Macy's Inc. DEF 14A 2008
Documents found in this filing:
SCHEDULE 14A INFORMATION
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7 West Seventh Street Cincinnati, Ohio 45202
151 West 34th Street New York, New York 10001
April 1, 2008
To the Stockholders:
It is my privilege to invite you to attend Macys 2007 annual meeting of stockholders. We are holding the annual meeting on Friday, May 16, 2008, at 11:00 a.m., Eastern Daylight Savings Time, at Macys offices located at 7 West Seventh Street, Cincinnati, Ohio 45202. We are enclosing the official notice of meeting, proxy statement and form of proxy with this letter. The matters listed in the notice of meeting are described in the attached proxy statement.
Your vote is important. Accordingly, we encourage you to read the proxy statement and cast your vote promptly by following the instructions on the enclosed proxy card.
Thank you for your cooperation and support of Macys.
Terry J. Lundgren
Chairman of the Board, President
and Chief Executive Officer
7 West Seventh Street, Cincinnati, Ohio 45202
151 West 34th Street, New York, New York 10001
Important Notice Regarding the Availability of Proxy Materials
For the Shareholder Meeting to be Held on May 16, 2008
To the Stockholders:
Macys hereby gives notice that the annual meeting of its stockholders will be held at 11:00 a.m., Eastern Daylight Savings Time, on Friday, May 16, 2008, at Macys offices located at 7 West Seventh Street, Cincinnati, Ohio 45202. The items on the agenda for the annual meeting are:
We recommend that you vote For the election of each director nominee and For item 2. Each of these matters is more fully described in the attached proxy statement. The proxy statement and our annual report on Form 10-K are also available for your review at: www.proxyvote.com and www.macysinc.com/shareholders.
The Board of Directors has fixed March 21, 2008 as the record date for the determination of stockholders entitled to vote at the annual meeting or any postponements or adjournments of the annual meeting.
Dennis J. Broderick
April 1, 2008
7 West Seventh Street, Cincinnati, Ohio 45202
151 West 34th Street, New York, New York 10001
Macys board of directors (the Board) is furnishing this proxy statement in connection with its solicitation of proxies for use at the annual meeting of Macys stockholders. The annual meeting will be held at 11:00 a.m., Eastern Daylight Savings Time, on Friday, May 16, 2008, at Macys offices located at 7 West Seventh Street, Cincinnati, Ohio 45202. The proxies received will be used at the annual meeting and at any postponement or adjournment of the annual meeting for the purposes set forth in the accompanying notice of meeting. We will begin mailing the proxy statement, the notice of meeting and accompanying proxy on April 17, 2008.
Except where the context requires otherwise, the term Macys includes Macys, Inc. and its subsidiaries. Share and per share amounts in this proxy statement are adjusted to reflect a two-for-one stock split effected as a stock dividend on June 9, 2006.
The record date for the annual meeting is March 21, 2008. If you are a holder of record of shares of Macys common stock at the close of business on the record date you are entitled to vote those shares at the annual meeting. You are entitled to one vote for each share of common stock you own on each of the matters listed in the notice of meeting. As of the record date, 421,356,181 shares of common stock were outstanding. This number excludes shares held in the treasury of Macys.
The Board has adopted a policy under which all voting materials that identify the votes of specific stockholders will be kept confidential and will not be disclosed to Macys officers, directors or employees or to third parties except as described below. Voting materials may be disclosed in any of the following circumstances:
The policy described above will apply to the annual meeting.
A quorum of stockholders is necessary to hold a valid annual meeting. The holders of a majority of the stock issued and outstanding and entitled to vote at the annual meeting, present in person or represented by proxy, will constitute a quorum at the annual meeting for the transaction of business at the meeting. Macys will treat all shares of Macys common stock represented at the meeting, including abstentions and broker non-votes, as shares that are present and entitled to vote for purposes of determining the presence of a quorum. Macys will treat abstentions and broker non-votes as shares not voted for purposes of determining whether the requisite vote on a matter has been obtained. In order to obtain approval of any matter, the affirmative vote of the holders of a majority (or, in the case of the election of any nominee as a director, a plurality) of the shares of common stock represented at the annual meeting and actually voted is required. Consequently, abstentions and broker non-votes will have no effect on the outcome of the vote on any such matter. If the persons present or represented by proxy at the annual meeting constitute the holders of less than a majority of the outstanding shares of common stock as of the record date, the annual meeting may be adjourned to a subsequent date for the purpose of obtaining a quorum. Broker non-votes are shares held by a broker, bank or other nominee that are represented at the meeting, but with respect to which the beneficial owner of such shares has not instructed the broker, bank or nominee on how to vote on a particular proposal, and with respect to which the broker, bank or nominee does not have discretionary voting power on such proposal.
All shares of common stock represented at the annual meeting by proxies properly submitted prior to or at the annual meeting will be voted at the annual meeting in accordance with the instructions on the proxies, unless such proxies previously have been revoked. If no instructions are indicated, such shares will be voted:
You may vote in person at the annual meeting or by proxy. Macys recommends that you vote by proxy even if you plan to attend the annual meeting. You have three options for voting by proxy:
A number of banks and brokerage firms participate in a program that also permits stockholders whose shares are held in street name to direct their vote over the Internet or by telephone. If your bank or brokerage firm gives you this opportunity, the voting instructions from the bank or brokerage firm that accompany this proxy statement will tell you how to use the Internet or telephone to direct the vote of shares held in your account. The Internet and telephone proxy procedures are designed to authenticate your identity, to allow you to give your proxy voting instructions and to confirm that those instructions have been properly recorded. Votes directed over the Internet or by telephone through such a program must be received by 5:00 p.m., Eastern Daylight Savings Time, on Thursday, May 15, 2008. Requesting a proxy prior to the deadline described above will automatically cancel any voting directions you have previously given over the Internet or by telephone with respect to your shares. Directing the voting of your shares will not affect your right to vote in person if you decide to attend the annual meeting; however, you must first obtain a signed and properly executed proxy from your bank, broker or other nominee to vote your shares held in street name at the annual meeting.
If you participate in Macys Profit Sharing 401(k) Investment Plan or The May Department Stores Companys (May) Profit Sharing Plan, you will receive a voting instruction card for the Macys common stock allocated to your account in the applicable plan. You may instruct the plan trustee on how to vote your proportional interest in any Macys shares held by the plan by signing, dating and mailing the enclosed voting instruction card, or by submitting your voting instructions by telephone or over the Internet. The applicable plan trustee will vote your proportional interest in accordance with your instructions and the terms of the plan. If you fail to vote, the trustee for the applicable plan, subject to its fiduciary obligations under ERISA, will vote your proportional interest in the same proportion as it votes the proportional interests for which it receives instructions from other plan participants. Under the terms of the two plans, the trustees must receive voting instructions from plan participants by 5:00 p.m., Eastern Daylight Savings Time, on Wednesday, May 14, 2008.
You may revoke your proxy at any time by:
Certain Beneficial Owners. The following table sets forth information as to the beneficial ownership of each person known to Macys to own more than 5% of Macys outstanding common stock as of December 31, 2007.
Stock Ownership of Directors and Executive Officers. The following table sets forth the shares of common stock beneficially owned (or deemed to be beneficially owned pursuant to the rules of the Securities and Exchange Commission, referred to as the SEC), as of March 21, 2008 by each Macys director who is not an employee of Macys, referred to as a Non-Employee Director, by each executive named on the 2007 Summary Compensation Table, referred to as a Named Executive, and by Macys directors and executive officers as a group. The business address of each of the individuals named in the table is 7 West Seventh Street, Cincinnati, Ohio 45202.
Securities Authorized for Issuance Under Equity Compensation Plans. The following table presents certain aggregate information, as of February 2, 2008, with respect to the 1995 Equity Plan and Macys 1994 Stock Incentive Plan, referred to as the 1994 Stock Plan (included on the line captioned Equity compensation plans approved by security holders).
The foregoing table does not reflect shares of restricted stock previously issued under the 1995 Equity Plan or the 1994 Stock Plan. As of February 2, 2008:
The shares remaining available for future issuance as restricted stock or restricted stock units are included in the totals reflected in column (c). Under the 1995 Equity Plan and the 1994 Stock Plan, if these shares are not issued as restricted stock they may be made subject to grants of stock options.
The foregoing table does not reflect stock credits issued under Macys Executive Deferred Compensation Plan, the Director Deferred Compensation Plan, and the Associated Dry Goods Corporation Executives Deferred Compensation Plan (assumed by Macys in connection with its acquisition of May), which plans have not been approved by Macys stockholders. Pursuant to the Executive Deferred Compensation Plan, eligible executives may elect to receive a portion of their cash compensation in the form of stock credits. For a discussion of stock credits issued to Non-Employee Directors under the Director Deferred Compensation Plan, see Further Information Concerning the Board of Directors Director Compensation. Pursuant to the Associated Dry Goods Corporation Executives Deferred Compensation Plan, participants elected to receive a portion of their cash compensation in the form of stock credits.
Under the plans described in the immediately preceding paragraph, entitlements due to participants are expressed as dollar amounts and then converted to stock credits in amounts equal to the number of shares of common stock that could be purchased by the applicable plan at current market prices with the cash that otherwise would have been payable to the participant. Under the Executive Deferred Compensation Plan and the Associated Dry Goods Corporation Executives Deferred Compensation Plan, each stock credit, other than a stock credit payable in cash, entitles the holder to receive one share of common stock upon the termination of the holders employment or service with Macys. Payments include dividend equivalents on the stock credits equal to any dividends paid to stockholders on shares of common stock. No specific numbers of shares are authorized for issuance under these plans.
ITEM 1. ELECTION OF DIRECTORS
Macys current Certificate of Incorporation and By-Laws provide that, beginning with the annual meeting in 2008, all directors will be elected annually and will serve one-year terms.
In accordance with the recommendation of the NCG Committee, the Board has nominated Stephen F. Bollenbach, Deirdre P. Connelly, Meyer Feldberg, Sara Levinson, Terry J. Lundgren, Joseph Neubauer, Joseph A. Pichler, Joyce M. Roché, Karl M. von der Heyden, Craig E. Weatherup and Marna C. Whittington, each of whom is currently a member of the Board, for election as directors. If elected, such nominees will serve for a one-year term to expire at Macys annual meeting of stockholders in 2009 or until their successors are duly elected and qualified. Information regarding these nominees is set forth below. Ages are as of March 21, 2008.
Each nominee has consented to being nominated and agreed to serve if elected. If any nominee becomes unavailable to serve as a director before the annual meeting, the Board may designate a substitute nominee and the persons named as proxies may, in their discretion, vote your shares for the substitute nominee designated by the Board. Alternatively, the Board may reduce the number of directors to be elected at the annual meeting.
The Board recommends that you vote FOR the election of the nominees named above, and your proxy will be so voted unless you specify otherwise.
Stephen F. Bollenbach
Mr. Bollenbach, age 65, has been the Non-Executive Chairman of the Board of Directors of KB Home, a homebuilding company, since April 2007. He served as co-Chairman and Chief Executive Officer of Hilton Hotels Corporation from May 2004 until his retirement in October 2007. From February 1996 to May 2004 he served as Chief Executive Officer and President of Hilton Hotels Corporation. He is also a member of the boards of directors of American International Group, Inc., KB Home and Time Warner Inc. Mr. Bollenbach has been a director since June 2007.
Deirdre P. Connelly
Ms. Connelly, age 47, has been President U.S. Operations of Eli Lilly and Company since June 2005. From October 2004 to June 2005, Ms. Connelly served as Senior Vice President Human Resources of Eli Lilly and Company. From May 2004 to October 2004, she served as Vice President Human Resources of Eli Lilly and Company. From 2003 to May 2004, Ms. Connelly served as Executive Director, Human Resources U.S. Operations of Eli Lilly and Company. From 2001 to 2003, she served as Leader, Womens Health Business U.S. Operations of Eli Lilly and Company. Ms. Connelly has been a director since January 2008.
Professor Feldberg, age 66, has been Dean Emeritus and Professor of Leadership and Ethics at Columbia Business School at Columbia University since June 2004. Prior to that time, he served as the Dean of the Columbia Business School at Columbia University from 1989 to June 2004. He is currently on leave of absence from Columbia University and is serving as a Senior Advisor at Morgan Stanley. In 2007 Mayor Michael Bloomberg appointed Professor Feldberg as the President of NYC Global Partners, an office in the Mayors office that manages the relationships between New York City and other global cities around the
world. Professor Feldberg is also a member of the boards of directors of Revlon, Inc., Primedia, Inc., UBS Global Asset Management and SAPPI Limited. Professor Feldberg has been a director since May 1992.
Ms. Levinson, age 57, was the Non-Executive Chairman of ClubMom, Inc. from October 2002 until February 2008 and was Chairman and Chief Executive Officer of ClubMom from May 2000 through September 2002. She was President of the Womens Group of Rodale, Inc. from October 2002 until June 2005. From September 1994 through April 2000, she was President of NFL Properties, Inc. Ms. Levinson is also a member of the boards of directors of CafeMom (CMI Marketing, Inc.), Harley Davidson, Inc. and KickApps Corporation. Ms. Levinson has been a director since May 1997.
Terry J. Lundgren
Mr. Lundgren, age 55, has been Chairman of Macys since January 15, 2004 and President and Chief Executive Officer of Macys since February 26, 2003. Prior to that time, he served as the President/Chief Operating Officer and Chief Merchandising Officer of Macys since April 15, 2002. From May 1997 until April 15, 2002, he was President and Chief Merchandising Officer of Macys. Mr. Lundgren has been a director since May 1997.
Mr. Neubauer, age 66, has been Chairman and Chief Executive Officer of ARAMARK Holdings Corporation since January 2007. From September 2004 to January 2007, Mr. Neubauer served as Chairman and Chief Executive Officer of ARAMARK Corporation. From January 2004 to September 2004 he served as Executive Chairman of ARAMARK Corporation. Prior to that, he was Chief Executive Officer of ARAMARK Corporation from 1983 until December 2003 and Chairman from 1984 until December 2003. He is also a member of the boards of directors of ARAMARK Corporation, Verizon Communications, Inc. and Wachovia Corporation. Mr. Neubauer has been a director since September 1992.
Joseph A. Pichler
Mr. Pichler, age 68, was Chairman of The Kroger Co. from June 2003 until June 2004 and was Chairman and Chief Executive Officer of The Kroger Co. from September 1990 until June 2003. Mr. Pichler has been a director since December 1997.
Joyce M. Roché
Ms. Roché, age 61, is the President and Chief Executive Officer of Girls Incorporated, a national non-profit research, education and advocacy organization. Prior to assuming her position at Girls Incorporated in September 2000, Ms. Roché was an independent marketing consultant from 1998 to August 2000. She served as President and Chief Operating Officer of Carson, Inc. from 1996 to 1998 and also held senior marketing positions with Carson, Inc., Revlon, Inc. and Avon, Inc. Ms. Roché is also a member of the boards of directors of Anheuser-Busch Companies, Inc., AT&T, Inc. and Tupperware Corporation. Ms. Roché has been a director since February 2006.
Karl M. von der Heyden
Mr. von der Heyden, age 71, was Vice Chairman of the Board of Directors of PepsiCo, Inc. from September 1996 to January 2001. He is also a member of the boards of directors of Dreamworks Animation SKG, Inc. and NYSE Euronext. Mr. von der Heyden has been a director since February 1992.
Craig E. Weatherup
Mr. Weatherup, age 62, worked with PepsiCo, Inc. for 24 years and served as Chief Executive Officer of its world-wide Pepsi-Cola business and President of PepsiCo, Inc. Mr. Weatherup also led the initial public offering of The Pepsi Bottling Group, Inc., where he served as Chairman and Chief Executive Officer from March 1999 to January 2003. Mr. Weatherup is also a member of the board of directors of Starbucks Corporation. Mr. Weatherup has been a director since August 1996.
Marna C. Whittington
Dr. Whittington, age 60, has been President of Nicholas Applegate Capital Management since 2001 and Chief Operating Officer of Allianz Global Investors, the parent of Nicholas Applegate Capital Management, since 2002. Dr. Whittington is also a member of the board of directors of Rohm & Haas Company. Dr. Whittington has been a director since June 1993.
FURTHER INFORMATION CONCERNING THE BOARD OF DIRECTORS
The Board held 12 meetings during the fiscal year ended February 2, 2008, referred to as fiscal 2007. During fiscal 2007, no director attended fewer than 75%, in the aggregate, of the total number of meetings of the Board and Board Committees on which such director served.
As a matter of policy, Macys expects its directors to make reasonable efforts to attend Macys annual meetings of stockholders. All directors who were directors as of the date of the annual meeting attended Macys most recent annual meeting of stockholders.
You may communicate with the full Board, the Audit Committee, the Non-Employee Directors, or any individual director by communicating through Macys Internet website at www.macysinc.com/ir/corpgov or by mailing such communications to 7 West Seventh Street, Cincinnati, Ohio 45202, Attn: General Counsel. Such communications should indicate to whom they are addressed. We will refer any communications we receive that relate to accounting, internal accounting controls or auditing matters to members of the Audit Committee unless the communication is otherwise addressed. You may communicate anonymously and/or confidentially if you desire. Macys Office of the General Counsel will collect all communications and forward them to the appropriate director(s).
Macys Corporate Governance Principles require that a majority of the Board consist of directors who the Board has determined do not have any material relationship with Macys and are independent. The Board has adopted standards for director independence to assist the Board in determining if a director is independent. These standards, disclosed on Macys website at www.macysinc.com/ir/corpgov, are as follows:
The Board has determined that each of the following Non-Employee Directors qualifies as independent under New York Stock Exchange (NYSE) rules and satisfies Macys standards for director independence: Stephen Bollenbach, Deirdre Connelly, Meyer Feldberg, Sara Levinson, Joseph Neubauer, Joseph Pichler, Joyce Roché, Karl von der Heyden, Craig Weatherup and Marna Whittington. To assist the Board in making that determination, the NCG Committee reviewed, among other things, each directors employment status and other board commitments and, where applicable, each directors (and his or her immediate family members) affiliation with consultants, service providers or suppliers of the company.
The Non-Employee Directors meet in executive session without management either before or after all regularly scheduled Board meetings. The chairpersons of the Board Committees preside at such sessions by rotation. Non-Employee Directors who are not independent under the NYSE listing standards may participate in these executive sessions, but the Board would then hold at least one executive session each year exclusively for Non-Employee Directors who are independent under the NYSE listing standards.
Committees of the Board
The following standing committees of the Board were in existence throughout fiscal 2007: the Audit Committee, the Compensation and Management Development Committee, referred to as the CMD Committee, the Finance Committee and the NCG Committee. The table below provides the current members of each Board committee and meeting information for fiscal 2007:
Audit Committee. The Audit Committee was established in accordance with the applicable requirements of the Securities Exchange Act of 1934 and the NYSE. Its charter is disclosed on Macys website at www.macysinc.com/ir/corpgov. As required by the Audit Committee charter, all current members of the Audit Committee are independent under Macys standards for director independence. The Board has determined that all members are financially literate for purposes of NYSE listing standards, and that Dr. Whittington qualifies
as an audit committee financial expert because of her business experience, understanding of generally accepted accounting principles and financial statements, and educational background.
The responsibilities of the Audit Committee include:
See Report of the Audit Committee for further information regarding certain reviews and discussions undertaken by the Audit Committee.
Compensation and Management Development Committee. The charter for the CMD Committee is disclosed on Macys website at www.macysinc.com/ir/corpgov. As required by the CMD Committee charter, all current members of the CMD Committee are independent under Macys standards for director independence.
The responsibilities of the CMD Committee include:
Finance Committee. The charter for the Finance Committee is disclosed on Macys website at www.macysinc.com/ir/corpgov. As required by the Finance Committee charter, a majority of the members of the Finance Committee are independent under Macys standards for director independence.
The responsibilities of the Finance Committee include:
Nominating and Corporate Governance Committee. The charter for the NCG Committee is disclosed on Macys website at www.macysinc.com/ir/corpgov. As required by the NCG Committee charter, all current members of the NCG Committee are independent under Macys standards for director independence.
The responsibilities of the NCG Committee include:
The NCG Committee reviews the director compensation program periodically. To help it perform its responsibilities, the NCG Committee makes use of company resources, including members of senior management in Macys human resources and legal departments. In addition, the NCG Committee engages the services of Mercer as an independent outside compensation consultant to assist the NCG Committee in assessing the competitiveness and overall appropriateness of Macys director compensation program.
Macys By-laws provide that director nominations may be made by or at the direction of the Board. The NCG Committee is charged with identifying individuals qualified to become Board members and recommending such individuals to the Board for its consideration. The NCG Committee is authorized, among other means of identifying potential candidates, to employ third-party search firms. In evaluating potential candidates, the NCG Committee considers, among other things, the following:
The NCG Committee also takes into consideration whether particular individuals satisfy the independence criteria set forth in the NYSE listing standards and Macys standards for director independence, together with any special criteria applicable to service on various standing committees of the Board. The full Board (a) considers candidates that the NCG Committee recommends, (b) considers the optimum size of the Board, (c) determines how to address any vacancies on the Board, and (d) determines the composition of all Board committees.
In fiscal 2006 and fiscal 2007, the NCG Committee retained an independent director search firm, Heidrick & Struggles, to identify and evaluate potential director candidates based on the qualifications and characteristics described above. The firm provides background information on potential candidates and, if so directed by the NCG Committee, makes initial contact with potential candidates to assess their interest in becoming a director of Macys. NCG Committee members then meet with and interview the potential candidates. Stockholders have previously elected each of the director nominees for the 2008 annual meeting, except for Mr. Bollenbach and Ms. Connelly. Heidrick & Struggles identified Mr. Bollenbach and Ms. Connelly as potential candidates for director positions. Following an extensive interview process, the NCG Committee
recommended to the Board that Mr. Bollenbach and Ms. Connelly be appointed as Non-Employees Directors. The Board approved Mr. Bollenbachs appointment in June 2007 and Ms. Connellys appointment in December 2007.
The NCG Committee will consider candidates for nomination recommended by stockholders of Macys and will evaluate such candidates using the same criteria discussed above that it uses to evaluate director candidates identified by the NCG Committee. Stockholders who wish to recommend a candidate for a director nomination should write to the Nominating and Corporate Governance Committee, c/o Dennis J. Broderick, Secretary, Macys, Inc., 7 West Seventh Street, Cincinnati, Ohio 45202. The recommendation should include the full name and address of the proposed candidate, a description of the proposed candidates qualifications and other relevant biographical information.
Macys By-Laws also provide that director nominations may be made by the companys stockholders. The By-Laws require that stockholders intending to nominate candidates for election as directors deliver written notice thereof to the Secretary of Macys not less than 60 days prior to the meeting of stockholders. However, in the event that the date of the meeting is not publicly announced by Macys by inclusion in a report filed with the SEC or furnished to stockholders, or by mail, press release or otherwise more than 75 days prior to the meeting, notice by the stockholder to be timely must be delivered to the Secretary of Macys not later than the close of business on the tenth day following the day on which such announcement of the date of the meeting was so communicated. The By-Laws further require, among other things:
The chairman of the Board may refuse to acknowledge the nomination of any person not made in compliance with these requirements. Similar procedures prescribed by the By-Laws are applicable to stockholders desiring to bring any other business before an annual meeting of the stockholders. See Submission of Future Stockholder Proposals.
The Corporate Governance Principles and the Code of Business Conduct and Ethics approved by the Board for adoption by Macys are disclosed on Macys website at www.macysinc.com/ir/corpgov. Stockholders may obtain copies of these documents and the charters for the Board committees, without charge, by sending a written request to the following address: Secretary, Macys, Inc. 7 West Seventh, Cincinnati, Ohio 45202.
Non-Employee Directors receive the following compensation:
Under Macys Director Deferred Compensation Plan, 50% of the annual Board retainer (including the retainer payable to a committee chair) and 50% of the meeting fees payable to Non-Employee Directors (the Mandatory Stock Compensation) are paid in credits representing the right to receive shares of Macys common stock (Mandatory Stock Credits), with the balance (Elective Compensation) paid in cash or deferred under the Director Deferred Compensation Plan. Mandatory Stock Compensation is reflected in the Stock Awards column of the 2007 Non-Employee Director Summary Compensation Table below. Elective Compensation is reflected in the Fees Earned or Paid in Cash column of the 2007 Non-Employee Director Summary Compensation Table below. If a Non-Employee elects to defer all or a portion of the Elective Compensation into either stock credits or cash credits under the Director Deferred Compensation Plan, those amounts are not paid to him or her until service on the Board ends. Mandatory Stock Credits and stock credits relating to Elective Compensation that is deferred as stock credits are calculated monthly. Shares of Macys common stock associated with such stock credits are transferred quarterly to a rabbi trust for the benefit of the participating Non-Employee Director. Dividend equivalents on the amounts deferred as stock credits are reinvested in additional stock credits. Elective Compensation deferred as cash credits earn interest each year at a rate equal to the yield (percent per annum) on 30-Year Treasury Bonds as of December 31 of the prior plan year.
Non-Employee Directors typically receive a non-qualified stock option grant under the 1995 Equity Plan or the 1994 Stock Plan on the date of the annual meeting. If an individual is elected by the Board as a Non-Employee Director after the date of the annual meeting and prior to the end of the calendar year, the Non-Employee Director receives a pro-rated stock option grant shortly after his or her election to the Board based on the number of months remaining in the calendar year following the date of his or her election. All options have a 10-year term, vest 25% on each of the first four anniversaries following the grant date, and are priced at the closing price of Macys common stock on the NYSE on the day prior to the grant date.
Non-Employee Directors may participate in the matching gift program of the Macys Foundation on the same terms as all company employees. Under this program, the Macys Foundation will match up to a total of $22,500 of gifts made by the director to approved charities in any calendar year.
Each Non-Employee Director and his or her spouse and eligible dependents also receive executive discounts on merchandise purchased at Macys stores. This benefit remains available to them following retirement from the Board. As described below, the retirement plan for Non-Employee Directors was terminated in 1997.
The following table reflects the compensation information for each Non-Employee Director for fiscal 2007. Mr. Stiritz retired as a Non-Employee Director on May 18, 2007. Consequently, the table reflects the compensation paid or payable to him through his retirement date. Mr. Lundgren does not receive separate compensation for his service as a Director; his compensation is reflected in the 2007 Summary Compensation Table in the section titled Compensation of the Named Executives for 2007.
2007 NON-EMPLOYEE DIRECTOR SUMMARY COMPENSATION TABLE
The amounts in the Stock Awards column reflect the Mandatory Stock Compensation payable in fiscal 2007 plus the variable accounting treatment and dollar amounts recognized for financial statement
reporting purposes in accordance with Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment (FAS 123R) for fiscal 2007 for Mandatory Stock Credits issued in fiscal 2007 and prior years. Non-Employee Directors received the following Mandatory Stock Credits with respect to the Mandatory Stock Compensation payable to them in fiscal 2007:
Macys retirement plan for Non-Employee Directors was terminated on a prospective basis effective May 16, 1997 (the Plan Termination Date). As a result of such termination, persons who first become Non-Employee Directors after the Plan Termination Date will not be entitled to receive any benefit from the plan. Persons who were Non-Employee Directors as of the Plan Termination Date will be entitled to receive retirement benefits accrued as of the Plan Termination Date. Subject to an overall limit in an amount equal to the aggregate retirement benefit accrued as of the Plan Termination Date (i.e., the product of the amount of the annual Board retainer earned immediately prior to retirement and the years of Board service prior to the Plan Termination Date), eligible retirees who retire from service as Non-Employee Directors will be entitled to receive an annual payment equal to the amount of the annual Board retainer earned immediately prior to retirement, payable in monthly installments, commencing at retirement and continuing for the lesser of such persons remaining life or a number of years equal to such persons years of Board service prior to the Plan Termination Date. There are no survivor benefits under the terms of the retirement plan. Five of the current Non-Employee Directors participate in the plan. If they had retired on December 31, 2007, each would have been entitled to a $60,000 annual payment for the following maximum number of years:
In fiscal year 2005, the NCG Committee recommended, and the Board adopted, stock ownership guidelines for Non-Employee Directors. Under these guidelines, Non-Employee Directors are required to accumulate over time shares of Macys common stock equal in value to at least five times the annual Board retainer. Currently, the annual Board retainer is $60,000, so the guideline currently is $300,000 worth of Macys common stock. Shares counted toward this requirement include:
Macys common stock subject to unvested or unexercised stock options granted to Non-Employee Directors does not count toward the ownership requirement. Non-Employee Directors must comply with these guidelines by December 9, 2010 or within five years from the date the directors Board service commenced, whichever is later. As of the end of the last fiscal year, all Non-Employee Directors that have served as Directors for five or more years owned sufficient shares to satisfy the ownership guidelines.
The Audit Committee has appointed KPMG LLP, an independent registered public accounting firm, to audit the books, records and accounts of Macys for the fiscal year ending January 31, 2009. KPMG LLP and its predecessors have served as the independent registered public accounting firm for Macys since 1988, and
the Audit Committee considers them well qualified. Representatives of KPMG LLP are expected to be present at the annual meeting and will have the opportunity to make a statement if they desire to do so. It is also expected that they will be available to respond to appropriate questions. The Audit Committee has asked the Board to submit to stockholders a proposal asking stockholders to ratify the appointment of KPMG LLP. If the appointment of KPMG LLP is not ratified by stockholders, the Audit Committee will take such action, if any, with respect to the appointment of the independent registered public accounting firm as the Audit Committee deems appropriate.
The table below summarizes the fees paid to KPMG LLP during fiscal 2007 and fiscal 2006:
Audit fees represent fees for professional services rendered for the audit of Macys annual financial statements, the audit of Macys internal controls over financial reporting and the reviews of the interim financial statements included in Macys Forms 10-Q.
Audit-related fees represent professional services principally related to the audits of financial statements of employee benefit plans, audits of financial statements of certain subsidiaries and certain agreed upon procedures reports.
Tax fees represent professional services related to tax compliance and consulting services, provided, however, that such tax consulting services did not involve the provision of advice regarding tax strategy or planning.
All other fees represent professional services other than those covered above.
The Audit Committee has adopted policies and procedures for the pre-approval of all permitted non-audit services provided by Macys independent registered public accounting firm. A description of such policies and procedures is attached as Appendix A to this proxy statement and incorporated herein by reference.
The Board recommends that you vote FOR ratification of the appointment of KPMG LLP, and your proxy will be so voted unless you specify otherwise.
COMPENSATION DISCUSSION & ANALYSIS
Macys is one of the nations premier retailers, with fiscal 2007 sales of $26.3 billion. At the end of fiscal 2007, Macys operated more than 850 department stores in 45 states, the District of Columbia, Guam and Puerto Rico under the names of Macys and Bloomingdales. Macys also operates macys.com, bloomingdales.com and Bloomingdales By Mail. The company employs about 182,000 regular full-time and part-time employees.
Managing a nation-wide retail business requires a team of committed, talented and experienced executives. Macys stores and direct-to-customer business operations compete with many retailing formats in the geographic areas in which they operate, including department stores, specialty stores, general merchandise
stores, off-price and discount stores, new and established forms of home shopping (including the Internet, mail order catalogs and television) and manufacturers outlets, among others. In addition to competing with these other retailers for customers, Macys also must compete very aggressively for executive talent.
Macys executive compensation philosophy is straightforward and consistent Macys pays for performance. Macys executives are accountable for the performance of the business units they manage and are compensated based on that performance. Executives are rewarded when defined milestones are achieved and value is created for Macys stockholders.
This Compensation Discussion & Analysis provides information regarding the compensation paid to the following individuals, referred to as the Named Executives, in fiscal 2007:
Macys executive compensation program for the Named Executives consists of cash compensation in the form of performance-based cash incentives and base salaries and long-term equity-based awards in the form of stock options, stock credits and, to a lesser degree, restricted stock. Each year, the CMD Committee of the Board, which is made up entirely of independent directors, recommends to the Board the compensation for Mr. Lundgren and determines the compensation for the other Named Executives.
Macys compensation mix relies heavily on long-term equity awards to attract and retain an outstanding executive team and to ensure a strong connection between executive compensation and financial performance, operational and strategic objectives and stockholder interests. The CMD Committee awards approximately 60% of the long-term equity awards in the form of stock credits and approximately 40% in the form of stock options. The CMD Committee awards restricted stock on a selective basis. Stock options and restricted stock foster employee stock ownership and, together with stock credits, focus the management team on increasing value for stockholders. Because the value of these equity-based awards depends on Macys future stock price, the awards link compensation to future financial performance. Stock credits provide executives the right to receive the value of the underlying common stock following two- and three-year holding periods after vesting. Because the vesting of a portion of the core stock credits depends on achievement of the companys Four Priorities and other measures, these awards also link compensation to operational and strategic performance.
The performance-based cash incentive plan compensates the Named Executives for achieving specific financial goals established annually by the CMD Committee. The CMD Committee sets aggressive goals at the beginning of each year based on financial objectives in Macys internal business plan for the fiscal year. Payments are not automatic, however, because the CMD Committee may exercise its discretion to reduce (but not increase) the amount of any incentive payment.
For fiscal 2007, the CMD Committee awarded stock option grants to each Named Executive under terms consistent with Macys annual stock option grant program. The Named Executives did not receive a cash incentive for fiscal 2007 performance because Macys did not achieve the threshold level of performance established under the companys bonus plan. The CMD Committee increased base salaries for the Named Executives in March 2007 by an average of 7.0% to maintain salary at levels deemed appropriate by the CMD
Committee in light of competitive pay analyses, the contributions of each Named Executive to the advancement of the integration process related to the May merger, the increased size of the company following the May merger, internal comparability and other factors. The CMD Committee awarded the Named Executives 95% of the core stock credits granted to the Named Executives in fiscal 2006 under the 2006-2007 stock credit plan that had performance objectives relating to the companys progress on the Four Priorities and 100% of the merger stock credits granted to them in fiscal 2006 that had performance objectives relating to achieving synergies resulting from the May merger. In addition, in connection with the renewal of his employment agreement, the CMD Committee awarded retention stock option and restricted stock grants to Mr. Lundgren.
EXECUTIVE COMPENSATION PROGRAM OBJECTIVES
Macys overall compensation program is performance-driven and designed to support the needs of the business by:
Macys compensation levels and individual compensation programs are assessed against market norms periodically by the CMD Committee, with input from independent outside compensation consultants as needed. Under ordinary circumstances, the CMD Committee undertakes a comprehensive review of the program approximately every three years. Pay data is validated against several benchmarks, including specific pay levels of other large retail and vendor organizations and information from published surveys of the retail industry and general industry. In addition, compensation of individual executives or specific plans or practices are reviewed more frequently, depending on business needs.
Macys compensation programs are based on measures of business success. They reflect a combination of specific internal measurements of success (such as EBIT, sales and cash flow) and external measurements of success (such as customer satisfaction and stock price performance). A portion of the compensation program focuses on the strategic initiatives that will help continue to differentiate Macys from other retailers and that are important in making Macys and Bloomingdales stores the customers first choice in shopping.
A significant portion of an executives compensation program is linked to variable compensation components, such as short- term cash incentives, stock options, stock credits and restricted stock. As a result, an individuals compensation level is dependent on individual and company performance, including stock price appreciation. The mix of components and the proportion of each as a percentage of total compensation may vary from year to year, but the total mix is designed to encourage maximum performance.
Macys executives are recognized as some of the most talented and sought after people in the retail industry, and Macys training and development programs have earned national recognition. The compensation programs are designed to attract and retain high caliber executives who are key to the
continued success of the business, who can provide consistent leadership and whose talents support strong succession planning.
The combination of the core principles above appropriately ties Macys compensation to performance and thereby aligns the interests of key executives with the interests of the stockholders.
EXECUTIVE COMPENSATION PROGRAM DESIGN
The CMD Committee administers the compensation program for the senior management group. This group includes the Named Executives and other corporate officers and division principals. The CMD Committee also oversees the companys benefit plans and policies, including its incentive and equity plans, and also ensures that appropriate succession plans are in place for the chief executive officer and other key executive positions. For a more complete description of the responsibilities of the CMD Committee, see Further Information Concerning the Board of Directors Committees of the Board and the charter for the CMD Committee posted on Macys website at www.macysinc.com/ir/corpgov.
The CMD Committee engages the services of Mercer as an outside compensation consultant to help the CMD Committee assess the competitiveness and overall appropriateness of Macys executive compensation program. In 2007, Mercer supported the CMD Committees annual evaluation of Mr. Lundgrens compensation and its discussions regarding the terms of Mr. Lundgrens new employment agreement. Mercer reviewed Mr. Lundgrens compensation against the peer groups of companies described below. This analysis also considered Macys performance relative to the performance of retail peer companies during his tenure as chief executive officer, as well as historical compensation and market trends. Mercer also reviews the compensation of the other Named Executives and advises the CMD Committee on market trends.
The compensation consultant works at the direction of the CMD Committee and maintains regular contact with the CMD Committee. Periodically the CMD Committee meets with the compensation consultant without the presence of management, as well as in executive session. Mercer also advises the NCG Committee on the companys Non-Employee Director compensation program from time to time. The CMD Committee does not believe that this service to the NCG Committee compromises Mercers ability to provide the CMD Committee with an independent perspective on Macys executive compensation program.
To help it perform its responsibilities, the CMD Committee makes use of company resources, including the Vice Chair who oversees the human resources function and senior executives in Macys human resources, legal and finance departments. These individuals provide input and make proposals regarding the design, operation, objectives and values of the various components of compensation in order to provide appropriate performance and retention incentives for the senior management group, including the Named Executives. These proposals may be made at the initiative of the executives or upon the request of the CMD Committee. These executives may attend and contribute to CMD Committee meetings from time to time as requested by the CMD Committee or its chairman.
Mr. Lundgren participates actively in the executive compensation program process. At the beginning of a fiscal year, Mr. Lundgren meets with each of his direct reports, including the other Named Executives, to set their individual performance objectives for the year. These objectives consist of matters such as meeting key financial and other business goals and effectively managing their business practice or corporate function. At the end of the fiscal year, Mr. Lundgren reviews the performance of each of his direct reports against company and individual performance objectives and the individuals contribution to Macys financial performance. Mr. Lundgren takes an active part in CMD Committee discussions of compensation involving his direct reports, including the other Named Executives. He provides recommendations and input on such matters as individual performance, tenure and the size, scope and complexity of their positions and recommendations on changes to the compensation for the other Named Executives. Human resources executives, with Mercers assistance, provide the CMD Committee with data and analyses and annually prepare information to help the CMD Committee in its consideration of such recommendations. Mr. Lundgren does not participate in the portions of CMD Committee meetings during which the CMD Committee discusses changes to his compensation.
With respect to the Named Executives, the CMD Committee annually reviews base pay, annual bonus payments and equity awards at its March committee meeting, at which time all financial results for the prior fiscal year for the company are available and individual and company performance against financial targets can be measured. As explained below, total compensation for this group generally is targeted to fall between the 50th and 75th percentiles of market practice.
The CMD Committee periodically reviews the ongoing competitiveness of Macys compensation program to test how well actual compensation levels reflect the targeted market position and promote Macys compensation philosophy. As a general rule, the CMD Committee reviews a comprehensive comparative analysis prepared by Mercer with respect to Mr. Lundgren every year and with respect to the other Named Executives approximately every three years. In addition, in evaluating the compensation of the Named Executives, the CMD Committee also takes into account the executives time in position, pay history and the value contributed by that position and the executive and reviews the compensation of other senior Macys executives to ensure that the compensation is internally consistent and equitable at all management levels.
For Mr. Lundgren and the companys Vice Chairs, the CMD Committee compares executive compensation levels with proxy data reported by a group of major retailers and vendors with revenues and market values comparable to Macys and which compete with Macys for executive talent. This group includes multi-line retailers, specialty apparel retailers, and apparel, accessories and luxury goods wholesalers. As a secondary test against the market, the CMD Committee compares Mr. Lundgrens compensation to the proxy data for chief executive officers reported by a peer group of consumer products companies that manage national brands and have revenues ranging from $10 to $60 billion. The data includes base salary, short-term and long-term incentives and actual and target total compensation levels for the relevant positions. These resources provide a realistic picture of the current compensation trends and levels of positions to which a Macys executive could be attracted and from which outside talent, if needed, would be recruited. The component companies of both peer groups are listed below.
Four companies that appeared in the retailer and vendor peer group in fiscal 2006 (Neiman Marcus, Gucci, LVMH and Burberry) were not included in fiscal 2007 analyses because proxy compensation data was no longer available for them.
For Mrs. Hoguet, the CMD Committee reviews analyses and summaries of chief financial officer compensation data prepared by Mercer based on compensation information reported in retail and general industry surveys published by various survey providers, including Hay, Hewitt, Mercer and Towers Perrin. These surveys contain compensation data for chief financial officers for dozens, and in some cases hundreds, of companies.
The results of the compensation reviews conducted in fiscal 2007 for Mr. Lundgren and in fiscal 2006 for the other Named Executives indicated that the compensation levels of the Named Executives were within the targeted pay positions. Mr. Lundgrens compensation was between the 50th and 75th percentiles of the peer group of retailers and vendors, but below the median of the consumer products peer group. The compensation of the other Named Executives was between the 50th and 75th percentile of the retail and vendor proxy data for the Vice Chairs and the retail and general industry survey data for Mrs. Hoguet.
Macys executive compensation program offers a balanced approach to compensation and includes the primary components outlined in the table below. This program is based on the fundamental premise of pay-for-performance, but each element has its own purpose. Many of the plans or programs in which the Named Executives participate are open to a broader leadership group or to the full employee population. Individual compensation packages and the mix of base salary, annual cash bonus opportunity and long-term stock incentives for each Named Executive vary depending upon the executives level of responsibilities, potential, performance and tenure with the company. The portion of total compensation that is at risk (i.e., that varies based on performance) generally increases as an executives level of responsibility increases.
Because of the ability of executive officers to directly influence Macys overall performance, and consistent with its philosophy of linking pay to performance, the CMD Committee allocates a significant portion of the Named Executives compensation to performance-based, short- and long-term incentive programs to assure that the company meets its objective of providing executive pay packages with the appropriate short- and long-term incentives. Total compensation and the amount of each element are driven by the design of the companys compensation plans, the executives years of experience, the scope of his or her duties and internal comparability. The CMD Committee applies the same policies and methodologies in setting the principal components of compensation for Mr. Lundgren as it applies for the other Named Executives. However, Mr. Lundgrens compensation targets are higher than those for the other Named Executives, which is in line with market data for the chief executive officer position and his responsibilities as chief executive officer.
The CMD Committee has established guidelines for annual performance-based bonuses and for long-term incentive awards. The chart below shows the mix of compensation that would be payable to the Named Executives on average over time at these award guideline levels, factoring in current salary rates as well as the Change in Pension Value and Non-qualified Deferred Compensation Earnings and All Other Compensation amounts from the 2007 Summary Compensation Table. The values broadly reflect how the CMD Committee structures Macys compensation program over time to support the companys pay-for-performance compensation philosophy.
Based on the combination of the annual performance-based bonus and long-term award guidelines, almost 75% of Mr. Lundgrens total compensation is tied to financial performance and/or stock price performance. For the other Named Executives, on average, more than 50% of total compensation is tied to financial performance and/or stock price performance. These ratios are consistent with Macys compensation philosophy of focusing on results and strategic initiatives and fostering a pay-for-performance culture.
As the chart below shows, the value of the long-term award guideline for Mr. Lundgren is almost three times the value of the annual performance-based bonus at target. For the other Named Executives, the value of the long-term award guidelines is almost two times the value of the annual performance-based bonus at target. The CMD Committee believes that these ratios encourage the Named Executives to focus on Macys long-term performance.
For fiscal 2007, the compensation guidelines shown above were supplemented by the special retention stock option and restricted stock grants made on March 1, 2007 to Mr. Lundgren in connection with his new employment agreement that are described in greater detail in the section entitled Special 2007 Retention Grants.
Base salaries are designed to provide a level of cash compensation that is externally competitive in order to attract and retain executive talent and to compensate an individual for his or her level of responsibility and performance. The CMD Committee decisions regarding an individuals base salary take into account external factors, such as inflation, and internal factors, including:
Macys utilizes base pay ranges for the chief financial officer and executive levels below that position, based upon position and responsibilities and market and competitive data, as described above. The CMD Committee periodically reviews base pay ranges, most recently in fiscal 2006. The CMD Committee adopted new base pay ranges for fiscal 2007 to reflect the integration of 400 stores acquired in the May acquisition. Base salaries of the other Named Executives are managed individually without using a base pay range.
Following the close of the fiscal year, the CMD Committee, with input from the full Board, conducts an annual performance review for Mr. Lundgren. Mr. Lundgren conducts an annual performance review for the other Named Executives. The CMD Committee bases its decisions about whether to increase base salaries and, if so, by how much, on a number of factors, including those listed above and, for Mrs. Hoguet, the position of her salary within the base salary range established for the chief financial officer position. The CMD Committee reviews preliminary recommendations for annual increases at its February meeting and final recommendations at its March meeting. Annual increases in base salary normally take effect on April 1st of
each year. In connection with the March 1 renewal of his employment agreement, Mr. Lundgrens annual base salary increase became effective on March 1, 2007.
Fiscal 2007 Action: Following the conclusion of fiscal 2006, management, with input from Mercer and Mr. Lundgren, prepared for the CMD Committee a summary of the current total compensation package for each Named Executive and a proposed total compensation package for fiscal 2007 for each that reflected recommended increases in base salaries. In conjunction with its consideration of these recommendations, the CMD Committee considered the contributions of each Named Executive to the advancement of the integration process related to the May merger, the increased size of the company following the May merger, the salaries of the Vice Chairs relative to that of Mr. Lundgren and to each other, and considered the other factors listed above with respect to each Named Executive. The CMD Committee also considered the results of its annual performance review of Mr. Lundgren and of Mr. Lundgrens annual review of the individual performance of the other Named Executives.
Following its review, the CMD Committee approved the following base salary rate increases, effective March 1, 2007 for Mr. Lundgren and April 1, 2007 for the other Named Executives:
Annual Performance-Based Bonus
The Named Executives participate in the 1992 Bonus Plan. The 1992 Bonus Plan is a non-equity incentive plan under current SEC rules. It is designed to align a significant portion of the pay of Macys senior executives with Macys annual performance. The 1992 Bonus Plan provides an opportunity for senior executives, including the Named Executives, to earn a targeted percentage of base salary based on Macys performance results against performance measures set by the CMD Committee at the beginning of the fiscal year. No bonus will be paid if Macys does not achieve a net profit for the year, excluding restructuring charges and extraordinary items. The CMD Committee may exercise discretion to reduce, but not to increase, the amount of a bonus awarded under the 1992 Bonus Plan. In fiscal 2007, the CMD Committee did not exercise this discretion.
Each year the Board and management create a challenging financial and operating business plan for the company. The CMD Committee sets the performance measures each year for the 1992 Bonus Plan based on the companys business plan. The CMD Committee may select one or more of the following performance measures under the 1992 Bonus Plan:
For fiscal 2007, the CMD Committee selected EBIT (earnings before interest and taxes), sales and cash flow as the performance measures to determine bonuses under the 1992 Bonus Plan. The CMD Committee believes that rewarding the executives for strong performance measured by the combination of these three measures will support the business plan and give executives a strong incentive to focus on the business in a balanced way. The CMD Committee gave the greatest weight and bonus potential to the EBIT measure, which focuses the executives on maximizing operating income. The CMD Committee believes that increasing operating income is a significant way for executives to create value for the companys stockholders. The CMD Committee gave lesser, yet significant weight and bonus potential to the sales and cash flow measures. The CMD Committee believes that emphasizing sales and cash flow provide balance. Top-line sales are a measure of growth and provide opportunities for the achievement of various other financial measures, including EBIT and cash flow. Cash flow is indicative of the manner in which the companys operating activities, together with its investing activities, actually generate cash. How a company increases its cash flow and then chooses to invest the cash are among the most important decisions management makes.
The CMD Committee sets the specific performance targets under the 1992 Bonus Plan so that the executives will receive the target level of bonus if the company achieves plan under each of the EBIT, sales and cash flow measures. The sales target under the 1992 Bonus Plan excludes external sales adjustments, including delivery revenue and leased department income. Macys does not disclose its business plan or the components thereof because they constitute confidential business information that could impair Macys ability to compete effectively in the retail market place. However, by setting the target level of bonus based on achieving the plan level of performance, the CMD Committee believes the performance targets are challenging based on historical company performance and industry and market conditions. The maximum award target levels for the performance measures reflect very ambitious goals that are attainable only when business results are exceptional and well above Macys business plan. Over the last six years, the company has achieved performance below the threshold level of performance twice, between threshold and target once, and in excess of target three times. The company did not achieve performance that met or exceeded the maximum level of performance during that period. The Named Executives would be entitled to the following percentages of base pay for achieving the following threshold, target and maximum levels of performance.
The CMD Committee sets the levels of annual bonus payable at the threshold, target and maximum levels of performance for Mr. Lundgren and the other Named Executives based on the factors described above. See Executive Compensation Program Design Compensation Review and Executive Compensation Program Elements Compensation Mix.
Annual incentive bonuses are submitted to the CMD Committee for approval at its March meeting. Annual incentive bonuses are determined as a percentage of the executives base salary as of the last day of the fiscal year. Bonus percentages are interpolated for performance results falling between threshold and target and between target and maximum for the applicable performance component, as measured against the companys business plan for those components. If a performance component has no maximum level of performance and performance exceeds the target level of performance, the annual bonus will be calculated at a rate established by the CMD Committee for above-target performance. For purposes of determining performance results, the calculations of EBIT, sales and cash flow performance are adjusted to exclude the following:
Fiscal 2007 Action: Prior to fiscal 2007, participants in the 1992 Bonus Plan received no bonus for the sales performance measure when actual sales fell below the target level of performance. At the end of
fiscal 2006, the CMD Committee asked management to explore two changes to the 1992 Bonus Plan: (i) adding a threshold bonus opportunity to the sales component and (ii) placing a maximum on the amount of the bonus that can be earned for the EBIT component. After reviewing with Mercer the advantages and disadvantages of making these changes, management proposed that executives receive a threshold bonus for the sales component equal to one-third of the target opportunity for that component. Management believed that this would allow for more aggressive sales planning on the part of the executives without putting the entire sales component at risk. Management determined that placing a maximum on the EBIT component might discourage stretch performance for such a key performance measure and decided not to recommend that change. Consequently, for the 2007 fiscal year, in order to encourage more aggressive sales plan strategies, the CMD Committee approved a change in the threshold level of performance for the sales performance measure, at 10% for Mr. Lundgren and 5% for the other Named Executives.
The CMD Committee reviewed performance data at the end of fiscal 2007 with management at its March 2008 meeting and determined that Macys performance fell below the threshold level for each performance measure. Consequently, none of the Named Executives received an annual bonus for fiscal 2007:
The maximum permitted annual bonus payment for any year under the 1992 Bonus Plan is $7.0 million. The Non-Equity Incentive Plan Compensation column of the 2007 Summary Compensation Table reflects that the Named Executives received no annual bonuses for fiscal 2007.
Long-Term Performance-Based and Other Equity Incentives
Each year the CMD Committee reviews the use of long-term incentives under three long-term plans:
Macys stockholders have approved the 1995 Equity Plan and the 1994 Stock Plan. Approximately 1,860 executives are eligible for equity grants, including stock options and restricted stock, under these plans. Participation in the equity plans is based on an executives position and that positions ability to make a significant contribution to the companys financial results, an executives level of responsibility and leadership potential, individual performance and competitive practices. The CMD Committee consults with management in considering and determining eligibility for equity awards, the number of shares of common stock underlying each award and the terms and conditions of each award.
Stock Options. The 1995 Equity Plan and the 1994 Stock Plan reflect Macys commitment to effective management of equity-based compensation. Stock option grants are discretionary. The CMD Committee determines grant types and grant levels based on market data (as described above), emerging trends and other financial considerations, including the impact on stockholder dilution. Macys does not grant discounted stock
options. The plans do not provide for the granting of reload options and prohibit the repricing of previously granted options.
Macys uses stock options as a long-term incentive vehicle because:
The CMD Committees use of stock options has evolved in recent years:
Timing. The CMD Committee approves annual stock option grants at its March meeting. The March meeting occurs after financial results for the company are available at least three weeks after Macys releases its year-end earnings. In fiscal 2007, the date of the CMD Committee meeting was March 23. Under the terms of the equity plans, the exercise price for these stock options was set at the closing price of Macys common stock on the NYSE on the trading day prior to the grant date. The options vest 25% per year over four years beginning with the first anniversary of the grant date. In addition to the annual option grants, the CMD Committee may approve options grants on a limited basis on other dates in special circumstances, such as to newly hired executives, or to executives promoted into option eligible positions or to retain executives important to the success of the company.
Fiscal 2007 Action: The CMD Committee based the number of stock options granted in fiscal 2007 to each Named Executive on a specific dollar value that was determined by the CMD Committee in fiscal 2006.
In fiscal 2006, the CMD Committee approved a two-year, long-term incentive program for the senior officers, including the Named Executives, consisting of stock options and stock credits. To arrive at the number of stock options and stock credits to award in fiscal 2006 and fiscal 2007 under this program, the CMD Committee determined the grant date dollar value of the options granted to each Named Executive in fiscal 2004 using the Black-Scholes option valuation method and the grant date value of stock credits granted to each Named Executive in fiscal 2004. The CMD Committee then calculated the number of option shares and stock credits needed to provide the Named Executive with the same dollar value for the two year fiscal 2006-2007 period, with 60% of the dollar value to be awarded as core stock credits and 40% of the dollar value to be awarded as stock options. In fiscal 2006, the CMD Committee awarded all of the stock credits under the 2006-2007 stock credit plan (described below) and the first installment of stock options under the 1995 Equity Plan. In fiscal 2007, the CMD Committee awarded the second installment of stock options under the 1995 Equity Plan.
The options comprising this second installment expire on March 23, 2017, vest 25% on each of the first four anniversaries of March 23, 2007, and are priced at $46.15, which was the closing price of Macys common stock on the NYSE on March 22, 2007.
Although the CMD Committee intended to recommend that the Board approve the second installment of stock options for Mr. Lundgren at the March 23rd meeting, the formal resolutions prepared by management to approve the second installment of options for the senior officers inadvertently omitted the intended approval of Mr. Lundgrens grant and, accordingly, his second installment was not implemented at that time. On October 26, 2007, the Board determined that the omission of the intended approval of Mr. Lundgrens grant should be corrected. Accordingly, on October 26, 2007, the Board, on the recommendation of the CMD Committee, approved a grant to Mr. Lundgren of the second installment of stock options with substantially the same economic terms as the options granted to the other Named Executives on March 23, 2007. The exercise price for options is generally set at the closing price per share of Macys common stock for the trading day immediately preceding the date on which the stock option grant is effective. The closing price of Macys common stock on October 25, 2007 was $32.46 per share. However, the 1995 Equity Plan authorizes the Board to set an exercise price that is higher than that closing price. For Mr. Lundgrens grant, the Board set the exercise price at $46.15 per share, which was the closing price per share of Macys common stock on March 22, 2007 and is the exercise price that applies to the options granted on March 23, 2007 to the other Named Executives. This exercise price is $13.69 higher than the closing price of Macys common stock on October 25, 2007. Mr. Lundgrens stock options will vest in 25% increments on each of the first four anniversaries of March 23, 2007, which is the vesting schedule that applies to the options granted on March 23, 2007 to the other Named Executives. His stock options expire on March 23, 2017, which is the expiration date that applies to the options granted on March 23, 2007 to the other Named Executives.
The 2007 stock option grants to the Named Executives are reflected in the 2007 Grants of Plan-Based Awards table under Compensation of the Named Executives for 2007.
For information concerning a special retention stock option grant made to Mr. Lundgren in fiscal 2007, see Special 2007 Retention Grants below.
Stock Credits. In March 2004, Macys implemented a two-year stock credit plan covering, among other senior executives, the Named Executives. The plan was designed to accomplish several important objectives established by the CMD Committee with managements and Mercers assistance, including:
After Mr. Lundgrens appointment as chief executive officer in 2003, he outlined four key strategic initiatives to reinvent the company and drive profitable top-line growth for 2004 and 2005, referred to as the Four Priorities:
To achieve those objectives, management executives would have to change the way they managed their businesses, often with steps that could have had a short-term negative impact on division and corporate performance and, consequently, on annual incentive compensation. The CMD Committee determined that the 2004-2005 stock credit plan would be an effective tool to retain executives and keep them focused on the significant long-term changes needed to achieve the Four Priorities.
At the end of fiscal 2005, the CMD Committee concluded that 95% of performance-based stock credits granted under the 2004-2005 stock credit plan were earned. The remaining 5% of those stock credits were forfeited. The value of one-half of the performance-based stock credit balance was paid in cash on February 4, 2008, at the rate of $24.01 per share, which was the average closing price of Macys common stock for the twenty-day period preceding the February 4, 2008 payment date. The value of the other half will be paid in Spring 2009. Two-thirds of the stock credits granted in 2004 were time-based. The value of one-half of the time-based stock credit balance was paid in cash on February 4, 2008, at the rate of $24.01 per share, and the value of the other half will be paid in Spring 2009.
During 2005, the CMD Committee reviewed the elements of the total compensation program for the Named Executives and determined that stock credits continue to provide the link it seeks to align managements compensation to Macys performance and stockholder interests and to drive implementation of updated Four Priorities, including the introduction and implementation of Four Priorities at the 400 plus stores acquired in the May transaction.
On March 24, 2006, the CMD Committee authorized a new stock credit plan for the 2006-2007 performance period and granted core stock credits and merger stock credits to the Named Executives on that date. The grant value of the core stock credits was based on 60% of the grant date dollar value of the combined 2004 stock option and stock credit grants to these executives, as described above. Fifty percent of the core stock credits granted to the Named Executives are time-based and 50% are performance-based, with performance measures tied to Four Priorities updated for the fiscal 2006-2007 performance period. The value of the merger stock credits was approximately 33.3% of the value of the core stock credit grants. The merger stock credits are 100% performance-based, with performance measures tied to company-wide objectives
related to achieving certain financial merger synergies during fiscal 2006 and 2007. The Named Executives each received the following number of stock credits:
Fiscal 2007 Action: After the conclusion of fiscal 2007, Mr. Lundgren updated the CMD Committee on the progress the company had made during fiscal 2006 and fiscal 2007 with respect to the updated Four Priorities and with respect to the merger synergies objectives for the performance-based stock credits granted in fiscal 2006. He reported that, with respect to the core stock credits, significant progress had been made on strategic objectives in each of the Merchandise Assortment, Price Simplification, Shopping Experience and Marketing categories that comprise the Four Priorities. He also reported that, with respect to the merger stock credits, the company had exceeded the expected $450 million in synergies resulting from the May merger.
Based on this information, the CMD Committee evaluated the companys performance against the performance criteria applicable to the stock credits and determined that, for all participants in the 2006-2007 stock credit plan, including the Named Executives:
For the Named Executives, the CMD Committee determination resulted in the following stock credits being earned:
The performance-based stock credits earned by the Named Executives as of the end of the 2006-2007 performance period and the time-based stock credits held by them are subject to two-year and three-year holding periods. The value of one-half of the stock credits will be paid in cash in Spring 2010 and the value of the other half will be paid in Spring 2011.
Fiscal 2008 Action: Following the conclusion of fiscal 2007, the CMD Committee, with the assistance of Mercer and management, reviewed the elements of the total compensation program for the Named Executives. It reviewed recent Macys compensation practices, incentive plan practices among the retailer and vendor peer group listed in the compensation review discussion and general industry trends. The CMD Committee approved a new two-year, long-term incentive program for the senior officers, including the Named Executives, consisting of stock options and stock credits. Similar to the fiscal 2006-2007 long-term incentive program, the ratio of stock credits to stock options under the new fiscal 2008-2009 program will be approximately 60% stock credits to 40% stock options. The stock credits awarded to the Named Executives under the 2008-2009 stock credit plan will be awarded in fiscal 2008. They will be 100% performance based and will include core stock credits and My Macys/Consolidation stock credits.
At the conclusion of fiscal 2009, the Committee will:
Based upon that evaluation of Macys performance, the Committee will determine the percentage (from 0% up to 100%) of each type of stock credits that are earned by the participants. Stock credits that are not earned will be forfeited. The value of one-half of the earned stock credits held by participants will be paid in cash in Spring 2012 and the value of the other half of such stock credits will be paid in cash in Spring 2013, the value being determined in each case on the basis of the then-current 20-day average closing price of Macys common stock. In general, each stock credit is intended to represent the right to receive the value associated with one share of Macys common stock, including dividends paid on shares of Macys common stock during the period from the end of fiscal 2009 until such stock credit is settled in cash.
The Named Executives received the following number of stock credits on March 21, 2008 pursuant to the 2008-2009 stock credit plan:
Restricted Stock. The CMD Committee does not have a regular program of granting restricted stock under the 1995 Equity Plan or the 1994 Stock Plan. It may grant restricted stock from time to time for retention and performance reasons. Restricted stock grants under the two plans can be either time-based or performance-based. For more information about restricted stock, see the restricted stock discussion following the 2007 Grants of Plan Based Awards table. Restricted stock grants typically are approved by the CMD Committee at its March meeting and are granted as of that day. In addition, the CMD Committee may approve special restricted stock grants on other dates in special circumstances, such as to retain executives important to the success of the company.
Restricted stock can complement stock options. Stock options work well (that is, they provide incentives) when the fair market value of the stock is above or slightly below the exercise price of the options. However, stock options do not work as well (that is, they provide little or no incentive) if the fair market value of the stock underlying the options falls significantly below the exercise price of the options. On the other hand,
restricted stock can continue to work well even if the fair market value of the stock falls significantly below the value on the grant date.
Fiscal 2007 Action: Since the CMD Committee does not make annual grants of restricted stock, there were no annual grants in fiscal 2007. However, for information concerning a special retention restricted stock grant to Mr. Lundgren, see Special 2007 Retention Grants below.
Over the course of several meetings at the end of fiscal 2006 and the beginning of fiscal 2007 the CMD Committee explored granting additional equity to Mr. Lundgren as a retention device and to provide him additional incentive to continue to develop Macys as a nationwide brand following the merger with May. Since Mr. Lundgrens employment agreement was set to expire in February 2007, the CMD Committee determined that any additional grants could be coordinated with the offer of a new employment agreement. To assist the CMD Committee in setting the size and components of the retention grants, Mercer prepared materials for the meetings that included the following information:
In addition, the CMD Committee reviewed tally sheets prepared by management that showed Mr. Lundgrens historical compensation, the value of unvested equity and potential payments to Mr. Lundgren under various employment termination scenarios. After reviewing this material and comparing Macys total stockholder return performance since Mr. Lundgren became the chief executive officer in 2003 against the performance of the retail peer group used for compensation reviews and the S&P 500 Index, the CMD Committee determined that a grant of 500,000 stock options and 75,000 shares of time-based restricted stock, having an aggregate value of approximately 7.0 times Mr. Lundgrens base salary, would provide the retention value and additional incentive that it sought and that such grants would be within the range of market practice for retention grants at the chief executive officer level.
Consequently, on March 1, 2007, the CMD Committee approved special grants to Mr. Lundgren under the 1995 Equity Plan of 500,000 stock options and 75,000 shares of restricted stock. The CMD Committee set the grant date to be after the company had issued press releases reporting its year-end earnings and January sales. The stock options have a term of ten years and an exercise price of $44.67. Both the shares of restricted stock and the stock options vest 100% on February 28, 2011.
Macys provides benefits based upon an assessment of competitive market factors and a determination of what is needed to attract and retain high caliber executives. Macys primary benefits for executives include participation in the companys broad-based plans: the cash account pension plan; the 401(k) profit sharing
plan; the companys health and dental plans and various other insurance plans, including disability and life insurance; and Macys matching gift program.
Macys also provides the following benefits to the Named Executives:
The CMD Committee considers the deductibility for federal income tax purposes under Section 162(m) of the Internal Revenue Code in the design of Macys compensation programs. Section 162(m) places a limit of $1 million on the amount of compensation that Macys may deduct in any one year with respect to the Named Executives to whom Section 162(m) applies. There is an exception to the $1 million limitation for performance-based compensation meeting certain requirements defined by the IRS. Annual non-equity incentive plan compensation, stock option awards and performance-based restricted stock awards generally are performance-based compensation meeting those requirements and, as such, are fully deductible. The CMD Committee has taken the necessary actions to maximize the deductibility of payments under Macys 1992 Bonus Plan and of awards under its two equity plans. However, the CMD Committee may elect to provide compensation that is not deductible in order to achieve its compensation objectives. Consequently, portions of the total compensation program may not be deductible under Section 162(m), including the portion of base pay of some of the Named Executives in excess of $1 million, time-based restricted stock and stock credit awards.
The following table outlines which types of payment retain deductibility when the $1 million threshold is exceeded:
Section 409A of the Internal Revenue Code requires that nonqualified deferred compensation arrangements must meet specific requirements. Failure to meet these requirements results in immediate taxation of certain deferred amounts, as well as an additional tax equal to 20% of such deferred amounts and an interest penalty. Macys has reviewed, or is in the process of reviewing, its executive compensation plans and arrangements to ensure their compliance with Section 409A by the required December 31, 2008 deadline.
Section 280G and related sections of the Internal Revenue Code provide that executive officers could be subject to significant additional taxes if they receive payments or benefits that exceed certain limits in connection with a change-in-control event. Macys does not provide any executive officer or director with a commitment to gross-up or reimburse tax amounts that the executive might pay pursuant to Section 280G.
In its financial statements, Macys records salaries and performance-based compensation incentives as expenses in the amount paid, or to be paid, to the Named Executives. Accounting rules also require Macys to record an expense in its financial statements for equity-based awards, even though equity awards are not paid as cash to employees. Macys expenses all equity-based awards in accordance with FAS 123R. Macys has not implemented any significant changes in its executive compensation program design as a result of FAS 123R.
Macys equity programs and deferred compensation programs provide for accelerated benefits in the event of a change in control, which affect all participants in those programs as well as the Named Executives. When a change in control occurs, stock options, restricted stock and stock credits issued under the 2006-2007 stock credit plan immediately vest for all holders and phantom stock and cash account balances under the deferred compensation plan immediately become payable. This reassures executives that they will receive previously deferred compensation and that prior equity grants will be honored because decisions as to whether to provide these amounts are not left to the management and directors in place following a change in control.
In addition to the above benefits, certain senior executives, including the Named Executives, have change-in-control arrangements. The CMD Committee believes that these arrangements are an important part of the total executive compensation program because they help to attract and retain the caliber of executive that Macys needs in its most senior positions. The agreements are intended to assist with retention during any
rumored or actual change in control where continuity is key to preserving the value of the business. The agreements are also intended to preserve executives neutrality toward a potential change-in-control transaction and keep them focused on minimizing interruptions in business operations by reducing any concerns they may have of being terminated prematurely and without cause during an ownership transition.
The arrangements for the Named Executives provide that if, following a change in control, the executive is terminated for any reason, other than death, disability or for cause, or the executive terminates his or her employment for good reason, then the executive is entitled to benefits described under the heading Compensation of the Named Executives for 2007 Potential Payments upon Termination or Change in Control.
Fiscal 2007 Action: The change-in-control agreements for the Named Executives were set to expire on November 1, 2007. The CMD Committee asked Mercer and its outside legal counsel to undertake a review of the agreements to assess the reasonableness of the benefits and provisions of the agreements relative to average industry practices and to advise it on the pros and cons of adopting various alternative approaches to the change-in-control agreements, including whether the company should eliminate the agreements completely for some or all executives, renew the agreements for one year with no changes other than those required by or advisable under Section 409A of the Internal Revenue Code, or renew the agreements and update them to reflect current practice and the requirements of Section 409A.
Mercer, with the assistance of management, prepared a summary of the change in control benefits at Macys and projected the benefits for a cross section of senior executives. Mercer, with the assistance of Macys outside legal counsel, looked at market practices among retail peer companies and general industry and the trends and practices supported by stockholder advisory groups and prepared an assessment of the pros and cons of each alternative approach. The retail companies in the review included Wal-Mart, Sears, Best Buy, Dillards, Limited Brands, Kohls, Nordstrom, Polo Ralph Lauren, Gap, Kroger, Target, TJX Companies, J.C. Penney, Jones Apparel Group, Liz Claiborne, Saks, Supervalu and VF Corp. This assessment was completed in October 2007. The CMD Committee also reviewed and evaluated tally sheets that summarized Macys obligations for a select group of senior executives under various employment termination scenarios.
Following review of the Mercer materials, the CMD Committee determined that:
Consequently, the CMD Committee determined that Macys should offer to extend the change-in-control agreements for terms of one year, to November 1, 2008, and not change the other terms of the agreements except to add a provision enabling the company to amend the agreements from time to time as it deems
necessary to comply with Section 409A. The CMD Committee asked Mercer and management to continue to explore alternatives for providing change-in-control protection for the committee to consider during 2008.
The change-in-control agreements define change in control and good reason as described under Compensation of the Named Executives for 2007 Potential Payments upon Termination or Change in Control below.
During fiscal 2006, the Board adopted stock ownership guidelines for certain executives of Macys, including the Named Executives. Under the guidelines, each corporate officer at the level of Senior Vice President and above and each division principal is required to own Macys stock, as follows:
Shares counted toward the ownership requirement include:
Macys common stock subject to unvested or unexercised stock options does not count toward the ownership requirement. An executive must comply with these guidelines by the later of August 1, 2011 or within five years from the date the executive is employed in one of the positions listed above. Ownership is measured as of August 1 of each year. As of August 1, 2007, each of the Named Executives owned sufficient shares within the above-listed categories to satisfy the stock ownership guidelines.
The CMD Committee establishes and administers the compensation practices related to the senior executive officers of Macys and also ensures appropriate succession plans for the CEO and other key executive positions. All members of the CMD Committee qualify:
The CMD Committee met four times in fiscal 2007. The CMD Committee regularly meets in executive session without the presence of management.
The CMD Committee has reviewed and discussed the Compensation Discussion & Analysis with Macys management. Based on the review and discussions referred to above, the CMD Committee recommended to the Board that the Compensation Discussion & Analysis be included in Macys Annual Report on Form 10-K and proxy statement.
The foregoing report was submitted by the CMD Committee and shall not be deemed to be soliciting material or to be filed with the SEC or subject to Regulation 14A promulgated by the SEC or Section 18 of the Exchange Act.
Craig E. Weatherup, Chairperson
Joseph A. Pichler
Karl M. von der Heyden
The following table summarizes the compensation of Macys principal executive officer, principal financial officer and the three other most highly compensated executive officers of Macys, collectively referred to as the Named Executives.
2007 SUMMARY COMPENSATION TABLE
For a more detailed description of Macys policies with respect to personal use of company airplanes, see the Benefits discussion in the Compensation Discussion & Analysis.
The following table sets forth certain information regarding the annual incentive plan and stock options and other equity awards granted during fiscal 2007 to each of the Named Executives.
2007 GRANTS OF PLAN-BASED AWARDS
Restricted stock was valued for purposes of this table based on the closing price of Macys common stock on the grant date.
Stock Options. The CMD Committee may grant stock options from the 1995 Equity Plan and the 1994 Stock Plan, each of which has been approved by Macys stockholders. The exercise price of stock options may not be less than the market price of the underlying Macys common stock on the grant date (which, among other ways, is defined in the plans as the closing price of Macys common stock on the NYSE on the trading day prior to the grant date). The options vest over time, typically in 25% installments on the first through fourth anniversaries of the grant date, and have ten year terms. All stock options granted to the Named Executives in fiscal 2007 were granted from the 1995 Equity Plan. The options granted on March 1, 2007 vest fully on February 28, 2011. The options granted on March 23, 2007 vest 25% per year over four years beginning with the first anniversary of the date of grant. The options granted on October 26, 2007 vest 25% per year over four years, beginning on March 23, 2008. See also the Stock Options discussion in the Compensation Discussion & Analysis.
Restricted Stock. The CMD Committee grants shares of restricted stock from time to time for retention and performance reasons. Restricted stock grants may be granted from either the 1995 Equity Plan or the 1994 Stock Plan and can be either time-based or performance-based. Time-based restricted stock will generally be forfeited by the executive if the executives employment with Macys ends prior to the vesting date. Shares may vest 100% on the third anniversary of the grant date or in installments over a number of years following the first anniversary of the grant date. Time-based restricted stock may not fully vest in under three years. Performance-based restricted stock is subject to forfeiture if performance criteria applicable to the shares are not satisfied and/or if the executives employment with Macys ends prior to the vesting date. Performance-based restricted stock may not fully vest in less than one year. Depending upon satisfaction of the performance criteria, shares may vest up to 100% on the first anniversary of the grant date or in installments over a number of years following the first anniversary of the grant date. To the extent performance criteria are not satisfied, shares are forfeited. The shares of restricted stock granted to Mr. Lundgren in fiscal 2007 are time-based restricted shares and were granted from the 1995 Equity Plan. The shares fully vest on February 28, 2011 if Mr. Lundgren remains employed by Macys through that date. If his employment ends prior to February 28, 2011, then the unvested shares of restricted stock are forfeited. Mr. Lundgren receives dividends on these shares at the same rate and on the same payment date as other Macys stockholders receive dividends on the Macys common stock they own. For a more detailed description of Mr. Lundgrens restricted stock grant, see the Special 2007 Retention Grants discussion in the Compensation Discussion & Analysis.
Stock Credits. The CMD Committee authorized a stock credit plan in fiscal 2004 for the 2004-2005 performance period and in fiscal 2006 for the 2006-2007 performance period. The CMD Committee granted stock credits to the Named Executives in each of fiscal 2004 and fiscal 2006. It did not grant any stock credits in fiscal 2005 or fiscal 2007. Stock credits issued under either plan may be time-based or performance-based, with performance objectives tied to the companys Four Priorities and, with respect to the plan authorized in
2006, to certain merger-related synergies. See the Stock Credits discussion in the Compensation Discussion & Analysis.
At the end of a two-year performance period, the CMD Committee evaluates performance against the performance criteria applicable to the stock credits to determine the percent (from 0% to 100%) of the performance-based stock credits earned by the Named Executives. The performance-based stock credits earned by the Named Executives and the time-based stock credits held by them are then subject to two- and three-year holding periods. The value of one-half of the stock credits, including dividend equivalents paid during the holding period, is paid in cash at the end of the two-year holding period and the value of the other half, including such dividend equivalents, is paid in cash at the end of the three-year holding period. In each case, the value is determined on the basis of the average closing price of Macys common stock as reported on the NYSE for the 20 business days preceding the payment date.
Participants who leave the company during the performance period will forfeit their stock credits unless they retire at or after age 62 with at least 10 years of vesting service or if they are terminated by Macys other than for cause, in which case their payments will be prorated for the number of months of completed service during the performance period divided by 24. Their payments will be made at the same time and in the same manner as payments to actively employed participants. In the event that a participant dies or becomes totally and permanently disabled during the performance period, the participant (in the event of disability) or the participants estate (in the event of death) will receive a lump sum payment of 50% of the participants stock credit balance, discounted to present value.
Participants who leave the company during a holding period will:
All stock credit balances in the 2006-2007 stock credit plan vest and become immediately payable upon a change in control of the company.
The following table sets forth certain information regarding the total number and aggregate value of options, stock credits and restricted stock held by each of the Named Executives at February 2, 2008. The dollar amount shown for stock credits and restricted stock is calculated by multiplying the number of stock credits or shares of restricted stock, as applicable, by the closing price of Macys common stock ($28.00) on the last trading day of fiscal 2007.
2007 OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END