KOHLS CORPORATION DEF 14A 2014
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Check the appropriate box:
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
N56 W17000 Ridgewood Drive
Menomonee Falls, Wisconsin 53051
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 15, 2014
To Our Shareholders:
The Annual Meeting of Shareholders of Kohls Corporation will be held at the Pilot House at Pier Wisconsin, 500 N. Harbor Drive, Milwaukee, Wisconsin 53202, on May 15, 2014, at 1:00 p.m. local time, for the following purposes:
PLEASE NOTE: The meeting is expected to last less than 30 minutes.
Only shareholders of record at the close of business on March 12, 2014 are entitled to notice of and to vote at the meeting.
We are pleased to once again take advantage of the Securities and Exchange Commissions rules that allow companies to furnish their proxy materials over the Internet. We believe that this e-proxy process expedites shareholders receipt of proxy materials and has lowered the costs and reduced the environmental impact of our Annual Meeting of Shareholders. Accordingly, we will mail to our shareholders of record and beneficial owners a Notice of Internet Availability of Proxy Materials containing instructions on how to access the attached proxy statement and our Annual Report on Form 10-K via the Internet and how to vote online. The Notice of Internet Availability of Proxy Materials and the attached proxy statement also contain instructions on how you can receive a paper copy of the proxy materials.
The Notice of Internet Availability of Proxy Materials will be mailed to our shareholders beginning on or about March 28, 2014.
You are cordially invited to attend the Annual Meeting of Shareholders in person. Your vote is important no matter how large or small your holdings may be. Please vote as soon as possible in one of these three ways, whether or not you plan to attend the meeting:
If you send in your proxy card or vote by telephone or the Internet, you may still decide to attend the Annual Meeting of Shareholders and vote your shares in person. Your proxy is revocable in accordance with the procedures set forth in this proxy statement.
Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Shareholders to be Held on May 15, 2014: The 2013 Annual Report on Form 10-K and proxy statement of Kohls Corporation are available at www.proxyvote.com.
Menomonee Falls, Wisconsin
March 24, 2014
TABLE OF CONTENTS
N56 W17000 Ridgewood Drive
Menomonee Falls, Wisconsin 53051
ANNUAL MEETING OF SHAREHOLDERS
May 15, 2014
GENERAL INFORMATION ABOUT THESE MATERIALS
This proxy statement describes matters on which we would like you, as a shareholder, to vote at our 2014 Annual Meeting of Shareholders. It also gives you information on these matters so that you can make informed decisions. You are receiving notice because our records indicate that you owned shares of our common stock at the close of business on March 12, 2014. Our Board of Directors has chosen March 12, 2014 as the record date for the meeting, which is the date used to determine which shareholders will be able to attend and vote at the meeting.
Our Board of Directors is soliciting your proxy to be used at the meeting. When you complete the proxy, you appoint two of our officers, Richard D. Schepp and Kevin Mansell, as your representatives at the meeting. These individuals will vote your shares at the meeting as you have instructed them on the proxy card. This way, your shares will be voted whether or not you attend the meeting. Even if you plan to attend the meeting, it is a good idea to vote your shares in advance of the meeting just in case your plans change. The Notice of Internet Availability of Proxy Materials will be mailed to our shareholders beginning on or about March 28, 2014.
ABOUT OUR 2014 ANNUAL MEETING OF SHAREHOLDERS
When and where will the meeting take place?
The Annual Meeting of Shareholders will be held on Thursday, May 15, 2014, at 1:00 p.m., local time, at the Pilot House at Pier Wisconsin, 500 N. Harbor Drive, Milwaukee, Wisconsin 53202. Registration begins at 12:30 p.m.
How long is the meeting expected to last?
The meeting is expected to last less than 30 minutes.
What is the purpose of the meeting?
At the Annual Meeting of Shareholders, you will be asked to vote on the following matters:
Could other matters be decided at the meeting?
Our Bylaws require prior notification of a shareholders intent to request a vote on other matters at the meeting. The deadline for notification has passed, and we are not aware of any other matters that could be brought before the meeting. However, if any other business is properly presented at the meeting, your completed proxy gives authority to Richard D. Schepp and Kevin Mansell to vote your shares on such matters at their discretion.
Who is entitled to attend the meeting?
All shareholders who owned our common stock at the close of business on March 12, 2014 (which is called the record date for the meeting) or their duly appointed proxies, may attend the meeting.
Who is entitled to vote at the meeting?
All shareholders who owned our common stock at the close of business on the record date are entitled to attend and vote at the meeting and at any adjournment of the meeting.
How many votes do I have?
Each share of our common stock outstanding on the record date is entitled to one vote on each of the ten Director nominees and one vote on each other matter.
How many votes must be present to hold the Annual Meeting of Shareholders?
The presence in person or by proxy of the holders of a majority of the outstanding shares of our common stock entitled to vote at the meeting will constitute a quorum for the transaction of business at the meeting. Abstentions and broker non-votes are counted as present and entitled to vote for purposes of determining whether there is a quorum. A broker non-vote occurs when a broker or nominee holding shares for a beneficial owner does not vote on a particular proposal because the broker or nominee does not have the necessary voting power for that particular item and has not received instructions from the beneficial owner. In order for us to determine that enough votes will be present to hold the meeting, we urge you to vote in advance by proxy even if you plan to attend the meeting.
How many votes may be cast by all shareholders?
A total of 208,557,520 votes may be cast at the meeting, consisting of one vote for each share of our common stock outstanding on the record date.
How do I vote?
You may vote in person at the meeting or vote by proxy as described below.
Whether or not you intend to attend the meeting, you can vote by proxy in three ways:
If you vote by proxy, your shares will be voted at the meeting in the manner you indicate. If you sign and return your proxy card, but do not specify how you want your shares to be voted, they will be voted as the Board of Directors recommends.
May I change or revoke my vote after I submit my proxy?
Yes. To change your vote previously submitted by proxy, you may:
If you wish to revoke rather than change your vote, written revocation must be received by our corporate Secretary prior to the meeting.
What are the Boards voting recommendations?
Unless you give other instructions on your proxy, the persons named as proxy holders on the proxy will vote in accordance with the recommendations of our Board of Directors. Our Board of Directors recommends a vote:
How many votes will be required to approve each of the proposals?
What if I do not indicate my vote for one or more of the matters on my proxy?
If you return a signed proxy card or otherwise complete your voting by proxy over the Internet or over the telephone without indicating your vote on a matter to be considered at the Annual Meeting of Shareholders, your
shares will be voted in accordance with the Board of Directors recommendations described above. In the event any other matters are brought before the meeting, Richard D. Schepp and Kevin Mansell will vote your shares on such matters at their discretion.
What happens if I do not vote by proxy?
If you do not vote by proxy, the shares held in your name will not be voted unless you vote in person at the meeting. If you hold your shares through a broker and you do not provide your broker with specific instructions, your shares may be voted with respect to certain proposals at your brokers discretion. If the broker does not vote those shares, those broker non-votes will have no effect on the outcome of any of the proposals.
How can I attend the Annual Meeting of Shareholders?
Only shareholders as of the close of business on the record date, March 12, 2014, may attend the Annual Meeting of Shareholders. To be admitted to the meeting, you will be required to present photo identification and an admission ticket or proof of ownership of your shares as of the record date, such as a letter or account statement from your bank or broker.
IF YOU DO NOT HAVE AN ADMISSION TICKET (OR PROOF OF OWNERSHIP) AND VALID PICTURE IDENTIFICATION, YOU WILL NOT BE ADMITTED TO THE MEETING.
The use of cameras, recording devices and other electronic devices at the meeting is prohibited, and such devices will not be allowed in the meeting or any other related areas, except by credentialed media. We realize that many cellular phones have built-in digital cameras, and while you may bring these phones into the venue, you may not use the camera function at any time.
What happens if the Annual Meeting of Shareholders is postponed or adjourned?
If the meeting is postponed or adjourned, your proxy will remain valid and may be voted when the meeting is convened or reconvened. You may change or revoke your proxy as set forth above under the caption May I change or revoke my vote after I submit my proxy?
Will our independent registered public accounting firm participate in the meeting?
Yes. Our independent registered public accounting firm is Ernst & Young LLP. A representative of Ernst & Young LLP will be present at the meeting, and will be available to make a statement or answer any appropriate questions you may have.
Are members of the Board of Directors required to attend the meeting?
While the Board has not adopted a formal policy regarding Director attendance at annual shareholder meetings, Directors are encouraged to attend. Five of our then twelve Directors attended the 2013 Annual Meeting of Shareholders.
Who will pay the expenses incurred in connection with the solicitation of my vote?
We pay all costs and expenses related to preparation of these proxy materials and solicitation of your vote. We also pay all Annual Meeting of Shareholder expenses. In addition to soliciting proxies by mail, we may solicit proxies by telephone, personal contact, and electronic means. None of our Directors, officers, or employees will be specially compensated for these activities. We have hired Morrow & Co., LLC to assist with the solicitation of proxies for a fee of $8,500 plus reimbursement for out-of-pocket expenses. We also reimburse brokers, fiduciaries, and custodians for their costs in forwarding proxy materials to beneficial owners of our common stock, but we will not pay any compensation for their services.
Can I view these proxy materials electronically?
Yes. You may view our 2014 proxy materials at www.proxyvote.com. You may also use our websites at www.kohls.com or www.kohlscorporation.com to view all of our filings with the Securities and Exchange Commission (the Commission), including this proxy statement and our Annual Report on Form 10-K for the fiscal year ended February 1, 2014.
How can I receive copies of Kohls year-end Securities and Exchange Commission filings?
We will furnish without charge to any shareholder who requests in writing, a copy of this proxy statement and/or our Annual Report on Form 10-K, including financial statements, for the fiscal year ended February 1, 2014, as filed with the Commission. Any such request should be directed to Kohls Corporation, N56 W17000 Ridgewood Drive, Menomonee Falls, Wisconsin 53051, Attention: Investor Relations.
How do shareholders submit proposals for Kohls 2015 Annual Meeting of Shareholders?
You may present matters for consideration at our next Annual Meeting of Shareholders either by having the matter included in our proxy statement and listed on our proxy or by conducting your own proxy solicitation.
To have your proposal included in our proxy statement and listed on our proxy for the 2015 Annual Meeting of Shareholders, we must receive your proposal by November 24, 2014. You may submit your proposal in writing to: Corporate Secretary, Kohls Corporation, N56 W17000 Ridgewood Drive, Menomonee Falls, Wisconsin 53051. You may submit a proposal only if you have continuously owned at least $2,000 worth of our common stock for at least one year before you submit your proposal, and you must continue to hold this level of stock through the date of the 2015 Annual Meeting of Shareholders.
If you decide to conduct your own proxy solicitation, you must provide us with written notice of your intent to present your proposal at the 2015 Annual Meeting of Shareholders in accordance with our Bylaws, and the written notice must be received by us by January 15, 2015. If you submit a proposal for the 2015 Annual Meeting of Shareholders after that date, your proposal cannot be considered at the meeting.
ABOUT OUR BOARD OF DIRECTORS AND CORPORATE GOVERNANCE MATTERS
What is the makeup of the Board of Directors and how often are members elected?
Our Board of Directors currently has ten members. Each Director stands for election every year.
How often did the Board of Directors meet in fiscal 2013?
The full Board of Directors formally met five times during fiscal 2013 and otherwise accomplished its business through the work of the committees described below or otherwise without formal meetings. Each incumbent Director attended at least 75% of the meetings of the Board and of the standing committees for which he or she was a member during fiscal 2013.
Do the non-management Directors meet in regularly scheduled executive sessions?
Yes. The non-management members of our Board of Directors meet in regularly scheduled executive sessions without any members of management present. Our Board of Directors, upon the recommendation of the Governance & Nominating Committee, appointed Mr. Watson as the independent Lead Director for fiscal 2013. In this capacity, Mr. Watson presided over the meetings of non-management Directors.
Has the Board of Directors adopted written Corporate Governance Guidelines?
Yes. Our Board has adopted written Corporate Governance Guidelines. To view these guidelines, access www.kohlscorporation.com, then Investor Relations, then Corporate Governance, then Corporate Governance Guidelines. Paper copies will be provided to any shareholder upon written request.
How does the Board determine which Directors are independent?
Our Board of Directors has established independence guidelines that are described in our Corporate Governance Guidelines. The independence guidelines require a finding that the individual Director satisfies all of the independence standards of the New York Stock Exchange, as such standards may be amended from time to time, and also that the Director has no material relationships with us (either directly or as a partner, shareholder or officer of any entity) which would be inconsistent with a finding of independence.
Which Directors have been designated as independent?
Based on the analysis described below on page 22 under the caption Independence Determinations & Related Person Transactions, the Board affirmatively determined that eight of the ten Directors that will continue to serve on the Board following the Annual Meeting of Shareholders are independent: Peter Boneparth, Steven A. Burd, Dale E. Jones, John E. Schlifske, Frank V. Sica, Stephanie A. Streeter, Nina G. Vaca and Stephen E. Watson. The Board has determined that Peter M. Sommerhauser is not an independent Director because he is a shareholder with the law firm Godfrey & Kahn, S.C. which provides legal services to us. Kevin Mansell is not an independent Director because of his employment as our Chairman, President and Chief Executive Officer.
Does the Board of Directors Have a Process for Reviewing and Approving Related Party Transactions?
Yes. The Board of Directors recognizes that related party transactions can present a heightened risk of conflicts of interest. Accordingly, as a general matter, and consistent with our written code of ethics, our Directors, senior officers and their respective immediate family members are to avoid any activity, interest, or relationship that would create, or might appear to others to create, a conflict with the interests of Kohls. The
Governance & Nominating Committee, which is comprised solely of independent Directors, reviews all related-party transactions and relationships involving a Director or any senior officer. To help identify related-party transactions and relationships, each Director and senior officer completes an annual questionnaire that requires the disclosure of any transaction or relationship that the person, or any member of his or her immediate family, has or will have with Kohls. Kohls Legal Department conducts a review of our financial records to determine if a Director or executive officer, or a company with which a Director or executive officer is affiliated, received any payments from Kohls or made any payments to Kohls that could have arisen as a result of a related party transaction during the fiscal year. On an annual basis, or as circumstances may otherwise warrant, the Governance & Nominating Committee reviews and approves, ratifies or rejects any transaction or relationship with a related party that is identified. In approving, ratifying or rejecting a related-party transaction or relationship, the Governance & Nominating Committee considers such information as it deems important to determine whether the transaction is on reasonable and competitive terms and is fair to Kohls. Transactions and relationships that are determined to be directly or indirectly material to Kohls or a related person are disclosed in Kohls proxy statement.
The Board of Directors processes with respect to review and approval or ratification of related-party transactions are in writing and have been incorporated into the Charter of the Governance & Nominating Committee of the Board of Directors.
What are the standing committees of the Board?
Our Board of Directors has three standing committees: the Audit Committee, the Governance & Nominating Committee and the Compensation Committee.
Who are the members of the standing committees?
As of February 1, 2014, the members of our Board of Directors standing committees were:
While Mr. Burd previously served on both the Compensation and Governance & Nominating Committees, he stepped off both Committees in February 2014 in light of his expected involvement in discussions with respect to forming a potential relationship between Kohls and Burd Health LLC.
Are all of the members of the standing committees independent?
Yes. All members of each of the standing committees have been deemed independent by the Board of Directors.
Do all of the standing committees operate under a written charter?
Yes. The charters of each of the standing committees are available for viewing by accessing our website at www.kohlscorporation.com, then Investor Relations, then Corporate Governance. Paper copies will be provided to any shareholder upon written request.
What are the functions of the standing committees?
It is the responsibility of the Audit Committee to assist the Board of Directors in its oversight of our financial accounting and reporting practices. The specific duties of the Audit Committee include:
The Audit Committee has the authority to conduct any investigation appropriate to fulfilling its responsibilities, and it has direct access to the independent registered public accounting firm as well as any of our employees. The Audit Committee has the ability to retain, at our expense, special legal, accounting, or other consultants or experts it deems necessary in the performance of its duties. The Board has determined that each member of the Audit Committee is financially literate, as that term is defined under New York Stock Exchange rules, and qualified to review and assess financial statements. The Board has also determined that more than one member of the Audit Committee qualifies as an audit committee financial expert, as defined by the Commission, and has specifically designated Stephen E. Watson, Chairman of the Audit Committee, as an audit committee financial expert. Each member of the Audit Committee is also independent as that term is defined under the rules of both the Commission and the New York Stock Exchange.
Governance & Nominating Committee
The duties of the Governance & Nominating Committee are to provide assistance to the Board of Directors in the selection of candidates for election and re-election to the Board and its committees; advise the Board on corporate governance matters and practices, including developing, recommending, and thereafter periodically reviewing the Corporate Governance Guidelines and principles applicable to us; and coordinate an annual evaluation of the performance of the Board and each of its standing committees.
The duties of the Compensation Committee are to discharge the Boards responsibilities related to compensation of our Directors and officers, as well as those with respect to our general employee compensation and benefit policies and practices to ensure that they meet corporate objectives. The Compensation Committee has overall responsibility for evaluating and approving our executive officer benefits, incentive compensation, equity based or other compensation plans, policies and programs. The Compensation Committee also approves goals for incentive plans and evaluates performance against these goals. Furthermore, the Compensation Committee regularly and actively reviews and evaluates our executive management succession plans and makes recommendations to the Board with respect to succession planning issues. The Compensation Committee has the
ability to retain, at our expense, special legal, accounting, or other consultants or experts it deems necessary in the performance of its duties. Further information regarding the Compensation Committees processes and procedures for the consideration of executive and Director compensation is included in the Compensation Discussion & Analysis section of this proxy statement.
How many times did each standing committee meet in fiscal 2013?
During fiscal 2013, the Audit Committee formally met eight times. The Compensation Committee formally met five times. The Governance & Nominating Committee formally met three times. Each of the committees otherwise accomplished their business without formal meetings.
Are there currently any other committees of the Board of Directors?
The Board of Directors has also established an Executive Committee, the primary function of which is to act on behalf of the Board of Directors in the intervals between the Boards meetings. The Executive Committee may not, however, take any actions that: (a) are prohibited by applicable law or our Articles of Incorporation or Bylaws, or (b) are required by law or by rule of the New York Stock Exchange to be performed by a committee of independent Directors, unless the composition of the Executive Committee complies with such law or rule. As of February 1, 2014, the members of the Executive Committee were:
What is the leadership structure of Kohls Board of Directors and why has this structure been chosen?
The Board of Directors has no formal policy on separation of the position of Chairman of the Board and Chief Executive Officer. However, recognizing shareholder sentiment as expressed in a vote on a shareholder proposal brought before our 2013 Annual Meeting of Shareholders, the Board intends to appoint a Chairman that has not previously served as an executive officer of Kohls whenever possible. Based on the recommendations within the previous shareholder proposal and many subsequent discussions with our largest shareholders representing a significant percentage of outstanding shares, the foregoing shall apply with respect to the appointment of any new Chairman or if any then-current Chairman shall become an executive officer of Kohls, but shall not apply: (i) until such time as Mr. Mansell retires or otherwise ceases to serve as Chairman of the Board; (ii) if such an appointment would violate any pre-existing contractual obligation of Kohls; or (iii) to the extent the then-current members of the Board determine that such an appointment would not be consistent with the Boards fiduciary obligations to our shareholders. In accordance with its fiduciary duties, the Board will periodically make a determination as to the appropriateness of its policies in connection with the recruitment and succession of the Chairman and Chief Executive Officer.
To further strengthen the Boards governance structure, our Corporate Governance Guidelines provide for an independent Lead Director to be elected annually by the independent Directors. The role of our Lead Director closely parallels the role of an independent chairman. Specifically, our independent Lead Director:
We believe that the existence of an independent Lead Director with this scope of responsibilities supports strong corporate governance principles and allows the Board to effectively fulfill its fiduciary responsibilities to our shareholders.
Moreover, we have adopted strong and effective corporate governance policies and procedures to promote effective and independent corporate governance. Among these policies and procedures are the following:
How Does Kohls Manage Risk and What is the Boards Role in the Risk Management Processes?
We have developed a robust enterprise risk management program that is driven by management and overseen by the Boards Audit Committee, with progress reports given periodically to the full Board. Our enterprise risk management program was designed to monitor Kohls ongoing progress in managing the potential impact of key regulatory, operational, financial and reputational risks across the organization. Management has compiled a comprehensive list of enterprise risks. These risks have been prioritized based upon the potential financial and reputational damage posed by each risk. A member of senior management has been assigned as the owner of each risk based upon who is most likely to be able to impact the effects of that particular risk. Each risk owner has been required to develop action plans to reduce, mitigate or eliminate the risk, identify barriers to risk reduction efforts, and establish key metrics to objectively measure the impacts of risk management efforts. A risk management committee has been formed among key senior managers from across our company to actively review each risk owners progress toward reduction, mitigation or elimination of each particular risk. The risk management committee meets regularly to review the status of risk management efforts directed toward each identified risk element. Our principal officers are periodically updated on the status of all risk management efforts, and are regularly consulted for additional direction.
Pursuant to its charter, the Boards Audit Committee actively oversees and monitors our enterprise risk management program. The Board receives a full annual status report on all of our risk management activities. Between these annual reports, the Audit Committee receives regular updates from members of senior management on various elements of material risk. Some of these reports are scheduled because of their particular significance, and others may be scheduled at the request of any Audit Committee member for any reason. These reports are given by the appropriate risk owner within the organization to enable the Audit Committee members to understand our risk identification, risk management and risk mitigation strategies, and to provide regular feedback and general direction to management. Following each of these updates, the Audit Committee Chairman reports on the discussion to the full Board during the committee reports portion of the next full Board meeting.
On an annual basis, the full Board also receives a comprehensive update on our current risk profile and our activities related to the enterprise risk management program. This enables all members of the Board to understand our overall risk profile and efforts being made to reduce, mitigate or eliminate each element of risk.
How does the Board identify and evaluate nominees for Director?
The Governance & Nominating Committee regularly assesses the appropriate size of the Board, whether any vacancies on the Board are expected due to retirement or otherwise, and whether the Board is comprised of individuals with the experience, qualifications, attributes and skills, taken as a whole, to enable the Board to satisfy its oversight responsibilities effectively. To assist in these considerations, the Board periodically performs a comprehensive skills assessment to determine which particular skills or areas of expertise would most help the Board of Directors carry out its significant responsibilities. In the event that vacancies are anticipated or otherwise arise, the Governance & Nominating Committee utilizes a variety of methods for identifying and evaluating Director candidates that would best satisfy areas of opportunity identified during the course of the skills assessment. Candidates may come to the attention of the Committee through current Directors, members of management, eligible shareholders or other persons. From time to time, the Governance & Nominating Committee may also engage a search firm to assist in identifying potential Board candidates, although such a firm was not used to identify any of the nominees for Director proposed for election at the 2014 Annual Meeting of Shareholders. Once the Committee has identified a prospective nominee, the Committee carefully evaluates the nominees potential contributions in providing advice and guidance to the Board and management.
What are the minimum required qualifications for Directors?
Members of the Board and Director nominees must share with the other Directors the following attributes:
Does Kohls have a formal diversity policy for Directors?
The Board is committed to an inclusive membership, embracing diversity with respect to background, experience, skills, education, special training, race, age, gender, national origin and viewpoints.
How does the Board evaluate Director candidates recommended by shareholders?
The Governance & Nominating Committee evaluates shareholder nominees in the same manner as any other nominee. Pursuant to procedures set forth in our Bylaws, our Governance & Nominating Committee will consider shareholder nominations for Directors if we receive timely written notice, in proper form, of the intent to make a nomination at an Annual Meeting of Shareholders. To be timely for the 2015 Annual Meeting of
Shareholders, the notice must be received within the time frame discussed above on page 5 under the heading How do shareholders submit proposals for Kohls 2015 Annual Meeting of Shareholders? To be in proper form, the notice must, among other things, include each nominees written consent to serve as a Director if elected, a description of all arrangements or understandings between the nominating shareholder and each nominee and information about the nominating shareholder and each nominee. Among other things, a shareholder proposing a Director nomination must disclose any hedging, derivative or other complex transactions involving our common stock to which the shareholder is a party. These requirements are detailed in our Bylaws, a copy of which will be provided to you upon written request.
How are Directors compensated?
Pursuant to our Non-Employee Director Compensation Program, Directors who are not our employees or employees of our subsidiaries received an annual retainer fee of $100,000. The independent Lead Director received an additional retainer fee of $15,000. Chairpersons of the Compensation Committee and the Audit Committee received an additional $20,000 retainer fee, and the Chairperson of the Governance & Nominating Committee received an additional $10,000 retainer fee. Non-employee Directors also received retainer fees for membership on the Compensation, Audit and Executive Committees. Committee member retainers are $10,000 for Compensation Committee members and $15,000 for Audit Committee and Executive Committee members. Directors received no additional compensation for participation in Board of Directors or committee meetings. Directors are, however, reimbursed for travel and other expenses related to attendance at these meetings as well as travel and other expenses related to attendance at educational seminars approved in advance by the Governance & Nominating Committee.
Equity awards are granted to non-employee Directors from time to time pursuant to our 2010 Long Term Compensation Plan. These grants are typically made following a Directors initial election to the Board and each time the Director is re-elected by the shareholders to serve a new term. The annual awards, which are comprised of restricted shares, typically have a grant date fair value of approximately $100,000, calculated in accordance with FASB ASC Topic 718 (formerly FAS 123R). Accordingly, each of the non-employee Directors that were re-elected to the Board at the 2013 Annual Meeting of Shareholders received a grant of 1,922 restricted shares. The restricted shares vest on the first anniversary of the date of grant. Prior to the vesting of the restricted shares, the recipients have the right to vote the shares, to receive and retain all regular dividends paid or distributed in respect of the shares (paid in dividend units that vest with the underlying shares), assuming full reinvestment of all such dividends, and have all other rights as a holder of outstanding shares of our stock.
Director Compensation Table
The following table provides each element of compensation paid or granted to each non-employee Director for services rendered during fiscal 2013. Retainer fees are paid on a quarterly basis in arrears, so some of the retainer fees in this table may have been paid in the first quarter of fiscal 2014 for services rendered in fiscal 2013.
As of February 1, 2014, the aggregate number of vested and unvested stock options and unvested shares of restricted stock held by each incumbent non-employee Director were as follows:
Are Directors required to own Kohls stock?
We believe that Director stock ownership is important to align the interests of our Directors with those of our shareholders. Each non-management member of the Board of Directors is expected to hold a minimum of
7,300 shares of Kohls stock, including shares of restricted stock, but not including any vested or unvested stock options. This ownership level is to be achieved by the fifth anniversary of the Directors initial election to the Board. All Directors will be in compliance with this requirement as of the date of the 2014 Annual Meeting of Shareholders.
The number of shares set forth above will be revisited from time to time by the Governance & Nominating Committee, with the intention of requiring Directors to own Kohls stock with a value of approximately three times the amount of the Directors average annual cash retainer. A Director is not permitted to sell any stock, either through the exercise of stock options or otherwise, until he or she attains the above-referenced ownership level.
Do you have a written Code of Ethics?
Yes. Our Board of Directors, through its Governance & Nominating Committee, has adopted a code of ethical standards that describes the ethical and legal responsibilities of all of our employees and, to the extent applicable, members of our Board of Directors. This code includes (but is not limited to) the requirements of the Sarbanes-Oxley Act of 2002 pertaining to codes of ethics for chief executives and senior financial and accounting officers. We provide educational seminars with respect to the code for all of our employees, and all employees agree in writing to comply with the code at the time they are hired and periodically thereafter. Our employees are encouraged to report suspected violations of the code through various means, including through the use of an anonymous toll-free hotline. This code, known as Kohls Ethical Standards and Responsibilities can be viewed on our website by accessing www.kohlscorporation.com, then Investor Relations, then Corporate Governance, then Code of Ethics. We intend to satisfy our disclosure requirements under Item 5.05 of Form 8-K, regarding any amendments to, or waiver of, a provision of our Code of Ethics that applies to our principal executive officer, principal financial officer or our Directors by posting such information at this location on our website. Paper copies of the code of ethics will be provided to any shareholder upon written request.
How can I obtain copies of your corporate governance documents?
You may obtain a copy of our Corporate Governance Guidelines, our Code of Ethics and the charters for each of the committees of our Board of Directors on our website at www.kohlscorporation.com, under the section entitled Investor Relations, or by contacting our Investor Relations staff by e-mail at email@example.com or by mail at N56 W17000 Ridgewood Drive, Menomonee Falls, Wisconsin 53051.
How can I communicate with members of the Board of Directors?
You may contact any member of the Board of Directors, including the independent Lead Director, as follows (these instructions are also available on our website):
Write to our Board of Directors or Lead Director Stephen E. Watson:
Kohls Board of Directors
N56 W17000 Ridgewood Drive
Menomonee Falls, WI 53051
E-mail our Board of Directors or Lead Director Stephen E. Watson:
Questions or concerns related to financial reporting, internal accounting or auditing matters may be sent to firstname.lastname@example.org.
All questions or concerns will be forwarded to the appropriate members of management or the Board of Directors. Correspondence related to accounting, internal controls or auditing matters is immediately brought to the attention of our Internal Audit Department and, if appropriate, to the Audit Committee of the Board of Directors. The Audit Committee receives a quarterly recap of all communications received through any of the above-referenced channels.
All such communications are treated confidentially. You can remain anonymous when communicating your concerns.
When do your fiscal years end?
Consistent with many other retail companies, our fiscal year ends on the Saturday closest to January 31. References in this proxy statement to a fiscal year are to the calendar year in which the fiscal year begins. For example, the fiscal year ended February 1, 2014 is referred to as fiscal 2013.
BENEFICIAL OWNERS, DIRECTORS AND MANAGEMENT
The following table presents information concerning the beneficial ownership of the shares of our common stock as of February 1, 2014 (unless otherwise noted) by:
Unless otherwise indicated, beneficial ownership is direct and the person indicated has sole voting and investment power. The beneficial ownership includes shares owned by the individual in his or her 401(k) Plan account. Indicated options are all exercisable within sixty days of February 1, 2014.
ELECTION OF DIRECTORS
Our Articles of Incorporation provide that our Board of Directors shall consist of five to fifteen members. Our Board of Directors currently consists of ten members.
Under our Articles of Incorporation, our Board of Directors is elected annually to serve until the next Annual Meeting of Shareholders and until the Directors successors are duly elected and shall qualify. OUR BOARD OF DIRECTORS HAS INSTITUTED A MAJORITY VOTE REQUIREMENT FOR THE ELECTION OF DIRECTORS IN UNCONTESTED ELECTIONS. THIS MEANS THAT A DIRECTOR NOMINEE WILL BE ELECTED IF THE NUMBER OF VOTES CAST FOR THAT NOMINEE EXCEEDS THE NUMBER OF VOTES CAST AGAINST THAT NOMINEE. If you abstain from voting on any of the nominees, your shares will be counted for purposes of determining whether there is a quorum, but will have no effect on the election of those nominees.
You may vote for all, some or none of the ten nominees to be elected to the Board. However, you may not vote for more individuals than the number nominated. Unless you direct otherwise, your proxy will be voted for the election of the ten nominees described below. The Board of Directors has no reason to believe that any nominee is not available or will not serve if elected. If for any reason a nominee becomes unavailable for election, the Board of Directors may reduce the size of the Board or may designate a substitute nominee, in which event the shares represented by your signed proxy will be voted for any such substitute nominee, unless you have given different instructions on the proxy.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS
VOTE FOR THE ELECTION OF THE NOMINEES TO SERVE AS DIRECTORS.
IF NO INSTRUCTIONS ARE SPECIFIED ON YOUR OTHERWISE PROPERLY COMPLETED
PROXY, THAT PROXY WILL BE VOTED TO ELECT ALL OF THE NOMINEES.
Information about Director Nominees
The Board of Directors and particularly its Governance & Nominating Committee regularly considers whether the Board is comprised of individuals with the experience, qualifications, attributes and skills, taken as a whole, to enable the Board to satisfy its oversight responsibilities effectively. In making these considerations, the Board of Directors and its Governance & Nominating Committee has focused primarily on the information in each of the nominees individual biographies set forth below. These biographies are based upon information provided by each of the nominees. There are no family relationships between the nominees. Unless otherwise indicated, the nominees have had the indicated principal occupation for at least the past five years. The directorships listed for each nominee are those public company directorships that have been held by the nominee at any time during the past five years.
Compensation Committee Interlocks and Insider Participation
None of the members of the Compensation Committee is or has been one of our officers or employees.
Independence Determinations & Related Person Transactions
Our Board of Directors has established independence guidelines that are described in our Corporate Governance Guidelines. The independence guidelines require a finding that the individual Director satisfies all of the independence standards of the New York Stock Exchange, as such standards may be amended from time to time, and also that the Director has no material relationships with us (either directly or as a partner, shareholder or officer of any entity) which would be inconsistent with a finding of independence. In accordance with its written charter, the Governance & Nominating Committee is charged with the ongoing review of transactions that could affect a Directors independence.
In February 2014, the Governance & Nominating Committee reviewed a summary of Directors responses to a questionnaire asking about their relationships with us (and those of their immediate family members) and other potential conflicts of interest, as well as material provided by management related to transactions, relationships, or arrangements between us and the Directors or parties related to the Directors. During the course
of this review, the Committee broadly considered all relevant facts and circumstances, recognizing that material relationships can include commercial, banking, consulting, legal, accounting, charitable and familial relationships, among others. Based on this review, the Committee affirmatively determined that the following continuing Directors are independent: Peter Boneparth, Steven A. Burd, Dale E. Jones, Frank V. Sica, John E. Schlifske, Stephanie A. Streeter, Nina G. Vaca and Stephen E. Watson. The Committee also determined that all of the members of the Audit, Compensation, and Governance & Nominating Committees meet our independence requirements.
The Committee determined that Kevin Mansell is not considered an independent Director because of his employment as our Chairman, President and Chief Executive Officer. The Committee also determined that Mr. Sommerhauser is not an independent Director because he is a shareholder with the law firm Godfrey & Kahn, S.C., which provides legal services to us.
The following transactions were reviewed and considered by the Committee, but were not deemed to affect the independence of the applicable Director or Directors:
In 2004, Kohls entered into an agreement with Blackhawk Marketing Services, Inc. (now known as Blackhawk Network, Inc.), pursuant to which Blackhawk distributes Kohls gift cards for sale in various retail outlets across the country. This agreement was subsequently amended and restated in 2012. Blackhawk is a subsidiary of Safeway Inc. Mr. Burd was Chairman and Chief Executive Officer of Safeway prior to retiring in May 2013. He holds a small minority ownership interest in Blackhawk and serves on Blackhawks Board of Directors, but is not an employee or officer of that entity. The agreement provides that in return for its services, Blackhawk receives a fee that is calculated as a percentage of the gift card sales volume. Blackhawks compensation under the agreement was approximately $16.1 million for fiscal 2013.
In 2007, Blackhawk and Kohls entered into a Blackhawk Network Gift Card Alliance Partners Agreement, pursuant to which we sell gift cards of other retailers in our stores. This agreement was subsequently amended and restated in 2012. Blackhawk provides services to facilitate these sales, and we receive a commission for each card sold at our stores. The commissions we earned under this agreement for gift cards were approximately $3.5 million in fiscal 2013.
The agreements described above were entered into at arms length and Mr. Burd was not involved in any of the negotiations. Blackhawk is a leading provider of these services in the retail industry, and Safeway Inc. has confirmed that the terms of our agreements with Blackhawk are substantially similar to those of agreements Blackhawk has entered into with similarly situated retailers.
The Committee recommended all of the above-described conclusions to the full Board of Directors and explained the basis for its decisions. Upon discussion and further consideration, these conclusions were adopted by the full Board.
COMPENSATION COMMITTEE REPORT
The Compensation Committee has reviewed and discussed with management the Compensation Discussion & Analysis included in this proxy statement. Based on this review and discussion, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion & Analysis be included in this proxy statement.
Frank V. Sica, Chairman
Dale E. Jones
The Compensation Committee (Committee) fulfills the Board of Directors responsibilities related to our Directors and Named Executive Officers (NEOs) compensation, ensuring our executive compensation program meets our corporate objectives. This Compensation Discussion & Analysis provides insight into the Committees process for determining this compensation. Specifically, it discusses and analyzes the Committees philosophy, objectives, policies, programs, practices and decisions.
The Committee has designed our program to reflect its philosophy that executive compensation should be directly linked to performance with the ultimate objective of increasing long-term shareholder value. In fact, each primary element of our executive compensation program is tied to Company performance. Additionally, the Committees policies, practices and our executive compensation program are consistent with market practice. In each of the first three years of advisory voting on our compensation programs, over 95% of the votes cast by our shareholders were in favor of our executive compensation. Based on this strong support, the Committee believes that our policies, practices, and programs are in line with our shareholders expectations.
As part of this pay for performance philosophy, our goals are intended to be difficult to achieve. For example, because the Company failed to achieve acceptable financial results in 2012, our principal officers did not achieve a satisfactory rating for the year, and therefore, did not receive any stock options, restricted shares or any other form of equity awards based on 2012 performance. Under our annual incentive program, our NEOs received the minimum payout possible. That payout was earned in recognition of the fact that the Company had outperformed our core peer group (described below), as measured by a weighted average of previously established metrics. Taken as a whole, this reflects Kohls strong commitment to only paying for meaningful performance.
We did not achieve our financial goals in fiscal 2013. While we again exceeded the blended performance of our core peer group, as measured by our Peer Performance Index described below, our sales did not grow at the rate we had planned. Just as importantly, our sales came at a higher cost to profitability than is acceptable to us, particularly in our e-commerce business. Based on these results:
The Committee believes all of these actions were appropriate and in line with its philosophy.
The Committee regularly and proactively adjusts compensation programs, as necessary, to drive Kohls performance and ensure they are best serving our shareholders. Beginning in early 2013, the Committee and its independent compensation consultant began an extensive re-evaluation of our long-term incentive program. Following the Committees extensive review, which included a detailed review of the long-term compensation programs of the companies with which we compete for talent, the Committee decided to adopt a new long-term incentive program (the New LTIP) intended to achieve the Committees goals of, among other things:
While these awards will continue to be made from our 2010 Long-Term Compensation Plan, which has been approved by our shareholders, under the New LTIP:
The New LTIP is described in detail below under the caption Long-Term Compensation. The Committee granted the first annual long-term equity incentive awards pursuant to the New LTIP to each of the Companys executive officers on January 13, 2014. These awards were for the 2014-2016 performance period, and are not in any way connected to 2013 performance.
The Committee believes the changes reflected in our New LTIP are consistent with our long history of fostering strong pay for performance alignment.
Say on Pay
The Committee is pleased with our shareholders strong support of our NEO compensation program. Each year at our annual shareholder meeting, we hold an advisory vote on the compensation of our NEOs. Our shareholders have consistently shown strong support for our NEO compensation, with over 95% of the votes cast by our shareholders approving this compensation in each of the three years we have held this advisory vote. In accordance with its charter, the Committee reviews these voting results on an annual basis and following each of the three previous votes, has considered whether any adjustments were warranted based on these results. The Committee values our shareholders input and is always looking for ways to improve alignment between executive compensation and our objective of increasing long-term shareholder value.
Philosophy and Objectives
The Committee believes executive compensation should be directly linked to corporate performance with the ultimate objective of increasing long-term shareholder value. The utilization of performance measurements that include sales, net income, return on investment, total shareholder return and other financial measurements establishes this critical linkage and alignment between the interests of our executives and our shareholders.
Our executive compensation program has been designed to achieve the following objectives:
Our executive compensation program is comprised of three primary elements:
The Committee has the flexibility to use these elements, along with certain benefits and perquisites, in proportions that will most effectively accomplish its objectives. For instance, the Committee may decide to realign the total compensation package to place greater emphasis on annual or long-term incentive compensation, depending on the focus of the business and the market cycle. Each of the elements of our executive compensation program is discussed in more detail below.
Each year, we review and analyze whether our compensation plans, policies and practices create material risks to Kohls. As part of this analysis, we review all of our compensation plans, policies and practices. We also consider the potential impact of each of our compensation plans, policies and practices on all of the risk factors we have identified in our public filings. Management has engaged a third party compensation consultant to assist in this process and give a separate risk assessment. Following these analyses, the Committee and the consultant agreed with managements conclusion that our compensation programs do not create risks that are reasonably likely to have a material adverse effect on the Company.
The Committee believes our compensation plans, policies and practices are designed to reward performance that contributes to overall Company performance and the achievement of long-term and short-term Company goals. These plans, policies and practices do not encourage or incentivize individuals to take actions that expose the Company to risks that are inconsistent with the Companys strategic plan. The amount of each type of compensation awarded to or earned by our management team is determined either solely by reference to Company-wide performance (e.g., annual incentive compensation and long-term incentive awards) or a combination of Company-wide performance and individual performance (e.g., base salary increases).
Our long-term compensation is typically paid in the form of equity and the Committee has adopted share ownership guidelines, which require our NEOs to continuously own a substantial amount of equity during their employment. Equity based long-term incentives align our executives long-term interests with those of our shareholders and discourage excessive risk taking intended to drive short-term results at the expense of long-term shareholder value enhancement. The Committee believes our long-term incentive program motivates and rewards our executives for decisions that may not produce short-term results but will likely have a positive long-term effect, such as those related to investments in our infrastructure and increasing our market share. Our executives are not compensated for discrete decisions or actions.
Determining Executive Compensation
Our Committee oversees the compensation programs for our directors and NEOs. Those programs are administered by management in accordance with the policies developed by the Committee. Information concerning the structure, roles and responsibilities of the Committee can be found in the Questions and Answers about our Board of Directors and Corporate Governance Matters section of this proxy statement.
Compensation Committee Meetings & Advisors
The Committee meets throughout the course of each fiscal year to review issues with respect to executive compensation matters. In addition to preparation meetings and calls, the Committee met five times in fiscal 2013. Prior to each meeting, the Chairman of the Committee prepares and/or approves the agenda. The Chairman of the
Committee may, but is not required to, invite members of management or other members of our Board of Directors to attend portions of meetings as deemed appropriate. The Chief Executive Officer and Human Resources executives typically attend Committee meetings, but do not attend executive sessions unless invited by the Committee for a specific purpose. During 2013, the Committee held executive sessions at each meeting without management present to discuss executive development and succession plans and make compensation-related decisions.
As set forth in the Committees charter, the Committee has the authority to retain and terminate any compensation consultant or its own independent legal, accounting or other advisors in its sole discretion. Before retaining any such advisor, the Committee reviews the independence of such advisor, taking into account all relevant factors, including the factors specified in Securities and Exchange Commission rules and New York Stock Exchange listing standards. The Committee is solely responsible for the appointment, compensation and oversight of the work performed by any such consultant or advisor. Kohls is committed to providing appropriate funding for the payment of reasonable compensation to any advisors retained by the Committee.
The Committee retains an independent outside compensation advisor, Steven Hall of Steven Hall & Partners (SH&P). Mr. Hall participates in Committee meetings as directed by the Chairman. SH&P does not provide any other services to Kohls and Mr. Hall does not have any business or professional relationships with any member of Kohls management or the Committee. SH&Ps engagement and associated fees are reconsidered by the Committee on an annual basis.
While the Committee reviews information throughout the year, the Committee receives two principal reports during the year related to compensation levels paid to our NEOs. The first report is a tally sheet on each NEO. The second report is a benchmarking analysis for our top executives.
The Committee annually reviews tally sheets for each of our NEOs, which present a comprehensive summary of the executives compensation, including the following information:
Tally sheets provide the Committee with an overview of our compensation programs. While not used explicitly for determining compensation levels, they are useful in several other ways. Tally sheets inform the Committee about the relationship between different components of pay. They also show the Committee the level of wealth creation available and the retention value that exists from unvested equity. Finally, tally sheets provide context for decisions about compensation arrangements and the level of benefits they provide (e.g., severance benefits).
Each year, SH&P presents a comprehensive benchmarking analysis comparing compensation paid to our executives with the compensation packages of executives employed by retailers with whom we compete for talent. The Committee considers all aspects of compensation for the NEOs and other senior officers. The Committee reviews each component of executive compensation independently and it reviews aggregate compensation levels paid to the senior officers against that paid by retail competitors in an effort to design the
executive compensation program to result in a competitive pay package. Historically, the Committee targeted total direct compensation between the 50th and 75th percentiles of compensation levels paid by our retail competitors. After discussing this target in 2013, the Committee decided to no longer target a percentile of the market data and instead consider whether each executive is competitively positioned relative to that market data on a case-by-case basis rather than focusing on the same percentile across all positions.
The Committee and SH&P review numerous data sources to ensure the Committee considers the most relevant compensation information available. The primary sources of industry compensation information used are our competitors SEC filings and the Hay Group Retail Industry Survey. The Committee believes that these sources of competitive compensation information are the best available at this time. The market data reviewed by the Committee in 2013 consisted of newly available data from the Hay Groups 2013 Retail Industry Survey and information prepared by SH&P from publicly available proxy statements, Forms 8-K, and Forms 4 of our peer group companies.
Together with SH&P, the Committee performs an annual analysis to ensure that the peer group of companies used for compensation benchmarking purposes continues to reflect the most appropriate comparative companies. In considering which companies should be included in the Companys peer group, the Committee considers many criteria, including the following:
For its 2013 analysis, the Committee used the same peer group as disclosed last year:
*All market capitalization & revenue data is rounded. Revenues are 2012 revenues and market capitalization data is as of June 28, 2013, which was the most current information available at the time the Committee selected its peer group.
The Committee believes this peer group includes retail companies with similar business concepts to ours and should provide a relevant group of companies representing an appropriate range of revenue and market capitalization against which to compare our pay practices in the future. The Committee will continue to monitor the appropriateness of our comparators and make adjustments as necessary.
We also measure our performance against a more targeted set of peers for purposes of annual performance reviews, annual incentive plan awards and the vesting of certain equity-based awards. We refer to this set of peers as our core peer group, which has historically included:
Following its annual assessment of the core peer group in early 2013, the Committee determined that it would be appropriate to broaden this group to include The TJX Companies, Inc., Bed, Bath & Beyond Inc. and Ross Stores, Inc., as these companies compete with Kohls for market share in various categories of business. We use the core peer group because the Committee believes in certain instances, elements of compensation should be contingent upon our performance relative to our closest competitors. Although Target Corporation is not a part of our executive compensation benchmarking peer group because of its comparatively large revenues and market capitalization, Target continues to be a part of our core peer group for comparing operating metrics.
At a meeting in November 2013, the Committee reviewed a detailed benchmarking report prepared by SH&P. This report included detailed information on the following components of compensation for the NEOs:
This benchmarking data indicated:
The Committee took all of the above information into consideration in evaluating each of the NEOs compensation.
Pay-for-performance is a critical part of Kohls compensation programs. This is best demonstrated by the fact that our principal officers did not receive any stock options or other equity awards in 2013 under our prior long-term incentive program based upon their 2012 performance ratings, as a result of Kohls 2012 financial performance falling short of our expectations. The Committee believes it is important that a significant portion of our NEOs compensation is tied to our future performance both on an absolute basis and relative to other companies in the retail industry in order to maximize long-term shareholder value creation. Accordingly, the aggregate compensation paid to our NEOs is weighted towards annual and long-term incentive compensation that is based upon Kohls absolute and relative performance.
The Committee continually re-evaluates our incentives to determine if any improvements could be made to our pay-for-performance alignment. During 2013, the Committee made two changes towards that end:
The Committee believes these actions foster even greater pay-for-performance alignment, creating motivating pay plans that drive long-term shareholder value.
As another important part of pay-for-performance, the Committee continues to set difficult goals that must be met in order for the NEOs to maximize their compensation:
The specifics of each of these performance criteria are discussed in greater detail below.
Individual roles and performance are also periodically taken into account in granting compensation increases or awards that are different than or in addition to those suggested by the guidelines. For example, annual salary increases may be adjusted based upon factors other than or in addition to an executives performance ratings, including, among other things, promotions, new roles and responsibilities and previous compensation increases.
Performance Evaluation Process
The Committees primary consideration when setting compensation is the performance of our NEOs against pre-established performance objectives, which the Committee feels will increase long-term shareholder value. The Committee uses a disciplined process to assess performance. This detailed process attempts to ensure that we reward and retain top talent while aligning those executives interests with those of our shareholders.
Chairman, President and CEO
The factors considered by the Committee to evaluate the performance of Mr. Mansell for fiscal years 2012 and 2013 included: (i) corporate net income for the prior fiscal year, weighted 50%; (ii) corporate return on investment for the prior fiscal year (as calculated and reported in our Annual Report on Form 10-K), weighted 30%; and (iii) other qualitative criteria, including leadership and vision, long-term strategic planning, succession
planning, keeping our Board of Directors informed, enhancing our diversity, and social responsibility, collectively weighted 20%. As such, 80% of Mr. Mansells evaluation is and has been tied directly to our corporate performance, subject to adjustment where the Committee deems appropriate.
The Committee awards Mr. Mansell points in the three categories described above based upon corporate performance and his individual performance with respect to the qualitative criteria. Depending on the total points awarded, Mr. Mansell may receive one of the following ratings: (1) unsatisfactory, (2) inconsistent, (3) satisfactory, (4) effective, (5) highly effective, or (6) outstanding. The total points awarded to Mr. Mansell equals the sum of the points awarded based on actual performance relative to the two quantitative corporate performance objectives and the Committees subjective assessment of Mr. Mansells performance relative to the qualitative individual performance criteria. The maximum number of points that can be awarded with respect to each performance objective is based on the weighting of that performance objective. The performance rating is based on a six point system. For each performance objective, there are six levels of performance corresponding to the six ratings above, where an unsatisfactory rating would earn zero points and a rating of outstanding would earn up to six points. Therefore, achievement of the net income goal, which is weighted at 50%, may result in an award of up to three points. Similarly, achievement of the return on investment goal, which was weighted at 30%, may result in an award of up to 1.8 points. Within each category, there is a range of performance and a range of points that can be awarded.
For the qualitative performance criteria, no numerical targets are established and Mr. Mansells actual performance is assessed with respect to the criteria as a whole. The level of Mr. Mansells actual performance with respect to the criteria is based on the Committees subjective review of Mr. Mansells performance. This subjective review was based on the deliberations of the Board of Directors with respect to Mr. Mansells performance that occurred throughout the prior year and in which each of the Committee members participated. The Committee did not attempt to identify specific contributions or achievements in making this assessment, but instead made its determination based on the totality of these deliberations and the related information considered in connection with those deliberations, and the judgment of individual members of the Committee may have been influenced to a greater or lesser degree by different aspects of these deliberations or information.
In the first quarter of 2012, the Committee established the corporate performance objectives in the following ranges for fiscal 2012 that were used in February 2013 to evaluate Mr. Mansell:
In February 2013, the Committee assessed Mr. Mansells 2012 performance against these objectives. The Companys net income in 2012 was $986 million, which fell within the Inconsistent rating range. Similarly, ROI performance was 16.8%, which also fell within the Inconsistent range. The Committee assessed Mr. Mansells performance on the qualitative criteria as Effective. Overall, Mr. Mansell earned a rating of Inconsistent for fiscal 2012.
In the first quarter of 2013, the Committee determined that Mr. Mansells performance in fiscal year 2013 would be based upon the following criteria:
In February 2014, the Committee assessed Mr. Mansells 2013 performance against these objectives. The Companys net income in 2013 was $889 million, which fell within the Inconsistent rating range. Similarly, ROI performance was 15.5%, which also fell within the Inconsistent range. The Committee assessed Mr. Mansells performance on the qualitative criteria as Highly Effective. Overall, Mr. Mansell earned a rating of Satisfactory for fiscal 2013.
The Committee approves the general performance objectives and the relative weighting of each of these objectives for Kohls most senior officers. The Committee delegates to Mr. Mansell the authority to establish the performance criteria underlying each of the factors, which are generally expected to align with the Companys financial plan for that year. While preliminary quantitative guidelines are presented to the Committee at the beginning of the fiscal year when it approves the performance measures and their weightings, the Committee has granted to Mr. Mansell the authority to modify these guidelines in his discretion, subject to the Committees review of the performance ratings assigned to each of these individuals at the end of the fiscal year. The Committee also delegates to Mr. Mansell the authority to assess the performance of Messrs. Brennan, McDonald, and Schepp, and Ms. Gass at the end of the fiscal year in accordance with the methodology approved by the Committee.
In March 2012, the Committee established the following 2012 performance objectives and weightings:
The 2012 net income and ROI targets were established at the same levels as Mr. Mansells, as described above. The Leadership and Vision objective was a subjective assessment of the executives managerial performance over the course of the year. Each executive also had two strategic objectives related to their specific areas of the business.
In February 2013, the Committee reviewed the 2012 performance ratings of Messrs. Brennan, McDonald, and Schepp applying these objectives. Ratings for each executives 2012 performance objectives are detailed in the chart below.
In March 2013, the Committee established the 2013 performance objectives and weightings below. Although Ms. Gass joined Kohls mid-year, her financial objectives were set at the same levels as the other NEOs. Mr. Mansell set her business specific objectives shortly after she joined the Company.
The 2013 net income and ROI targets were established at the same levels as Mr. Mansells, as described above. The Leadership and Vision objective was a subjective assessment of the executives managerial performance over the course of the year. Each executive also had two strategic objectives related to their specific areas of the business.
In February 2014, the Committee reviewed the 2013 performance ratings of Messrs. Brennan, McDonald, and Schepp and Ms. Gass applying these objectives. Ratings for each executives 2013 performance objectives are detailed in the chart below.
Elements of Executive Compensation
As described earlier, the aggregate compensation paid to our senior officers is comprised of three primary components each of which is directly linked to Company performance: salary, annual incentive compensation, and long-term incentive compensation. The amount of each of these compensation components is determined based largely upon corporate performance against pre-established performance goals. Additionally, individual performance factors are included in the analysis to ensure we take into account and recognize individual contributions and efforts in their specific roles.
The Committee believes it is important that a significant portion of our NEOs compensation be tied to our corporate performance in order to align the interests of our NEOs with those of our shareholders and to emphasize the importance of maximizing long-term shareholder value. Accordingly, aggregate compensation paid to our NEOs is weighted towards annual incentive and long-term incentive compensation, both of which are at risk if we do not achieve our financial and strategic objectives. Additionally, our NEOs salary increases are determined based in large part on Company performance. This strategy reflects the Committees pay-for-performance philosophy.
Salaries provide our NEOs with a regular source of income to compensate them for their day-to-day efforts in managing our Company. Salaries vary depending on the executives experience, responsibilities, the importance of the position to the Company, and/or changes in the competitive marketplace. The Committee reviews and adjusts salaries annually at the beginning of the fiscal year. Any increases in salary for our NEOs are based upon individual performance ratings and calculated in relation to the percentage merit adjustment budgeted for the remainder of the Companys management team. The Committee has the right, however, to deviate from those guidelines in order to address other factors, including the officers responsibilities and experience, competitive market data for that officers position and retention concerns. Also at the beginning of each fiscal year, the Committee sets guidelines for salary increases to take effect in the following fiscal year based on individual performance in the current fiscal year and the percentage merit adjustment budgeted for the remainder of the Companys management team.
Salary adjustments are closely tied to Kohls performance, as each NEOs individual performance rating is heavily influenced by Kohls performance metrics. As detailed above, 80% of Mr. Mansells performance rating is based upon Kohls net income and return on investment. Likewise, net income and return on investment comprise 60% of the other NEOs performance objectives.
Annual base salary adjustments for the NEOs in any given year are closely aligned with adjustments given to the remainder of our management team. To accomplish this objective, the Committee ties the NEOs annual salary adjustment opportunities to the budgeted annual merit increase for the overall management team.
Committee Decisions and Analysis
Fiscal 2013 Actions
At its February 2013 meeting, the Committee considered base salary increases for each of our NEOs. The Committee reviewed each NEOs fiscal 2012 performance rating against the following merit increase opportunity grid that had been established in February 2012:
Based on their Inconsistent ratings, Messrs. Mansell and Brennan were determined to have earned a 0.75% salary increase, which was 25% of the 3.0% budgeted increase for all of the Companys management. Accordingly, Mr. Mansells salary was increased to $1,339,300. Mr. Brennans base salary was increased to $927,200. Based on their Satisfactory ratings, Messrs. McDonald and Schepp were determined to have earned a 1.50% salary increase, which was 50% of the 3.0% budgeted increase for all of the Companys management. Accordingly, Mr. McDonalds salary was increased to $830,300. Mr. Schepps base salary was also increased to reflect his increased responsibilities upon assuming leadership of the Human Resources Department. Taking both increases into account, Mr. Schepps salary was increased to $826,500.
Also at the February 2013 meeting, the Committee decided to use the same salary increase opportunity chart for salary adjustments based on the NEOs fiscal 2013 performance ratings, which were considered in February 2014.
Fiscal 2014 Actions
At its February 2014 meeting, the Committee considered base salary increases for each of our NEOs. The Committee reviewed each NEOs fiscal 2013 performance rating against the merit increase opportunity grid that had been established in February 2013. Based on their satisfactory ratings, Messrs. Mansell, McDonald, and Schepp and Ms. Gass were determined to have earned a 1.0% salary increase, which was 50% of the 2.0% budgeted increase for all of the Companys management. Accordingly, Mr. Mansells salary was increased to $1,352,700. Ms. Gasss base salary was increased to $932,600. Her increase was prorated based on her start date. Mr. McDonalds salary was increased to $838,600 and Mr. Schepps salary was increased to $834,800.
Annual Incentive Compensation
The purpose of our Annual Incentive Plan is to provide eligible executives, including the NEOs, with a financial incentive that encourages them to perform in a manner which will enable Kohls to meet or exceed its profitability plans each fiscal year. In order for bonuses to be granted at threshold levels or higher under the Annual Incentive Plan, Kohls performance for a fiscal year must equal or exceed net income goals and, beginning with bonuses payable for fiscal 2013 performance, comparable store sales goals established by the Committee at the beginning of the year. The Committee directly ties such awards to performance tiers based on our net income and comparable store sales being above certain levels and to the peer performance index
described below, providing incentives to our executives to maximize long-term shareholder value. These bonus tiers reflect our financial goals and strategic plan for the fiscal year. Target performance levels are intended to be reasonably attainable, taking into account market conditions and industry trends. The Committee considers the top tier a significant, meaningful, and realistic challenge to the management team to increase our earnings. The threshold tier requires we achieve a level of earnings that is minimally acceptable, but more likely to be attained based on our business plans.
If Kohls does not achieve the pre-established threshold performance levels in any year, a bonus at the lowest end of the range for annual incentive opportunities is still payable if Kohls performance for the year exceeds that of a peer performance index. For example, for 2013, the group of peer retailers used for comparison purposes was our core peer group. The blended performance of this core peer group, calculated as a weighted average of each member of the core peer groups growth in total domestic revenue, was used as the peer performance index.
For purposes of calculating net income levels, the Committee adjusts Kohls net income to exclude the effects of:
Following the Committees certification of the Companys year-end results, Annual Incentive Plan participants are granted a bonus based on a percentage of their base pay. The earned percentage is based on their level within the organization.
Committee Decisions and Analysis
Fiscal 2013 Actions
The Committee established the following performance goals and award opportunities for 2012 under the Annual Incentive Plan at the beginning of fiscal 2012:
In February 2013, the Committee assessed Kohls performance against the 2012 performance goals under the Annual Incentive Plan that had been approved at the February 2012 Committee meeting. Kohls did not achieve the threshold net income level in 2012. However, as noted above, the Committee had previously determined that a bonus at the lowest end of the range for annual incentive opportunities would be payable if Kohls did not achieve the pre-established threshold net income level and Kohls performance for the year exceeded that of the peer performance index. For 2012, the peer performance index was a weighted average of total sales, comparable store sales and operating margin metrics of our core peer group. The Companys 2012 results, calculated as a weighted average of the same metrics exceeded that of the weighted average of the core peer group. Accordingly, the Committee approved Annual Incentive Plan payouts to the NEOs in the following amounts:
For 2013, the Committee changed the methodology used to calculate awards to our executive-level managers under the Annual Incentive Plan. Specifically, the Committee added comparable store sales growth as a second objective, in addition to net income. The purpose of this change was to provide our most senior leaders with a financial incentive to perform in a manner which will enable Kohls to meet or exceed both its annual profitability and sales plans.
The Committee established the following performance goals and award opportunities for 2013 under the Annual Incentive Plan at the beginning of fiscal 2013:
Fiscal 2014 Actions
In February 2014, the Committee assessed Kohls performance against the 2013 Annual Incentive Plan targets that had been approved at the February 2013 Committee meeting. In accordance with the terms of the Annual Incentive Plan, the Committee had approved net income levels for various tiers of incentive awards. Kohls did not achieve the threshold net income level in 2013. However, as noted above, the Committee had previously determined that a bonus at the lowest end of the range for annual incentive opportunities would be payable if Kohls did not achieve the pre-established performance levels but Kohls performance surpassed a previously established peer performance index. For 2013, the peer performance index was a weighted average of year-over-year domestic revenue growth of a pre-established sub-group of our peer group. Kohls 2013 year-over-year revenue performance exceeded that of the weighted average of the comparison group. Accordingly, the Committee approved Annual Incentive Plan payouts to the NEOs in the following amounts:
The Committee grants long-term compensation awards to our NEOs under our 2010 Long-Term Compensation Plan to reward past performance, create an incentive for future performance, and create a retention incentive. The Committee has the flexibility to choose among a number of forms of long-term equity incentive awards available pursuant to the 2010 Plan, including stock options, stock appreciation rights, stock awards, performance units, performance shares, and other incentive awards.
Long-term equity incentive awards to our NEOs are typically considered on an annual basis. Prior to 2014, the Committee typically granted an even blend of time-vested stock options and performance-vested restricted stock with single year performance goals in an amount based on the performance of the Company and the individual executive officer during the prior fiscal year.
In January 2014, the Committee adopted the New LTIP in place of its old program for making annual long-term equity incentive awards to the NEOs and other senior executives. These awards will continue to be made from the Companys 2010 Long-Term Compensation Plan. The LTIP is intended to achieve the Committees goals of, among other things, improving the efficiency of long-term equity incentive awards made to Kohls leadership team and driving our most senior executives to deliver increased sales and profitability. Under the New LTIP, annual long-term equity incentive awards are intended typically to be in a blend of performance share units (PSUs) which will vest in an amount contingent upon the achievement of multi-year financial performance goals and time-vested restricted stock which will vest over a multi-year period. The blend of awards under the LTIP is intended typically to be weighted more heavily to PSUs.
On a quarterly basis, the Committee reviews our share overhang (the grants outstanding, plus remaining equity that may be granted, as a percentage of our total outstanding shares) and our run rate (the number of stock options and restricted shares granted each year as a percentage of our total outstanding shares) to monitor how our share pool is being utilized.
Committee Decisions and Analysis
Fiscal 2013 Actions
The following table illustrates the long-term incentive program award opportunities approved by the Committee in March 2012, which were to be based upon each executives fiscal 2012 performance:
In February 2013, the Committee considered annual equity incentive awards for the NEOs, based upon this matrix. As noted above, Messrs. Mansell and Brennan received Inconsistent performance ratings for 2012. Accordingly, neither received an equity grant based on 2012 performance. Also as noted above, Messrs. McDonald and Schepp received Satisfactory performance ratings for 2012. Accordingly, they received threshold level grants of $500,000. These awards vest evenly over five years and are split evenly between stock options and performance-vested restricted shares. In addition to the time-vesting requirements, vesting of the performance-vested restricted shares was made contingent upon the Companys achieving at least $900 million of net income in either 2013 or 2014.
The Committee also certified that Kohls achieved the total and comparable store sales performance goals previously established for the performance-vested restricted shares granted to the NEOs in 2012, so those shares will vest in five equal annual installments on the first through fifth anniversaries of the grant date.
In connection with Ms. Gasss joining Kohls, Ms. Gass was granted 149,533 restricted shares to offset the value of equity awards she forfeited in joining Kohls. These shares vest in four equal annual installments on the first through fourth anniversaries of the grant date.
In recognition of his increased responsibilities for assuming the leadership of Kohls Human Resources, Mr. Schepp was granted 20,129 restricted shares in the spring of 2013. These shares vest in five equal annual installments on the first through fifth anniversaries of the grant date.
The Committee granted the first annual long-term equity incentive awards pursuant to the New LTIP to each of the Companys executive officers on January 13, 2014. These awards were comprised of a blend of:
For the first award made by the Committee under the New LTIP, the Committee approved the following grant date dollar value of awards for our NEOs (assuming achievement of target performance under the performance share units for the 2014-2016 performance period):
The target value for Mr. Mansell was determined using the benchmarking data presented to the Committee. While Mr. Mansells target LTIP opportunity is higher than previous years, his target total direct compensation remains below the median of the benchmarking data. The other NEOs targets remained unchanged from their previous opportunities under the old long-term incentive program because they are generally consistent with market data.
As mentioned above, 60% of the aggregate grant date dollar value for the awards approved by the Committee on January 13, 2014 was awarded in the form of performance share units. Under these performance share units, upon achievement of target performance, the executive officers will receive 100% of the performance share unit award. At threshold performance, the executive officers will receive 50% of the performance share unit awarded and at maximum performance, the executive officers will receive 200% of the performance share units awarded. The number of performance share units received at performance between threshold and target performance goals and between target and maximum goals will be determined based on straight-line interpolation. In the event performance does not meet threshold levels, then none of the performance share units will be earned.
The number of shares that may be earned upon vesting of the PSUs is also subject to a modifier based on Kohls total shareholder return relative to a group of peer companies1 over the three-year performance period. These peer companies were used as a comparator group because they are also used for benchmarking compensation as a part of the Hay Groups custom data. The Committee felt a larger group of companies would provide a more stable TSR reference point. If Kohls relative total shareholder return is in the top quartile then the PSUs earned will be increased by 25%. Conversely, if Kohls relative total shareholder return is in the bottom quartile, then the PSUs earned will be reduced by 25%. There will be no adjustment if our total shareholder return is in the second or third quartile.
Fiscal 2014 Actions
In light of the vesting schedule of the initial awards under the New LTIP as compared to awards that would have been made under the previous long-term incentive program, the Committee may consider a one-time grant of time-vested restricted shares to the NEOs in 2014 to facilitate the transition to the New LTIP.
The Committee also certified that Kohls did not achieve the net income goal of $900 million in 2013 previously established for the performance-vested restricted shares granted to Messrs. Schepp and McDonald in 2013. Unless the Company achieves this hurdle in 2014, these shares will not vest.
We provide our NEOs with certain perquisites in order to provide a competitive total rewards package that supports retention of key talent. These include automobile expense reimbursement, with no fixed limit; personal financial advisory services having a value of up to $3,500 and tax-related advisory services with no fixed limit; a supplemental health care plan, covering up to $50,000 for medical expenses not covered by insurance; and supplemental Company-paid life and disability insurance coverage. Mr. Mansell has been permitted to use the Companys aircraft for personal flights as well as business flights. This benefit increases the efficiency of
Mr. Mansells travel. We believe these perquisites are reasonable based upon the relatively small expense in relation to both executive pay and our total benefit expenditures. Details regarding these benefits are disclosed in the Summary Compensation Table and the accompanying schedule elsewhere in this proxy statement.
We maintain non-qualified deferred compensation plans for approximately 450 of our executives, including our NEOs. Details regarding the contributions and benefits of these non-qualified plans are disclosed in the Non-Qualified Deferred Compensation table and the accompanying narrative contained elsewhere in this proxy statement.
Stock Ownership and Stock Sale Guidelines
The Committee believes that executive stock ownership is important to align the interests of our executives with those of our shareholders. Our executive stock ownership and stock sale guidelines require Mr. Mansell to maintain ownership equal to five times his base salary. Other principal officers and Senior Executive Vice Presidents are required to maintain Kohls stock ownership that is equal to three times their base salary. Executive Vice Presidents are required to maintain stock ownership that is equal to their base salary. Each executive has five years from the time the executive becomes subject to the particular requirement to comply. For the purposes of calculating stock ownership, the Committee will not consider vested or unvested stock options, but will consider shares of Kohls common stock owned outright, shares held in employee benefit accounts, and unvested time-based restricted stock.
The guidelines adopted by the Committee also prohibit our NEOs from selling more than 20% of their vested stock options and shares of Kohls common stock owned outright in any one fiscal year.
From time to time, our principal officers will engage in sales of Kohls common stock in accordance with our executive stock ownership guidelines. These sales may be accomplished pursuant to SEC Rule 144 during our scheduled insider trading window periods or pursuant to pre-arranged trading plans adopted in accordance with Rule 10b5-1 of the Exchange Act. Compliance with our executive stock sale guidelines is monitored by the Committee and exceptions are granted by the Committee only in extraordinary circumstances.
Our executives and directors are also prohibited from entering into transactions designed to result in a financial benefit if our stock price declines, or any hedging transaction involving our securities, including but not limited to the use of financial derivatives such as puts and calls, short sales or any similar transactions.
Other Material Tax and Accounting Implications of the Program
Section 162(m) of the Internal Revenue Code generally disallows a tax deduction to public corporations for compensation over $1,000,000 for any fiscal year paid to a companys Chief Executive Officer and three most highly compensated executive officers in service as of the end of any fiscal year (other than the Chief Executive Officer and Chief Financial Officer). However, Section 162(m) also provides that qualifying performance-based compensation will not be subject to the deduction limit if certain requirements are met. The Committee does not have a policy requiring aggregate compensation to meet the requirements for deductibility under Section 162(m). Where compensation is awarded in excess of the limits established by Section 162(m), the Committee encourages, but does not require, deferral of such excess amounts by the officer.
We have entered into employment agreements with each of our NEOs. The terms of these agreements are similar to those of employment agreements of similarly situated retail industry executives. Our executives employment agreements do not include any provisions for tax gross-up payments.
The Committee believes that employment agreements are important to both our executives and to the Company in that the executive benefits from clarity of the terms of his or her employment, as well as protection from wrongful termination, while Kohls benefits from nondisclosure and non-competition protection, enhancing our ability to retain the services of our executives. The Committee periodically reviews the terms of the employment agreements and amends them as necessary to remain competitive and to carry out its objectives. Details of the terms of the specific employment agreements are discussed below.
SUMMARY COMPENSATION TABLE
The table below summarizes information concerning compensation for fiscal 2013 of those persons who were at February 1, 2014: (i) our Chief Executive Officer, (ii) our Chief Financial Officer and (iii) our three other most highly compensated executive officers.
GRANTS OF PLAN-BASED AWARDS IN 2013
We are currently authorized to issue equity awards under our 2010 Long-Term Compensation Plan. Awards under our 2010 Plan may be in the form of stock options, stock appreciation rights, common stock including restricted stock, common stock units, performance units and performance shares. Our executives do not participate in any other long- or short-term equity incentive plans.
In March 2013, the Board of Directors Compensation Committee approved annual equity compensation awards to approximately 450 of our management associates. These awards were based upon each associates performance rating. Among the recipients were Messrs. McDonald and Schepp. Both of these executives received an award based on 2012 performance ratings comprised of 50% stock options and 50% performance-vested restricted stock:
Messrs. McDonald and Schepp each received options to purchase 25,601 shares of our stock. Those options were evidenced by written agreements that allow the recipient to purchase the vested portion of the option shares for a price of $45.54 per share, which was the closing price of a share of our stock on the date of the grant. These agreements include the following terms and conditions:
Except as described in the section below captioned Potential Payments Upon Termination or Change of Control, beginning on page 53, all unvested options will be cancelled and forfeited upon the termination of an executives employment.
Performance-Vested Restricted Stock
Messrs. McDonald and Schepp were each granted 5,490 shares of performance-vested restricted stock. These restricted shares were evidenced by written agreements that provide:
Except as described in the section below captioned Potential Payments Upon Termination or Change of Control, beginning on page 53, all unvested restricted stock shall be cancelled and forfeited upon the termination of an executives employment.
In January 2014, the Board of Directors Compensation Committee adopted a new Long-Term Incentive Program (LTIP) for making annual long-term equity incentive awards to our most senior executives. These awards will continue to be made from the 2010 Plan. Under the LTIP, equity incentive awards are intended to be a blend of: (i) performance share units that vest in an amount contingent upon the achievement of multi-year financial performance goals, and (ii) time-vested restricted stock that vest ratably over a multi-year period. The Compensation Committee granted the first annual long-term equity incentive awards pursuant to the LTIP to each of Kohls executive officers, including Messrs. Mansell, Brennan, McDonald and Schepp and Ms. Gass, in January 2014 for the 2014-2016 performance period. These awards were comprised of a blend of (i) 60% performance share units and (ii) 40% time-vested restricted stock.
Performance Share Units
The 2014-2016 LTIP grants to Messrs. Mansell, Brennan, McDonald and Schepp and Ms. Gass included performance share units. These performance shares were evidenced by written agreements that provide:
Except as described in the section below captioned Potential Payments Upon Termination or Change of Control, beginning on page 53, all unvested performance share units shall be cancelled and forfeited upon the termination of an executives employment.
Time-Vested Restricted Stock
The 2014-2016 LTIP grants to Messrs. Mansell, Brennan, McDonald and Schepp and Ms. Gass included shares of time-vested restricted shares. These restricted shares were evidenced by written agreements that provide:
Except as described in the section below captioned Potential Payments Upon Termination or Change of Control, beginning on page 53, all unvested restricted stock shall be cancelled and forfeited upon the termination of an executives employment.
We have employment agreements with Messrs. Mansell, Brennan, McDonald and Schepp and Ms. Gass. These agreements include the following terms:
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
The following table sets forth information for each named executive officer with respect to outstanding exercisable and unexercisable options to purchase our common stock, unvested restricted stock awards, and performance share awards that had not been earned or vested at February 1, 2014.
OPTION EXERCISES AND STOCK VESTED IN 2013
We do not maintain any pension benefit plans for our officers or Directors that would otherwise be disclosable in these proxy materials.
NONQUALIFIED DEFERRED COMPENSATION
We have no retirement plans for our executive officers other than defined contribution plans and a retiree health plan for certain former principal officers. Approximately 450 of our executives are eligible for participation in the Kohls Deferred Compensation Plans, which are unfunded, unsecured plans. The Deferred Compensation Plans allow our executives to defer all or a portion of their base salary and bonuses. Elections to participate in these plans are made by our executives on an annual basis, prior to the beginning of the year in which the compensation is earned.
We do not make any company contributions to the Deferred Compensation Plans. The aggregate balance of each participants account consists of amounts that have been deferred by the participant, plus earnings (or minus losses). We deposit the deferred amounts into a trust for the benefit of plan participants. In accordance with tax requirements, the assets of the trust are subject to claims of our creditors. Account balances are deemed invested in accordance with investment elections designated by the executive from time to time but no more frequently than monthly. There are several investment options available to plan participants, including money market/fixed income funds, domestic and international equity funds, blended funds and pre-allocated lifestyle fund investments.
Deferred account balances are distributed to the plan participants in accordance with elections made by the executive at the time the deferral is made. These distributions may be scheduled for future years while the executive remains our employee or following the participants termination of employment, either in a lump sum or in installments. A separate distribution election is made by plan participants with respect to account balance distributions in the event of a change of control of Kohls.
The following table shows the executive contributions, earnings and account balances for the persons named in the Summary Compensation Table.
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE OF CONTROL
Upon termination of their employment or a change of control of Kohls, Messrs. Mansell, Brennan, McDonald, and Schepp and Ms. Gass will be entitled to various payments and other benefits pursuant to their respective Employment Agreements, our 2010 Long-Term Compensation Plan, our 2003 Long-Term Compensation Plan, our Annual Incentive Plan and our associate merchandise discount program. These payments and benefits are described below:
We are party to an amended and restated employment agreement with Mr. Mansell that provides for certain payments and other benefits upon his termination. The agreement does not provide separate or incremental benefits upon a change of control of Kohls. The payments and other benefits upon Mr. Mansells termination are as follows: