Nordstrom (JWN)

Peer Group and Target Compensation

The Committee looks to external market data as one reference point in reviewing and establishing individual pay components and total compensation. For these purposes, comparisons are made to a broad retail group of about 50 companies against whom the Company competes for talent and customers. The companies include most of our direct competitors such as Dillard’s Inc., Federated Department Stores, Inc. (the parent company of Bloomingdales, Macy’s and others), The Gap Inc., J. C. Penney Company Inc., Kohl’s Corporation, Limited Brands, Inc., Saks Inc., Sears Holdings Corp and Target Corporation.

The market data is collected from the companies by an external compensation consulting firm on an annual basis. In fiscal year 2005, the average revenue size for companies in the broad retail group was approximately $10 billion. In conducting pay comparisons, market data is size adjusted using regression analysis to reflect the current revenues for Nordstrom.

Within the total compensation package, the greatest emphasis is on annual cash bonus and long-term incentive compensation that must be earned through performance. For that reason, base salary, target bonus opportunity and long-term incentive value are targeted at market levels approximating the 50^th percentile. When an individual or the Company performs successfully against pre-defined performance measures, rewards through annual cash bonus and long-term incentives can exceed those target levels.

The exception here is for the President. At his request, the President’s targeted overall compensation package tracks more closely to levels below the 25^th percentile for similar roles in the broad retail group. The Committee recognizes the President’s significant accomplishments in leading the Company and supports his desire for a conservative pay position that rewards him for results that contribute to success for the Company and its shareholders.