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KOHLS CORPORATION DEF 14A 2014

Documents found in this filing:

  1. Def 14A
  2. Graphic
  3. Graphic
Definitive Proxy Statement

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

SCHEDULE 14A

 

Proxy Statement Pursuant to Section 14(a)

of the Securities Exchange Act of 1934

 

x

Filed by the Registrant

 

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Filed by a Party other than the Registrant

 

Check the appropriate box:

 

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Preliminary Proxy Statement

 

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

 

x

Definitive Proxy Statement

 

¨

Definitive Additional Materials

 

¨

Soliciting Material Pursuant to §240.14a-12

 

KOHL’S CORPORATION

 

(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):

 

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No fee required.

 

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

 

  (1)

Title of each class of securities to which transaction applies:

 

 

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Aggregate number of securities to which transaction applies:

 

 

  (3)

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

 

 

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Proposed maximum aggregate value of transaction:

 

 

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Total fee paid:

 

 

 

¨

Fee paid previously with preliminary materials.

 

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

 

  (1)

Amount Previously Paid:

 

 

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Form, Schedule or Registration Statement No.:

 

 

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Filing Party:

 

 

  (4)

Date Filed:

 

 


KOHL’S CORPORATION

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 Kohl’s 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:

 

  1. To elect the ten individuals nominated by our Board of Directors to serve as Directors for a one-year term and until their successors are duly elected and qualified;

 

  2. To ratify the appointment of Ernst & Young LLP as our independent registered public accounting firm for the fiscal year ending January 31, 2015;

 

  3. To hold an advisory vote to approve the compensation of our named executive officers;

 

  4. To consider and vote upon the shareholder proposals described below, if properly presented at the meeting; and

 

  5. To consider and act upon any other business that may properly come before the meeting or any adjournment thereof.

 

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 Commission’s 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:

 

   

Visit the website shown on your Notice of Internet Availability of Proxy Materials (www.proxyvote.com) to vote over the Internet;

 

   

Use the toll-free telephone number provided on the voting website (www.proxyvote.com) to vote over the telephone; or

 

   

If you have received a printed proxy card, you may complete, sign, date and return your proxy card by mail.

 

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 Kohl’s Corporation are available at www.proxyvote.com.

 

By Order of the Board of Directors

Richard D. Schepp

Secretary

 

Menomonee Falls, Wisconsin

March 24, 2014


TABLE OF CONTENTS

 

Subject

   Page  

General Information About These Materials

     1   

Questions and Answers About our 2014 Annual Meeting of Shareholders

     1   

Questions and Answers About our Board of Directors and Corporate Governance Matters

     6   

Security Ownership of Certain Beneficial Owners, Directors and Management

     16   

Item One: Election of Directors

     18   

Compensation Committee Report

     24   

Compensation Discussion & Analysis

     25   

Summary Compensation Table

     43   

Grants of Plan-Based Awards in 2013

     45   

Outstanding Equity Awards at Fiscal Year-End

     49   

Option Exercises and Stock Vested in 2013

     51   

Pension Benefits

     52   

Nonqualified Deferred Compensation

     52   

Potential Payments Upon Termination or Change of Control

     53   

Report of the Audit Committee

     66   

Item Two: Ratification of our Independent Registered Public Accounting Firm

     67   

Item Three: Advisory Vote on the Approval of the Compensation of our Named Executive Officers

     68   

Item Four: Shareholder Proposal — Executives to Retain Significant Stock

     69   

Item Five: Shareholder Proposal — Annual Report on the Costs, Benefits and Scientific Support for Sustainability Initiatives

     71   


KOHL’S CORPORATION

N56 W17000 Ridgewood Drive

Menomonee Falls, Wisconsin 53051

 

PROXY STATEMENT

 

 

 

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.

 

QUESTIONS AND ANSWERS

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:

 

   

the election of the ten individuals nominated by our Board of Directors to serve as Directors for a one-year term and until their successors are duly elected and qualified;

 

   

the ratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm for the fiscal year ending January 31, 2015;

 

   

an advisory vote on the approval of the compensation of our named executive officers;

 

   

the shareholder proposals described below, if properly presented at the meeting; and

 

   

any other business that may properly come before the meeting or any adjournment of the meeting.

 

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Could other matters be decided at the meeting?

 

Our Bylaws require prior notification of a shareholder’s 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:

 

   

Visit the website shown on your Notice of Internet Availability of Proxy Materials (www.proxyvote.com) to vote over the Internet;

 

   

Use the toll-free telephone number provided on the voting website (www.proxyvote.com) to vote over the telephone; or

 

   

If you have received a printed proxy card, you may complete, sign, date and return your proxy card by mail.

 

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.

 

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May I change or revoke my vote after I submit my proxy?

 

Yes. To change your vote previously submitted by proxy, you may:

 

   

cast a new vote by mailing a new proxy card with a later date;

 

   

cast a new vote by calling the toll-free telephone number provided on the voting website (www.proxyvote.com);

 

   

cast a new vote over the Internet by visiting the voting website (www.proxyvote.com); or

 

   

if you hold shares in your name, attend the Annual Meeting of Shareholders and vote in person.

 

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 Board’s 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:

 

   

FOR the election of the ten nominees named under the caption “ITEM ONE — ELECTION OF DIRECTORS” to serve as Directors (see page 18);

 

   

FOR the ratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm for the fiscal year ending January 31, 2015 (see “ITEM TWO — RATIFICATION OF OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM” on page 67);

 

   

FOR the approval of the compensation of our named executive officers (see “ITEM THREE — ADVISORY VOTE ON THE APPROVAL OF THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS” on page 68);

 

   

AGAINST the shareholder proposal on Executives to Retain Significant Stock (see “ITEM FOUR — SHAREHOLDER PROPOSAL” on page 69); and

 

   

AGAINST the shareholder proposal on Annual Report on the Costs, Benefits and Scientific Support for Sustainability Initiatives (see “ITEM FIVE — SHAREHOLDER PROPOSAL” on page 71)

 

How many votes will be required to approve each of the proposals?

 

   

ITEM ONE: 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 return a signed proxy card or otherwise complete your voting by proxy over the Internet or over the telephone but 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.

 

   

ITEMS TWO, THREE, FOUR, and FIVE: The ratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm, the advisory vote on approval of the compensation of our named executive officers and each of the shareholder proposals will be approved if the number of votes cast “for” that proposal exceeds the number of votes cast “against” it. If you return a signed proxy card or otherwise complete your voting by proxy over the Internet or over the telephone but abstain from voting on any of these proposals, your shares will be counted as present for purposes of determining whether there is a quorum, but will have no effect on the outcome of such proposal or 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

 

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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 broker’s 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.

 

4


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 Kohl’s 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 Kohl’s Corporation, N56 W17000 Ridgewood Drive, Menomonee Falls, Wisconsin 53051, Attention: Investor Relations.

 

How do shareholders submit proposals for Kohl’s 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, Kohl’s 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.

 

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QUESTIONS AND ANSWERS

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 Kohl’s. The

 

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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 Kohl’s. Kohl’s 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 Kohl’s or made any payments to Kohl’s 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 Kohl’s. Transactions and relationships that are determined to be directly or indirectly material to Kohl’s or a related person are disclosed in Kohl’s 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:

 

Committee

   Members    Chairperson
Audit Committee    John Schlifske

Stephanie A. Streeter

Nina G. Vaca

Stephen E. Watson

   Stephen E. Watson
Governance & Nominating Committee    Peter Boneparth

Dale E. Jones

John E. Schlifske

Frank V. Sica

Stephanie A. Streeter

Nina G. Vaca

Stephen E. Watson

   Stephanie A. Streeter
Compensation Committee    Peter Boneparth

Dale E. Jones

Frank V. Sica

   Frank V. Sica

 

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 Kohl’s 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.

 

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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?

 

Audit Committee

 

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:

 

   

monitoring the integrity of our financial process and systems of internal controls regarding finance, accounting and legal compliance;

 

   

selecting our independent registered public accounting firm;

 

   

monitoring the independence and performance of our independent registered public accounting firm and internal auditing functions;

 

   

providing oversight and guidance to management with respect to management’s enterprise risk assessment and risk mitigation processes; and

 

   

providing an avenue of communication among the independent registered public accounting firm, management, the internal auditing functions and the Board of Directors.

 

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.

 

Compensation Committee

 

The duties of the Compensation Committee are to discharge the Board’s 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

 

8


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 Committee’s 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 Board’s 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:

 

   

Steven A. Burd

 

   

Kevin Mansell

 

   

Frank V. Sica

 

   

Peter M. Sommerhauser

 

   

Stephen E. Watson

 

What is the leadership structure of Kohl’s 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 Kohl’s 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 Kohl’s, 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 Kohl’s; or (iii) to the extent the then-current members of the Board determine that such an appointment would not be consistent with the Board’s 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 Board’s 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:

 

   

presides at all meetings of the Board at which the Chairman is not present, including executive sessions of the non-management Directors;

 

   

serves as liaison between the Chairman and the independent Directors;

 

   

approves information sent to the Board;

 

   

approves meeting agendas for the Board;

 

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approves meeting schedules to assure that there is sufficient time for discussion of all agenda items;

 

   

has the authority to call meetings of the independent Directors; and

 

   

is available for consultation and direct communication with major shareholders upon request.

 

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:

 

   

The Board is composed of a majority of independent Directors, as determined under the standards of the New York Stock Exchange;

 

   

The Board’s Audit Committee, Compensation Committee and Governance & Nominating Committee are composed solely of independent Directors;

 

   

Non-management Directors meet privately in executive sessions presided over by the Lead Director in conjunction with each regular Board meeting — following these executive sessions, the Lead Director provides the Board’s guidance and feedback to the Chairman;

 

   

Independent Directors communicate regularly with the Lead Director and the Chairman regarding appropriate Board agenda topics and other Board related matters; and

 

   

All Board members have complete access to management and outside advisors, so the Chairman is not the sole source of information for the Board.

 

How Does Kohl’s Manage Risk and What is the Board’s Role in the Risk Management Processes?

 

We have developed a robust enterprise risk management program that is driven by management and overseen by the Board’s Audit Committee, with progress reports given periodically to the full Board. Our enterprise risk management program was designed to monitor Kohl’s 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 owner’s 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 Board’s 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.

 

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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 nominee’s 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:

 

   

Unquestionable ethics and integrity;

 

   

A demonstrated record of success, leadership and solid business judgment;

 

   

Intellectual curiosity;

 

   

Strong reasoning skills;

 

   

Strong strategic aptitude;

 

   

Independence and objectivity — willingness to challenge the status quo;

 

   

A demonstrated record of social responsibility;

 

   

A commitment to enhancing long-term shareholder value;

 

   

A willingness to represent the interests of all of our shareholders;

 

   

A willingness and ability to spend sufficient time to carry out their duties; and

 

   

A good cultural fit with Kohl’s and the Board.

 

Does Kohl’s 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

 

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Shareholders, the notice must be received within the time frame discussed above on page 5 under the heading “How do shareholders submit proposals for Kohl’s 2015 Annual Meeting of Shareholders?” To be in proper form, the notice must, among other things, include each nominee’s 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 Director’s 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.

 

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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.

 

     Fees
Earned or
Paid in
Cash
$
     Stock
Awards
$(2)
     Total
$
 

Peter Boneparth

   $ 110,000       $ 100,002       $ 210,002   

Steven A. Burd

   $ 125,000       $ 100,002       $ 225,002   

John F. Herma(1)

   $ 28,750         —         $ 28,750   

Dale E. Jones

   $ 110,000       $ 100,002       $ 210,002   

William S. Kellogg(1)

   $ 28,750         —         $ 28,750   

John E. Schlifske

   $ 115,000       $ 100,002       $ 215,002   

Frank V. Sica

   $ 145,000       $ 100,002       $ 245,002   

Peter M. Sommerhauser

   $ 115,000       $ 100,002       $ 215,002   

Stephanie A. Streeter

   $ 125,000       $ 100,002       $ 225,002   

Nina G. Vaca

   $ 115,000       $ 100,002       $ 215,002   

Stephen E. Watson

   $ 165,000       $ 100,002       $ 265,002   

 

(1) 

Messrs. Herma and Kellogg did not stand for re-election to the Board of Directors at the 2013 Annual Meeting of Shareholders. The Board of Directors determined that following the 2013 Annual Meeting of Shareholders, the size of the Board would be reduced to ten members.

(2) 

The amounts shown represent the aggregate grant date fair value for awards granted in 2013, computed in accordance with FASB ASC Topic 718 (formerly FAS 123(R)). Each Director who was re-elected to the Board of Directors at the 2013 Annual Meeting of Shareholders was awarded 1,922 restricted shares. For a discussion of the valuation assumptions used for all stock-based awards, see Note 7 to our fiscal 2013 audited financial statements included in our Annual Report on Form 10-K.

 

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:

 

     Number of Securities
Underlying
Unexercised Options
     Number of
Unvested
Shares of
Restricted
Stock(1)
 
     Vested      Unvested     

Mr. Boneparth

     17,926         —           1,961   

Mr. Burd

     25,126         —           1,961   

Mr. Jones

     17,926         —           1,961   

Mr. Schlifske

     7,784         —           1,961   

Mr. Sica

     21,626         —           1,961   

Mr. Sommerhauser

     25,126         —           1,961   

Ms. Streeter

     21,626         —           1,961   

Ms. Vaca

     13,753         —           1,961   

Mr. Watson

     29,126         —           1,961   

 

(1) 

Includes accrued but unvested dividend equivalent shares.

 

Are Directors required to own Kohl’s 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

 

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7,300 shares of Kohl’s 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 Director’s 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 Kohl’s 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 “Kohl’s 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 investor.relations@kohls.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:

Kohl’s Board of Directors

N56 W17000 Ridgewood Drive

Menomonee Falls, WI 53051

 

Or

 

E-mail our Board of Directors or Lead Director Stephen E. Watson:

directors@kohls.com

 

Questions or concerns related to financial reporting, internal accounting or auditing matters may be sent to governance@kohls.com.

 

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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”.

 

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SECURITY OWNERSHIP OF CERTAIN

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:

 

   

each of our Directors and nominees;

 

   

each of our named executive officers;

 

   

all of our executive officers, Directors and nominees as a group; and

 

   

each person who is known by us to beneficially own more than 5% of our common stock.

 

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.

 

Name of Beneficial Owner

   Amount
Beneficially Owned
    Percent
of Class
 

Peter Boneparth

     28,797 (1)      *   

Steven A. Burd

     44,942 2)      *   

Dale E. Jones

     23,797 (3)      *   

John E. Schlifske

     11,895 (4)      *   

Frank V. Sica

     52,650 (5)      *   

Peter M. Sommerhauser

     3,807,548 (6)      1.8

Stephanie A. Streeter

     30,011 (7)      *   

Nina G. Vaca

     21,192 (8)      *   

Stephen E. Watson

     36,497 (9)      *   

Kevin Mansell

     1,779,812 (10)      *   

Donald A. Brennan

     704,485 (11)      *   

Michelle Gass

     164,586 12)      *   

Wesley S. McDonald

     288,521 (13)      *   

Richard D. Schepp

     407,069 (14)      *   

All Directors and executive officers as a group (16 persons)

     7,855,972 15)      3.7

Blackrock, Inc.

     11,777,955 (16)      5.5

40 East 52nd Street

New York, NY 10022

    

State Street Corporation

     10,883,029 (17)      5.1

1 Lincoln Street

Boston, MA 02111

    

T. Rowe Price Associates, Inc.

     24,428,185 (18)      11.4

100 E. Pratt Street

Baltimore, MD 21202

    

 

* Less than 1%.
(1) 

Includes 1,961 unvested restricted shares and 17,926 shares represented by stock options.

(2) 

Includes 1,961 unvested restricted shares and 25,126 shares represented by stock options.

(3) 

Includes 1,961 unvested restricted shares and 17,926 shares represented by stock options.

(4) 

Includes 1,961 unvested restricted shares and 7,784 shares represented by stock options.

 

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(5) 

Includes 14,628 shares held by Mr. Sica’s spouse, 1,961 unvested restricted shares and 21,626 shares represented by stock options.

(6) 

Represents beneficial ownership as of March 13, 2014. Includes 423,269 shares held in trust for the benefit of the families of current and former Directors and executive officers of Kohl’s or in charitable foundations established by executive officers of Kohl’s for which Mr. Sommerhauser has sole or shared voting and investment power but no pecuniary interest. Includes 30,000 shares held in trusts for the benefit of Mr. Sommerhauser’s family as to which Mr. Sommerhauser has no voting or investment power. Includes 3,150 shares held by a charitable foundation for which Mr. Sommerhauser acts as president and a director, 26,010 shares held in trust for the benefit of Mr. Sommerhauser’s spouse, 1,961 unvested restricted shares and 25,126 shares represented by stock options. Also includes 3,271,974 shares held in trusts for the benefit of the families of current and former Directors and executive officers of Kohl’s for which Hampshire Trust LLC (“Hampshire”) serves as the trustee. Mr. Sommerhauser serves as an officer of Hampshire and shares voting and investment power over such shares with the other three officers of Hampshire.

(7) 

Includes 1,961 unvested restricted shares and 21,626 shares represented by stock options.

(8) 

Includes 1,961 unvested restricted shares and 13,753 shares represented by stock options.

(9) 

Includes 1,961 unvested restricted shares and 29,126 shares represented by stock options.

(10) 

Includes 340,562 shares held in trusts for the benefit of Mr. Mansell and his spouse, as to which Mr. Mansell or his spouse serves as co-trustee and have shared voting and investment power with Mr. Sommerhauser, 22,778 shares held by Mr. Mansell’s spouse, 144,234 unvested restricted shares, and 1,228,105 shares represented by stock options.

(11) 

Includes 121,449 unvested restricted shares and 526,288 shares represented by stock options.

(12) 

Consists of unvested restricted shares.

(13) 

Includes 101,851 unvested restricted shares and 155,205 shares represented by stock options.

(14) 

Includes 117,471 unvested restricted shares, 271,111 shares represented by stock options and 1,787 shares held in Mr. Schepp’s 401(k) account.

(15) 

Includes 2,610,163 shares represented by stock options.

(16) 

According to the Schedule 13G filed February 4, 2014 by Blackrock, Inc. (“Blackrock”), Blackrock was the beneficial owner of 11,777,955 shares of Kohl’s common stock as of December 31, 2013. The filing indicates that Blackrock has sole voting power with respect to 9,859,524 shares and sole dispositive power with respect to 11,753,837 shares.

(17) 

According to the Schedule 13G filed February 3, 2014 by State Street Corporation (“State Street”), State Street was the beneficial owner of 10,883,029 shares of Kohl’s common stock as of December 31, 2013. The filing indicates that State Street has sole voting and sole dispositive power with respect to none of the shares.

(18) 

According to the Schedule 13G filed February 12, 2014 by T. Rowe Price Associates, Inc. (“T. Rowe”), T. Rowe was the beneficial owner of 24,428,185 shares of Kohl’s common stock as of December 31, 2013. The filing indicates that T. Rowe has sole voting power with respect to 7,894,412 shares and sole dispositive power with respect to 24,385,835 shares.

 

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ITEM ONE

 

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.

 

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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 nominee’s 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.

 

     Age      Director
Since
 

Peter Boneparth

     54         2008   

Senior Advisor, Irving Place Capital Partners, a private equity group, since February 2009. Former President and Chief Executive Officer of Jones Apparel Group, a designer and marketer of apparel and footwear, from March 2002 to July 2007. Mr. Boneparth was a director of McNaughton Apparel Group, a producer of apparel, from April 1997 to July 2001 and of Jones Apparel Group a provider of apparel and footwear, from July 2001 to July 2007. He is currently a director of JetBlue Airways Corporation, a commercial airline.

 

The Governance & Nominating Committee believes Mr. Boneparth’s qualifications to serve on our Board of Directors include his experience as President and Chief Executive Officer of several large companies that specialize in the production and sale of apparel and footwear, his experience as a director of other public companies and his broad-based knowledge in the areas of retail sales, corporate finance, consumer products, and the design and manufacture of apparel and other products.

     

Steven A. Burd

     64         2001   

Principal member of Burd Health LLC, a company helping large self-insured employers reduce health-care costs, since 2013. Former Chairman, Chief Executive Officer and President of Safeway Inc., an operator of grocery store chains. Mr. Burd served as Safeway’s Chairman of the Board of Directors from 1998 until his retirement in May 2013, Chief Executive Officer from 1993 until his retirement in May 2013 and previously served as President from 1992 to 2012. He is currently a director of Blackhawk Network Holdings, Inc., a prepaid payment network offering a broad range of gift cards, other prepaid products and payment services.

 

The Governance & Nominating Committee believes Mr. Burd’s qualifications to serve on our Board of Directors include his experience as President, Chief Executive Officer and Chairman of the board of directors of a large retail company and his broad-based knowledge in the areas of retail operations, healthcare costs, corporate finance, accounting and marketing.

     

 

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     Age      Director
Since
 

Dale E. Jones

     54         2008   

President of Diversified Search, a leading executive search firm, since October 2013. Former Vice Chairman and partner of the CEO and Board Practice in the Americas at Heidrick and Struggles, from January 2009 to September 2013. Former Chief Executive Officer of PlayPumps International, a provider of children’s play equipment that also pumps water for African communities, from September 2007 to January 2009. During that same period, Mr. Jones also served as Executive Vice President of Revolution LLC, a venture capital firm. Mr. Jones held several executive leadership positions at Heidrick and Struggles from 1999 to 2007. Mr. Jones also serves on the Board of Trustees of Northwestern Mutual Life Insurance Company.

 

The Governance & Nominating Committee believes Mr. Jones’ qualifications to serve on our Board of Directors include his extensive experience as a senior advisor to chief executives and boards of directors in the areas of executive recruiting, succession planning and talent management, his experience as a director of another public company and his broad-based knowledge in the areas of consumer products, executive compensation and general human resources.

     

Kevin Mansell

     61         1999   

Our President since February 1999, our Chief Executive Officer since August 2008, and Chairman of the Board of Directors since September 2009. Mr. Mansell served as Executive Vice President — General Merchandise Manager from 1987 to 1998. He joined us in 1982.

 

The Governance & Nominating Committee believes Mr. Mansell’s qualifications to serve on our Board of Directors include his 38 years of retail experience, including 31 years with Kohl’s and 14 years as our President. His insight and direct knowledge of Kohl’s current operations and strategic opportunities within the retail industry is also invaluable.

     

John E. Schlifske

     54         2011   

Chairman, President and Chief Executive Officer of Northwestern Mutual Life Insurance Company since July 2013. Mr. Schlifske held a number of executive management positions at Northwestern Mutual Life Insurance Company since 1987, including Chairman and Chief Executive Officer from July 2010 to July 2013, President from March 2009 through July 2010, interim President and Chief Executive Officer of Frank Russell Investment Company (a subsidiary of Northwestern Mutual Life Insurance Company) from June 2008 to February 2009, Executive Vice President — Investment Products and Services from June 2006 through June 2008 and Senior Vice President — Investment Products and Services from January 2004 through May 2006. He also serves on the Board of Trustees of the Northwestern Mutual Life Insurance Company.

 

The Governance & Nominating Committee believes Mr. Schlifske’s qualifications to serve on our Board of Directors include his experience as Chairman and Chief Executive Officer of a major company and his broad-based financial expertise.

     

 

20


     Age      Director
Since
 

Frank V. Sica

     63         1988   

Managing Partner, Tailwind Capital, a private investment firm, since 2006. Senior Advisor to Soros Private Funds Management from 2003 to 2006. President of Soros Private Funds Management from 2000 to 2003. Managing Director of Soros Funds Management from 1998 to 2000. From September 2004 through February 2010, Mr. Sica was a director of NorthStar Realty Finance Corporation, a real estate finance company. Mr. Sica is currently a director of CSG Systems International, an account management and billing software company for communication industries, and JetBlue Airways Corporation, a commercial airline.

 

The Governance & Nominating Committee believes Mr. Sica’s qualifications to serve on our Board of Directors include his years of executive experience in the investment banking and private equity field, his experience as a director and as an advisor to the boards of many other public companies, and his broad-based knowledge in the areas of corporate finance, executive compensation, information technology and real estate.

     

Peter M. Sommerhauser

     71         1988   

Shareholder of the law firm of Godfrey & Kahn, S.C., Milwaukee, Wisconsin. From May 1999 to May 2013, Mr. Sommerhauser served on the Board of Trustees of Northwestern Mutual Life Insurance Company.

 

The Governance & Nominating Committee believes Mr. Sommerhauser’s qualifications to serve on our Board of Directors include his many years of experience as an attorney who has represented corporate clients in a wide variety of corporate and financial matters, his experience as a director and as an advisor to the boards of many other public companies, and his broad-based knowledge in the areas of corporate finance, consumer financial services and executive compensation issues.

     

Stephanie A. Streeter

     56         2007   

Chief Executive Officer and Director of Libbey, Inc., a producer of glass tableware and other tabletop products, since August 2011. Former Interim Chief Executive Officer, United States Olympic Committee from March 2009 to January 2010. Former Chairman, President, and Chief Executive Officer of Banta Corporation, a global technology, printing and supply-chain management company from 2004 until 2007. Ms. Streeter served as Banta Corporation’s President and Chief Executive Officer from 2002 to 2004 and President and Chief Operating Officer from 2001 to 2002. From 2001 to 2007, she was a director of Banta Corporation and she is currently a director of Goodyear Tire & Rubber Company, a manufacturer and distributor of tires and related products and services.

 

The Governance & Nominating Committee believes Ms. Streeter’s qualifications to serve on our Board of Directors include her experience as President, Chief Executive Officer and Chairman of the board of directors of complex businesses with worldwide operations; her experience as a director of other public companies and her broad-based knowledge in the areas of marketing, consumer products, information technology and e-commerce.

     

 

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     Age      Director
Since
 

Nina G. Vaca(1)

     42         2010   

Chairman and Chief Executive Officer of Pinnacle Technical Resources, Inc., a staffing, vendor management and information technology services firm, since October 1996. She also has been Chairman and Chief Executive Officer of Vaca Industries Inc., a management company, since April 1999. Ms. Vaca is also a director of Comerica Incorporated, a banking and financial services company.

 

The Governance & Nominating Committee believes Ms. Vaca’s qualifications to serve on our Board of Directors include her experience as Chief Executive Officer, Chairman of the Board of Directors and founder of a rapidly-growing business; her experience as a director of another public company; and her broad-based knowledge in the areas of information technology, human resources, marketing and e-commerce.

     

Stephen E. Watson

     69         2006   

Former President and Chief Executive Officer of Gander Mountain, L.L.C., a private specialty retailer, from 1997 until his retirement in 2002. Mr. Watson held various executive officer positions with Dayton-Hudson Corporation from 1972 until his retirement in 1996, including President, Chairman/Chief Executive Officer of the Department Store Division. From 2004 through May 2007, he was a director of Smart & Final, Inc., an operator of grocery stores. From 2005 through 2009, Mr. Watson was a director of Eddie Bauer Holdings, Inc., an apparel retailer. He is currently a director of Regis Corporation, an operator of beauty salons, and Chico’s FAS Inc., a specialty retailer.

 

The Governance & Nominating Committee believes Mr. Watson’s qualifications to serve on our Board of Directors include his experience as the leading senior executive officer of several complex retail businesses; his experience as a director of other retail-oriented public companies; and his broad-based knowledge in the areas of retail operations, corporate finance, accounting, marketing and merchandise procurement.

     

 

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 Director’s 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

 

(1) 

Professional name of Ximena G. Humrichouse.

 

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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:

 

   

Blackhawk Agreements.

 

In 2004, Kohl’s entered into an agreement with Blackhawk Marketing Services, Inc. (now known as Blackhawk Network, Inc.), pursuant to which Blackhawk distributes Kohl’s 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 Blackhawk’s 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. Blackhawk’s compensation under the agreement was approximately $16.1 million for fiscal 2013.

 

In 2007, Blackhawk and Kohl’s 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 arm’s 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.

 

   

Several of our Directors or their family members serve as non-employee directors of non-profit organizations that receive charitable contributions from us. All of these charitable contributions were made in the ordinary course of our charitable contribution programs.

 

   

Several of our Directors serve on the boards of directors of companies with which we may do relatively small amounts of ordinary course business from time to time. The Governance & Nominating Committee has reviewed each of these instances and has determined that in each case, the amount of business involved was immaterial to both companies, all such transactions were entered into at arms length, and that our Directors were not in any way involved in the negotiations or discussions leading up to the business relationships.

 

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.

 

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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.

 

Compensation Committee:

 

Frank V. Sica, Chairman

Peter Boneparth

Dale E. Jones

 

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COMPENSATION DISCUSSION & ANALYSIS

 

Executive Summary

 

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 Committee’s process for determining this compensation. Specifically, it discusses and analyzes the Committee’s 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 Committee’s 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 NEO’s 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 Kohl’s 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’s performance rating of Mr. Mansell was “satisfactory;”

 

   

the performance rating for Mr. Brennan was “inconsistent;”

 

   

the performance ratings of our other NEOs were “satisfactory;”

 

   

2014 salary increases for each of our NEOs, except Mr. Brennan, were 1% of their current base salaries;

 

   

no equity awards were made under our previous equity program based on Kohl’s performance in 2013;

 

   

the Committee awarded annual incentives to the NEOs pursuant to our Annual Incentive Plan at the lowest level for 2013, in recognition of the fact that our sales results exceeded the blended results of our core peer group, as described below in this report.

 

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 Kohl’s 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 Committee’s 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 Committee’s goals of, among other things:

 

   

improving the efficiency of long-term incentive awards made to our leadership team, and

 

   

driving our most senior executives to deliver increased sales and profitability.

 

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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 performance-based component will vest based on the achievement of multi-year, rather than single year, performance goals;

 

   

the number of shares earned upon the vesting of the performance-based component will vary based upon the level of achievement of the performance goals, rather than being a fixed number of shares determined at grant based on the performance of the Company and the individual officer during the fiscal year prior to the date of grant;

 

   

the time-vested component will typically be in the form of restricted stock, rather than stock options, and, as with the old program, will vest over a multi-year period; and

 

   

the blend of awards are intended to be weighted more to performance-based awards.

 

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 Company’s 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:

 

   

providing a competitive total compensation package that enables us to attract and retain key personnel;

 

   

providing short-term opportunities through our annual incentive program that are directly linked to corporate performance goals that drive long-term performance;

 

   

providing long-term opportunities through equity awards granted under our long-term incentive program that align executive compensation with the creation of long-term shareholder value;

 

   

ensuring compensation awarded to our executives is linked to our performance during the fiscal year and future periods; and

 

   

promoting ownership of our stock by our executive officers in order to align the economic interests of our executive officers more closely with those of our shareholders.

 

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Our executive compensation program is comprised of three primary elements:

 

   

base salary;

 

   

annual incentive compensation; and

 

   

long-term incentive compensation.

 

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.

 

Risk Assessment

 

Each year, we review and analyze whether our compensation plans, policies and practices create material risks to Kohl’s. 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 management’s 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 Company’s 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

 

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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 Committee’s 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. Kohl’s 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 Kohl’s and Mr. Hall does not have any business or professional relationships with any member of Kohl’s management or the Committee. SH&P’s engagement and associated fees are reconsidered by the Committee on an annual basis.

 

Compensation Reports

 

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.

 

Tally Sheets

 

The Committee annually reviews tally sheets for each of our NEOs, which present a comprehensive summary of the executive’s compensation, including the following information:

 

  1. The total compensation paid to each executive during the prior fiscal year, including base salary, annual cash incentives, long-term incentive awards, health and welfare benefits, and perquisites;

 

  2. The fair market value of stock holdings, including the value of in-the-money stock option awards; and

 

  3. A summary of the potential severance benefits payable to the executive upon certain employment termination events.

 

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).

 

Benchmarking Analysis

 

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

 

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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 Group’s 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 Company’s peer group, the Committee considers many criteria, including the following:

 

   

Whether the proposed comparator company is in the same or a similar industry as Kohl’s;

 

   

Whether the proposed comparator company is similar to Kohl’s in terms of size, including revenues, total assets and market capitalization;

 

   

The complexity and scope of the proposed comparator company’s business;

 

   

Whether the proposed comparator company competes with Kohl’s for profits and talent; and

 

   

Other characteristics unique to Kohl’s or the retail industry, which could include things like same store sales, growth trajectory and corporate strategies.

 

For its 2013 analysis, the Committee used the same peer group as disclosed last year:

 

     Market
Capitalization
($ Billions)*
     Revenue
($ Billions)*
 

•    Bed, Bath & Beyond Inc.

     15.5         10.9   

•    The Gap, Inc.

     19.5         15.7   

•    J.C Penney Company, Inc.

     3.8         13.0   

•    Limited Brands, Inc.

     14.3         10.5   

•    Macy’s, Inc.

     18.4         27.7   

•    Nordstrom, Inc.

     11.7         12.1   

•    Ross Stores, Inc.

     14.2         9.7   

•    Sears Holding Corporation

     4.5         39.9   

•    The TJX Companies, Inc.

     36.0         25.9   
  

 

 

    

 

 

 

Median

     14.3         13.0   

Kohl’s Corporation

     14.3         19.3   

 

*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.

 

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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:

 

   

J.C Penney Company, Inc.,

 

   

Macy’s, Inc.,

 

   

Sears Holding Corporation,

 

   

Target Corporation, and

 

   

The Gap, Inc.

 

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 Kohl’s 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:

 

   

Base Salaries;

 

   

Target Annual Incentives;

 

   

Actual Annual Incentives paid in Fiscal 2013 based on Fiscal 2012 performance;

 

   

Target Annual Compensation;

 

   

Long-Term Incentives; and

 

   

Target Total Compensation.

 

This benchmarking data indicated:

 

   

As determined in prior years, Mr. Mansell’s target total compensation remains below the market median, primarily due to below market long-term incentive awards.

 

   

That the total compensation of Messrs. Brennan, McDonald, and Schepp, and Ms. Gass, including the amortized value of all outstanding equity compensation awards, were consistent with the Committee’s philosophies and objectives.

 

The Committee took all of the above information into consideration in evaluating each of the NEOs’ compensation.

 

Pay-for-Performance

 

Pay-for-performance is a critical part of Kohl’s 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 Kohl’s 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 Kohl’s absolute and relative performance.

 

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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 adopted the New LTIP described elsewhere in this proxy statement. A portion of the awards made pursuant to the New LTIP are intended to typically include performance share units (“PSUs”), with vesting contingent upon attainment of company-wide financial performance goals over a multi-year performance period. The number of shares earned will be based on the level at which these goals were achieved. The number of shares earned upon vesting may also be adjusted based on additional financial metrics; and

 

   

To focus our executives on driving sales, the Committee added comparable store sales growth as a performance goal to the annual incentive program. Payouts under the annual incentive program for fiscal 2014 will also be contingent upon Kohl’s attaining various levels of sales and net income.

 

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:

 

   

Each year, the Committee sets individual quantitative and qualitative performance criteria for each NEO that must be achieved for the NEO to be eligible for various levels of base salary increases. In 2013, these criteria included corporate net income, return on investment, business specific objectives and qualitative goals, such as leadership effectiveness and strategic planning.

 

   

The Committee sets goals based on the Company’s absolute performance and the Company’s performance relative to the core peer group for various levels of annual incentive payouts.

 

   

The Committee has established the New LTIP and has recently granted awards under the New LTIP intended to drive sales, net income, and total shareholder return over a three-year performance period from fiscal 2014 through fiscal 2016.

 

   

Moreover, the value of any long-term incentive award is dependent upon the future performance of our stock price.

 

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 executive’s performance ratings, including, among other things, promotions, new roles and responsibilities and previous compensation increases.

 

Performance Evaluation Process

 

The Committee’s 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

 

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planning, keeping our Board of Directors informed, enhancing our diversity, and social responsibility, collectively weighted 20%. As such, 80% of Mr. Mansell’s 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 Committee’s subjective assessment of Mr. Mansell’s 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. Mansell’s actual performance is assessed with respect to the criteria as a whole. The level of Mr. Mansell’s actual performance with respect to the criteria is based on the Committee’s subjective review of Mr. Mansell’s performance. This subjective review was based on the deliberations of the Board of Directors with respect to Mr. Mansell’s 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:

 

Performance Objective

   Threshold
(Inconsistent)
    Maximum
(Outstanding)
    Objective
Weighting
 

Net Income (in millions)

   <$ 1,080      >$ 1,225        50

Return on Investment

     <18.00     >19.4     30

Company Exceeds Peer Performance Index

     Yes        N/A     

Qualitative Objectives

     —          —          20

 

In February 2013, the Committee assessed Mr. Mansell’s 2012 performance against these objectives. The Company’s 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. Mansell’s 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. Mansell’s performance in fiscal year 2013 would be based upon the following criteria:

 

Performance Objective

   Threshold
(Inconsistent)
    Maximum
(Outstanding)
    Objective
Weighting
 

Net Income (in millions)

   <$ 900      >$ 1,045        50

Return on Investment

     <15.87     >17.22     30

Company Exceeds Peer Performance Index

     Yes        N/A     

Qualitative Objectives

     —          —          20

 

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In February 2014, the Committee assessed Mr. Mansell’s 2013 performance against these objectives. The Company’s 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. Mansell’s performance on the qualitative criteria as “Highly Effective.” Overall, Mr. Mansell earned a rating of “Satisfactory” for fiscal 2013.

 

Other NEOs

 

The Committee approves the general performance objectives and the relative weighting of each of these objectives for Kohl’s 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 Company’s 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 Committee’s 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:

 

Performance Objective

   NEO’s  

Net Income

     40

ROI

     20

Business Specific Objectives

     20

Leadership and Vision

     20

 

The 2012 net income and ROI targets were established at the same levels as Mr. Mansell’s, as described above. The “Leadership and Vision” objective was a subjective assessment of the executive’s 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 executive’s 2012 performance objectives are detailed in the chart below.

 

Performance Objective

   Mr. Brennan      Mr. McDonald      Mr. Schepp  

Net Income

     Inconsistent         Inconsistent         Inconsistent   

ROI

     Inconsistent         Inconsistent         Inconsistent   

Business Specific Objectives

     Inconsistent         Outstanding         Effective   

Leadership and Vision

     Effective         Effective         Effective   

Overall Rating

     Inconsistent         Satisfactory         Satisfactory   

 

In March 2013, the Committee established the 2013 performance objectives and weightings below. Although Ms. Gass joined Kohl’s mid-year, her financial objectives were set at the same levels as the other NEO’s. Mr. Mansell set her business specific objectives shortly after she joined the Company.

 

Performance Objective

   NEOs  

Net Income

     40

ROI

     20

Business Specific Objectives

     20

Leadership and Vision

     20

 

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The 2013 net income and ROI targets were established at the same levels as Mr. Mansell’s, as described above. The “Leadership and Vision” objective was a subjective assessment of the executive’s 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 executive’s 2013 performance objectives are detailed in the chart below.

 

Performance Objective

   Mr. Brennan      Mr. McDonald      Mr. Schepp      Ms. Gass  

Net Income

     Inconsistent         Inconsistent         Inconsistent         Inconsistent   

ROI

     Inconsistent         Inconsistent         Inconsistent         Inconsistent   

Business Specific Objectives

     Satisfactory         Effective         Effective         Effective   

Leadership and Vision

     Effective         Effective         Effective         Effective   

Overall Rating

     Inconsistent         Satisfactory         Satisfactory         Satisfactory   

 

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 Committee’s pay-for-performance philosophy.

 

Salary

 

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 executive’s 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 Company’s management team. The Committee has the right, however, to deviate from those guidelines in order to address other factors, including the officer’s responsibilities and experience, competitive market data for that officer’s 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 Company’s management team.

 

Salary adjustments are closely tied to Kohl’s performance, as each NEO’s individual performance rating is heavily influenced by Kohl’s performance metrics. As detailed above, 80% of Mr. Mansell’s performance rating is based upon Kohl’s net income and return on investment. Likewise, net income and return on investment comprise 60% of the other NEOs’ performance objectives.

 

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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 NEO’s fiscal 2012 performance rating against the following merit increase opportunity grid that had been established in February 2012:

 

     Unsatisfactory     Inconsistent     Satisfactory     Effective
(Target)
    Highly
Effective
    Outstanding  

Base Salary Increase as a Percent of Budgeted Increase for all exempt Associates

     0     25     50     75     100     133

Example:

            

Increase assuming 3% budgeted for all exempt associates

     0     0.75     1.50     2.25     3.00     4.00

 

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 Company’s management. Accordingly, Mr. Mansell’s salary was increased to $1,339,300. Mr. Brennan’s 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 Company’s management. Accordingly, Mr. McDonald’s salary was increased to $830,300. Mr. Schepp’s base salary was also increased to reflect his increased responsibilities upon assuming leadership of the Human Resources Department. Taking both increases into account, Mr. Schepp’s 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 NEO’s 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 Company’s management. Accordingly, Mr. Mansell’s salary was increased to $1,352,700. Ms. Gass’s base salary was increased to $932,600. Her increase was prorated based on her start date. Mr. McDonald’s salary was increased to $838,600 and Mr. Schepp’s 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 Kohl’s 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, Kohl’s 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

 

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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 Kohl’s 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 Kohl’s 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 group’s growth in total domestic revenue, was used as the peer performance index.

 

For purposes of calculating net income levels, the Committee adjusts Kohl’s net income to exclude the effects of:

 

   

extraordinary items,

 

   

discontinued operations,

 

   

restructurings,

 

   

acquisitions or divestitures of any division, business segment, subsidiary or affiliate,

 

   

acquisitions or divestitures of assets that are significant otherwise than in the ordinary course of business,

 

   

other unusual or non-recurring items,

 

   

impairment charges, and

 

   

the cumulative effect of tax or accounting changes as determined in accordance with generally accepted accounting principles, as applicable.

 

Following the Committee’s certification of the Company’s 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:

 

     Peer
Performance
Index Tier
    Threshold Tier     Target Tier     Top Tier  

Net Income Goal (in millions)

   Below $  1,080 (1)    $ 1,080      $ 1,140      $ 1,225   

Award Opportunity (as a percent of each NEO’s base salary):

        

Mr. Mansell

     40     65     175     250

Mr. Brennan

     30     55     150     200

Messrs. McDonald and Schepp

     20     40     100     175

 

(1) 

Assumes Kohl’s performance exceeded that of the peer performance index.

 

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In February 2013, the Committee assessed Kohl’s performance against the 2012 performance goals under the Annual Incentive Plan that had been approved at the February 2012 Committee meeting. Kohl’s 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 Kohl’s did not achieve the pre-established threshold net income level and Kohl’s 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 Company’s 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:

 

     Annual
Incentive
Plan Payout
 

Mr. Mansell

   $ 531,720   

Mr. Brennan

     276,075   

Mr. Worthington

     276,075   

Mr. McDonald

     163,600   

Mr. Schepp

     143,160   

 

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 Kohl’s 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:

 

     Peer
Performance
Index Tier
    Threshold Tier     Target Tier     Top Tier  

Net Income Goal (in millions)

     Below $900 (1)    $ 900      $ 970      $ 1,045   

Comparable Store Sales

     Below 0.00     0.00     2.00     5.00

Award Opportunity (as a percent of base salary):

        

CEO and Chairman

     40     65     175     250

Mr. Brennan

     30     55     150     200

Mssrs. McDonald and Schepp

     20     40     100     175

 

(1) 

Assumes Kohl’s performance exceeded that of the peer performance index.

 

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Fiscal 2014 Actions

 

In February 2014, the Committee assessed Kohl’s 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. Kohl’s 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 Kohl’s did not achieve the pre-established performance levels but Kohl’s 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. Kohl’s 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:

 

     Annual
Incentive
Plan Payout
 

Mr. Mansell

   $ 535,720   

Mr. Brennan

     278,160   

Ms. Gass

     162,260 1 

Mr. McDonald

     166,060   

Mr. Schepp

     165,300   

 

1 

Ms. Gass received a prorated Annual Incentive Plan payout.

 

Long-Term Compensation

 

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 Company’s 2010 Long-Term Compensation Plan. The LTIP is intended to achieve the Committee’s goals of, among other things, improving the efficiency of long-term equity incentive awards made to Kohl’s 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.

 

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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 executive’s fiscal 2012 performance:

 

     Grant Date Dollar Value of Award
(in thousands)
 
     Satisfactory
(Threshold)
     Effective
(Target)
     Outstanding
(Maximum)
 

Chief Executive Officer and Chairman

   $ 2,800       $ 4,200       $ 8,000   

Other Principal Officers

   $ 875       $ 1,750       $ 3,000   

Sr. Executive Vice Presidents

   $ 500       $ 1,000       $ 2,000   

 

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 Company’s achieving at least $900 million of net income in either 2013 or 2014.

 

The Committee also certified that Kohl’s 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. Gass’s joining Kohl’s, Ms. Gass was granted 149,533 restricted shares to offset the value of equity awards she forfeited in joining Kohl’s. 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 Kohl’s 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 Company’s executive officers on January 13, 2014. These awards were comprised of a blend of:

 

   

60% performance share units which will vest in an amount contingent on the Company’s cumulative net income and cumulative sales over a three-year performance period from fiscal 2014 through fiscal 2016, with target-level payouts only occurring if we achieve the levels set forth in our 3-Year Financial Plan; and

 

   

40% time-vested restricted stock which will vest in four equal installments on the first through fourth anniversaries of the date of grant.

 

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):

 

Aggregate Grant Date Dollar Value of LTIP Awards (in thousands)

 

Chief Executive Officer and Chairman

   $ 6,000   

Other Principal Officers

   $ 1,750   

Sr. Executive Vice Presidents

   $ 1,000   

 

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The target value for Mr. Mansell was determined using the benchmarking data presented to the Committee. While Mr. Mansell’s target LTIP opportunity is higher than previous years, his target total direct compensation remains below the median of the benchmarking data. The other NEO’s 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 Kohl’s 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 Group’s custom data. The Committee felt a larger group of companies would provide a more stable TSR reference point. If Kohl’s relative total shareholder return is in the top quartile then the PSUs earned will be increased by 25%. Conversely, if Kohl’s 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 Kohl’s 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.

 

Perquisites

 

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 Company’s aircraft for personal flights as well as business flights. This benefit increases the efficiency of

 

1  For the 2014-2016 LTIP those companies are: Abercrombie & Fitch Co. (ANF), Aeropostale, Inc. (ARO), American Eagle Outfitters, Inc. (AEO), Ann, Inc. (ANN), Ascena Retail Group Inc. (ASNA), Best Buy Co., Inc. (BBY), Bon-Ton Stores Inc. (BONT), Carter’s, Inc. (CRI), Coach, Inc. (CHO), DSW Inc. (DSW), Fifth & Pacific Companies, Inc. (FNP), The Gap, Inc. (GPS), The Home Depot, Inc. (HD), J.C. Penney Company, Inc. (JCP), L Brands, Inc. (LTD), Lowe’s Companies Inc. (LOW), Macy’s, Inc. (M), New York & Company, Inc. (NWY), Nordstrom, Inc. (JWN), Office Depot, Inc. (ODP), Sears Holdings Corporation (SHLD), Staples, Inc. (SPLS), Target Corp. (TGT), The TJX Companies, Inc. (TJX), Wal-mart Stores Inc. (WMT), and Zale Corporation (ZLC).

 

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Mr. Mansell’s 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.

 

Deferred Compensation

 

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 Kohl’s 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 Kohl’s 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 Kohl’s common stock owned outright in any one fiscal year.

 

From time to time, our principal officers will engage in sales of Kohl’s 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 company’s 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.

 

Employment Agreements

 

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.

 

41


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 Kohl’s 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.

 

42


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.

 

Name and Principal Position

  Year     Salary     Bonus     Stock
Awards(1)
    Option
Awards(1)
    Non-Equity
Incentive Plan
Compensation(2)
    Change in
Pension
Value and
Non-qualified
Deferred
Compen-
sation
Earnings(3)
    All
Other
Compen-
sation(7)
    Total  

Kevin Mansell

    2013      $ 1,339,300        —       $ 6,000,119 (4)      —        $ 535,720        —       $ 303,165      $ 8,178,304   

Chairman, President, Chief

Executive Officer

    2012        1,329,300        —         2,800,011      $ 2,800,003        531,720        —         355,758        7,816,792   
    2011        1,300,000        —         2,799,984       2,806,198        2,145,000        —         371,261        9,422,443   

Donald A. Brennan

    2013      $ 927,200        —       $ 1,750,048 (4)      —        $ 278,160        —       $ 105,050      $ 3,060,458   

Chief Merchandising Officer

    2012        920,250        —         875,016      $ 875,002        276,075        —         111,340        3,057,682   
    2011        900,000        —         7,312,523       1,315,403        1,035,000        —         95,507        10,658,433   

Michelle Gass

    2013      $ 927,200      $ 1,000,000 (5)    $ 9,750,064 (4)(5)      —        $ 162,260        —       $ 243,763      $ 12,083,287   

Chief Customer Officer

                 

Wesley McDonald

    2013      $ 830,300        —       $ 1,250,035 (4)    $ 1,165,870      $ 166,060        —       $ 99,871      $ 3,512,136   

Sr. Executive Vice President,

Chief Financial Officer

    2012        818,000        —         500,023        499,994        163,600        —         106,270        2,087,887   
    2011        800,000        —         3,750,008        751,663        920,000        —         114,897        6,336,568   

Richard Schepp

    2013      $ 826,500        —       $ 2,250,044 (4)(6)    $ 1,165,870      $ 165,300        —       $ 106,098      $ 4,513,812   

Sr. Executive Vice President,

HR, General Counsel

                 

 

(1) 

The amounts shown represent the aggregate grant date fair value for awards granted in 2013, 2012 and 2011, computed in accordance with FASB ASC Topic 718 (formerly FAS 123(R)). For a discussion of the valuation assumptions used, see Note 7 to our fiscal 2013 audited financial statements included in our Annual Report on Form 10-K.

(2) 

The amounts shown represent incentive payments awarded under our Annual Incentive Plan based on our performance during the year indicated, but actually paid in the following year.

(3) 

We have no defined benefit or actuarial pension plans. All earnings in our nonqualified deferred compensation plan are at market values and are therefore omitted from the table.

(4) 

Includes the aggregate grant date fair value of performance share units that could be earned pursuant to the 2014-2016 LTIP grant based on the probable outcome of the performance conditions as of the grant date. Actual payments will be based on our financial performance in fiscal years 2014 – 2016 and is subject to a modifier based on Kohl’s total shareholder return relative to its peers over the three-year performance period, as described more fully in Compensation Discussion & Analysis. The range of potential payments under the awards is set forth below.

 

     Amount
Reported
(Target)
     Other Possible Amounts  
      Minimum      Threshold      Maximum  

Kevin Mansell

   $ 3,600,139       $ 0       $ 1,350,053       $ 9,000,348   

Donald A. Brennan

   $ 1,050,043       $ 0       $ 393,767       $ 2,625,108   

Michelle Gass

   $ 1,050,043       $ 0       $ 393,767       $ 2,625,108   

Wesley McDonald

   $ 600,033       $ 0       $ 225,013       $ 1,500,083   

Richard Schepp

   $ 600,033       $ 0       $ 225,013       $ 1,500,083   

 

(5) 

Ms. Gass joined Kohl’s on June 7, 2013. Pursuant to her initial offer letter, she received $1 million intended as a signing incentive and to partially offset obligations she incurred as a result of her resignation from her previous employment and relocation. She also received restricted stock with a grant date value of $8 million in recognition of the equity awards she forfeited in connection with her resignation from her previous employment.

(6) 

In April 2013, Mr. Schepp assumed responsibility for our Human Resources department. In recognition of his increased responsibilities, Mr. Schepp was awarded restricted stock with a grant date value of $1 million.

 

43


(7) 

A detailed breakdown of “All Other Compensation” is provided in the table below.

 

Name

  Our
Contributions
to Executive
Officer’s
Defined
Contribution
Plan
Accounts
    Payments
made
by us
for Term
Life,
Long-
Term
Disability
and
Accidental
Death and
Dismember-
ment
Insurance
    Our
Reimbursement
of Financial
Planning and
Tax Advice
Expenses
    Automobile
Expense
Allowance
    Relocation
and
Travel
Expense
Reimburse-
ment
    Supplemental
Health Care
Coverage(s)
    Utilization of
Company-
Owned
Aircraft(b)
    Restricted
Stock
Dividend
Equivalents(c)
    Total  

Kevin Mansell

  $ 17,500      $ 4,855      $ 8,971      $ 18,966        —        $ 50,000      $ 166,725      $ 36,148      $ 303,165   

Donald A. Brennan

    17,500        4,188        1,375        24,432        —          50,000        —          7,554        105,050   

Michelle Gass

    —         2,716        —          7,195      $ 183,851        50,000        —          —         243,763   

Wesley McDonald

    17,500        3,888        —          11,772        —          50,000        —          16,711        99,871   

Richard Schepp

    17,500        3,810        —          19,970        —          50,000        —          14,819        106,098   

 

(a) 

Amounts shown are coverage limits. Our actual expense for providing this benefit may have been substantially less than the amounts shown. Coverage limits are presented for purposes of protecting the confidentiality of our executives’ actual medical expenses.

(b) 

Amounts shown are the incremental costs of personal use of Kohl’s-owned or chartered aircraft, and are based on either actual charter expense or, with respect to Kohl’s-owned aircraft utilization, the direct cost of use per hour, which includes fuel, maintenance, engine restoration cost reserves, crew travel expenses, landing and parking fees and supplies.

(c) 

The amounts in this column represent dividend equivalent shares granted in lieu of cash dividends on March 27, June 26, September 25 and December 24, 2013 on unvested restricted stock granted prior to 2011, the value of which was not taken into account in the grant date fair value of such previously disclosed awards. The dividend equivalents with respect to unvested restricted stock are credited as additional shares of restricted stock on the record date and are subject to the same vesting restrictions as the underlying restricted stock. Amounts with respect to the dividend equivalent shares on unvested restricted stock granted in 2011 and thereafter are not included in this table as such amounts were factored into the grant date value of such awards.

 

44


GRANTS OF PLAN-BASED AWARDS IN 2013

 

Name

  Grant
Date
   

 

 

 

 

Estimated Future Payouts
Under Non-Equity Incentive
Plan Awards(1)

   

 

Estimated Future Payouts
Under Equity Incentive
Plan Awards(2)

    All
Other
Stock
Awards:
Number
of
Shares
of Stock
or
Units(3)
    All Other
Option
Awards:
Number
of
Securities
Under-
lying
Options(3)
    Exercise
or Base
Price of
Option
Awards
($/Sh)
    Grant
Date Fair
Value of
Equity
Awards(4)
 
             
    Threshold     Target     Maximum     Threshold     Target     Maximum          

Kevin Mansell

    $ 535,720      $ 2,343,775      $ 3,348,250        —         —         —         —         —         —         —    
    01/13/2014        —         —         —         23,533        62,753        156,883        —         —         —       $ 3,600,139   
    01/13/2014        —         —         —         —         —         —         44,893       —         —         2,399,980   

Donald A. Brennan

    $ 278,160      $ 1,390,800      $ 1,854,400        —         —         —         —         —         —         —    
    01/13/2014        —         —         —         6,864        18,303        45,756        —         —         —       $ 1,050,043   
    01/13/2014        —         —         —         —         —         —         13,094        —         —         700,005   

Michelle Gass

    $ 278,160      $ 1,390,800      $ 1,854,400        —         —         —            
    07/15/2013        —         —         —         —         —         —         149,533 (5)      —         —       $ 8,000,016   
    01/13/2014        —         —         —         6,864        18,303        45,756        —         —         —         1,050,043   
    01/13/2014        —         —         —         —         —         —         13,094        —         —         700,005   

Wesley McDonald

    $ 166,060      $ 830,300      $ 1,453,025        —         —         —         —         —         —         —    
    04/01/2013        —         —         —         —         —         —         —         25,601      $ 45.54      $ 1,165,870   
    04/01/2013        —         —         —         —         —         —         5,490        —         —         250,014   
    01/13/2014        —         —         —         3,923        10,459        26,148        —         —         —         600,033   
    01/13/2014        —         —         —         —         —         —         7,482       —         —         399,988   

Richard Schepp

    $ 165,300      $ 826,500      $ 1,446,375        —         —         —         —         —         —         —    
    04/01/2013        —         —         —         —         —         —         —         25,601      $ 45.54      $ 1,165,870   
    04/01/2013        —         —         —         —         —         —         5,490        —         —         250,014   
    05/15/2013        —         —         —         —         —         —         20,129 (6)      —         —         1,000,009   
    01/13/2014        —         —         —         3,923        10,459        26,148        —         —         —         600,033   
    01/13/2014        —         —         —         —         —         —         7,482       —         —         399,988   

 

(1) 

Shown are the Threshold, Target and Maximum payouts for which each executive was eligible under our Annual Incentive Plan with respect to fiscal 2013 performance. Amounts actually earned with respect to these awards are included in the Summary Compensation Table as Non-Equity Incentive Plan compensation. Further detail regarding actual 2013 awards can be found in the “Compensation Discussion & Analysis” beginning on page 25.

(2) 

Represents range of performance share units that could be earned pursuant to the 2014-2016 LTIP grant. The 2014-2016 LTIP grant was made to the named executive officers on January 13, 2014 pursuant to the 2010 Long-Term Compensation Plan. The actual number of performance share units earned is dependent upon Kohl’s cumulative sales and net income during the three-year performance period, and range from 0% to 200% of the target amount and is subject to a modifier based on Kohl’s total shareholder return relative to its peers over the three-year performance period. See the Compensation Discussion & Analysis for a more detailed description of the performance measures.

(3) 

Awarded under our 2010 Long-Term Compensation Plan.

(4) 

Amounts shown represent the grant date fair value of the awards computed in accordance with FASB ASC Topic 718. For a discussion of the valuation assumptions used, see Note 7 to our fiscal 2013 audited financial statements included in our Annual Report on Form 10-K.

(5) 

Ms. Gass joined Kohl’s on June 7, 2013. Pursuant to her initial offer letter, she received restricted stock with a grant date fair value of $8 million.

(6) 

In April 2013, Mr. Schepp assumed responsibility for our Human Resources department. In recognition of his increased responsibilities, Mr. Schepp was awarded restricted stock with a grant date value of $1 million.

 

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.

 

45


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 associate’s 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:

 

Stock Options

 

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:

 

   

vesting of the options occurs in five equal installments on the first through fifth anniversaries of the date of the grant;

 

   

the term of the option is seven years from the date of grant;

 

   

if the recipient, at any time during the period of his or her employment and for one year following the end of employment, (a) engages directly or indirectly in any business or activity competitive with the business conducted by us or (b) engages in any activity which in the opinion of the Compensation Committee is adverse to our best interests, as described in the agreement, the option shall immediately lapse, and the recipient could be required to return fifty percent of the profit the recipient had gained from the exercise of any portion of the option over the previous twelve months;

 

   

payment of the option exercise price may be made in cash, or in shares of our stock, or a combination of cash and shares of our stock; and

 

   

the option is personal to the recipient and generally may not be assigned, transferred or pledged in any manner.

 

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 executive’s 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:

 

   

vesting of all of the performance-vested restricted stock is conditioned upon Kohl’s exceeding $900 million in net income in fiscal 2013 or 2014;

 

   

provided Kohl’s achieves the performance goal described above, the restrictions lapse in five equal installments on the first through fifth anniversaries of the date of the grant;

 

   

performance-vested restricted stock may not be assigned, transferred or pledged in any manner; and

 

   

prior to the vesting of performance-vested restricted stock, 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.

 

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 executive’s employment.

 

46


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 Kohl’s 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:

 

   

vesting of the performance share units is contingent on Kohl’s cumulative net income and cumulative sales over a three-year performance period from fiscal 2014 through fiscal 2016, with target-level payouts only occurring if we achieve the levels set forth in our 3-Year Financial Plan;

 

   

the number of shares that may be earned upon vesting of the performance share units is also subject to a modifier based on Kohl’s total shareholder return relative to its peers over the three-year performance period;

 

   

performance share units may not be assigned, transferred or pledged in any manner;

 

   

prior to the payment of the performance share units, the recipients do not have the right to vote the shares or have any other rights as a holder of outstanding shares of our stock; and

 

   

when payment of the performance share units is made, the recipient is also entitled to the number of shares equal to the number of shares that would have been payable to the recipient had the performance share units earned regular dividends during the performance period, assuming full reinvestment of all such dividends.

 

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 executive’s 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:

 

   

the restrictions lapse in four equal installments on the first through fourth anniversaries of the date of the grant;

 

   

restricted shares may not be assigned, transferred or pledged in any manner; and

 

   

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.

 

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 executive’s employment.

 

47


Employment Agreements

 

We have employment agreements with Messrs. Mansell, Brennan, McDonald and Schepp and Ms. Gass. These agreements include the following terms:

 

   

the term of each agreement is three years, extended on a daily basis until either party notifies the other that the term shall no longer be so extended;

 

   

each executive shall receive an annual base salary, which, as of February 2, 2014 was $1,339,300 for Mr. Mansell, $927,200 each for Mr. Brennan and Ms. Gass, $830,300 for Mr. McDonald and $826,500 for Mr. Schepp; and

 

   

the executives may be entitled to certain payments and other benefits upon termination of their employment or a change of control of Kohl’s, as described below in the section captioned “Potential Payments Upon Termination or Change of Control,” beginning on page 53.

 

48


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 Awards      Stock Awards(1)  
     Number of Securities
Underlying

Unexercised Options
    Option
Exercise
Price
     Option
Expiration
Date
     Number
of
Shares
or Units
of Stock
That
Have
Not
Vested
    Market
Value
of
Shares
or Units
of  Stock
That
Have
Not
Vested(2)
     Equity Incentive Plan
Awards
 
     Exercisable     
Unexercisable
               Number
of
Units
of Stock
That
Have
Not
Vested
    Market
Value of
Units of
Stock
That
Have Not
Vested(2)
 

Kevin Mansell

     150,000         $ 35.50         01/27/2015         5,950 (3)    $ 301,264         62,753 (14)    $ 3,177,184   
     97,500         $ 66.25         01/10/2016         34,124 (5)    $ 1,727,704        
     97,500         $ 66.30         01/30/2017         48,492 (6)    $ 2,455,166        
     92,600         $ 50.39         02/13/2018         10,774 (8)    $ 545,506        
     125,000         $ 75.95         03/26/2014         44,893 (9)    $ 2,272,933        
     50,000         $ 42.89         03/31/2015             
     250,000         $ 50.07         09/15/2015             
     40,000         10,000 (3)    $ 41.63         03/30/2016             
     78,000         52,000 (4)   $ 55.74         03/29/2017             
     77,028         115,544 (5)    $ 52.80         03/28/2018             
     47,981         191,926 (6)    $ 48.48         03/26/2019             

Donald A. Brennan

     70,000         $ 61.70         04/02/2016         4,398 (3)    $ 222,670         18,303 (14)    $ 926,681   
     33,000         $ 66.30         01/30/2017         15,996 (5)    $ 809,864        
     31,000         $ 50.39         02/13/2018         15,154 (6)    $ 767,256        
     20,000         $ 49.56         02/25/2019         13,094 (9)    $ 662,949        
     17,500         $ 46.20         02/23/2020         72,807 (10)    $ 3,686,222        
     15,000         $ 54.75         08/11/2020             
     24,200         $ 75.95         03/26/2014             
     75,000         $ 58.54         10/15/2014             
     36,500         $ 42.89         03/31/2015             
     54,800         13,700 (3)    $ 41.63         03/30/2016             
     38,580         25,720 (4)   $ 55.74         03/29/2017             
     36,107         54,161 (5)    $ 52.80         03/28/2018             
     14,994         59,977 (6)    $ 48.48         03/26/2019             

Michelle Gass

                13,094 (9)    $ 662,949         18,303 (14)    $ 926,681   
                151,492 (11)    $ 7,670,040        

Wesley McDonald

     37,500         $ 60.17         08/04/2018         4,571 (3)    $ 231,460         10,459 (14)    $ 529,539   
     20,000         $ 49.56         02/25/2019         5,725 (4)    $ 289,874        
     15,000         $ 46.20         02/23/2020         9,140 (5)    $ 462,764        
     23,320         $ 75.95         03/26/2014         8,660 (6)    $ 438,462        
     4,120         2,060 (3)    $ 41.63         03/30/2016         5,600 (7)    $ 283,528        
     20,632         30,950 (5)    $ 52.80         03/28/2018         7,482 (9)    $ 378,814        
     8,568         34,272 (6)    $ 48.48         03/26/2019         60,672 (10)    $ 3,071,824        
     —          25,601 (7)    $ 45.54         04/01/2020             

Richard Schepp

     40,000         $ 56.63         10/02/2015         4,192 (3)    $ 212,213         10,459 (14)    $ 529,539   
     5,500         $ 66.25         01/10/2016         4,924 (4)    $ 249,299        
     50,000         $ 55.05         08/15/2016         7,763 (5)    $ 393,020        
     33,000         $ 66.30         01/30/2017         8,660 (6)    $ 438,462        
     31,000         $ 50.39         02/13/2018         5,600 (7)    $ 283,528        
     20,000         $ 49.56         02/25/2019         7,482 (9)    $ 378,814        
     20,000         $ 46.20         02/23/2020         58,319 (12)    $ 2,952,682        
     21,560         $ 75.95         03/26/2014         20,532 (13)    $ 1,039,551        
     15,300         $ 42.89         03/31/2015             
     9,996        2,499 (3)    $ 41.63         03/30/2016             
     8,568         34,272 (6)    $ 48.48         03/26/2019             
     —          25,601 (7)    $ 45.54         04/01/2020            

 

49


 

(1) 

Includes accrued but unvested dividend equivalent shares.

(2) 

Based upon the $50.63 closing price of our common stock on February 1, 2014.

(3) 

Award vests 20% per year with future vesting date of March 30, 2014.

(4) 

Award vests 20% per year with future vesting dates of March 29, 2014 and 2015.

(5) 

Award vests 20% per year with future vesting dates of March 28, 2014, 2015 and 2016.

(6) 

Award vests 20% per year with future vesting dates of March 26, 2014, 2015, 2016 and 2017.

(7) 

Award vests 20% per year with future vesting dates of April 1, 2014, 2015, 2016, 2017 and 2018. For restricted stock, vesting is also contingent upon Kohl’s achieving an adjusted net income of $900 million or more in either fiscal 2013 or fiscal 2014.

(8) 

Award vests 20% per year with future vesting date of October 15, 2014.

(9) 

Award vests 25% per year with future vesting dates of January 13, 2015, 2016, 2017 and 2018.

(10) 

Award vests 20% per year with future vesting dates of March 1, 2014, 2015 and 2016.

(11) 

Award vests 25% per year with future vesting dates of July 15, 2014, 2015, 2016 and 2017.

(12) 

Award vests 20% per year with future vesting dates of May 15, 2014, 2015 and 2016.

(13) 

Award vests 20% per year with future vesting dates of May 15, 2014, 2015, 2016, 2017 and 2018.

(14) 

Performance share units scheduled to vest in March 2017 if the Committee certifies that the performance goals are achieved as of the end of fiscal 2016. Vesting of the performance share units is contingent on Kohl’s cumulative net income and cumulative sales over a three-year performance period from fiscal 2014 through fiscal 2016. Number of units is based on achieving 100% of the target units issued.

 

50


OPTION EXERCISES AND STOCK VESTED IN 2013

 

     Option Awards      Stock Awards  

Name

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

Kevin Mansell

     300,000       $ 6,273,555         40,547       $ 1,939,259   

Donald A. Brennan

     —          —           37,561       $ 1,735,441   

Michelle Gass

     —          —          —          —     

Wesley McDonald

     8,145       $ 110,506         12,681       $ 586,960   

Richard Schepp

     —          —          11,435       $ 529,266   

 

51


PENSION BENEFITS

 

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 Kohl’s 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 participant’s 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 participant’s 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 Kohl’s.

 

The following table shows the executive contributions, earnings and account balances for the persons named in the Summary Compensation Table.

 

Name

   Executive
Contributions
in Last FY
($)(1)
     Registrant
Contributions
in Last FY
($)
     Aggregate
Earnings in
Last FY
($)(1)
     Aggregate
Withdrawals/
Distributions
($)
    Aggregate
Balance
at Last Fiscal
Year End
($)(2)
 

Kevin Mansell

     —          —        $ 244,924         —       $ 2,744,142   

Donald A. Brennan

     —          —          —          —         —    

Michelle Gass

     —          —          —          —         —    

Wesley McDonald

   $ 124,238         —        $ 42,802       ($ 9,791   $ 1,249,787   

Richard Schepp

   $ 304,616         —        $ 59,342         —       $ 2,413,706   

 

(1) 

Executive contributions are included as compensation in the Summary Compensation Table in the year contributed. Earnings on account balances are not included in the Summary Compensation Table.

(2) 

Of the amounts disclosed in this column, the following amounts were previously reported in the Summary Compensation Table in either 2013 or prior to 2013: Mr. Mansell: $2,104,169; Mr. McDonald: $936,800; Mr. Schepp: $304,616. The difference between the amounts disclosed in this footnote and the amounts disclosed in the above column reflect earnings (and losses) on the contributions and any salary or bonus deferrals by the executive prior to becoming a NEO.

 

52


POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE OF CONTROL

 

Upon termination of their employment or a change of control of Kohl’s, 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:

 

Mr. Mansell

 

Employment Agreement

 

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 Kohl’s. The payments and other benefits upon Mr. Mansell’s termination are as follows:

 

   

If his employment is terminated by us due to his misconduct, or if he voluntarily resigns, he will not receive any severance payments;

 

   

If his employment is terminated upon his death or disability or due to our non-renewal of his employment agreement:

 

   

he or his estate is entitled to a pro rata bonus for the current fiscal year;

 

   

he or his estate is entitled to a severance payment in the amount of one half of his then annual base salary, payable over one year in the event of his death or due to non-renewal, and over six months in the event of his disability;

 

   

he and his spouse and eligible dependents shall be provided post-retirement health care coverage under our health insurance plan and supplemental executive medical plan, provided he (or the eligible dependents in the event of his death) reimburses us for all premiums paid for such retiree health insurance benefits; and

 

   

all of his unvested stock options shall immediately vest if the termination is a result of his death.

 

   

If his employment is terminated as a result of a material reduction in his job status or scope of responsibilities (i.e., for “good reason”), or if we terminate his employment involuntarily without cause during the term of his employment agreement (generally, three years) he will be entitled to:

 

   

a pro rata bonus for the current fiscal year, determined on the basis of the actual performance of Kohl’s at the end of that year and paid at the same time as other executives receive their bonus for that year;

 

   

a lump sum severance payment equal to the sum of:

 

   

an amount equal to his aggregate base salary for the remaining term of his agreement; plus