investors.bestbuy.com.
This summary highlights information contained elsewhere in this proxy statement. We encourage you to review the entire proxy statement, including our Chairman's Letter to Shareholders at the beginning of this proxy statement. In addition, our President and Chief Executive Officer has also addressed the state of our business in a letter to shareholders within our Annual Report, the contents of which are summarized below in the Business Update section.
Fiscal 2015 was the second year of our Renew Blue strategy. We launched Renew Blue in the fall of 2012 after Hubert Joly joined us as our President and Chief Executive Officer ("CEO"). The focus of Renew Blue is to address two problems — declining comparable sales and shrinking profit margins — through implementation of five strategic pillars:
(1) Reinvigorate and rejuvenate the customer experience;
(2) Attract and inspire leaders and employees;
(3) Work with vendor partners to innovate and drive value;
(4) Increase our Return on Invested Capital; and
(5) Continue our leadership role in positively impacting our world.
In fiscal 2015, we articulated our value proposition around advice, service and convenience at competitive prices and started to use Expert Service. Unbeatable Price. as our signature. We also defined our growth strategy — Renew Blue: Ignite the Possible — around key growth opportunities across product categories, “life events” and services, all supported by the transformation of our key functions.
Two years after launching Renew Blue, we have made significant progress in addressing our two problems:
†For GAAP to non-GAAP reconciliations, please refer to the non-GAAP reconciliation schedule included with the Company’s fiscal 2015 Annual Report, available on our website at www.investors.bestbuy.com. Non-GAAP financial information should not be considered superior to, as a substitute for, and should be read in conjunction with, the GAAP financial information reported in our 10-K, 10-Q and 8-K filings.
*Fiscal 2015 Domestic Comparable Sales exclude the impact of installment billing. Please refer to the Company's news release on Exhibit 99.1 to the Current Report on Form 8-K furnished by the Company on March 3, 2015.
As we look ahead, our strategy continues to be focused on delivering Expert Service. Unbeatable Price. to our customers. Within this strategy, we are driving a number of growth initiatives around key product categories, "life events" and services. We
are pursuing and investing in the transformation of our key functions and processes. To move this strategy ahead in fiscal 2016, we will continue to implement the two-year road map we laid out at the beginning of fiscal 2015. We have made progress against this road map in fiscal 2015 and are confident in our ability to continue this progress in fiscal 2016.
Board & Corporate Governance Highlights
In support of our Renew Blue strategy, the Board has continued to enhance its corporate governance practices to meet the needs of the business. In fiscal 2015, these efforts included the following:
In addition to these developments, the Board continues to employ a strong framework of corporate governance practices, including the following:
ü Lead Independent Director ü Anti-Hedging and Anti-Pledging Policies
ü Predominantly Independent Board ü Annual Director & Board Evaluation Processes
ü Independent Committees ü Robust Shareholder Engagement Program
ü Board Orientation & Education Program ü Commitment to Sustainable Business Practices
More information on our Corporate Governance policies and practices can be found in the Corporate Governance section of this proxy statement.
Fiscal 2015 Shareholder Engagement
Our robust shareholder engagement program continued to be a priority in fiscal 2015. We reached out to all of our top 20 shareholders, representing approximately 70% of the outstanding shares, as well as several other of our top 50 shareholders. Of those that wished to engage in further discussion, we generally received positive feedback about our company performance, corporate governance and compensation practices. This support was evident in the support we received at our 2014 Regular Meeting of Shareholders, when all Items of Business received over 95% support from shareholders.
Our typical engagement follows a seasonal cycle, as outlined below. Additional information can be found in the Corporate Governance — Shareholder Engagement section of this proxy statement.
Overview of Director Nominees
The directors on our Board are largely independent with a balanced mix of age, tenure and backgrounds. Our nine director nominees for election at the Meeting will represent the following composition characteristics:
In seeking new board members, we focus on adding new skills and experiences necessary to the Company's business strategy and the Board's risk oversight obligations. We only consider director candidates who embody the highest standards of personal and professional integrity and ethics and who are committed to a culture of transparency and open communication at the Board level and throughout the Company. Successful candidates are dedicated to accountability and continuous improvement with a belief in innovation as a key business success factor. They are also actively engaged and have an innate intellectual curiosity and entrepreneurial spirit.
In evaluating candidates for nomination as a director, the Nominating Committee considers other criteria, including the candidate's history of achievement and superior standards, ability to think strategically, willingness to share examples based upon experience, policy-making experience, and ability to articulate a point-of-view, take tough positions, and constructively challenge management. Along with these skills, we have the following key qualifications, among others, currently represented in our nine Board nominees for election at the Meeting:
The following individuals are standing for re-election to our Board. All of our director nominees have unique skills, proven leadership, sound judgment and integrity. They also bring a wide range of backgrounds, experience and expertise necessary to our transformation. Additional information about each of our nominees can be found in Item of Business No. 1 — Election of Directors.
Executive Compensation Highlights
Fiscal 2015 was the second full year of our Renew Blue transformation strategy. As such, we made few changes to the base salary, short-term and long-term incentive compensation programs for our Named Executive Officers ("NEOs").
Key Executive Compensation Program Elements
Our NEOs' compensation in fiscal 2015 included the following ongoing elements (for additional details, see the Executive and Director Compensation — Compensation Discussion and Analysis and the Compensation of Executive Officers — Summary Compensation Table sections of this proxy statement):
Fiscal 2015 Summary Compensation Overview
The table below summarizes the total compensation earned by our NEOs during fiscal 2015. See the Executive and Director Compensation — Compensation Discussion and Analysis and Compensation of Executive Officers — Summary Compensation Table sections of this proxy statement for more information.
(1) These amounts reflect the aggregate grant date fair value for stock-based awards granted during fiscal 2015. The amounts reported have not been adjusted to eliminate service-based forfeiture assumptions. The other assumptions used in calculating these amounts are set forth in Note 7, Shareholders' Equity, to the consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended January 31, 2015. The value for any performance share awards is the value at the grant date of the probable outcome of the award.
Advisory Vote to Approve Named Executive Officer Compensation
Items of Business
As the Company continues our efforts to advance our transformation and create value for our shareholders, we ask shareholders to consider and vote on the following items at this Meeting:
CORPORATE GOVERNANCE AT BEST BUY
Our Board is elected by our shareholders to oversee our business and affairs. In addition, the Board counsels, advises and oversees management in the long-term interests of the Company, our shareholders and other stakeholders regarding a broad range of subjects, including:
Members of the Board monitor and evaluate our business performance through regular communication with our CEO and by attending Board meetings and Board committee meetings.
Board and Corporate Governance Highlights
Our Board is committed to having a sound governance structure that promotes the best interests of our shareholders. To that end, our Board has evaluated and actively continues to examine emerging corporate governance trends and best practices. Shareholder perspectives play an important role in that process. Some key points regarding our Board and governance structure and practices are as follows:
Since June 2012, we have had separate roles for CEO and Chairman of the Board. Our CEO, in collaboration with the Board, has been responsible for setting our strategic priorities. He has also been responsible for the development and execution of our strategies, and ongoing performance. The Chairman has provided guidance to the CEO, and set the agenda for and presided over meetings of the full Board. He has also focused on Board oversight responsibilities, risk management and strategic planning.
Following the Meeting in June 2015, Mr. Joly will assume the combined role of Chairman and CEO upon the retirement of Mr. Tyabji, our current Chairman. The Board determined that at this stage of our transformation Mr. Joly is the ideal candidate to serve as Chairman, in large part due to his ability to build our strategy with the Board and carry it out with management. Consistent with our Corporate Governance Principles, since Mr. Joly will not be an independent Chairman, the Board also appointed Mr. Fradin to serve as our Lead Independent Director fulfilling the responsibilities discussed in the Lead Independent Director section of this proxy statement. Additional leadership roles will continue to be filled by other directors, all of whom are independent and will continue to play an active role in our strategic planning, risk oversight and governance of the Company.
Lead Independent Director
Our Lead Independent Director role was established in January 2010 to address the need for independent leadership on the Board during times when our Chairman is not independent. The Lead Independent Director (i) presides at all Board meetings at which the Chairman is not present, (ii) presides at all executive sessions of independent directors, (iii) calls meetings of the independent directors as appropriate, (iv) serves as a stakeholder liaison on behalf of the independent directors by making himself or herself available for direct consultation and communication with interested parties, as appropriate, and (v) performs such other duties as may be requested from time to time by the Board as a whole, the independent directors, the CEO or the Chairman of the Board.
Our Lead Independent Director is nominated by the Nominating, Corporate Governance and Public Policy Committee, and final selection is subject to ratification by the vote of a majority of the independent directors on the Board. The Lead Independent Director serves for an annual term beginning at the Board meeting following the first Regular Meeting of Shareholders at which directors are elected.
The Board seeks a wide and relevant range of experience and expertise. In accordance with these interests and the principles of effective corporate governance, the Board established and has continued to exceed its goal to have at least 75% of our directors be independent. In addition, the Board carefully plans for the director skill sets required in the future, and for an orderly succession and transition of directors as evidenced by the composition changes over the past two years and those occurring at the Meeting.
Pursuant to an agreement entered into between the Company and Richard M. Schulze, our founder and beneficial owner of approximately 13% of the Company as of the date of this proxy statement, Mr. Schulze is entitled to nominate two directors for appointment to our Board until he reaches the age of 75 (which will occur in January 2016). In the event either of Mr. Schulze's nominated directors resigns from the Board or are forced to leave the Board due to death, disability or serious illness, or are not elected at the applicable meeting of shareholders by the requisite vote of shareholders, Mr. Schulze has the right to designate their successor, subject to satisfaction of the Company’s director qualification standards and the Board’s approval, which shall not be unreasonably withheld. Pursuant to these agreements, Mr. Schulze appointed Mr. Anderson and Mr. Lenzmeier to the Board in 2013. In April 2015, Mr. Lenzmeier informed the Board that he would not seek re-election and would retire from the Board effective at our Meeting.
Mr. Schulze has chosen to not replace Mr. Lenzmeier following his retirement at the Meeting. For more information regarding our agreements with Mr. Schulze, please see the Certain Relationships and Related Party Transactions section of this proxy statement, as well as the Current Reports on Form 8-K filed by the Company on August 26, 2012, December 14, 2012, March 25, 2013 and April 13, 2015.
Pursuant to our Corporate Governance Principles, the Board has established independence standards consistent with the requirements of the SEC and NYSE. To be considered independent under the NYSE rules, the Board must affirmatively
determine that a director or director nominee does not have a material relationship with us (directly, or as a partner, shareholder or officer of an organization that has a relationship with us). In addition, each member of the Compensation Committee must meet a standard of “enhanced independence” such that the Board must consider the source of compensation of the director and whether the director is affiliated with us or one of our subsidiaries to determine whether there are any factors that would materially affect a director's ability to be independent, specifically in regards to their duties as a compensation committee member.
NYSE rules generally provide that no director or director nominee may be deemed independent if the director or director nominee:
— has in the past three years:
Under our director independence standards described above, the Board has determined that each director who served during any part of fiscal 2015 and each director nominee is independent, with the exception of Mr. Joly, our President and Chief Executive Officer. The Board based these determinations primarily on a review of the responses of the directors to questions regarding employment and compensation history, affiliations, family and other relationships, and on discussions with our directors. As part of its determination of Mr. Anderson's and Mr. Lenzmeier's independence, the Board considered their past employment relationships with us and determined that Mr. Lenzmeier could be deemed independent as of February 2012 and that Mr. Anderson could be deemed independent as of November 2013, in each case three years after the termination of their employment arrangements with the Company. Notwithstanding their independence under NYSE rules, the Board determined not to place Mr. Anderson or Mr. Lenzmeier on independent committees of the Board in light of their past affiliations with the Company.
Board Meetings and Attendance
During fiscal 2015, the Board held four regular meetings and one special meeting. Each incumbent director attended, in person or by telephone, at least 75% of the meetings of both the Board and committees on which he or she served. In fiscal 2015, the average attendance by our incumbent directors at Board and committee meetings exceeded 95%. Directors are required to attend our Regular Meetings of Shareholders and all but one of the then-serving directors attended the 2014 meeting. Mr. Anderson did not attend due to illness.
Executive Sessions of Independent Directors
In order to promote open discussion among independent directors, the Board has a policy of conducting executive sessions of independent directors during each regularly scheduled Board meeting. During fiscal 2015, our independent Chairman, Hatim A. Tyabji, chaired the executive sessions of independent directors in accordance with our Corporate Governance Principles and
NYSE requirements. After the Meeting, the executive sessions will be led by Russell P. Fradin, who will become our Lead Independent Director.
Committees of the Board
The Board has the following four committees:
The charters for each of the Board committees are posted on our website at www.investors.bestbuy.com. The charters include information regarding each committee's composition, purpose and responsibilities.
The Board has determined that all members of the Audit Committee, Compensation Committee and Nominating Committee are independent directors as defined under the SEC and NYSE corporate governance rules for such committees, and are "outside directors" for purposes of Internal Revenue Code section 162(m), as applicable. The Board has further determined that all of the members of the Audit Committee qualify as financial experts under SEC rules.
Among other duties, the Board committees have the following responsibilities:
Audit Committee. This committee assists the Board with its oversight responsibility regarding: (i) the integrity of our financial statements and financial reporting processes; (ii) our internal accounting systems and financial and operational controls; (iii) the qualifications and independence of our independent registered public accounting firm; (iv) the performance of our internal audit function and our independent registered public accounting firm; (v) the preparation of a report as required by the SEC to be included in this proxy statement; and (vi) our legal compliance and ethics programs, including the major risks facing the Company (including risks related to finance, operations and cyber-security), our legal, regulatory and risk oversight requirements, and our Code of Business Ethics.
Compensation Committee. This committee is responsible for executive officer and director compensation, including the establishment of our executive officer and director compensation philosophies, evaluating the performance of our CEO, approving CEO and executive officer compensation, and preparation of a report as required by the SEC to be included in this proxy statement. Oversight responsibilities of this committee include succession planning and compensation-related risk oversight. This committee also approves and oversees the development and evaluation of equity-based and other incentive compensation and certain other employee benefit plans of a compensatory nature.
Nominating Committee. This committee assists the Board with its responsibilities for general corporate governance, including Board organization, membership, training and evaluation. It also reviews and recommends corporate governance principles to the Board, screens and presents qualified individuals for election to the Board, and oversees the evaluation of the performance of the Board and its committees. Finally, this committee oversees matters of public policy and corporate responsibility and sustainability that affect us domestically and internationally. For additional information regarding our director nomination process, see Item of Business No. 1 – Election of Directors – Director Nomination Process.
Finance and Investment Policy Committee. This committee provides oversight of and advises the Board regarding our financial policies and financial condition to help enable us to achieve our long-range goals. It evaluates and monitors the: (i) protection and safety of our cash and investments; (ii) achievement of reasonable returns on financial assets within acceptable risk tolerance; (iii) maintenance of adequate liquidity to support our activities; (iv) assessment of the cost and availability of capital; and (v) alignment of our strategic goals and financial resources. It is responsible for ensuring we have adequate liquidity and approving certain significant contractual obligations.
The following table shows the date each committee was established, priorities for fiscal 2015, the number of meetings held in fiscal 2015 and the names of the directors serving on each committee as of January 31, 2015, our fiscal year end:
In April 2015, the Board approved the following changes to committee membership, which are effective following the Meeting and are consistent with the Board's ongoing refreshment (additions are indicated by underline):
Board Risk Oversight
Our Board is responsible for oversight of enterprise risk. The Board considers enterprise risk factors as critical in its review of business strategy and performance and ensures that there is an appropriate balance of risk and opportunity.
Management is responsible for the day-to-day risk management processes, including assessing and taking actions necessary to manage risk incurred in connection with the operation of our business. Management reviews significant enterprise risks and our general risk management strategy with the Board.
We believe this division of responsibilities is the most effective approach for addressing the risks we face and that our Board leadership structure supports this approach. Our Board committees assist the Board in its oversight function as follows:
Compensation Risk Assessment
In connection with their oversight of compensation-related risks, Compensation Committee members periodically review the most important enterprise risks to ensure that compensation programs do not encourage risk-taking that is reasonably likely to have a material adverse effect on us. The review process identified our existing risk management framework and the key business risks that may materially affect us, reviewed all compensation plans and identified those plans that are most likely to impact these risks or introduce new risks, and balanced these risks against our existing processes and compensation program safeguards. The review process also took into account mitigating features contained within our compensation plan design, which includes elements such as:
The Compensation Committee also considered additional controls outside of compensation plan design which contribute to risk mitigation, including the independence of our performance measurement teams and our internal control environment.
Based upon the process we employed, the Compensation Committee determined that our compensation programs do not encourage risk-taking that is reasonably likely to result in a material adverse effect.
Board Evaluation Process
Our Nominating Committee oversees the evaluation of the performance of the Board, its committees and individual directors. On an annual basis, members of the Board complete a questionnaire evaluating the performance of the Board as a whole and of each member’s respective committee. The Nominating Committee reviews the results of these questionnaires and determines whether the results warrant any action. The results and any proposed action are then shared with the full Board for further discussion and approval of final action plans.
In addition, the Chair of our Nominating Committee and the Board Chairman conduct individual director assessments to review each director’s contributions to the Board during the past year and his or her performance against the director qualification standards. As part of this process, the Nominating Chair conducts confidential interviews with each director on an annual basis. The Nominating Committee also reviews the skills and qualifications of the Board as a whole to address Board composition needs on an annual basis and consider whether the skills on the Board continue to align with the strategy the Company is pursuing. The interviews, board composition analysis and individual assessments are utilized by the Nominating Committee to
assess whether each director should continue to serve on the Board and stand for re-election at the next Regular Meeting of Shareholders and to otherwise address Board composition needs.
Director Orientation and Continuing Education
Our Nominating Committee oversees the orientation and continuing education of our directors. Director orientation familiarizes directors with our strategic plans, significant financial, accounting and risk management issues, compliance programs and other controls, policies, principal officers and internal auditors and our independent registered public accounting firm. The orientation also addresses Board procedures, director responsibilities, our Corporate Governance Principles and our Board committee charters.
We also offer continuing education programs and provide opportunities to attend commercial director education seminars outside of the Company to assist our directors in maintaining their expertise in areas related to the work of the Board and the directors' committee assignments.
In fiscal 2015, the Board provided director orientation to Mr. Doyle and conducted a continuing education seminar for the full Board on the topics of digital, social media, omni-channel retail and e-commerce.
Anti-Hedging and Anti-Pledging Policies
All employees and Board members are prohibited from hedging Company securities, including by way of forward contracts, equity swaps, collars, exchange funds or otherwise. Executive officers and Board members are also prohibited from pledging Company securities as collateral for a loan or from holding Company securities in a margin account, unless approved in advance by the Compensation Committee.
Director Stock Ownership
The Compensation Committee has established stock ownership guidelines requiring our non-management directors to own, indirectly or directly, 10,000 shares. We expect that until each director's ownership target is met, he or she will retain: (i) 50% of the net proceeds received from the exercise of a stock option in the form of Best Buy common stock; and (ii) 50% of shares (net of taxes) issued in connection with the lapse of restrictions on restricted stock awards. The ownership target does not need to be met within a certain timeframe and our directors are considered in compliance with the guidelines as long as progress towards the ownership target is being made, consistent with the expectations noted above. Further, beginning in fiscal 2014, all directors were required to hold all shares granted to them while they serve on our Board. In fiscal 2015, all of our non-management directors were in compliance with the ownership guidelines.
Our stock ownership guidelines for executive officers are discussed in the Executive and Director Compensation - Compensation Discussion and Analysis — Executive Compensation Elements — Other Compensation section.
The Company regularly engages with shareholders on a variety of topics throughout the year to ensure we are addressing their questions and concerns, to seek input and to provide perspective on Company policies and practices. We have taken several actions in recent years in response to shareholder concerns elicited in this process, including: declassification of our Board, the determination to hold the advisory vote on our executive compensation on an annual basis, adjustments to the director appointments on our Board committees, and the development of our corporate social responsibility program and reporting. We also continue to facilitate direct shareholder communication with management and members of our Board, the ability to attend and voice opinions at our Regular Meeting of Shareholders, and the ability to easily access and obtain information regarding our Company on our website at www.investors.bestbuy.com. Please see Executive and Director Compensation — Introduction for more information regarding actions taken as a result of shareholder feedback received on our prior year's executive compensation decisions.
As a leading global retailer and corporate citizen, we believe that it is important to work with policymakers on issues impacting our customers, employees, businesses, shareholders and communities. We know that collaboration helps bring about change that better serves our communities where we live and work. Our public policy work directly aligns with our aspiration to be environmentally and socially accountable for our brands and business operations worldwide. In fiscal 2015, our public policy priorities included: marketplace fairness, privacy, connectivity, financial services, energy, environment and supply chain. More
information about these priorities, as well as our annual political activity reports and related policies can be found at www.bby.com — select the "Government Relations" link.
Communications with the Board
Shareholders and interested parties who wish to contact the Board, any individual director, or the independent directors as a group, are welcome to do so in writing, addressed to such person(s) in care of:
Mr. Keith J. Nelsen
General Counsel and Secretary
Best Buy Co., Inc.
7601 Penn Avenue South
Richfield, Minnesota 55423
Mr. Nelsen will forward all written shareholder correspondence to the appropriate director(s), except for spam, junk mail, mass mailings, customer complaints or inquiries, job inquiries, surveys, business solicitations or advertisements, or patently offensive or otherwise inappropriate material. Mr. Nelsen may, at his discretion, forward certain correspondence, such as customer-related inquiries, elsewhere within the Company for review and possible response. Comments or questions regarding our accounting, internal controls or auditing matters will be referred to the Audit Committee. Comments or questions regarding the nomination of directors and other corporate governance matters will be referred to the Nominating Committee. Comments or questions regarding executive compensation will be referred to the Compensation Committee.
Corporate Governance Website
If you would like additional information about our corporate governance practices, you may view the following documents at www.investors.bestbuy.com in the Corporate Governance section.
ITEM OF BUSINESS NO. 1 — ELECTION OF DIRECTORS
Our By-laws provide that our Board consist of one or more directors and that the number of directors may be increased or decreased from time to time by the affirmative vote of a majority of the directors serving at the time that the action is taken. The number of directors on our Board is reviewed and set by our Board no less often than annually. In light of the number of nominees standing for re-election at the Meeting, in April 2015, the Board set the number of directors at nine, effective as of the date of the Meeting. The Board will continue to evaluate the size of the Board and make adjustments as needed to meet the current and future needs of the Company.
Director Qualification Standards
In seeking new board members, we focus on adding new skills and experiences necessary to the Company's business strategy and the Board's risk oversight obligations. We only consider director candidates who embody the highest standards of personal and professional integrity and ethics and are committed to a culture of transparency and open communication at the Board level and throughout the Company. Successful candidates are dedicated to accountability and continuous improvement with a belief in innovation as a key business success factor. They are also actively engaged and have an innate intellectual curiosity and entrepreneurial spirit.
In evaluating candidates for nomination as a director, the Nominating Committee considers other criteria, including the candidate's history of achievement and superior standards, ability to think strategically, willingness to share examples based upon experience, policy-making experience, and ability to articulate a point-of-view, take tough positions and constructively challenge management. Directors must also be committed to actively engaging in his or her Board roles, with sufficient time to carry out the duties of Board and Board committee membership. The Nominating Committee will also consider gender, ethnic and geographical diversity in evaluating candidates, along with independence and general criteria, such as an ability to provide informed and thoughtful counsel, mature judgment and listening skills.
Our Corporate Governance Principles specify that diversity on the Board be considered by the Nominating Committee in the director identification and nomination process. When considering candidates, the Nominating Committee seeks nominees with a broad range of experience from a variety of industries and professional disciplines, such as finance, academia, law and government, along with a diversity of gender, ethnicity, age and geographic location. The Nominating Committee does not assign specific weights to particular criteria, and no particular criterion is necessarily applied to all prospective nominees. When the Nominating Committee identifies an area of which the Board may benefit from greater representation, it may focus its candidate search on particular experience, background or diversity characteristics, including gender, ethnic and geographical attributes. The Board believes that diversity in the backgrounds and qualifications of Board members provides a significant mix of experience, knowledge and abilities that allows the Board to fulfill its responsibilities and leads to a more effective oversight and decision-making process.
Finally, one or more of our directors must possess the education or experience required to qualify as an "audit committee financial expert" pursuant to SEC rules.
The grid below summarizes the key qualifications, skills and attributes each of our directors possess that were most relevant to the decision to nominate him or her to serve on the Board. The lack of a mark does not mean the director does not possess that qualification or skill; rather a mark indicates a specific area of focus or expertise on which the Board relies most heavily. Each director’s biography describes these qualifications and relevant experience in more detail.
Director Nomination Process
The Nominating Committee is responsible for screening and recommending to the full Board director candidates for nomination. The Nominating Committee often engages a third-party search firm to assist in identifying appropriate candidates to consider as additions to our Board. When the Board is seeking to fill an open director position, the Nominating Committee will also consider nominations received from our shareholders, provided that proposed candidates meet the requisite director qualification standards discussed above.
When the Board elects to add a director to the Board, the Nominating Committee will announce the search and post any additional search criteria on our website at www.investors.bestbuy.com. Candidates recommended by shareholders, if qualified, will be considered in the same manner as any other candidate.
The Nominating Committee will then evaluate the resumes of any qualified candidates recommended by search firms or shareholders, as well as by members of the Board. All candidates are evaluated based on the qualification standards discussed above and the current and future needs of the Board.
Shareholder nominations must be accompanied by a candidate resume that addresses the extent to which the nominee meets the director qualification standards and any additional search criteria posted on our website. Nominations will be considered only if we are then seeking to fill an open director position. All nominations by shareholders should be submitted as follows:
Chair, Nominating, Corporate Governance and Public Policy Committee
c/o Mr. Keith J. Nelsen
General Counsel and Secretary
Best Buy Co., Inc.
7601 Penn Avenue South
Richfield, Minnesota 55423
You may vote for all, some or none of the nominees for election to the Board. However, you may not vote for more individuals than the number nominated. Each of the nominees has agreed to continue serving as a director if elected. However, if any nominee becomes unwilling or unable to serve and the Board elects to fill the vacancy, the Proxy Agents named in the proxy will vote for an alternative person nominated by the Board. Our Articles prohibit cumulative voting, which means you can vote only once for any nominee. The affirmative vote of a majority of the votes cast with respect to the director is required to elect a director.
PROXY CARDS THAT ARE PROPERLY SIGNED AND RETURNED WILL BE VOTED FOR THE ELECTION OF ALL OF THE NOMINEES UNLESS OTHERWISE SPECIFIED.
Board Voting Recommendation
The Board recommends that shareholders vote FOR the election of Bradbury H. Anderson, Lisa M. Caputo, J. Patrick Doyle, Russell P. Fradin, Kathy J. Higgins Victor, Hubert Joly, David W. Kenny, Thomas L. Millner and Gérard R. Vittecoq for a term of one year. All of the nominees are current members of the Board.
The biographies of each of the nominees below include information regarding the person's service as a director, business experience, public company director positions held currently or at any time during the last five years, information regarding involvement in certain legal or administrative proceedings during the last ten years if any, and the key experiences, qualifications, attributes or skills that led the Nominating Committee and the Board to determine that the person should serve as a director.
There are no family relationships among the nominees or between any nominee and any director, executive officer or person chosen to become an executive officer. There are also no material proceedings to which any director, officer, affiliate of the Company, any 5% shareholder or any associate is a party adverse to the Company or its subsidiaries or has a material interest adverse to the Company or its subsidiaries.
On March 25, 2013, we announced the appointment of Bradbury H. Anderson and Allen U. Lenzmeier as directors to our Board. Mr. Anderson and Mr. Lenzmeier were nominated by Richard M. Schulze, our founder and beneficial owner of approximately 13% of the Company. Pursuant to an agreement entered into between the Company and Mr. Schulze, Mr. Schulze is entitled to nominate two directors for appointment to our Board until he reaches the age of 75 (which will occur in January 2016). In the event either of Mr. Schulze's nominated directors resigns from the Board or is forced to leave the Board due to death, disability or serious illness, or is not elected at the applicable meeting of shareholders by the requisite percentage of shareholders for approval, Mr. Schulze will have the right to designate his successor, subject to the satisfaction of the Company’s director qualification standards and the Board’s approval, which shall not be unreasonably withheld. Mr. Schulze has informed the Company that he will not seek to replace Mr. Lenzmeier following his retirement at the Meeting. For more information regarding our agreement with Mr. Schulze, please see the Certain Relationships and Related Party Transactions section of this proxy statement, as well as the Current Reports on Form 8-K filed by the Company on August 26, 2012, December 14, 2012, March 25, 2013 and April 13, 2015.
(Ages and Committee roles as of April 28, 2015)
Background: Chief Executive Officer of Best Buy Co., Inc. (2002-2009); President and Chief Operating Officer of Best Buy Co., Inc. (1991-2002).
What he brings to the Board: Mr. Anderson provides the perspective of a longtime Best Buy leader and an influential voice who has also shaped other highly regarded service organizations. He was Chief Executive Officer of Best Buy for seven years, having previously served as President and Chief Operating Officer. Having worked at Best Buy for more than 35 years, Mr. Anderson has deep insights into the company, its culture and its role in the consumer electronics marketplace. That expertise supports Best Buy’s mission of being the leading authority and destination for consumer electronics products and services. In addition, the companies on which Mr. Anderson serves as a director have a strong record of leveraging their unique assets to create significant differentiation, which is one of the goals of Renew Blue.
Education: Mr. Anderson holds a degree from the University of Denver.
Background: Executive Vice President and Chief Marketing and Communications Officer of The Travelers Companies, Inc., a property casualty insurer (2011-present); Managing Director and Senior Banker of the Public Sector Group of the Institutional Clients Group of Citigroup, Inc., a financial services company (2010-2011); Global Chief Marketing Officer and Executive Vice President of Citigroup, Inc. (2007-2010).
What she brings to the Board: Ms. Caputo’s position as Executive Vice President of Marketing and Communications of The Travelers Companies is helpful to Best Buy’s efforts to broaden its brand, rejuvenate the customer experience and transform its marketing efforts. She also spent 11 years at Citigroup, advising three chief executive officers on topics from marketing and communications to government affairs and community relations. Ms. Caputo has an exceptional track record of enhancing corporate social responsibility and employee engagement, key components of Best Buy’s Renew Blue initiative. She has also been a senior executive at the Walt Disney Company and at the CBS Corporation, and spent more than a decade in the public sector, serving as Deputy Assistant to President Bill Clinton and Press Secretary to First Lady Hillary Rodham Clinton. Ms. Caputo’s diverse public and private background and her service on multiple non-profit foundation boards lends an important voice to the Board deliberations, particularly those that involve the Company’s Renew Blue marketing initiatives.
Education: Ms. Caputo holds degrees from Brown University and Northwestern University.
Background: President and CEO of Domino’s Pizza Inc., the world leader in pizza delivery and the second-largest pizza company in the world (2010-present); President of Domino’s Pizza (2007-present); Executive Vice President of Team U.S.A. at Domino’s Pizza (2004-2007); Executive Vice President of Domino’s Pizza International (1999-2004); Senior Vice President of Marketing for Domino’s Pizza (1997-1999); Vice President and General Manager of Gerber Products Co. for its domestic baby food business and Vice President and General Manager of its Canadian subsidiary (1991-1997). He also previously served as European General Manager of Intravascular SA in LaCiotat, France, and as Corporate Finance Officer at First Chicago Corp.
What he brings to the Board: Having led a remarkable transformation at Domino’s, Mr. Doyle’s experience and insights are helpful to the Board of Directors and senior management as Best Buy is in the midst of a similar effort. His experience rebuilding Domino’s reputation among consumers is a great benefit to Best Buy, particularly in its Renew Blue marketing initiatives. Under Mr. Doyle, Domino’s also has enhanced its multichannel presence, with online orders now accounting for 40 percent of U.S. sales. That expertise supports Best Buy’s goal of increasing its online market share.
Education: Mr. Doyle holds degrees from The University of Chicago Booth School of Business and from the University of Michigan.
Background: Chief Executive Officer and President of SunGard, a leading software and technology services company (2011-present); Chairman and Chief Executive Officer of AonHewitt, a global provider of human resources consulting and outsourcing solutions (2010-2011); Chief Executive Officer of Hewitt Associates (2006-2010); President and Chief Executive Officer of The BISYS Group, Inc., a provider of outsourcing solutions for the financial services sector (2004-2006).
What he brings to the Board: Mr. Fradin, the president and chief executive officer of SunGard Data Systems, Inc., has an extensive professional background in many areas related to good corporate governance. In addition to having served as an executive board chair, he has served as a CEO for more than decade, giving him firsthand insight into the partnership between an engaged Board and an effective, high-performing management team. For these reasons, the Best Buy Board of Directors has chosen him to be the Lead Independent Director.
In his role as a director, Mr. Fradin offers Best Buy the benefit of a 20-year career leading some of the country’s leading services business. This experience is of particular value given the Company’s emphasis on rejuvenating its services business as part of its Renew Blue transformation efforts. Additionally, Mr. Fradin’s previous leadership of Hewitt Consulting and, ultimately, Aon Hewitt, allows him to offer valuable advice on issues that include streamlining operations, reducing costs and executive compensation. Earlier in his career he ran the Global Employer Services business of Automatic Data Processing, Inc. and served as a senior partner with McKinsey and Company, where he specialized in advising Fortune 500 clients on new product and services innovations.
Education: Mr. Fradin holds a degree from the Wharton School of the University of Pennsylvania and from Harvard University.
Background: President and Founder of Centera Corporation, an executive development and leadership coaching firm (1994-present); Senior Vice President of Human Resources at Northwest Airlines, Inc., a global commercial airline now merged with Delta Air Lines (1991-1994).
What she brings to the Board: Ms. Higgins Victor, Founder and President of Centera Corporation, an executive development and leadership coaching firm, brings unmatched leadership to Best Buy’s goal of developing and retaining the industry’s best talent. She has extensive experience in executive development, human resources and succession planning. She led the Board’s efforts to recruit Company CEO, Hubert Joly, as well as several recent directors. Ms. Higgins Victor brings a global business perspective, having held international roles with Northwest Airlines, Inc. (now Delta Air Lines), where she was responsible for executive compensation, employee benefits and labor relations. Ms. Higgins Victor also serves on the board of trustees of the University of St. Thomas. Because of her expertise in corporate governance, organizational change management and global human resources, Best Buy relies on Ms. Higgins Victor to offer insight regarding its Renew Blue goal of building foundational capabilities necessary to unlock future growth strategies. This experience comes from a 30-year career advising senior executives among Fortune 100 companies.
Education: Ms. Higgins Victor holds a degree from the University of Avila.
Background: President, Chief Executive Officer and a Director of Best Buy Co., Inc. (2012-present); President and Chief Executive Officer of Carlson, Inc., a worldwide hospitality and travel company (2008-2012); President and Chief Executive Officer of Carlson Wagonlit Travel, a business travel management company (2004-2008); senior executive positions with Vivendi S.A., a French multinational media and telecommunications company (1999-2004).
What he brings to the Board: Mr. Joly has a strong reputation as a turnaround and transformation expert, having begun his corporate career leading the struggling French division of Electronic Data Systems ("EDS"). In his three years with EDS, the company reversed its revenue slide, going from 1.3 billion French Francs to 2.1 billion, while significantly increasing profit margin. At Vivendi Universal, he helped lead the restructuring and growth of the company’s video game business, followed by the restructuring of the company itself. Prior to joining Best Buy, Mr. Joly was Chief Executive Officer of Carlson, where he led a renaissance across all its businesses, including its restaurant and hotel divisions. Before becoming Carlson's Chief Executive Officer, he led a subsidiary unit, Carlson Wagonlit Travel, growing its sales from $8 billion to $25 billion in four years. Mr. Joly serves on the boards of Ralph Lauren Corp. and the Minnesota Business Partnership, and the executive committee of the Retail Industry Leaders Association. He began his career with McKinsey and Company, where he was a partner.
Education: Mr. Joly is a graduate of École des Hautes Études Commerciales de Paris (HEC Paris) and of the Institut d’Etudes Politiques de Paris.
Background: Chairman and Chief Executive Officer of The Weather Company, a leading provider of weather forecasts and information (2012-present); President of Akamai, a leading cloud platform technology company (2011-2012); Managing Partner of VivaKi, a provider of integrated strategy, technology and marketing solutions for internet-based ecommerce companies (2006-2010); Founder and Chief Executive Officer of Digitas, Inc., which was later merged with VivaKi (1997-2006).
What he brings to the Board: Mr. Kenny has an impressive track record of transforming companies, a valuable asset for Best Buy’s business imperatives. As Chairman and Chief Executive Officer of The Weather Company, which includes The Weather Channel and weather.com, Mr. Kenny has helped turn that organization into a media heavyweight that produces television programming, develops applications, publishes content and uses analytics to connect businesses to consumers through weather and climate-related content. Mr. Kenny uses those consumer centric and strategic skills to support Best Buy’s transformation efforts, including its goal of capturing online share and serving customers based on how, where, and when they want to be served. Mr. Kenny’s online leadership dates to 1997, when he founded Digitas, Inc., a provider of technology and marketing solutions for e-commerce and multi-channel companies. He has also served on the board of directors of The Corporate Executive Board, Akamai Technologies and Yahoo!, where he played an essential role in that company’s transformation with the hiring of its current chief executive officer.
Education: Mr. Kenny holds degrees from the GM Institute (now Kettering University) and Harvard University.
Background: President and Chief Executive Officer of Cabela’s, Inc., a leading omni-channel retailer of hunting, fishing and camping products (2009-present); President and Chief Executive Officer of Freedom Group, Inc. and its successor company, Remington Arms Company, Inc., a firearms and ammunition manufacturer (1999-2009).
What he brings to the Board: As the President and Chief Executive Officer of Cabela’s, Inc., Mr. Millner is one of the top multi-channel retail leaders in the country. As the Chief Executive Officer of North America’s foremost outdoors retailer, Mr. Millner brings to the Best Buy Board expertise in support of the Company’s Renew Blue strategic priorities, particularly those concerning effective merchandizing and multi-channel operations. He has experience leading a specialty retailer through a transformation; when he joined Cabela’s, the company’s market capitalization hovered near $500 million; five years later, it exceeded $5 billion. Before leading that remarkable growth, Mr. Millner was President and Chief Executive Officer of Remington Arms Company. Earlier in his career he was Chief Executive Officer and President of Pilliod Cabinet and held various leadership positions at Broyhill Furniture and Thomasville Furniture. Experience gained throughout his career complements Best Buy’s strategy for enhanced personalized consumer marketing. Mr. Millner has served on many non-profit boards and is a director and member of the Executive Committee of United States Sportsmen's Alliance and a director of Cabela's Outdoor Fund.
Education: Mr. Millner holds a degree from Randolph Macon College.
Background: Group President and Executive Office Member of Caterpillar Inc., a manufacturer of construction and mining equipment (2004-2013); Vice President overseeing Europe-Africa-Middle East Product Development and Operations division of Caterpillar Inc. (2001-2004); Managing Director of Caterpillar Belgium S.A. (1997-2001).
What he brings to the Board: Mr. Vittecoq’s global perspective and international business acumen are invaluable as the Company works to transform its business and improve operational efficiencies. As a Group President of Caterpillar, Inc., he was responsible for the development and implementation of Lean manufacturing, an effort that drove meaningful results for Caterpillar. Before he retired in 2013, Mr. Vittecoq led a strategic initiative to deliver world-class results for the company, focusing on customer expectations and driving competitive advantage, two elements crucial to Best Buy’s transformation. He is an innovator when it comes to supply chain and logistics and brings that creative, world-view thinking to Best Buy. Mr. Vittecoq is an executive member of the World Business Council for Sustainable Development and a member of the Evian Group: Free Trade Think Tank.
Education: Mr. Vittecoq holds degrees from École Supérieure de Commerce in France and Laval University in Canada.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table provides information about the number of shares of our common stock beneficially owned at January 31, 2015 (unless otherwise indicated), by our CEO, our Chief Financial Officer ("CFO"), and our three other most highly compensated executive officers during the most recent fiscal year. The table provides similar information for each director and director nominee, all directors and executive officers as a group, and each person, or any group that we know who beneficially owns more than 5% of the outstanding shares of our common stock.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires that our directors, executive officers and shareholders who beneficially own more than 10% of our common stock file initial reports of ownership with the SEC. They must also file reports of changes in ownership with the SEC. In addition, they are required by SEC regulations to provide us copies of all Section 16(a) reports that they file with the SEC. Based solely on a review of such Section 16(a) reports, management and the Board believe our directors, executive officers and shareholders who beneficially own more than 10% of our common stock complied with the Section 16(a) filing requirements during the fiscal year ended January 31, 2015, except that on March 6, 2015, a Form 5 was filed to reflect the sale of shares on September 16, 2014 for Richard M. Schulze.
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Our Related Party Transactions Policy prohibits "related party transactions" unless approved by the Audit Committee and the Board. For purposes of our policy, a "related party transaction" is a transaction or series of transactions in which (a) the Company or a subsidiary is a participant, (b) the aggregate amount involved exceeds $120,000 and (c) any director, executive officer or shareholder beneficially owning more than 5% of our common stock, or any of their respective immediate family members has a direct or indirect material interest.
A related party transaction will generally not be approved unless it provides us with a demonstrable incremental benefit and the terms are competitive with those available from unaffiliated third parties. Only Board members who do not have an interest in the transaction are permitted to vote on a related party transaction. In addition, ongoing related party transactions are reviewed annually by the Audit Committee and the Board to ensure that such transactions continue to provide the necessary incremental benefit to us and have competitive terms. Each of the transactions discussed below were approved (or re-approved if ongoing) by the Audit Committee and the Board in March 2015, in accordance with our Related Party Transactions Policy.
We do not have any credit arrangements between our officers, directors, controlling persons and other insiders.
Richard M. Schulze
As of the date of this filing, Mr. Schulze owned approximately 13% of our common stock. On March 25, 2013, we entered into a letter agreement with Mr. Schulze pursuant to which, among other things, Mr. Schulze was given the lifetime honorary title of "Founder and Chairman Emeritus" of the Company, although he is not an executive and is no longer a member of our Board. Under this letter agreement, we agreed to compensate Mr. Schulze in an amount not to exceed $2.125 million in connection with his preparation and ongoing consultation with regard to a business plan for Best Buy. We agreed to pay this sum in quarterly installments beginning on the three-month anniversary of the signing of the letter agreement. In addition, we agreed to compensate Mr. Schulze with an annual base salary of $150,000, and to provide lifetime medical benefits for him, his spouse and his eligible dependents in accordance with our plans, practices, programs and policies in effect generally for our executives and their dependents. We also agreed to provide office space and administrative support, and to reimburse Mr. Schulze for his costs and out-of-pocket expenses incurred in the performance of his duties as Chairman Emeritus. Mr. Schulze is also entitled, under the letter agreement, to nominate two directors for appointment to the Board of Directors. Messrs. Anderson and Lenzmeier were nominated and elected to the Board as part of this arrangement. The letter agreement's term expires when Mr. Schulze reaches the age of 75 (which will occur in January 2016), except as specifically described above.
We leased two of our former U.S. Best Buy store locations from Mr. Schulze. We entered into both real estate leases with Mr. Schulze prior to 1990, and the Board approved the leases (with Mr. Schulze not voting). The Board relied on one or more of its members who had no financial interest in the properties to review market comparisons, look into alternative rental agreements and negotiate with Mr. Schulze. At the time of entering into these leases, the Board determined that they were in our best interest and had terms that were competitive with terms available from unaffiliated third parties. We closed both stores in May 2012. In March 2014, with Board approval, we entered into a lease termination agreement for one of the store locations, in which we agreed to pay a termination fee of approximately $800,000 in exchange for a release from our future rent and other obligations under the lease (which totaled approximately $3,000,000). The remaining store location lease includes escalation clauses and, depending upon our exercise of successive renewal options, runs through 2018. We continue to pay rent for this remaining location per the terms of the lease. During fiscal 2015, we paid aggregate rents of approximately $660,000 for the
two store locations leased from Mr. Schulze (rental fees were incurred for the now-sold location during the first quarter). We are reviewing options for use of the space or subtenancy of this remaining store location to mitigate our costs.
We purchase certain store fixtures from Phoenix Fixtures, Inc. ("Phoenix"), a company owned by Mr. Schulze's brother, Robert Schulze. Fixture contracts are submitted through a competitive bidding process in which Phoenix is free to participate. Payments made to Phoenix are pursuant to contracts awarded following the competitive bidding process. In light of Mr. Schulze's relationship with Phoenix, the Board reviewed our transactions with Phoenix and determined that the transactions were on fair terms to us and that Phoenix provides advantages with respect to service and delivery as compared with its competitors. Accordingly, the Board approved the transactions and our continued business dealings with Phoenix. The total amount paid to Phoenix during fiscal 2015 was approximately $7.5 million USD and $31,000 CAD, compared to approximately $5.6 million USD and $202,000 CAD paid in fiscal 2014. All transactions with Phoenix during fiscal 2015 were subject to the competitive bidding process discussed above to ensure fair prices and terms.
Ryan Green, Mr. Schulze's step-son, is employed with us as a Director of Category and Sourcing Management in our Procurement department at our corporate headquarters in Richfield, Minnesota. Mr. Green's total cash compensation for fiscal 2015 was approximately $140,000. Mr. Green also received an annual long-term incentive award of 1,400 time-based restricted shares, which vests in one-third increments on each anniversary of the grant for three years, and which award is consistent for other employees at his level. Mr. Green is eligible to receive employee benefits generally available to all employees. Mr. Green's employment with us began in August 2012. Mr. Schulze's family member is compensated at a level comparable to the compensation paid to non-family members in similar positions at Best Buy.
FMR LLC ("Fidelity") filed an amended Schedule 13G in February 2015, stating that it holds 11.67% of the Company's common stock. As a result of beneficially owning more than 5% of our common stock, Fidelity is currently considered a “related party” under our Related Party Transactions Policy. Certain affiliates of Fidelity provide services to us in connection with the record keeping and administration of our stock plans (including the Employee Stock Purchase Plan and the Long-Term Incentive Plan). We paid these entities approximately $529,000 for these services for fiscal 2015. The administrative services contracts were initially entered into prior to Fidelity's Schedule 13G filing and 5% holder status. The contracts were negotiated at arms length, and there is no indication that the Company or Fidelity received preferential treatment as a result of the relationship.
AUDIT COMMITTEE REPORT
The information contained in this Audit Committee Report shall not be deemed to be "soliciting material" or "filed" or incorporated by reference in future filings with the SEC, or subject to the liabilities of Section 18 of the Securities Exchange Act of 1934, as amended, except to the extent that we specifically incorporate it by reference into a document filed under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.
In fiscal 2015, the Audit Committee included five members. The Audit Committee acts under a written charter adopted and approved by the Board. The Audit Committee's charter is posted on our website at www.investors.bestbuy.com. All members of the Audit Committee meet the SEC and NYSE definitions of independence and financial literacy for audit committee members. In addition, the Board has determined that all of the five members of the Audit Committee who served during fiscal 2015 are "audit committee financial experts" for purposes of SEC rules. No member of the Audit Committee serves on the audit committee of more than three public companies.
During fiscal 2015, Mr. Tyabji continued to serve as Chair of the Audit Committee. In November 2014, Mr. J. Patrick Doyle was appointed to the Audit Committee.
The Audit Committee met seven times, including two times via conference call, during fiscal 2015. The Audit Committee schedules its meetings to ensure it has sufficient time to devote appropriate attention to all of its tasks. The Audit Committee meetings include regular executive sessions with our independent registered public accounting firm, Deloitte & Touche LLP ("D&T"), our internal auditors and management. The Audit Committee also discusses with our internal auditors and D&T the overall scope and plans for their respective audits.
Recommendation Regarding Financial Statements
The Audit Committee, on behalf of the Board, reviewed and discussed with both management and D&T our annual audited consolidated financial statements for the fiscal year ended January 31, 2015, and our quarterly operating results for each quarter in such fiscal year, along with the related significant accounting and disclosure issues. The Audit Committee has discussed with the independent auditors the matters required to be discussed by Public Company Accounting Oversight Board Auditing Standard No. 16 "The Auditor's Communication with Audit Committees."
The Audit Committee reviewed and discussed with D&T its independence from us and our management. As part of that review, the Audit Committee received from D&T the written disclosures and the letter required by applicable rules of the Public Company Accounting Oversight Board (U.S.) regarding the independent accountant's communications with audit committees concerning independence. In addition, the Audit Committee reviewed all services provided by and the amount of fees paid to D&T in fiscal 2015. In reliance on the reviews and discussions with management and D&T, the Audit Committee believes that the services provided by D&T were compatible with, and did not impair, its independence.
Based on the reviews and discussions referred to above, the Audit Committee recommended to the Board, and the Board approved, that our annual audited consolidated financial statements be included in our Annual Report on Form 10-K for the period ended January 31, 2015, as filed with the SEC.
Consistent with SEC rules regarding auditor independence, the Audit Committee is responsible for appointing, setting fees for and overseeing the work of our independent registered public accounting firm. In recognition of this responsibility and in accordance with the Securities Exchange Act of 1934, as amended, it is the policy of the Audit Committee to pre-approve all permissible services provided by our independent registered public accounting firm, except for minor audit-related engagements which in the aggregate do not exceed 5% of the fees we pay to our independent registered public accounting firm during a fiscal year.
Each year, prior to engaging our independent registered public accounting firm, management submits to the Audit Committee for approval a list of services expected to be provided during that fiscal year within each of the three categories of services described below, as well as related estimated fees, which are generally based on time and materials.
Audit services include audit work performed on the financial statements, as well as work that generally only the independent registered public accounting firm can reasonably be expected to provide, including comfort letters and discussions surrounding the proper application of financial accounting and/or reporting standards.
Audit-related services include assurance and related services that are traditionally performed by the independent registered public accounting firm, including due diligence related to mergers and acquisitions, statutory audits, employee benefit plan audits and special procedures required to meet certain regulatory requirements.
Tax services include compliance and other non-advisory services performed by the independent registered public accounting firm when it is most efficient and effective to use such firm as the tax service provider.
As appropriate, the Audit Committee then pre-approves the services and the related estimated fees. The Audit Committee requires our independent registered public accounting firm and management to report actual fees versus the estimate periodically throughout the year by category of service. During the year, circumstances may arise when it becomes necessary to engage our independent registered public accounting firm for additional services not contemplated in the initial annual proposal. In those instances, the Audit Committee pre-approves the additional services and related fees before engaging our independent registered public accounting firm to provide the additional services.
Hatim A. Tyabji (Chair)
J. Patrick Doyle
Russell P. Fradin
Thomas L. Millner
Gérard R. Vittecoq
ITEM OF BUSINESS NO. 2 — RATIFICATION OF APPOINTMENT OF OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
THIS SECTION SHOULD BE READ IN CONJUNCTION WITH THE "AUDIT COMMITTEE REPORT"
The Audit Committee is directly responsible for the appointment, compensation, retention and oversight of the independent registered public accounting firm retained to audit the Company’s financial statements. As part of this oversight, the Audit Committee considers the firm’s independence, qualifications, performance, and whether the independent registered public accounting firm should be rotated, as well as the impact of such a rotation. D&T has been retained as our independent registered public accounting firm since fiscal 2006. The Audit Committee appointed Deloitte & Touche LLP ("D&T") as our independent registered public accounting firm for the fiscal year ending January 30, 2016. We will ask shareholders to ratify the appointment of D&T as our independent registered public accounting firm at the Meeting. Representatives of D&T are expected to be present at the Meeting. They will have the opportunity to make a statement if they desire to do so and are expected to be available to respond to appropriate questions.
Principal Accountant Services and Fees
The Audit Committee is responsible for the audit fee negotiations associated with the retention of our independent registered public accounting firm. For the fiscal years ended January 31, 2015, and February 1, 2014, D&T served as our independent registered public accounting firm. The following table presents the aggregate fees incurred for services rendered by D&T during fiscal 2015 and fiscal 2014, respectively. The fees listed below were pre-approved by our Audit Committee pursuant to the Audit Committee's pre-approval policy as described in the Audit Committee Report:
It is our policy that our independent registered public accounting firm be engaged to provide primarily audit and audit-related services. However, pursuant to the policy, in certain circumstances and using stringent standards in its evaluation, the Audit Committee may authorize our independent registered public accounting firm to provide tax services when it determines that D&T is the most efficient and effective tax service provider.
Board Voting Recommendation
The members of the Audit Committee and the Board believe that the continued retention of D&T to serve as the Company’s independent registered public accounting firm is in the best interests of the Company and our shareholders. The Board recommends that shareholders vote FOR the proposal to ratify the appointment of D&T as our independent registered public accounting firm for the fiscal year ending January 30, 2016.
The affirmative vote of a majority of the voting power of the shares present and entitled to vote at the Meeting is required to ratify D&T as our independent registered accounting firm.
Although ratification is not required pursuant to our By-laws or otherwise, the Board is submitting the selection of D&T to our shareholders for ratification because we value our shareholders' views on the Company's independent registered public accounting firm. If the appointment of D&T were not to be ratified by the shareholders, the Audit Committee would not be required to appoint another independent registered public accounting firm, but would give consideration to an unfavorable vote. Even if the selection is ratified, the Audit Committee, in its discretion, may select a different independent registered public accounting firm at any time during the year if it determines that such a change would be in the best interests of the Company and our shareholders.
EXECUTIVE AND DIRECTOR COMPENSATION
The Compensation Discussion and Analysis below describes how the Compensation Committee of the Board decided to compensate our fiscal 2015 NEOs:
Consideration of Prior “Say on Pay” Votes
At our Regular Meeting of Shareholders in June 2014, 98% of our shareholders voted for our “Say on Pay” proposal, which was an increase from the level of support we received in 2013 and 2012 (when 83% and 38%, respectively, of shareholders voted for our "Say on Pay" proposal) while navigating a series of unplanned leadership transitions.
We believe the level of support we received from shareholders for the last two years was driven in part by our improved performance and commitment to align pay and performance, which we communicated to investors through shareholder outreach prior to our 2014 and 2013 Regular Meetings of Shareholders. During the year, we reached out to all of our top twenty shareholders, representing approximately 70% of our outstanding shares, and several of our top fifty shareholders offering to discuss any concerns regarding executive compensation practices and other governance issues. As a result of these outreach efforts, we engaged in direct conversations with shareholders to answer their questions, provide commentary on the compensation decisions made during the year and receive feedback to be considered when making future decisions. Further, as discussed in the Corporate Governance at Best Buy — Shareholder Engagement section, we regularly engage with our shareholders throughout the year regarding their various priorities and we welcome their feedback on our practices and policies.
Summary of Executive Compensation Practices
Pay for Performance
Key Fiscal 2015 Compensation Decisions
Our key compensation decisions for fiscal 2015, as explained in further detail within our Compensation Discussion and Analysis, are summarized here:
Preview of Key Fiscal 2016 Compensation Decisions
After several years of maintaining generally flat compensation levels for our NEOs (and given the progress made on domestic comparable sales and domestic operating income) the Compensation Committee recognized the need to make market based adjustments to recognize and retain the critical leaders that are driving Best Buy’s transformation. These changes include base salary, short-term incentive and/or long-term incentive adjustments, depending on each position, the incumbent and the market. A summary of these changes is included below:
Compensation Discussion and Analysis
Compensation Philosophy, Objectives and Policies
The Company’s compensation philosophy is to align executive compensation with shareholders’ interests. To that end, the Compensation Committee works to ensure that base salaries are market competitive, and short- and long-term incentives are heavily weighted toward Company performance and are within the range of market practice.
We achieve these objectives by using programs that are designed to align employee interests with Company goals and create a common vision of success without undue risk.
The following executive compensation policies and practices were in effect during fiscal 2015:
The following table summarizes the roles of each of the key participants in the executive compensation decision-making process for our NEOs.
Compensation Consultant Independence
The Compensation Committee reviewed the independence of Frederic W. Cook & Co., Inc. under NYSE and SEC listing standards. Based on its review and information provided by Frederic W. Cook & Co., Inc. regarding the provision of its services, fees, policies and procedures, presence (if any) of any conflicts of interests, ownership of Best Buy stock, and other relevant factors, the Compensation Committee concluded that the work of Frederic W. Cook & Co., Inc. has not raised any conflicts of interest and it is deemed to be an independent advisor to the Compensation Committee.
In addition, thought not required by the NYSE, the Compensation Committee reviewed the independence of Towers Watson & Co., the outside consultant engaged by management. Based on its review and information provided by Towers Watson & Co. regarding the provision of its services, fees, policies and procedures, presence (if any) of any conflicts of interests, ownership of Best Buy stock, and other relevant factors, the Compensation Committee concluded that the work of Towers Watson & Co. has not raised any conflicts of interest and it is deemed to be an independent advisor to the Company.
Factors in Decision-Making
Market Competitive Data. For fiscal 2015, each element of compensation and the level of total direct compensation for our NEOs was considered against market benchmarks and views of individual performance. Our Compensation Committee reviewed publicly available compensation data for our peer group of companies, Fortune 100 companies and general industry survey data. We used available information and monitored actions taken by our peer group to evaluate market trends and to assess the long-term incentive and overall competitiveness of our executive compensation levels. We did not, however, seek to establish any specific element of compensation or total direct compensation that falls within a prescribed range relative to our peer group of companies or the Fortune 100 companies.
Change in Peer Group for Fiscal 2015. We review our peer group annually. The Compensation Committee strives to ensure that our peer group is an accurate reflection of our business model, represents the labor market for executive talent and includes external perspectives. For 2015, the Compensation Committee approved the peer group based on the following criteria:
For fiscal 2015, our peer group included the following companies:
At the time of the analysis, relative to the 17 companies, the Company was competitive on revenue and earnings measures.
Executive Compensation Elements
Overview. Our NEOs' compensation in fiscal 2015 included the following ongoing elements (for additional details on specific awards, see the discussion below and the Compensation of Executive Officers - Summary Compensation Table section):
Fiscal 2015 Pay Mix. The Compensation Committee emphasizes variable performance-based pay when setting the target pay mix for our executive officers, but does not establish a set pay mix for them. The target pay mix for fiscal 2015 for our CEO and other NEOs, on average, is shown below. Actual salary levels, STI awards (discussed in further detail in the Short-Term Incentive section) and LTI awards (discussed in further detail in the Long-Term Incentive section) vary based on the market analysis described above. About 90% of the CEO’s target pay and, on average, 80% of the other NEOs’ target pay is variable based on operating performance, changes in our stock price and/or total shareholder return relative to the S&P 500 companies.
Each element in the pay mix is discussed below and shown in the Summary Compensation Table as found in the Compensation of Executive Officers section.