Ross Stores DEF 14A 2009
Filed by the Registrant
ROSS STORES, INC.
Payment of Filing Fee (Check the
1) Title of each class of
securities to which transaction applies:
April 14, 2009
You are cordially invited to attend the 2009 Ross Stores, Inc. Annual Meeting of Stockholders, which will be held on Wednesday, May 20, 2009 at 1:00 p.m. PDT, at our corporate offices located at 4440 Rosewood Drive, Pleasanton, California 94588-3050. If you will need special assistance at the meeting, please contact Ms. Lovita Brewer, Legal Department, Ross Stores, Inc., 4440 Rosewood Drive, Pleasanton, California 94588-3050, (925) 965-4231, at least 10 days before the meeting.
Thank you for your commitment to Ross Stores and for your cooperation in voting your proxy without delay. You may vote your shares by Internet, toll-free telephone number, or mail. Instructions regarding all three methods of voting are included in this Proxy Statement on the page following the Notice of Annual Meeting of Stockholders.
ROSS STORES, INC.
Notice of Annual Meeting of
To Our Stockholders:
Please take notice that the 2009 Ross Stores, Inc. Annual Meeting of Stockholders (the Annual Meeting) will be held on Wednesday, May 20, 2009 at 1:00 p.m. PDT, at our corporate offices located at 4440 Rosewood Drive, Pleasanton, California 94588-3050, for the following purposes:
Stockholders of record at the close of business on March 27, 2009 are entitled to notice of and to vote at the Annual Meeting and any adjournments or postponements thereof. For ten days prior to the Annual Meeting, a complete list of stockholders of record entitled to vote at the Annual Meeting will be available for examination by any stockholder for any purpose related to the Annual Meeting during ordinary business hours at the Companys corporate offices located at 4440 Rosewood Drive, Pleasanton, California 94588-3050.
The available voting methods (by Internet, by telephone, or by mail), are described on the next page. We would appreciate you submitting your proxy vote as soon as possible so that your shares will be represented at the meeting.
By order of the Board of
April 14, 2009
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE MEETING OF STOCKHOLDERS TO BE HELD ON MAY 20, 2009: A complete set of proxy materials relating to our Annual Meeting is available on the Internet. These materials, consisting of the Notice of Annual Meeting, Proxy Statement, Proxy Card and Annual Report, may be viewed at www.proxyvote.com, where you may also cast your vote.
The accompanying Proxy Statement describes proposals that are being submitted for a vote by stockholders at the Ross Stores, Inc. 2009 Annual Meeting to be held on May 20, 2009. If you are a stockholder of record of Ross Stores, Inc. as of March 27, 2009, you have the right to vote your shares, and may elect to do so, by Internet, by telephone, or by mail. You may also revoke your proxy at any time before the Annual Meeting. Please help us save time and postage costs by voting by Internet or by telephone. Both methods are generally available 24-hours-a-day, seven days a week and will ensure that your vote is confirmed and posted immediately. To vote:
If your shares are held in the name of a bank, broker or other holder of record, you are considered a beneficial owner, whose stock is held in street name, and you will receive instructions for granting proxies from your bank, broker or other agent, rather than a proxy card. Your broker or nominee will enclose a voting instruction card for you to use in directing your broker or nominee as to how to vote your shares. A number of brokers and banks, however, are participating in a program provided through Broadridge Financial Solutions Inc. (Broadridge) that offers the means to grant proxies to vote shares by Internet and by telephone. If your shares are held in an account with a broker or bank participating in the Broadridge program, you may grant a proxy to vote those shares by Internet or by calling the telephone number shown on the instruction form received from your broker or bank.
We must receive votes submitted via the Internet by 11:59 p.m. PDT on May 19, 2009. Submitting your proxy via the telephone or Internet will not affect your right to vote in person should you decide to attend the Annual Meeting.
Your vote is important. Thank you for voting.
TABLE OF CONTENTS
2009 ANNUAL MEETING OF
The accompanying Proxy is solicited by the Board of Directors of Ross Stores, Inc., a Delaware corporation (we or the "Company"), for use at the Companys 2009 Annual Meeting of Stockholders to be held on Wednesday, May 20, 2009 at 1:00 p.m. PDT, or any adjournment thereof (the Annual Meeting), at which stockholders of record at the close of business on March 27, 2009 are entitled to vote. The Annual Meeting will be held at our corporate offices located at 4440 Rosewood Drive, Pleasanton, California 94588-3050.
The date of this Proxy Statement is April 14, 2009, the date on which this Proxy Statement and the accompanying Proxy were first sent or given to stockholders. The Annual Report to Stockholders for the fiscal year ended January 31, 2009, including financial statements, is enclosed with this Proxy Statement.
The purpose of this Proxy Statement is to provide our stockholders with certain information regarding the Company and its management and to provide summaries of the matters to be voted upon at the Annual Meeting. The stockholders will be asked to: (1) elect three Class II directors to serve a three-year term, (2) ratify the appointment of Deloitte & Touche LLP as the Companys independent registered public accounting firm for the fiscal year ending January 30, 2010, and (3) transact such other business as may properly come before the Annual Meeting or any adjournments or postponements.
We had outstanding, on March 27, 2009, our record date, 126,754,201 shares of common stock, par value $0.01, all of which are entitled to vote with respect to all matters to be acted upon at the meeting. Each stockholder is entitled to one vote for each share of stock held. Our Bylaws provide that a majority of all shares entitled to vote, whether present in person or by proxy, will constitute a quorum for the transaction of business at the Annual Meeting. For ten calendar days prior to the Annual Meeting, the Company's stockholder list will be available for viewing by the stockholders for any purpose related to the Annual Meeting during ordinary business hours at our corporate offices located at 4440 Rosewood Drive, Pleasanton, California 94588-3050.
All valid proxies received before the Annual Meeting, including proxies granted over the Internet or by telephone submitted prior to midnight the night before the Annual Meeting, will be exercised. All shares represented by a proxy will be voted, and where a proxy specifies a stockholders choice with respect to any matter to be acted upon, the shares will be voted in accordance with that specification. If no choice is indicated on the proxy, the shares will be voted FOR each nominee and FOR each proposal. Any proxy given pursuant to this solicitation may be revoked by the person giving it at any time before it is exercised by filing with our Secretary an instrument revoking it, by presenting at the meeting a duly executed proxy bearing a later date or by attending the Annual Meeting and voting in person.
STOCK OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table contains information as of March 2, 2009 (except for the institutional investors as noted in footnote (2)) regarding the ownership of the common stock of the Company by (i) all persons who, to the knowledge of the Company, were the beneficial owners of more than 5% of the outstanding shares of common stock of the Company, (ii) each director and each of the executive officers named in the Summary Compensation Table, and (iii) all executive officers and directors of the Company as a group. Common stock is the only issued and outstanding equity security of the Company.
If elected, each nominee will hold office for a three-year term or until his or her successor is elected and qualified, unless he or she resigns or his or her office becomes vacant by death, removal, or other cause in accordance with the Bylaws of the Company. Management knows of no reason why any of these nominees should be unable or unwilling to serve, but if any nominee(s) should for any reason be unable or unwilling to serve, the proxies will be voted for the election of such other person(s) for the office of director as the Nominating and Corporate Governance Committee may recommend in the place of such nominee(s).
Vote Required and Board of Directors Recommendation
The plurality of the votes cast by the holders of shares of common stock present or represented by proxy and voting at the Annual Meeting will determine the election of the directors. Therefore, the three nominees receiving the highest number of votes will be elected. Abstentions and broker non-votes will be counted as present in determining if a quorum is present but will not affect the election of directors.
INFORMATION REGARDING NOMINEES AND INCUMBENT DIRECTORS
The Certificate of Incorporation and the Bylaws of the Company provide that the number of members of the Board of Directors of the Company (the "Board") may be fixed from time to time exclusively by the Board and that the directors shall be divided into three classes as nearly equal in number as possible. The term of office of each class of directors is three years and the terms of office of the three classes overlap. The Board currently consists of nine authorized members. There are currently two vacancies, one in the Class I directors (due to the passing of former Board member Stuart G. Moldaw) and one in the Class III directors (due to the prior resignation of John W. Froman in connection with his acceptance of an executive position with another retailer). The Nominating and Corporate Governance Committee is undertaking efforts to fill the vacancies.
The terms of the three current Class II directors, Michael Balmuth, K. Gunnar Bjorklund, and Sharon D. Garrett, will expire on the date of the upcoming Annual Meeting. Accordingly, three persons are to be elected to serve as Class II directors of the Board of Directors at the meeting. The Nominating and Corporate Governance Committees nominees for election by the stockholders to serve as members of Class II of the Board are the three incumbent Class II directors. If elected, the nominees will serve as directors until the Annual Meeting of Stockholders in 2012 and until their successors are elected and qualified. If any of the nominees declines to serve or becomes unavailable for any reason, the proxies may be voted for such substitute nominees as the Nominating and Corporate Governance Committee may designate. Proxies cannot be voted for more than three nominees.
The following table indicates the name, age, business experience, principal occupation and term of office of each nominee standing for election at the 2009 Annual Meeting, and of each director of the Company whose term of office as a director will continue after the 2009 Annual Meeting.
During fiscal 2008, the Board held five meetings. No incumbent member of the Board, while serving in such capacity, attended fewer than 75% of the total number of Board meetings and applicable Committee meetings held during the year. The Board of Directors has determined that Ms. Garrett and Messrs. Bjorklund, Bush, Orban, and Seiler are each an independent director under the applicable listing standards of The Nasdaq Stock Market LLC (the Nasdaq Stock Market). During the fiscal year, the independent directors had three meetings in executive session without management.
We have standing audit, compensation and nominating and corporate governance committees. The Board has adopted written charters for each of these committees, which are posted on the Companys corporate website, www.rossstores.com, in the Investors section under Corporate Governance. The Board has also adopted a Code of Ethics for Senior Financial Officers and a Code of Business Conduct and Ethics that applies to all of our employees, officers, directors and business partners. Both of these Codes also are posted on the Companys website, as are the Companys Corporate Governance Guidelines adopted by the Nominating and Corporate Governance Committee.
Audit Committee. The members of the Audit Committee during fiscal 2008 were Ms. Garrett and Messrs. Seiler and Bush. Each of the members of the Audit Committee is independent under the applicable Nasdaq listing standards. The Board of Directors has also determined that Mr. Seiler is considered to be an audit committee financial expert and that Mr. Bush and Ms. Garrett are considered to be financially literate, as defined in the rules of the Securities and Exchange Commission. The functions of the Audit Committee include retaining the Companys independent auditors, reviewing their independence, reviewing and approving the planned scope of the annual audit, reviewing and approving any fee arrangements with the auditors, overseeing their audit work, reviewing and pre-approving any non-audit services that may be performed by them, reviewing the adequacy of accounting and financial controls, reviewing the Companys critical accounting policies, oversight of the internal audit function, and reviewing and approving related party transactions. The Audit Committee held eight meetings during the 2008 fiscal year. The functions and activities of the Audit Committee are further described below under the heading Board of Directors Audit Committee Report.
Compensation Committee. The members of the Compensation Committee during fiscal 2008 were Messrs. Orban and Bjorklund, each of whom is independent for purposes of the applicable Nasdaq listing standards. The Committee held nine meetings during fiscal 2008. The Compensation Committee serves to carry out the responsibilities of the Board of Directors relating to compensation of the Company's executives, including the compensation of the Companys Chief Executive Officer. This Committee oversees and administers the policies and plans that govern the cash, equity and incentive compensation of executive officers and non-employee directors of the Company. The Committee is responsible for administering and establishing the terms, criteria and size of equity compensation grants under the Company's 2008 Equity Incentive Plan and applicable predecessor plans (collectively, the Equity Incentive Plans) and Incentive Compensation Plan, and administering the Companys Employee Stock Purchase Plan, 401(k) Plan and Nonqualified Deferred Compensation Plan. The Committee is also appointed to assist the Board in succession planning and development and retention of senior management talent, to ensure leadership continuity and organizational strength to achieve the Company's short and long-term goals.
Nominating and Corporate Governance Committee. The members of the Nominating and Corporate Governance Committee during fiscal 2008 were Ms. Garrett and Messrs. Bjorklund, Bush, Orban and Seiler. Each of the members of the Nominating and Corporate Governance Committee is independent for purposes of the applicable Nasdaq listing standards. The Nominating and Corporate Governance Committee considers qualified candidates for appointment and nomination for election to the Board of Directors and makes recommendations to the full Board concerning such candidates. This Committee also provides oversight on matters involving corporate governance. This Committee held two meetings during fiscal 2008.
Biographical information concerning our executive officers is contained in our Annual Report on Form 10-K for the fiscal year ended January 31, 2009.
Policy and Procedure for Director Nomination
The Nominating and Corporate Governance Committee is responsible for reviewing the qualifications, independence and skill of candidates for election to the Board of Directors. When there is a vacancy on the Board of Directors, the Nominating and Corporate Governance Committee is responsible for evaluating candidates to fill such vacancy. This Committee has a policy with regard to the assessment of director candidates, including candidates recommended by stockholders. This assessment generally will include consideration of criteria including those listed below:
In considering candidates, the Nominating and Corporate Governance Committee evaluates qualified candidates for nomination for election to open seats on the Board of Directors and makes a recommendation to the full Board concerning such candidates. The Nominating and Corporate Governance Committee will consider director candidates recommended by our stockholders, based on the same criteria listed above that would apply to candidates identified by a Committee member. There are no specific, minimum qualifications formulated by the Nominating and Corporate Governance Committee that must be met by a nominee recommended by the Nominating and Corporate Governance Committee. The Nominating and Corporate Governance Committee believes that it is desirable for a majority of our directors to satisfy the definition of independence for purposes of the applicable Nasdaq listing standards, and for at least one director to possess the attributes necessary to be an audit committee financial expert.
Any stockholder who wishes to recommend a director candidate must submit the recommendation in writing to us at our principal executive offices, to the attention of the Nominating and Corporate Governance Committee, so that it is received no later than 120 calendar days before the one year anniversary of the mailing date of our prior years Proxy Statement sent to stockholders. A stockholder who recommends a person as a potential director candidate may be requested by the Nominating and Corporate Governance Committee to provide further information for purposes of evaluating the candidate and for the purpose of providing appropriate disclosure to stockholders.
Stockholder Communications with the Directors
The Board has adopted a process for stockholders to communicate with the Board and/or with individual directors. Stockholders may address such communications in writing to the Chairman of the Board, or to any individual director(s), c/o Ross Stores, Inc., 4440 Rosewood Drive, Pleasanton, California 94588-3050. Communications from stockholders to one or more directors will be collected and organized by our Corporate Secretary under procedures approved by the independent directors. The Corporate Secretary will forward all communications to the Chairman of the Board of Directors, or to the identified director(s), as soon as practicable, although communications that are abusive, in bad taste or that present safety or security concerns may be handled differently. The Corporate Secretary may, at his or her discretion, not forward correspondence that is primarily commercial in nature or if it relates to an improper or irrelevant topic. If multiple communications are received on a similar topic, the Corporate Secretary may, at his or her discretion, forward only representative correspondence.
Director Attendance at Annual Meeting
We typically schedule a Board meeting in conjunction with the Annual Meeting. We expect, but do not require, that all directors will attend, absent a valid reason, such as an unavoidable scheduling conflict. Last year, all of the then members of the Board of Directors (except for Stuart G. Moldaw, who was ill and subsequently passed away) attended the 2008 Annual Meeting.
COMPENSATION OF DIRECTORS
The chart below summarizes all compensation paid to all persons who served on our Board of Directors during fiscal 2008:
Standard Fee Arrangements and Restricted Stock Grant Formula.
During the 2008 fiscal year, directors who were not employees of the Company (non-employee directors) received an annual retainer fee of $38,000 (paid quarterly), plus $1,500 for attendance at each Board meeting, $2,000 for attendance at each meeting of the Audit Committee or Compensation Committee of the Board, and $1,000 for attendance at each meeting of the Nominating and Corporate Governance Committee. The Chairman of the Audit Committee (Mr. Seiler) and the Chairman of the Compensation Committee (Mr. Orban) received additional annual retainers of $44,000 and $25,000, respectively.
In fiscal 2008, the Ross Stores, Inc. 2004 Equity Incentive Plan was terminated and the Ross Stores, Inc. 2008 Equity Incentive Plan (the 2008 Plan) was approved by the Companys stockholders. Under the terms of the 2008 Plan, the Compensation Committee adopted the Nonemployee Director Equity Award Program (the Program) which provides for the automatic grant of restricted stock awards each year to the Companys non-employee directors.
In fiscal 2008, the Company transitioned directors from options to restricted stock awards. This change was intended to reduce the dilution and expense resulting from option grants and to align directors with the way executives are currently compensated. As with the formula under which options were granted in the past, the full value award base amount for grants of restricted stock increases 3% annually.
The Program provides that new directors, upon joining the Board, receive an initial restricted stock award, determined by a formula, for a number of shares equal to a base amount of $130,000 (increasing 3% each fiscal year beginning in 2009) divided by the closing price per share of the Companys common stock on the Nasdaq on the date of grant. The Program also provides for an annual restricted stock award, determined by formula, for a number of shares equal to a base amount of $76,000 (increasing 3% each fiscal year beginning in 2009) divided by the closing price per share of the Companys common stock on the Nasdaq on the date of the grant, which is the date of the Annual Meeting. In fiscal 2008, the Compensation Committee approved an automatic grant of shares equal to $76,000 divided by the closing price per share of the Companys common stock on the Nasdaq on the date of the 2008 Annual Meeting and granted on June 18, 2008. Restricted stock awards granted to non-employee directors vest 1/3 on the first anniversary of the grant, 1/3 on the second anniversary of the grant and 1/3 on the third anniversary of the grant, provided that the individuals service has not terminated.
On June 18, 2008, each of Ms. Garrett and Messrs. Bjorklund, Bush, Ferber, Orban, and Seiler were granted restricted stock awards for 2,144 shares of common stock under the 2008 Plan.
Norman A. Ferber. Mr. Ferber receives compensation for his services pursuant to an Independent Contractor Consultancy Agreement (Consultancy Agreement) with the Company that originally became effective February 1, 2000 and most recently was amended effective March 19, 2008. The agreement currently extends through January 31, 2012 (Consultancy Termination Date). While he serves as a consultant to the Company, Mr. Ferber receives a consulting fee of $1,100,000 annually, paid in monthly installments, and has voluntarily declined the annual retainer and meeting fees otherwise payable to non-employee directors. Mr. Ferber continues to receive restricted stock under the Companys Equity Incentive Plans. The Consultancy Agreement will terminate in the event of Mr. Ferbers death, and provides for the Company to reimburse Mr. Ferber (including a gross-up amount for applicable income taxes) for estimated premiums, from 2006 through the Consultancy Termination Date, on a life insurance policy for Mr. Ferber with a death benefit of $2,000,000.
In the event there is a change in control of the Company, Mr. Ferber would be entitled to continued payment of his then current consulting fee through the Consultancy Termination Date or any extension thereof. In the event that Mr. Ferber provides consulting services in connection with a change in control, he will receive a single payment of $1,500,000 upon the consummation of the transaction even if the consummation occurs after the Consultancy Termination Date or any extension thereof. Further, he would be reimbursed for any excise taxes he pays pursuant to Internal Revenue Code Section 4999.
Additionally, effective February 1, 2000 the Company entered into a Retirement Benefit Package Agreement (Benefit Agreement) with Mr. Ferber. The Benefit Agreement provides that the Company, or its successor, will provide at no cost to Mr. Ferber, health and other benefits under the Companys plans for Mr. Ferber and his immediate family until the death of both Mr. Ferber and his spouse. In addition, the Company will provide all other employee benefits typically offered to its executive officers until the death of Mr. Ferber and his spouse. Under the agreement, if, as a result of Mr. Ferbers status as a consultant to the Company, he becomes ineligible to participate in any of the Companys employee benefit plans, the payments made under this Benefit Agreement will increase to enable Mr. Ferber to procure (to the extent available) such benefits at no additional after tax cost to him. In addition, the Company has agreed to provide administrative support for Mr. Ferber as long as he serves as a member of the Companys Board.
Stuart G. Moldaw. In addition to standard compensation received as a non-employee Board member, until his death in May 2008, Mr. Moldaw received compensation and benefits pursuant to an agreement with the Company that provided for administrative support and an annual fee of $100,000 for his services as a consultant to the Company. The Company also agreed to provide Mr. Moldaw and his spouse executive medical, dental, and vision benefits until their respective deaths. Several years ago, the Company had arranged for a split dollar life insurance policy, with a face value of $3,500,000, for the benefit of Mr. Moldaw. No premiums were paid on the policy by the Company during fiscal 2008. In 2008, the Board of Directors approved a release to Mr. Moldaws estate, of the Companys interest in the residual value of the split dollar life insurance policy, valued at $285,000 as of February 2, 2008. In addition, after Mr. Moldaws death, the Company agreed to continue the employment of Mr. Moldaws assistant to provide administrative support to his estate through May 2009.
Our Audit Committee has appointed Deloitte & Touche LLP (Deloitte) as the independent registered public accounting firm for the Company for the fiscal year ending January 30, 2010. It is anticipated that a representative of Deloitte will be present at the Annual Meeting to respond to appropriate questions and to make a statement if he or she so desires.
Vote Required and Board of Directors Recommendation
The affirmative vote of a majority of the shares of common stock present or represented by proxy and voting at the Annual Meeting is required for approval of this proposal. Abstentions and broker non-votes each will be counted as present in determining if a quorum is present, but will not be counted as having been voted on this proposal.
Stockholder ratification of the selection of Deloitte as our independent registered public accounting firm is not required by our bylaws or otherwise. The Board, however, is submitting the selection of Deloitte to our stockholders for ratification as a matter of good corporate governance. If the stockholders fail to ratify the selection, the Audit Committee will reconsider whether or not to retain Deloitte. Even if the selection is ratified, the Audit Committee at their discretion may direct the appointment of a different independent registered public accounting firm at any time during the year if they determine that such a change would be in the best interests of the Company and our stockholders.
The Audit Committee of the Board of Directors is responsible for monitoring the integrity of the Companys consolidated financial statements, its system of internal controls and the independence and performance of both its internal and independent auditors. The Audit Committee is also responsible for the selection and engagement of the Companys independent auditors. The Audit Committee is composed of three non-employee directors and operates under a written charter adopted and approved by the Board of Directors. This charter is viewable on the Companys website, www.rossstores.com, in the Investors section under Corporate Governance. Each Committee member is independent as defined by the applicable Nasdaq listing standards.
Management is responsible for the financial reporting process, including the system of internal controls, and for the preparation of consolidated financial statements in accordance with accounting principles generally accepted in the United States of America. The Companys independent auditors are responsible for auditing those financial statements. Our responsibility is to monitor and review these processes. We rely, without independent verification, on the information provided to us and on the representations made by management and the independent auditors.
In this context, we held eight meetings during fiscal 2008. The meetings were designed, among other things, to facilitate and encourage communication among the Audit Committee, management, the internal auditors and the Companys independent registered public accounting firm, Deloitte. We discussed with the Companys internal and independent auditors the overall scope and plans for their respective audits. We met with the internal and independent auditors, with and without management present, to discuss the results of their examinations and their evaluations of the Companys internal controls.
We have reviewed and discussed the audited consolidated financial statements for the fiscal year ended January 31, 2009 with management and Deloitte.
We also discussed with the independent auditors matters required to be discussed with audit committees under standards by the Public Company Accounting Oversight Board (PCAOB), including, among other things, matters related to the conduct of the audit of the Companys consolidated financial statements and other required communications with Audit Committees.
In addition, the Audit Committee discussed with Deloitte their independence from management and the Company, including matters in the written disclosures required by PCAOB Ethics and Independence Rule 3256 (Communications with Audit Committees Concerning Independence). When considering Deloittes independence, we considered whether their provision of services to the Company beyond those rendered in connection with their audit and review of the Companys consolidated financial statements was compatible with maintaining their independence. We also reviewed, among other things, the fees paid to Deloitte for audit and non-audit services.
Based on our review and these meetings, discussions and reports, and subject to the limitations on our role and responsibilities referred to above and in the Audit Committee Charter, we recommended to the Board of Directors that the Companys audited consolidated financial statements for the fiscal year ended January 31, 2009 be included in the Companys Annual Report on Form 10-K. We also selected Deloitte as the Companys independent registered public accounting firm for the fiscal year ending January 30, 2010, and are requesting that our stockholders ratify this appointment.
Summary of Audit, Audit-Related, Tax and All Other Fees
The Audit Committee reviews and approves all proposed audit and non-audit engagements and related fees of Deloitte. In addition, any audit and non-audit fees for newly proposed professional services that arise during the year, or changes to previously approved fees and work, are reviewed and approved in advance of commencement of such services by the Audit Committee at their regularly scheduled meetings throughout the fiscal year. Should a situation arise that requires approval between meetings, the Audit Committee has delegated authority to its Chairman to authorize such pre-approval and report on same at the following regularly scheduled meeting.
The following table summarizes the aggregate fees billed by Deloitte for professional services to the Company rendered during fiscal 2008 and 2007.
Audit Fees in fiscal 2008 and 2007 included fees related to the audit of the financial statements included in the Companys Annual Report on Form 10-K, reviews of the financial statements included in Quarterly Reports on Form 10-Q and Sarbanes-Oxley compliance services. Audit-Related Fees were for consultation on accounting standards or transactions and audits of employee benefit plans and Sarbanes-Oxley advisory services. Tax Fees were for tax-related services, consisting of compliance services (preparation or review of the Companys tax returns, and other tax compliance matters) and other tax services. All of the services reflected in the table were pre-approved by the Audit Committee.
SUBMITTED BY THE AUDIT COMMITTEE
Donald H. Seiler,
COMPENSATION DISCUSSION AND ANALYSIS
Compensation Philosophy and Objectives
We believe in strongly aligning executive compensation with stockholder interests. To achieve this end, the executive compensation program is designed to:
We operate in the challenging off-price apparel and home goods industry, where we are the second largest retailer. To effectively compete in this environment, we need to attract and retain a senior management team with the necessary background, qualifications, expertise and experience to efficiently execute our off-price strategies in all facets of our operations.
The Company and the Compensation Committee of the Board of Directors (the Committee) have implemented executive compensation programs designed to align our executive officers pay with the long-term strategic goals of the Company, recognize individual initiative and achievements, and assist us in attracting, motivating and retaining high-performing executives.
These complimentary programs also create effective incentives for achievement of short and long-term corporate performance goals, promote the retention of key executives and help to optimize the financial returns to stockholders.
A significant portion of the total potential compensation of our executive officers (that is the executive officers named in the Summary Compensation Table on page 25 (the NEOs) and our other Executive Vice Presidents and Senior Vice Presidents) is linked to Company performance. It is paid in the form of annual incentive bonuses under the Incentive Compensation Plan that vary based on the Company's degree of achievement of pre-established pre-tax profit targets, and stock plan awards, which vary by position, individual performance and contribution levels.
We believe that the components of the total compensation program for executives outlined in this report work together to enable us to attract, motivate and retain the executive talent necessary to successfully execute our strategies over the longer term in a competitive retail environment.
To meet these objectives, our executive compensation packages include the following three primary elements, as well as other perquisites and benefits typically offered to senior executive officers.
long term is to keep average total voting power dilution from exceeding 10%. The Company anticipates that its decision to put more emphasis on full value awards will result in reduced voting power dilution, lower annual equity plan run rate levels and a decline in the overall shareholder investment impact from the Companys equity plans.
In determining the appropriate levels of compensation for each executive position, we consider a variety of different elements, including competitive data, information from recruiters, and opinions and other information provided by compensation consultants. We review comparative market compensation practices data that reflect the competitive labor markets in which we compete for executive talent at retailers with similar complexity and financial characteristics, as well as at non-retail companies for functional leadership roles that are highly mobile across industry segments (e.g., finance, information technology, legal, human resources).
In addition, we consider each executives experience, background, and prior salary history plus our general knowledge of peer group practices. The combination of these resources provides sufficient data for us to determine the total compensation levels that will enable us to recruit, motivate and retain top talent and to establish competitive compensation packages for our NEOs and other executive officers. Individual total compensation is tied to the overall degree of success or failure of the Company and serves to motivate executive officers to meet relevant performance measures or targets, thereby maximizing total return to stockholders.
A range of competitive and peer group information on executive compensation is reviewed by the Company and the Compensation Committee on a periodic basis. The peer companies chosen can vary for each of the executive positions.
In fiscal 2006 the Committee retained an independent compensation consulting firm, Towers Perrin (the Consultant), to assist in its review of key elements of our executive compensation programs and to recommend any appropriate modifications. In fiscal 2008, the Committee retained another independent consulting firm, Hewitt Associates, to assist the Committee in its executive and CEO compensation structure and strategy. The Consultant provided market data advice to the Compensation Committee with respect to competitive practices and the amount and nature of compensation paid to executive officers at other companies operating in similar competitive environments. The Consultant collected data on a number of off-price, department store, discount store, specialty store, and apparel and home goods retailers that it believed had similar business models, competitive challenges and/or operating and financial characteristics when compared to the Company. The Consultant provided an assessment of competitive positioning for each of the Companys executive officer compensation packages, including base salary, annual incentive target, long-term equity and total overall compensation vis-à-vis the level of compensation for executive officers performing similar job functions in companies in their relevant peer group. This analysis provided a reference point for fiscal 2007 and 2008 discussions of compensation for our executive officers.
Although the Committee considers the compensation practices of peer companies, it does not make any determinations or changes in compensation in reaction to that market data alone. The Compensation Committee also does not target compensation to a specific point or range within any peer group. Therefore, it uses peer group data as one of a number of factors in determining compensation levels and packages.
The Committee reviews data on the following peer retailers listed below every two years.
The Committee also reviewed data from the Towers Perrins 2006 Compensation Retail/Wholesale industry DataBank of 50 retail organizations.
For fiscal 2008, we increased the base salary paid to the CEO by 1.2% over the prior year based on the annual Company-wide review process. The annual incentive bonus portion of the CEOs compensation is based on the Company's achievement of targeted pre-tax earnings, as established by the Compensation Committee. During fiscal 2008, the Companys results were above the target threshold pre-tax earnings goal (see Grants of Plan-Based Awards Table on page 30). As a result, Mr. Balmuth received a bonus of $1,721,369 for fiscal 2008.
The process of setting and structuring compensation for our CEO includes an assessment of the CEO compensation packages offered by comparable retail companies. In 2007, in conjunction with the renewal of the CEOs employment agreement, we conducted a review of the compensation practices of a peer group of companies to assess the relative competitiveness of our CEO compensation. This review was conducted for the compensation awarded to the CEO in March 2007, for which the Committee engaged the compensation consulting firm of Towers Perrin to perform a review of publicly available Proxy Statement disclosures for selected retailers listed above. The Committee also evaluated the financial and operating performance of those companies over a three and six year timeframe to gauge the Companys comparative performance relative to this peer group. As indicated above, in 2008 the Committee retained Hewitt Associates to assist with, among other things, fiscal 2009 CEO compensation consulting.
The Compensation Committee utilized this practice of assessing CEO compensation levels and performance history among peer group companies to provide a reference point for fiscal 2007 and fiscal 2008 discussions of compensation for our CEO. However, true analogs to Ross are difficult to find in the traditional retail apparel sector. The Compensation Committee believes that the CEOs off-price industry skills, familiarity with the Company and senior management expertise are critical to the continued success of the Company. In addition, the Compensation Committees strong belief is that continuity of leadership at the CEO level has been key to the Companys successful long-term performance. Therefore, the Compensation Committee pays significant attention to long-term equity incentives in structuring compensation packages for our CEO, with performance and retention over the longer term being the foremost consideration.
Oversight of the Executive Compensation Program
The Compensation Committee serves to carry out the responsibilities of the Board with respect to compensation of our executives, including the compensation of our CEO. The Compensation Committee establishes our policies and oversees and administers the policies and plans that govern the cash, equity and incentive compensation of our executive officers. The Compensation Committee is responsible for administering the Company's 2008 Equity Incentive Plan and applicable predecessor plans (the Equity Plan), overseeing the Employee Stock Purchase Plan, and administering and determining the performance goals under the Incentive Compensation Plan. The Compensation Committee is also appointed to assist the Board in succession planning, and development and retention of senior management talent to ensure leadership continuity and organizational strength to achieve the Company's short and longer-term goals.
The Compensation Committee is comprised of two independent directors, George P. Orban and K. Gunnar Bjorklund. Mr. Orban serves as Chairman of the Compensation Committee. Both members meet the independence requirements under the Securities and Exchange Commission rules and applicable Nasdaq listing standards.
In establishing compensation for executive officers, the following are the Compensation Committees main objectives:
The Board has delegated to the Compensation Committee the authority to determine and approve the compensation awards made to the Companys executive officers, including the granting of equity awards such as restricted stock, performance shares and stock options. To aid the Compensation Committee in making its determinations, the CEO provides recommendations annually to the Compensation Committee regarding the compensation of all executive officers, excluding himself. The CEO also provides input regarding different individuals contributions to the Companys success during the period being assessed, and recommends rewards for these contributions.
Components of the Executive Compensation Program
third year and 60% of the shares vesting in the fourth year. The weighting of this vesting schedule, with the majority of shares vesting in the fourth year, tied to the term of his employment agreement with the Company to enhance the retentive value of the award. In addition, this vesting structure strengthened the CEOs focus on maximizing the longer-term financial performance and market value of the Company.
Going forward, the Compensation Committee believes that full value awards can provide more effective incentives for both performance and retention at a comparable cost to stock option awards for all executive officers, including the CEO. For fiscal 2009, the CEO equity grant consisted of a mix of performance share awards and restricted stock. The performance share awards granted in 2009 have a performance period of one year with a performance goal based on an annual adjusted pre-tax profit target (the same performance period and performance goal as other executives receiving performance share awards). The performance shares earned will vest on January 28, 2012 and the restricted stock will vest on March 18, 2012. The Company expects this change to create more effective alignment of common goals across the leadership team.
(other than the CEO) Equity Awards
In addition, each NEO, except the CEO, was granted a performance share award. Performance share awards are rights to receive shares of Ross common stock on a specified date if the Company attains a predetermined performance goal. Shares issued upon attaining the performance goal are subject to a separate vesting schedule based on continual service by the recipient (performance shares granted in fiscal 2008 vest over a three-year period beginning on the date of grant as follows: 30% on March 31, 2009; 30% on March 31, 2010; and 40% on March 31, 2011). The size of the performance share award varied by executive position and was based on a target dollar value of the award divided by the stock price on the date of grant. Adjusted pre-tax profit was chosen by the Committee as the performance measurement for the performance share awards for the same reasons as set forth under Annual Cash Incentives above. The actual number of performance shares earned for fiscal 2008 was determined based on company performance measured over a one-year period against the predetermined performance goals as follows:
In fiscal 2008, the Company attained a level of achievement relative to the target which resulted in the payout of 166.7% of the target award issued in shares on March 31, 2009 and subject to the vesting schedule from the date of grant. The table below provides the threshold, target, and maximum performance amounts and the number of shares actually earned:
Grant Date Policy
We issue equity awards in the form of performance share awards, restricted stock and options on the executive officers or associates hire date, promotion date, contract renewal date or as part of the Companys annual performance review process conducted in March of each year. We review the performance and compensation for the majority of our executive officers and associates annually at that time. The Committee approves all executive officer grants for execution on or after the approval date. We do not time grant dates based on any favorable or unfavorable non-public information anticipated to be disclosed at a later date. Our Board and Compensation Committee also have delegated authority to the CEO to grant equity awards to newly hired employees and/or employees who receive promotions outside of the normal annual focal review process for associates who are below the executive officer level.
All or a portion of restricted stock awards for Executive Officers typically cliff vest over three to five years. The CEO has historically received grants of options and restricted stock as part of his contract renewal process. His employment agreement was last renewed in April 2007. All stock option awards are granted with an exercise price equal to the closing price per share of the Companys common stock on the Nasdaq on the date of grant. These awards provide value to the executive officers only when and to the extent that the value of the Companys common stock appreciates over the value on the date of grant.
Defined Contribution and Deferred Compensation Plans
Executive officers are eligible to participate in the Companys 401(k) plan. The Company provides a matching contribution of up to 4% of base salary (up to IRS limits) to contributing associates with more than six months of service. Participants have the ability to choose from a variety of investment options under the 401(k) Plan.
In addition, under the terms of the Companys Non-Qualified Deferred Compensation Plan (the NQDC Plan), all executive officers and vice presidents are eligible to defer up to 100% of their base salary and up to 100% of their annual incentive bonus earned during the year. The executive can choose from a variety of investment options under the NQDC Plan. Individual contributions and associated earnings may be deferred, without any distributions, for a maximum period of up to twelve months after the executive officers termination from the Company, at which time the aggregate balance in the executives NQDC Plan account pays out either in a lump sum or in annual installments of up to a maximum of ten years.
Executive officers are eligible for a Company match for their NQDC Plan contributions to the extent that the executive officers did not receive the full Company match to which employees are eligible under the Companys 401(k) Plan. In fiscal 2008, none of the NEOs received such a match. (See Table disclosing NEO participation in the NQDC Plan for 2008 on page 35 of this Proxy Statement.)
All NEOs have entered into employment agreements with the Company. The CEOs contract was last renewed effective April 2007; the Company recently approved an extension of the term of the CEOs agreement through January 28, 2012. The employment agreements with our other NEOs Mr. Call, Ms. Rentler, Ms. Panattoni, and Mr. OSullivan are subject to two-year renewals if not terminated by either party. (See detailed discussion of NEO contract terms and severance benefits on pages 36 through 42 of this Proxy Statement.)
We believe these employment agreements benefit both the NEOs and the Company as they allow our executives to focus on their responsibilities and objectives without concern for their employment security in the event of a termination or change in control. All employment agreements for both the CEO and all other executive officers provide for severance benefits in certain events.
We also believe that these employment agreements are an effective retention tool for executives while providing protection for the Company. The agreements reaffirm protection of our confidential information and trade secrets, as well as post-termination restrictions on recruiting our current associates. These agreements also include limitations on the executive accepting post-termination employment with certain competitors. (See further discussion under Potential Payments upon Termination or Change in Control).
Tax and Accounting-Related Matters
We maintain a mix of executive compensation programs, some which are performance-based and others of which are time-based to create a strong retention tool for key executives. The Compensation Committee has reviewed the deductibility of the Company's executive compensation structure in light of the current tax law. We believe that compensation resulting from previously granted stock options will be fully deductible when an option is exercised. We also believe that payments under the Incentive Compensation Plan will be fully deductible. Future performance-based equity awards are also expected to be fully deductible. Salary, sign-on bonuses, guaranteed bonuses and certain other cash compensation costs related to the Company's NEOs may not be fully deductible under Section 162(m) of the Internal Revenue Code (Section 162(m)) to the extent that, when added to other non-exempt compensation for that particular executive, the total exceeds $1 million and qualify for deductibility. Time-based restricted stock awards also do not qualify as performance-based compensation and, therefore, may not be fully deductible to the extent the share value upon vesting, when added to other non-exempt compensation for a particular executive, exceeds the $1 million limit in any tax year. During fiscal 2008, the Company estimates the impact from compensation paid to NEOs that was not deductible under Section 162(m) reduced net earnings by $2.7 million and cash flows by $2.8 million.
Additional Executive Compensation Policies
We believe that holdings in Company stock in the form of equity stock awards comprise a significant portion of our executive officers total net worth. As a result, we have not adopted any Stock Ownership Guidelines for senior management.
We allow for the use of SEC Rule 10b5-1 trading plans by our executives, which provide for pre-established plans for selling shares of Company common stock. At the present time, our CEO has SEC Rule 10b5-1 trading plans in place.
COMPENSATION COMMITTEE REPORT
We, the Compensation Committee of the Board of Directors of Ross Stores, Inc. have reviewed and discussed the above Compensation Discussion and Analysis contained in this proxy statement with management. Based on such review and discussion, we have recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement and incorporated by reference in the Companys Annual Report on Form 10-K for the fiscal year ended January 31, 2009.
SUBMITTED BY THE COMPENSATION
COMMITTEE OF THE
George P. Orban, Chairman
SUMMARY COMPENSATION TABLE
The following table provides certain summary information concerning compensation paid, accrued, or recognized as an expense by the Company for the 2008, 2007 and 2006 fiscal years to or on behalf of our Chief Executive Officer, our Chief Financial Officer and the three other most highly compensated executive officers, collectively referred to as the Named Executive Officers (NEOs).
The following table details perquisites provided to each NEO in fiscal 2008. All perquisites are valued based on the actual incremental cost to the Company.
Perquisites provided to these executive officers are valued at the actual incremental cost of each item to the Company and are reviewed annually. In general, executive officers including the CEO are provided with reimbursement for financial planning in an annual amount of up to $20,000 for the CEO, up to $15,000 for executive vice presidents and up to $10,000 for senior vice presidents (plus individual income tax gross ups on these financial planning expenses), executive medical plan benefits, and an umbrella personal liability insurance policy. In addition, certain executive officers in the Companys New York Buying Office receive transportation services to and from the Companys New York City offices. Relocation benefits and income tax gross-ups are individually negotiated when relocation occurs.
We believe that good financial planning by experts reduces the amount of time and attention that senior management must spend on that topic and maximizes the net financial reward to the executive of the compensation received from us. The use by certain executives of transportation services to and from our New York Buying Office enhances their contributions to the business by saving them time that is not spent in traffic or parking, while also allowing them to work while in transit. The executive medical plan is part of our overall executive health benefit package for all associates at the level of vice president and above.
We also lease a number of hours each year through a time-share arrangement for private aviation transportation for executive officers that is used for business purposes to facilitate timely travel to store locations, distribution centers, buying offices and other corporate facilities. Occasionally family members of executives or directors may join executives on these Company-provided private aviation flights made for business purposes if there is a seat that would otherwise go unfilled. Because this benefit has no incremental cost to the Company, it is not reflected in the table. In addition, our executive officers are provided with first class business travel on commercial airlines to make their in-transit travel time more conducive for work-related
activities. Our CEO resides in New York and works primarily in our New York Buying Office. Corporate housing and a Company-owned automobile are made available for use by our CEO near our Pleasanton, California corporate headquarters in light of his frequent travel between the New York Buying Office and the corporate headquarters. This housing and automobile are used by him exclusively for business purposes and help facilitate his effectiveness of conducting his work while in California.
In addition, after ten years of service, and every five years thereafter, officers at the vice president level and above are entitled to two additional weeks of paid extended time off in addition to their regularly accrued vacation benefits. These two weeks can be combined with two weeks of regular paid vacation to facilitate a four-week period of extended time off.
DISCUSSION OF SUMMARY COMPENSATION TABLE
Base salary paid to each NEO is initially determined by negotiation at the time of hiring and reflected in the terms of each executives employment agreement with the Company, and reviewed for merit adjustments as part of the annual focal review process for all executives. Following is a summary of the terms of the employment agreement for each of our current NEOs regarding compensation. For a discussion of the terms of their employment agreements regarding termination of employment and change in control, please see Potential Payments Upon Termination or Change in Control below.
Michael Balmuth. The Companys current employment agreement with Michael Balmuth, Vice Chairman of the Board, President and Chief Executive Officer, extends through January 29, 2011. The Company recently approved an extension through January 28, 2012. The current employment agreement provides that Mr. Balmuth will receive an annual salary of not less than $988,000, subject to annual increases as part of the Companys annual review process.
John G. Call. The Companys current employment agreement with John G. Call, Senior Vice President and Chief Financial Officer, extends through March 31, 2010. The Company recently approved an extension through March 31, 2012. The current agreement provides that Mr. Call will receive an annual salary of not less than $466,000, subject to annual increases as part of the Companys annual review process.
Barbara Rentler. The Companys current employment agreement with Barbara Rentler, Executive Vice President, Merchandising, extends through March 31, 2011. The Company recently approved an extension through March 31, 2013. The current agreement provides that Ms. Rentler will receive an annual salary of not less than $750,000, subject to annual increases as part of the Companys annual review process.
Lisa Panattoni. The Companys current employment agreement with Lisa Panattoni, Executive Vice President, Merchandising, extends through March 31, 2011. The Company recently approved an extension through March 31, 2013. The current agreement provides that Ms. Panattoni will receive an annual salary of not less than $685,000, subject to annual increases as part of the Companys annual review process.
Michael OSullivan. The Companys current employment agreement with Michael OSullivan, Executive Vice President, Chief Administrative Officer, extends through March 31, 2011. The Company recently approved an extension through March 31, 2013. The current agreement provides that Mr. OSullivan will receive an annual salary of not less than $595,000, subject to annual increases as part of the Companys annual review process.
GRANTS OF PLAN-BASED AWARDS DURING FISCAL YEAR
The following table provides information with respect to the potential payout to our NEOs under non-equity incentive plan awards, equity incentive plan awards and other equity compensation awards. For fiscal 2008, the Compensation Committee established goals under the Incentive Compensation Plan that provided the opportunity for the NEOs to receive cash incentive bonuses ranging from 55% to 100% of base salary at target, depending on their position, based on the degree of achievement of the target for adjusted pre-tax earnings. Under the Plan, if actual pre-tax earnings exceed the target, a maximum of up to two times each officers target
award may be paid based on the actual results achieved relative to the target. If actual pre-tax earnings are below the pre-established target but above the minimum threshold required, then the cash incentive bonuses are less than the targeted range of 55% to 100% of base salary. No payment occurs under the Plan if pre-tax earnings fall below the threshold.
This table also provides information concerning grants of performance share awards, and restricted stock awards made under the Companys 2004 Equity Incentive Plan during fiscal 2008. The restricted stock awards and performance share awards made to Mr. Call and Mr. OSullivan on March 19, 2008, were made as part of the annual focal review process. In addition, Ms. Rentler and Ms. Panattoni received a performance share award as part of the focal review process.
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
The following table provides information with respect to the outstanding vested and unvested stock options, the unvested restricted stock and performance share awards held by our NEOs as of January 31, 2009, the last day of the Companys 2008 fiscal year. Stock options become exercisable only as they vest.
OPTION EXERCISES AND STOCK VESTED
The following table provides information with respect to our NEOs concerning the number of shares and the value realized upon the exercise of stock options and upon the vesting of restricted stock during the fiscal year ended January 31, 2009:
NON-QUALIFIED DEFERRED COMPENSATION
The following table provides information with respect to the NEOs concerning their participation in the Companys Non-Qualified Deferred Compensation Plan and their activity in terms of contributions, aggregate earnings and any withdrawal activity during the year, and their account balances as of January 31, 2009. The Company made no contributions to the earnings reflected in the table during fiscal 2008.
Under the terms of the Companys Non-Qualified Deferred Compensation Plan (the NQDC Plan), all executive officers and vice presidents are eligible to defer up to 100% of their base salary and up to 100% of their annual incentive bonus earned during the year, at their election. The executive can choose from a variety of investment options under the NQDC Plan. Individual contributions and associated earnings may be deferred, without any distributions, for a maximum period of up to twelve months after the executive officers termination from the Company, at which time the aggregate balance in the executives NQDC Plan account pays out either in a lump sum or in annual installments of up to a maximum of ten years, as elected by the executive.
Executive officers are eligible for a Company match for their NQDC Plan contributions to the extent that the executive officer did not receive the full Company match for which employees are eligible under the Companys 401(k) Plan. In fiscal 2008, none of our NEOs received such a match.
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL
As described in the Discussion of Summary Compensation Table, we have entered into employment agreements with each of our NEOs. These agreements provide for certain payments and other benefits if an NEOs employment terminates under circumstances specified in the agreement or if there is a change in control of the Company. The following table describes and quantifies estimated potential payments and benefits that would become payable under the NEOs employment agreements if the NEOs employment terminated on January 30, 2009, the last business day of our most recently completed fiscal year, or if a change in control occurred on that date. The amounts contained in the table are based on each NEOs period of service and compensation as of January 30, 2009 and, where applicable, the Companys closing stock price on that date. The table presents estimates of incremental amounts that would become payable had a triggering event occurred on January 30, 2009 and does not include amounts that were earned and payable as of that date regardless of the occurrence of a triggering event. The actual amounts to be paid in any instance can only be determined at the time of a triggering event.
The right to payments and benefits upon termination of employment described in the table depend upon the circumstances of an NEOs termination. These circumstances are defined in each NEOs employment agreement, and include the following:
In addition to payments and benefits resulting from the employment termination circumstances described above, the NEOs employment agreements provide for certain payments and benefits in connection with a change in control of the Company. These payments and benefits have either a single trigger or a double trigger, as follows:
within the period beginning one month prior to and ending twelve months after the change in control), the NEOs employment is terminated without cause or the NEO resigns for good reason.
Employment Agreement with Mr. Balmuth
Our agreement with Mr. Balmuth provides that if his employment is terminated without cause, he resigns for good reason, or his employment terminates due to disability, he would be entitled to continued payment of his then current salary through the remaining term of his employment agreement. He would also be entitled to continued payment of an annual bonus through the remainder of the agreement term, with the bonus amount being determined by the greater of his bonus for the year prior to his termination or the bonus he would have earned for the year of his termination had his employment continued, but in any case not to exceed 100% of his target bonus for whichever of those two years has the lesser target bonus. In addition, all of Mr. Balmuths stock options would vest in full, and he would vest in a pro rata portion of his restricted stock awards based on the number of full months of his employment between each awards grant date and his termination of employment.
If Mr. Balmuths employment agreement expires as a result of its non-renewal, he would be entitled to any compensation and benefits earned through the date of expiration. In addition, he would vest in a pro rata portion of his restricted stock awards. His stock options would cease to vest as of his employment termination date. He would also be entitled to receive an annual bonus for the completed fiscal year as if he was employed at the time the bonus was paid under the Incentive Compensation Plan.
If Mr. Balmuth is terminated for cause, resigns voluntarily other than for good reason, or dies, he would be entitled to payment of salary through the termination date and any bonus that was fully earned prior to the termination date. The vesting of his stock options would cease as of the termination date, and any unvested restricted stock awards would be forfeited.
In addition to the payments and benefits described above, under the terms of his employment agreement, Mr. Balmuth and his spouse will continue to be eligible for certain Company-paid benefits until their respective deaths, regardless of the reason for Mr. Balmuths termination of employment. These benefits include executive medical, dental, vision and mental health insurance, life insurance, accidental death and dismemberment insurance, travel insurance, group excess personal liability insurance, estate planning expense reimbursements and certain matching contributions (as that term is defined in his agreement).
If the Company undergoes a change in control, the term of Mr. Balmuths employment agreement will continue until the later of the date two years after the change in control or the expiration of the agreements then current term. Mr. Balmuth would be entitled to continued payment of his then current salary and annual bonus during this period. In addition to these payments, Mr. Balmuth would receive as additional salary the sum of $1,500,000 per year for two years after the effective date of the change in control or until he dies or is terminated for cause. All shares of restricted stock held by Mr. Balmuth would become fully vested, and all unvested stock options held by Mr. Balmuth would either be assumed by the acquiring or successor corporation or become fully vested as described below under Applicable Terms of Equity Award Plans.
If within one year following a change in control of the Company, Mr. Balmuths employment is terminated either by the Company without cause or he resigns for any reason, in addition to the compensation and benefits triggered by the change in control as described above, Mr. Balmuth would be entitled to a lump sum payment equal to the product of (a) the sum of (i) his then current salary plus (ii) the greater of the most recent annual bonus paid to him or his target bonus for the fiscal year in which such termination occurs, and (b) the greater of two or the number of full and partial years remaining under the term of his employment agreement. Further, all stock options held by Mr. Balmuth would become fully vested and would remain exercisable for a period of two years from the date of his termination.
Mr. Balmuths employment agreement provides that if he becomes subject to any excise tax imposed by Section 4999 of the Internal Revenue Code on excess parachute payments as a result of any payments and benefits he receives under his employment agreement or any other Company plan or agreement, then the Company will
pay to Mr. Balmuth a gross-up payment. The gross-up payment will be in an amount necessary to place him in the same after-tax position had no portion of such payments and benefits been subject to the excise tax.
Employment Agreements with Mr. Call, Ms. Rentler, Ms. Panattoni and Mr. OSullivan
Our agreements with Mr. Call, Ms. Rentler, Ms. Panattoni and Mr. OSullivan provide that if the NEOs employment is terminated without cause, he or she resigns for good reason, or his or her employment terminates due to disability, the NEO would be entitled to continued payment of his or her then current salary through the remaining term of the employment agreement. The NEO would also be entitled to continued payment of an annual bonus through the remainder of the agreement term, with the bonus amount being determined by the greater of his or her bonus for the year prior to termination or the bonus that would have been earned for the year of termination had the NEOs employment continued, but in any case not to exceed 100% of his or her target bonus for whichever of those two years has the lesser target bonus. In addition, all stock options held by the NEO would vest in full, all performance share awards would vest in full based on actual achievement of the performance goals, all restricted shares earned through performance share awards would vest in full and the NEO would vest in a pro rata portion of his or her restricted stock awards.
If the NEOs employment agreement expires as a result of its non-renewal, he or she would be entitled to any compensation and benefits earned through the date of expiration. In addition, the NEO would be entitled to receive an annual bonus for the year of termination, pro rated for the portion of the bonus year elapsing prior to termination of employment. The amount of the bonus before proration would be determined by the greater of the NEOs bonus for the year prior to termination or the bonus that would have been earned for the year of termination had the NEOs employment continued, but in any case not to exceed 100% of his or her target bonus for whichever of those two years has the lesser target bonus. Further, the NEO would vest in a pro rata portion of his or her restricted stock awards, including restricted stock earned through performance share awards, based on the number of full months of employment between the date of grant and his or her termination date. If the employment agreement expires prior to the end of a performance period, the NEO vests in 30% of the performance share awards that would have vested based on performance target achievement, but pro rated for full months of employment during the performance period. The NEOs stock options would cease to vest as of his or her employment termination date.
If the NEO is terminated for cause, resigns voluntarily other than for good reason, or dies, he or she would be entitled to payment of salary through the termination date and any bonus that was fully earned prior to the termination date. The vesting of the NEOs stock options would cease as of the termination date, any performance share award is forfeited and any unvested restricted stock awards would be forfeited.
Our agreements with Mr. Call, Ms. Rentler, Ms. Panattoni and Mr. OSullivan provide that in the event there is a change in control of the Company, each NEO would be entitled to receive as additional salary a specified sum payable for two years after the effective date of the change in control, unless and until the NEO voluntarily resigns or is terminated for cause. Such amounts are: Mr. Call, $500,040, Ms. Rentler, $750,000, Ms. Panattoni, $750,000 and Mr. OSullivan, $750,000. Further, all restricted stock held by these NEOs would vest in full, the target number of performance share awards would vest in full and all unvested stock options would either be assumed by the acquiring or successor corporation or become fully vested as described below under Applicable Terms of Equity Award Plans.
If within a period beginning one month prior to and ending one year following a change in control of the Company, the NEOs employment is terminated either by the Company without cause or he or she resigns for good reason, the NEO would be entitled to continued payment of his or her then current salary and an annual bonus for the greater of two years or the number of years remaining under the term of his or her employment agreement. The annual bonus amount would be determined by the greater of the NEOs bonus for the year prior to termination or the bonus that would have been earned for the year of termination had the NEOs employment continued, but in any case not to exceed 100% of his or her target bonus for whichever of those two years has the lesser target bonus. In addition, the NEO would be entitled to continuation of health care coverage at the Companys expense and reimbursement of estate planning expenses for two years following his or her termination.
The NEOs employment agreements provide that if he or she becomes subject to any excise tax imposed by Section 4999 of the Internal Revenue Code on excess parachute payments as a result of any payments and benefits the NEO receives under his or her employment agreement or any other Company plan or agreement, then the Company will pay to the NEO a gross-up payment. The gross-up payment will be in an amount necessary to place the NEO in the same after-tax position had no portion of such payments and benefits been subject to the excise tax.
Under the terms of our equity award plans, the Board of Directors generally has the discretion to provide for the acceleration of vesting in the event of a change in control or other circumstances determined by the Board in its discretion. Under the terms of the individual award agreements for each participant in our equity award plans, including executive officers, the Board has provided that, in the event of a change in control of the Company, any unvested shares of restricted stock will automatically become completely vested and the vesting of any outstanding stock options that are not assumed by the acquiring or successor corporation will be accelerated in full.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Orban and Mr. Bjorklund have served on our Compensation Committee of our Board for the past fiscal year. None of the members of the Compensation Committee are or have been an officer or employee of the Company. During fiscal 2008, no member of the Compensation Committee had any relationship with the Company requiring disclosure of a related party transaction under Item 404 of Regulation S-K. During fiscal 2008, none of our executive officers served on the compensation committee (or its equivalent) or board of directors of another entity any of whose executive officers served on our Compensation Committee or Board.
The Company maintains consulting and benefits agreements with Mr. Ferber, its Chairman of the Board. The Company also maintained a consulting agreement with Mr. Moldaw, our Chairman Emeritus, until his death in May 2008. The Company had previously arranged for a split dollar life insurance policy, with a face value of $3,500,000, for the benefit of Mr. Moldaw. No premiums were paid on the policy by the Company during fiscal 2008. During fiscal 2008, the Board of Directors approved a release of the Companys interest in the residual value of the split dollar life insurance policy to Mr. Moldaws estate, valued at $285,000 as of February 2, 2008. In addition, after Mr. Moldaws death, the Company agreed to continue the employment of Mr. Moldaws assistant to provide administrative support to his estate through May 2009. Further details are described in this Proxy Statement under the caption Compensation of Directors. The Companys procedure for the review, approval or ratification of related party transactions is to present them to the Audit Committee for its approval, except for compensation-related transactions approved by the Compensation Committee.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires our directors, executive officers and holders of more than 10% of the common stock to file with the Securities and Exchange Commission reports regarding their ownership and changes in ownership of Company common stock. We believe that during fiscal 2008, our executive officers, directors and 10% stockholders complied with all Section 16(a) filing requirements.
PROXY SOLICITATION FEES
The cost of distribution of materials and any solicitation of proxies will be borne by the Company. We have retained Broadridge Financial Solutions Inc. to assist in the distribution of materials and to provide incremental support in soliciting proxies.
At the date of this Proxy Statement, the only business which management intends to present or knows that others will present at the Annual Meeting is as set forth above. If any other matter or matters are properly brought before the Annual Meeting, or any adjournment thereof, it is the intention of the persons named in the accompanying Proxy to vote the Proxy on such matters in accordance with their best judgment.
STOCKHOLDER PROPOSALS TO BE PRESENTED
Proposals of stockholders intended to be presented at the next Annual Meeting of stockholders of the Company (1) must be received by the Company at its offices at 4440 Rosewood Drive, Pleasanton, California 94588-3050 no later than December 15, 2009 and (2) must satisfy the conditions established by the Securities and Exchange Commission for stockholder proposals to be included in the Company's Proxy Statement for that meeting.
Dated: April 14, 2009
ROSS STORES, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Michael Balmuth and Mark LeHocky, and either of them, as attorneys of the undersigned with full power of substitution, to vote all shares of stock which the undersigned is entitled to vote at the Annual Meeting of Stockholders of Ross Stores, Inc. (the Company), to be held on May 20, 2009 at 1:00 p.m. PDT, at the Companys corporate office located at 4440 Rosewood Drive, Pleasanton, California 94588-3050, and at any continuation or adjournment thereof, with all powers which the undersigned might have if personally present at the meeting.
WHERE NO CONTRARY CHOICE IS INDICATED BY THE STOCKHOLDER, THIS PROXY, WHEN RETURNED, WILL BE VOTED FOR ALL NOMINEES AND FOR EACH OF THE PROPOSALS AND WITH DISCRETIONARY AUTHORITY UPON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING. THIS PROXY MAY BE REVOKED AT ANY TIME PRIOR TO THE TIME IT IS VOTED.
PLEASE COMPLETE, DATE AND SIGN THIS
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE.)
YOUR VOTE IS IMPORTANT TO THE COMPANY
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THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE FOLLOWING NOMINEES AND PROPOSALS:
Proposal 1. To elect three Class II
And to transact such other business as may properly come before the Annual Meeting or any adjournments or postponements thereof.
The undersigned hereby acknowledges receipt of: (a) Notice of Annual Meeting of Stockholders dated April 14, 2009; (b) the accompanying Proxy Statement; and (c) the Annual Report to Stockholders for the fiscal year ended January 31, 2009 and hereby expressly revokes any and all proxies heretofore given or executed by the undersigned with respect to the shares of stock represented by this Proxy and by filing this Proxy with the Secretary of the Company, gives notice of such revocation.
Please sign exactly as your name(s) appear(s) on your stock certificate. If shares of stock are held of record in the names of two or more persons or in the name of husband and wife, whether as joint tenants or otherwise, both or all of such persons should sign the Proxy. If shares of stock are held of record by a corporation, the Proxy should be signed by the President or Vice President or the Secretary or Assistant Secretary. Executors or administrators or other fiduciaries who execute the above Proxy for a deceased stockholder should give their full titles.
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