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TABLE OF CONTENTS
APPENDIX C-1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
PRELIMINARY SCHEDULE 14A
Proxy
Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant ý | ||
Filed by a Party other than the Registrant o |
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Check the appropriate box: |
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Preliminary Proxy Statement |
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Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) |
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Definitive Proxy Statement |
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Definitive Additional Materials |
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Soliciting Material under §240.14a-12 |
BEST BUY CO., INC. | ||||
(Name of Registrant as Specified In Its Charter) |
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant) |
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Payment of Filing Fee (Check the appropriate box): |
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No fee required. |
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Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. |
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(1) | Title of each class of securities to which transaction applies: |
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(2) | Aggregate number of securities to which transaction applies: |
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(3) | Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): |
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(4) | Proposed maximum aggregate value of transaction: |
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(5) | Total fee paid: |
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Fee paid previously with preliminary materials. |
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Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. |
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Amount Previously Paid: |
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(2) | Form, Schedule or Registration Statement No.: |
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(3) | Filing Party: |
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(4) | Date Filed: |
BEST BUY CO., INC. 7601 Penn Avenue South Richfield, Minnesota 55423 |
NOTICE OF 2011 REGULAR MEETING OF SHAREHOLDERS
Time: | 9:30 a.m., Central Time, on Tuesday, June 21, 2011 | |||||
Place: |
Best Buy Corporate Campus Theater 7601 Penn Avenue South Richfield, Minnesota 55423 |
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Internet: |
Attend the Regular Meeting of Shareholders online, including submitting questions, at www.proxyvote.com or www.virtualshareholdermeeting.com/bby. |
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Items of |
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To elect six Class 2 directors to serve on our Board of Directors for a term of two years. |
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Business: |
2. |
To ratify the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for the fiscal year ending March 3, 2012. |
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To approve an amendment and restatement of our Amended and Restated By-Laws to remove the maximum for the number of directors serving on the Board of Directors and to authorize the Board of Directors to determine the number of directors serving from time to time. |
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4. |
To approve amendments to the Best Buy Co., Inc. 2004 Omnibus Stock and Incentive Plan, as amended. |
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To approve the Executive Short-Term Incentive Plan. |
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To conduct an advisory vote on our executive compensation. |
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To conduct an advisory vote on the frequency of shareholder advisory votes on our executive compensation. |
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To vote on a shareholder proposal regarding declassification of our Board of Directors, if properly presented at the meeting. |
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To transact such other business as may properly come before the meeting. |
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Record Date: |
You may vote if you were a shareholder of record of Best Buy Co., Inc. as of the close of business on Monday, April 25, 2011. |
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Proxy Voting: |
Your vote is important. You may vote via proxy: |
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By visiting www.proxyvote.com on the Internet; |
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By calling (within the U.S. or Canada) toll-free at 1-800-690-6903; or |
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3. |
By signing and returning the enclosed proxy card. |
Regardless of whether you expect to attend the meeting in person, please vote your shares in one of the three ways outlined above.
By Order of the Board of Directors | ||
Minneapolis, Minnesota |
Elliot S. Kaplan |
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[May 9, 2011] | Secretary |
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE REGULAR MEETING OF SHAREHOLDERS TO BE HELD ON JUNE 21, 2011: |
This Notice of 2011 Regular Meeting of Shareholders and Proxy Statement and our Annual Report on Form 10-K for the fiscal year ended February 26, 2011, are available at www.proxyvote.com. |
Help us make a difference by eliminating paper proxy mailings to your home or business. As permitted by rules adopted by the U.S. Securities and Exchange Commission, we are pleased to make our proxy materials available electronically via the Internet. We are furnishing proxy materials to our shareholders primarily via the Internet. On or about May 9, 2011, we mailed to our shareholders a Notice of Internet Availability containing instructions on how to access our proxy materials, including our proxy statement and our annual report. The Notice of Internet Availability also includes instructions to access your proxy card to vote via the Internet or by telephone. Other shareholders, in accordance with their prior requests, have received e-mail notification of how to access our proxy materials and vote via the Internet, or have been mailed paper copies of our proxy materials and proxy card. |
Internet distribution of our proxy materials is designed to expedite receipt by our shareholders, lower the cost of the Regular Meeting of Shareholders and conserve precious natural resources. However, if you would prefer to receive printed proxy materials, please follow the instructions included in the Notice of Internet Availability. If you have previously elected to receive our proxy materials electronically, you will continue to receive emails with instructions to access these materials via the Internet unless you elect otherwise. |
ATTENDING THE REGULAR MEETING OF SHAREHOLDERS
Attending and participating via the Internet
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BEST BUY CO., INC.
7601 Penn Avenue South
Richfield, Minnesota 55423
PROXY STATEMENT
REGULAR MEETING OF SHAREHOLDERS JUNE 21, 2011
This proxy statement is furnished in connection with the solicitation of proxies by the Board of Directors ("Board") of Best Buy Co., Inc. ("Best Buy," "we," "us," or "our") to be voted at our 2011 Regular Meeting of Shareholders ("Meeting") to be held on Tuesday, June 21, 2011, at 9:30 a.m., Central Time, at the Best Buy Corporate Campus Theater, 7601 Penn Avenue South, Richfield, Minnesota, 55423 and on the Internet at www.proxyvote.com or www.virtualshareholdermeeting.com/bby, or at any postponement or adjournment of the Meeting. The proxy materials were either made available to you over the Internet or mailed to you beginning on or about May 9, 2011.
What is the purpose of the Meeting?
At the Meeting, shareholders will vote on the items of business outlined in the Notice of 2011 Regular Meeting of Shareholders ("Meeting Notice"), included as the cover page to this proxy statement. In addition, management will report on our business and respond to questions from shareholders.
Why did I receive a Notice of Internet Availability or why did I receive this proxy statement and a proxy card?
You received a Notice of Internet Availability or this proxy statement and a proxy card because you owned shares of Best Buy common stock as of April 25, 2011, the record date for the Meeting, and are entitled to vote on the items of business at the Meeting. This proxy statement describes the items of business that will be voted on at the Meeting and provides information on these items so that you can make an informed decision.
Who may vote?
In order to vote at the Meeting, you must be a shareholder of record of Best Buy as of April 25, 2011, which is the record date for the Meeting. If your shares are held in "street name" (that is, through a bank, broker or other nominee), you will receive instructions from the shareholder of record that you must follow in order for your shares to be voted as you choose.
When is the record date?
The Board has established April 25, 2011, as the record date for the Meeting.
How many shares of Best Buy common stock are outstanding?
As of the record date, there were XXXXXXXX shares of Best Buy common stock outstanding. There are no other classes of capital stock outstanding.
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On what items of business am I voting?
You are being asked to vote on the following items of business:
How do I vote?
If you are a shareholder of record (that is, if your shares are owned in your name and not in "street name"), you may vote:
If you wish to vote by telephone, you must do so before 11:59 p.m., Eastern Time, on Monday, June 20, 2011. After that time, telephone voting will not be permitted, and a shareholder wishing to vote, or revoke an earlier proxy, must submit a signed proxy card or vote in person. Shareholders can vote in person or via the Internet during the Meeting. Shareholders of record will be on a list held by the inspector of elections. "Street name" shareholders, also known as beneficial holders, must obtain a proxy from the institution that holds their shares, whether it is their brokerage firm, a bank or other shareholder of record, and present it to the inspector of elections with their ballot. Shareholders attending via the Internet will need to follow the instructions at www.proxyvote.com or www.virtualshareholdermeeting.com/bby in order to vote or submit questions at the Meeting. Voting in person or via the Internet by a shareholder will replace any previous votes submitted by proxy.
In accordance with the rules of the U.S. Securities and Exchange Commission ("SEC"), we are sending all shareholders who have not affirmatively opted to receive paper materials, all of their proxy materials via the Internet. However, you may opt to receive paper copies of proxy materials, at no cost to you, by following the instructions contained in the Notice of Internet Availability.
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How are my voting instructions carried out?
When you vote via proxy, you appoint Richard M. Schulze and Elliot S. Kaplan (collectively, "Proxy Agents") as your representatives at the Meeting. The Proxy Agents will vote your shares at the Meeting, or at any postponement or adjournment of the Meeting, as you have instructed them on the proxy card. If you return a properly executed proxy card without specific voting instructions, the Proxy Agents will vote your shares in accordance with the Board's recommendations. With proxy voting, your shares will be voted regardless of whether you attend the Meeting. Even if you plan to attend the Meeting, it is advisable to vote your shares via proxy in advance of the Meeting in case your plans change.
If an item properly comes up for vote at the Meeting, or at any postponement or adjournment of the Meeting, that is not described in the Meeting Notice, the Proxy Agents will vote the shares subject to your proxy at their discretion.
How many votes do I have?
You have one vote for each share you own, and you can vote those shares for each item of business to be addressed at the Meeting.
How many shares must be present to hold a valid Meeting?
For us to hold a valid Meeting, we must have a quorum, which means that a majority of the outstanding shares of our common stock that are entitled to vote are present at the Meeting. Your shares will be counted as present at the Meeting if you:
How many votes are required to approve an item of business?
Pursuant to our Amended and Restated Articles of Incorporation and our Amended and Restated By-laws, each item of business to be voted on by the shareholders requires the affirmative vote of the holders of a majority of the shares of Best Buy common stock present at a meeting and entitled to vote.
The rules of the New York Stock Exchange ("NYSE") allow brokerage firms to vote their clients' shares on routine matters if the clients do not provide voting instructions at least ten days prior to the shareholder meeting. The ratification of the appointment of Deloitte & Touche LLP as our independent registered public accounting firm is considered a routine matter under NYSE rules. The election of directors, the approval of (including approval of amendments to) our by-laws and incentive plans, the advisory votes related to executive compensation and the vote on a shareholder proposal are not considered routine matters under NYSE rules. The NYSE rules do not allow brokerage firms to vote their clients' shares on non-routine matters in the absence of affirmative voting instructions.
If your brokerage firm votes your shares on routine matters because you do not provide voting instructions, your shares will be counted for purposes of establishing a quorum to conduct business at the Meeting and in determining the number of shares voted for or against the routine matter. If your brokerage firm lacks discretionary voting power with respect to an item that is not a routine matter and you do not provide voting instructions (a "broker non-vote"), your shares will be counted for purposes of establishing a quorum to conduct business at the Meeting, but will not be counted in determining the number of shares voted for or against the non-routine matter. Abstentions are counted as
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present and entitled to vote for purposes of determining a quorum and will have the same effect as votes against a proposal.
What if I change my mind after I vote via proxy?
You may revoke your proxy at any time before your shares are voted by:
Where can I find the voting results of the Meeting?
We will announce preliminary voting results at the Meeting. We plan to publish the final voting results in a Current Report on Form 8-K ("Form 8-K") filed within four business days of the Meeting. If final voting results are not available within the four business day timeframe, we plan to file a Form 8-K disclosing preliminary voting results within the required four business days, to be followed as soon as practicable by an amendment to the Form 8-K containing final voting results.
How are proxies solicited?
We will request that brokerage firms, banks, other custodians, nominees, fiduciaries and other representatives of shareholders forward the Notice of Internet Availability and, as applicable, the proxy materials themselves, to the beneficial owners of our common stock. We expect to solicit proxies primarily by Internet and mail, but our directors, officers, other employees and agents may also solicit proxies in person, by telephone, through electronic transmission and by facsimile transmission. Our directors and employees do not receive additional compensation for soliciting shareholder proxies.
Who will pay for the cost of soliciting proxies?
We pay all of the costs of preparing, printing and distributing proxy materials. We will reimburse brokerage firms, banks and other representatives of shareholders for reasonable expenses incurred as defined in the NYSE schedule of charges.
How can multiple shareholders sharing the same address request to receive only one set of proxy materials and other investor communications?
If you opt to continue to receive paper copies of our proxy materials, you may elect to receive future proxy materials, as well as other investor communications, in a single package per address. This practice, known as "householding," is designed to reduce our paper use, and printing and postage costs. To make the election, please indicate on your proxy card under "Householding Election" your consent to receive such communications in a single package per address. Once we receive your consent, we will send a single package per household until you revoke your consent by notifying our Investor Relations Department at 7601 Penn Avenue South, Richfield, MN 55423, or by telephone at (612) 291-6147. We will start sending you individual copies of proxy materials and other investor communications within 30 days of your revocation.
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Can I receive the proxy materials electronically?
Yes. Shareholders who have not affirmatively opted to receive paper proxy materials through the mail will receive a Notice of Internet Availability and may access our proxy materials electronically via the Internet. Electronic delivery saves us the costs of printing and mailing these materials. We encourage our shareholders to access our proxy materials via the Internet because it reduces the expenses for, and the environmental impact of, our shareholder meetings. You may opt to receive paper copies of proxy materials, at no cost to you, by following the instructions we will provide in advance of the distribution of our 2011 proxy materials.
An electronic version of this proxy statement is posted on our Web site at www.bby.com select the "Investor Relations" link and then either the "SEC Filings" link or the "Corporate Governance" link.
Where can I find additional information about Best Buy?
Our reports on Forms 10-K, 10-Q and 8-K, and other publicly available information should be consulted for other important information about Best Buy. You can also find additional information about us on our Web site at www.bby.com.
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CORPORATE GOVERNANCE AT BEST BUY
Our Board is elected by our shareholders to oversee our business and affairs. In addition, the Board counsels, advises and oversees management in the long-term interests of our company and our shareholders regarding a broad range of subjects including:
Members of the Board monitor and evaluate our business performance through regular communication with our CEO and other members of management, and by attending Board meetings and Board committee meetings.
The Board values effective corporate governance and adherence to high ethical standards. As such, the Board has adopted Corporate Governance Principles for our directors and a Code of Business Ethics, both of which are posted on our Web site at www.bby.com select the "Investor Relations" link and then the "Corporate Governance" link.
Our Board is committed to having a sound governance structure that promotes the best interests of our shareholders. To that end, our Board has evaluated and actively continues to examine emerging corporate governance trends and best practices. Shareholder perspectives play an important role in that process. Some key points regarding our Board's governance structure and practices are as follows:
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To ensure a diversity of perspectives, the Board seeks a balance of internal experience and external independent expertise. This combination of perspectives also helps to ensure that we sustain our corporate culture, which is a cornerstone of our business legacy and a key competitive advantage.
In accordance with these interests and the principles of effective corporate governance, the Board set and has achieved its goal to have at least 75% of our directors be independent. In addition, the Board carefully plans for the director skill sets required today and in the future, and for an orderly succession and transition of directors.
Pursuant to its Corporate Governance Principles, the Board has established independence standards consistent with the requirements of the SEC and NYSE corporate governance rules, as applicable. To be considered independent under the NYSE rules, the Board must affirmatively determine that a director or director nominee does not have a material relationship with us (directly, or as a partner, shareholder or officer of an organization that has a relationship with us). In addition, NYSE rules provide that no director or director nominee may be deemed independent if the director or director nominee
has in the past three years:
is:
Under our director independence standards described above, the Board has determined that each continuing director, with the exception of Brian J. Dunn and Messrs. Kaplan and Schulze, is independent. The Board based these determinations primarily on a review of the responses of the directors to questions regarding employment and compensation history, affiliations, family and other relationships, and on discussions with our directors. The Board also reviewed our relationships with companies with which our directors are affiliated and determined that the relationships
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with affiliates of directors Lisa M. Caputo and George L. Mikan III are not material and do not impair such directors' independence.
Ms. Caputo, a director since December 2009, is managing director and senior banker of the Public Sector Group within the Institutional Client's Group at Citigroup, Inc. Citigroup, Inc. and/or its subsidiaries ("Citi") provide financial services to us, including participating as a lender under our Revolving Credit Agreement ("Revolver"). We do not make direct payments to or receive direct loan proceeds from Citi under the Revolver, but Citi does receive interest payments through our lending agent from this relationship to the extent the agent has drawn down funds from Citi, as well as, fees for providing us access to funds through the Revolver. Ms. Caputo did not play any role in the negotiation of our transactions with Citi.
Mr. Mikan, a director since April 2008, is executive vice president of UnitedHealth Group Incorporated ("UnitedHealth") and chief executive officer of OptumHealth, an affiliate of UnitedHealth. Since 2003, we have had a health benefit services agreement with UnitedHealth. The amounts we have paid to UnitedHealth, most of which are for employee medical and pharmaceutical costs administered on our behalf by UnitedHealth, were an insignificant portion of the annual consolidated revenue of Best Buy and UnitedHealth for each of the past three fiscal years. In addition, Mr. Mikan did not influence or participate in negotiating our agreement with UnitedHealth.
We separate the roles of CEO and Chairman of the Board in recognition of the differences between the two roles. Our CEO is responsible for setting our strategic priorities, in collaboration with the Board, and focuses on the development and execution of our strategies. He is also responsible for our ongoing leadership and performance. The Chairman of the Board provides guidance to the CEO, and sets the agenda for and presides over meetings of the full Board. He focuses on Board oversight responsibilities, strategic planning and mentoring company officers. Our Chairman also periodically represents our company at public functions and actively engages with our employees at designated company functions.
Our Board has established the position of Lead Independent Director to preside at all executive sessions of independent directors, as defined under the rules of the NYSE. The Nominating, Corporate Governance and Public Policy Committee ("Nominating Committee") nominates an independent director to serve as the Lead Independent Director, the selection of whom is subject to ratification by the vote of a majority of the independent directors of the Board. In addition to presiding over executive sessions of the independent directors, the Lead Independent Director is responsible for calling meetings of the independent directors as appropriate, serving as a stakeholder liaison on behalf of the independent directors and performing such other duties as may be requested from time to time by the Board, the independent directors, the CEO or the Chairman of the Board.
Executive Sessions of Independent Directors
In order to promote open discussion among independent directors, the Board has a policy of conducting executive sessions of independent directors during each regularly scheduled Board meeting. These executive sessions are chaired by the Lead Independent Director. Matthew H. Paull has served as the Lead Independent Director since June 2010.
The Board held four regular meetings during the fiscal year ended February 26, 2011. Each incumbent director attended, in person or by telephone, at least 75% of the meetings of both the Board and Board committees on which he or she served. In fiscal 2011, the average attendance by our incumbent directors at Board and Board committee
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meetings exceeded 95%. Our Board requires director attendance at our regular meetings of shareholders and 100% of the then-serving directors attended the 2010 Meeting, including one member attending virtually.
The Board has the following five committees:
The charters for each of the Board committees are posted on our Web site at www.bby.com select the "Investor Relations" link and then the "Corporate Governance" link. The charters include information regarding each committee's composition, purpose and responsibilities.
The Board has determined that all members of the Audit Committee, Compensation Committee, Nominating Committee and Global Strategy Committee are independent directors as defined under the SEC and NYSE corporate governance rules, as applicable. The Board has further determined that all members of the Audit Committee qualify as financial experts under SEC rules.
The Board committees have responsibilities as follows:
Audit Committee. This committee discharges the Board's oversight responsibility to our shareholders and the investment community regarding: (i) the integrity of our financial statements and financial reporting processes; (ii) our internal accounting systems and financial and operational controls; (iii) the qualifications and independence of our independent registered public accounting firm; (iv) the performance of our internal audit function and our independent registered public accounting firm; and (v) our compliance with ethics programs, including our Code of Business Ethics, and legal, regulatory and risk oversight requirements.
Compensation and Human Resources Committee. This committee discharges the Board's responsibilities related to executive officer and director compensation, including the establishment of our executive officer and director compensation philosophies, and evaluation of our CEO. Oversight responsibilities of this committee include succession planning and compensation-related risk oversight. This committee also oversees the development and evaluation of, and approves, equity-based and other incentive compensation and other employee benefit plans of a compensatory nature, and oversees our human capital policies and programs.
Nominating, Corporate Governance and Public Policy Committee. This committee discharges the Board's responsibilities related to general corporate governance, including Board organization, membership, training and evaluation. It also reviews and recommends to the Board corporate governance principles, presents qualified individuals for election to the Board, and oversees the evaluation of the performance of the Board and its committees. Finally, this committee oversees matters of public policy and social responsibility that affect us domestically and internationally. For additional information regarding our director nomination process, see Director Nomination Process beginning on page 17.
Finance and Investment Policy Committee. This committee advises the Board regarding our financial policies and financial condition to help enable us to achieve our long-range goals. It evaluates and monitors the: (i) protection and
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safety of our cash and investments; (ii) achievement of reasonable returns on financial assets within acceptable risk tolerance; (iii) maintenance of adequate liquidity to support our activities; (iv) assessment of the cost and availability of capital; and (v) alignment of our strategic goals and financial resources.
Global Strategy Committee. This committee provides insight, advice and counsel with respect to our strategic plans regarding connectivity, marketing, branding, customer centricity, and related enterprise initiatives. The committee also conducts an ongoing critical evaluation of, and provides accountability for performance within, our strategic plans and vision.
The following table shows the date each committee was established, the number of meetings held in fiscal 2011 and the names of the directors serving on each committee as of February 26, 2011:
Committee |
Date Established |
Number of Meetings During Fiscal 2011 |
Members |
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Audit | June 1, 1984 | 10 | Hatim A. Tyabji* George L. Mikan III Matthew H. Paull Gérard R. Vittecoq |
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Compensation and Human Resources | February 13, 1997 | 7 | Ronald James* Kathy J. Higgins Victor George L. Mikan III Hatim A. Tyabji |
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Nominating, Corporate Governance and Public Policy | February 13, 1997 | 5 | Kathy J. Higgins Victor* Sanjay Khosla Rogelio M. Rebolledo |
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Finance and Investment Policy | September 13, 2006 | 4 | Elliot S. Kaplan* Ronald James Matthew H. Paull Gérard R. Vittecoq |
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Global Strategy | January 13, 2010 | 1 | Sanjay Khosla* Lisa M. Caputo Rogelio M. Rebolledo |
Our Board is responsible for oversight of enterprise risk. The Board considers enterprise risk factors as a critical in its review of business strategy and performance and ensures that there is an appropriate balance of risk and opportunity. Management is responsible for the day-to-day risk management processes, including assessing and taking actions necessary to manage risk incurred in connection with the operation of our business. Management reviews significant enterprise risks and our general risk management strategy with the Board. We believe this division of responsibilities is
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the most effective approach for addressing the risks we face and that our Board leadership structure supports this approach.
In connection with the Board's oversight function, the Board committees have responsibility for reviewing and discussing with management those risk exposures (i) specified in their charters, or (ii) identified from time to time by the committees themselves, as follows:
In connection with their oversight of compensation-related risks, Compensation Committee members periodically review the most important enterprise risks to ensure that compensation programs do not encourage risk-taking that is reasonably likely to have a material adverse effect on us. In 2011, Towers Watson and the Compensation Committee reviewed our compensation policies and practices for all employees, including executive officers. The review process identified our existing risk management framework and the key business risks that may materially affect us; reviewed all compensation plans and identified those plans that are most likely to impact these risks or introduce new risks; and balanced these risks against our existing processes and compensation program safeguards. The review process also took into account mitigating features contained within our compensation plan design which includes elements such as:
The Compensation Committee also considered additional controls outside of compensation plan design which contribute to risk mitigation, including the weight placed on values in our performance management process, the independence of our performance measurement teams, and our internal control environment.
Based upon the process we employed, we determined that our compensation programs do not encourage risk-taking that is reasonably likely to result in a material adverse effect on us.
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Shareholders and interested parties who wish to contact the Board, the Lead Independent Director, any other individual director, or the non-management or independent directors as a group, are welcome to do so in writing, addressed to such person(s) in care of:
Mr. Joseph
M. Joyce
Senior Vice President, General Counsel and Assistant Secretary
Best Buy Co., Inc.
7601 Penn Avenue South
Richfield, Minnesota 55423
Mr. Joyce will forward all written shareholder correspondence to the appropriate director(s), except for spam, junk mail, mass mailings, customer complaints or inquiries, job inquiries, surveys, business solicitations or advertisements, or patently offensive or otherwise inappropriate material. Mr. Joyce may, at his discretion, forward certain correspondence, such as customer-related inquiries, elsewhere within our company for review and possible response. Comments or questions regarding our accounting, internal controls or auditing matters will be referred to the Audit Committee. Comments or questions regarding the nomination of directors and other corporate governance matters will be referred to the Nominating Committee. Comments or questions regarding executive compensation will be referred to the Compensation Committee.
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ITEM OF BUSINESS NO. 1 ELECTION OF DIRECTORS
Our Amended and Restated By-laws provide that the Board consist of a maximum of 15 directors, eight of whom are designated as Class 1 directors and seven of whom are designated as Class 2 directors. Directors are elected for a term of two years, and the terms are staggered so that Class 1 directors are elected in even-numbered years and Class 2 directors are elected in odd-numbered years.
Our Board adopted, and recommends to the shareholders for approval at the Meeting, an amendment to and restatement of our Amended and Restated By-Laws to remove the maximum for the number of directors serving on our Board of Directors and to provide a manner by which the number of directors will be determined from time to time. The amendment to and restatement of our Amended and Restated By-Laws is more fully described below under "Item of Business No. 3 Approval of an Amendment to and Restatement of our Amended and Restated By-Laws." If such amendment and restatement is adopted by the shareholders at the Meeting, our by-laws would provide that we will have one or more directors, which number of directors may be increased or decreased from time to time by the affirmative vote of a majority of the directors serving at the time the action is taken, and that each class of directors will consist, as nearly as possible, of one-half of the total number of directors constituting the entire Board.
Director Qualification Standards
We only consider director candidates who embody the highest standards of personal and professional integrity and ethics and are committed to a culture of transparency and open communication at the Board level and throughout our company. Successful candidates are dedicated to accountability and continuous improvement with a belief in innovation as a key business success factor. They are also actively engaged, and have an innate intellectual curiosity and entrepreneurial spirit. Commitment to enhancing shareholder value and representing the interests of all shareholders is also required.
In evaluating candidates for nomination as a director, the Nominating Committee considers other criteria, including a history of achievement and superior standards, ability to think strategically, a willingness to share examples based upon experience, policy-making experience, and an ability to articulate a point of view, take tough positions, and constructively challenge management. In addition, the Nominating Committee may also consider gender, ethnic and geographical diversity; independence; and general criteria such as an ability to provide informed and thoughtful counsel, mature judgment, and listening skills.
Directors must also be committed to actively engaging in his or her Board roles, with sufficient time to carry out the duties of Board and Board committee membership.
Finally, one or more of our directors must possess the education or experience required to qualify as an "audit committee financial expert" pursuant to SEC rules.
The Nominating Committee is responsible for screening and recommending to the full Board director candidates for nomination. The Nominating Committee often engages a third-party search firm to assist in identifying appropriate candidates to consider as additions to our Board. When the Board is seeking to fill an open director position, the
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Nominating Committee will also consider nominations received from our shareholders, provided that proposed candidates meet the requisite director qualification standards discussed above.
When the Board elects to fill a vacancy on the Board, the Nominating Committee will announce the open position and post any additional search criteria on our Web site at www.bby.com select the "Investor Relations" link and then the "Corporate Governance" link. Candidates recommended by shareholders, if qualified, will be considered in the same manner as any other candidate.
The Nominating Committee will then evaluate the resumes of any qualified candidates recommended by a search firm or shareholders, as well as by members of the Board.
All candidates are evaluated based on the qualification standards discussed above and the needs of the Board at the time or in the future.
Shareholder nominations must be accompanied by a candidate resume which addresses the extent to which the nominee meets the director qualification standards and any additional search criteria posted on our Web site. Nominations will be considered only if we are then seeking to fill an open director position. All nominations by shareholders should be submitted as follows:
Chairman,
Nominating, Corporate Governance and Public Policy Committee
c/o Mr. Joseph M. Joyce
Senior Vice President, General Counsel and Assistant Secretary
Best Buy Co., Inc.
7601 Penn Avenue South
Richfield, Minnesota 55423
Our Corporate Governance Principles specify that diversity on the Board be considered by the Nominating Committee in the director identification and nomination process. When considering candidates, the Nominating Committee seeks nominees with a broad range of experience from a variety of industries and professional disciplines, such as finance, academia, law and government, along with a diversity of gender, ethnicity, age and geographic location. The Nominating Committee does not assign specific weights to particular criteria and no particular criterion is necessarily applied to all prospective nominees. The Board believes that diversity in the backgrounds and qualifications of Board members provides a significant mix of experience, knowledge and abilities that allows the Board to fulfill its responsibilities.
Director Orientation and Continuing Education
Our Nominating Committee oversees the orientation and continuing education of our directors. Director orientation familiarizes directors with our strategic plans, significant financial, accounting and risk management issues, compliance programs and other controls, policies, principal officers and internal auditors, and our independent registered public accounting firm. The orientation also addresses Board procedures, directors' responsibilities, our Corporate Governance Principles, and our Board committee charters.
We also offer continuing education programs and provide opportunities to attend commercial director education seminars to assist our directors in maintaining their expertise in areas related to the work of the Board of the directors' committee assignments.
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You may vote for all, some or none of the nominees for election to the Board. However, you may not vote for more individuals than the number nominated. Each of the nominees has agreed to continue serving as a director if elected. However, if any nominee becomes unwilling or unable to serve and the Board elects to fill the vacancy, the Proxy Agents named in the proxy will vote for an alternative person nominated by the Board. Our Amended and Restated Articles of Incorporation prohibit cumulative voting, which means you can vote only once for any nominee. The affirmative vote of a majority of the voting power of the shares present and entitled to vote at the Meeting is required to elect each director nominee.
PROXY CARDS THAT ARE PROPERLY SIGNED AND RETURNED WILL BE VOTED FOR THE ELECTION OF ALL OF THE NOMINEES UNLESS OTHERWISE SPECIFIED.
Management and the Board recommend that shareholders vote FOR the re-election of Ronald James, Sanjay Khosla, George L. Mikan III, Matthew H. Paull, Richard M. Schulze, and Hatim A. Tyabji as Class 2 directors. If elected, each Class 2 director will hold office until the election of directors at our 2013 Regular Meeting of Shareholders and until his or her successor has been duly elected and qualified, or until his or her earlier death, resignation or removal.
All of the nominees are currently members of the Board.
The biographies of each of the nominees and continuing directors below contains information regarding the person's service as a director, business experience, public company director positions held currently or at any time during the last five years, information regarding involvement in certain legal or administrative proceedings during the last ten years if applicable, and the experiences, qualifications, attributes or skills that caused the Nominating Committee and the Board to determine that the person should serve as a director.
There are no family relationships among the nominees or between any nominees and any of our other directors.
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ITEM OF BUSINESS NO. 1
Class 2 Director Nominees:
(ages as of February 26, 2011)
Ronald James, 60, has been a director since May 2004. Since 2000, he has served as president and chief executive officer of the Center for Ethical Business Cultures in Minneapolis, Minnesota, which assists business leaders in building ethical and profitable business cultures at the enterprise, community and global levels. From 1996 to 1998, he was president and chief executive officer of the Human Resources Group, a division of Ceridian Corporation, a business services company located in Minneapolis, Minnesota. From 1971 to 1996, he was with US West Communications, Inc. (now Qwest Communications), most recently serving as Minnesota's top executive officer. He gained investment fund knowledge through his service on the boards | ||
of RBC Funds, an investment fund of the Royal Bank of Canada, and Bremer Financial Corporation, a regional community banking company. Having served on an advisory group to the United States Sentencing Commission, Mr. James speaks regularly at conferences on the subject of the board's role in creating and sustaining ethical cultures. He also serves on the boards of The Travelers Foundation, Speak the Word Church International, and the Guthrie Theater in Minneapolis, Minnesota and on a board committee for the Center for Healthcare Innovation, Allina Hospitals and Clinics in Minneapolis, Minnesota. He previously served as a director of St. Paul Companies (now The Travelers Companies, Inc.), Ceridian Corporation, and Automotive Industries, and on the boards of Allina Hospitals and Clinics and the Greater Twin Cities United Way. Mr. James brings governance expertise; large company leadership; telecommunications experience; a commitment to integrity, ethics and culture; and executive wisdom to the Board. In addition, his active participation as a consultant and educator in business ethics in academic settings, as well as for national and global organizations, provides valuable insight to the Board. | ||
Sanjay Khosla, 59, has been a director since October 2008. In January 2007, he joined Kraft Foods, Inc., an international food and beverage company. He currently serves as executive vice president and president for Kraft developing markets. From 2004 to 2006, Mr. Khosla was with Fonterra Co-operative Group Ltd., a multi-national dairy company based in New Zealand, where he served as managing director of its consumer and food service business. Before joining Fonterra in 2004, he had a 27-year career with Unilever PLC in India, the U.K. and Europe, culminating as senior vice president, global beverages, and chairman of Unilever's beverages category. Mr. Khosla also serves on the boards of NIIT Ltd., an IT-enabled education company in India, and |
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its subsidiary in the United States, Element K Corporation, as well as the Goodman Theatre in Chicago, Illinois. His many years in the consumer products industry provide Mr. Khosla with an extensive background in consumer marketing, branding, global expansion and multi-national operations. His background in these areas, along with his international perspective and history of transformational leadership, is valuable as the Board continues to focus on our global expansion and transformation. |
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George L. Mikan III, 39, has been a director since April 2008. In January 2011, Mr. Mikan was appointed executive vice president of UnitedHealth Group Incorporated, a diversified health and well-being company, and chief executive officer of OptumHealth, a health care management company and affiliate of UnitedHealth. From November 2006 to January 2011, he served as the executive vice president and chief financial officer of UnitedHealth Group. From February 2006 to November 2006, Mr. Mikan served as senior vice president of finance of UnitedHealth. From 2004 to 2006, Mr. Mikan was chief financial officer of UnitedHealthcare and president of UnitedHealth Networks, both affiliates of UnitedHealth. Mr. Mikan joined UnitedHealthGroup |
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in 1998 and has served in finance-related roles of increasing responsibility from 1998 the present, including an executive role on the corporate development group responsible for merger and acquisition activities. From 1994 to 1998, he was employed at Arthur Andersen LLP. From his years at UnitedHealth and Arthur Andersen, Mr. Mikan gained solid financial and merger and acquisitions expertise, as well as public company leadership experience. This knowledge and experience is a valuable asset to the Board as we continue to explore expansion opportunities, provide benefits for thousands of employees and position our company for financial growth. | ||
Matthew H. Paull, 59, has been a director since September 2003. Since June 2010, he has also served as our first Lead Independent Director. From 2001 until he retired in 2008, Mr. Paull served as corporate senior executive vice president and chief financial officer for McDonald's Corporation, which develops, operates, franchises and services a worldwide system of McDonald's restaurants. At McDonald's, Mr. Paull acquired a background in strong branding and consumer trends, knowledge that is highly relatable to our company. Prior to joining McDonald's Corporation in 1993, he was a partner at Ernst & Young LLP, specializing in international tax. He also serves on the advisory boards of Pershing Square Capital Management, a New York-based hedge fund, and |
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on the board of KapStone Paper and Packaging Corporation, a paper, packaging, and forest products company, as well as on the advisory board of the One Acre Fund, a non-profit organization that helps East African farmers. Mr. Paull previously served as a trustee of the Ravinia Festival Association, which offers concerts and other entertainment in suburban Chicago, Illinois, and as an advisory council member for the Federal Reserve Bank of Chicago. As a former executive professor in residence at the University of San Diego, Mr. Paull also possesses an understanding of the academic world. Due to his professional experience, Mr. Paull has significant financial acumen, knowledge of hedge funds and investments, broad understanding in global operations and extensive experience in tax matters, all of which enable Mr. Paull to make valuable contributions to our Board. |
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Richard M. Schulze, 70, is a founder of Best Buy. He has been an officer and director from our inception in 1966 and currently serves as our Chairman of the Board. Effective in June 2002, he relinquished the duties of CEO, having served as our principal executive officer for more than 30 years. He is on the board of trustees of the University of St. Thomas, chairman of its Executive and Institutional Advancement Committee, and a member of its Board Affairs Committee. Mr. Schulze is also chairman of the board of governors of the University of St. Thomas Business School and serves on the board of the Richard M. Schulze Family Foundation. He previously served on the boards of Pentair, Inc., a diversified industrial manufacturing company, and |
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The Best Buy Children's Foundation. Mr. Schulze holds an honorary doctorate of laws degree from the University of St. Thomas. As a founder of our company with over 40 years experience in the retail industry, and having built our company from a single store and three employees to a multi-national organization with over 4,100 locations and over 180,000 employees, he has an in-depth historical view of our business and branding. In addition, Mr. Schulze's deep knowledge of our culture and commitment to preserving our entrepreneurial environment provide continuity and long-term thinking to the Board. | ||
Hatim A. Tyabji, 66, has been a director since April 1998. Since July 2001, he has been executive chairman of Bytemobile, Inc., a wireless Internet infrastructure provider in Santa Clara, California. From 1998 to 2000, he served as chairman and chief executive officer of Saraïde, Inc., a provider of Internet and wireless data services; and from 1986 to 1998, as president and chief executive officer (and as chairman from 1992 until 1998) of VeriFone, Inc., a global transaction automation enterprise. He is also chairman of Jasper Wireless, a global networking device company. Mr. Tyabji also serves on the boards of Merchant eSolutions, Inc.; Sierra Atlantic, Inc.; Touch Networks (Australia); and the Missile Defense Advocacy Alliance, and as an ambassador |
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at large for Benchmark Capital. He previously served on the boards of Ariba Inc.; Bank of America Merchant Services; Deluxe Corporation; eFunds Corporation; Novatel Wireless, Inc.; PubliCard Inc.; SmartDisk Corporation; Datacard Group; Depotpoint, Inc.; Impresse Corporation and Norand Corporation, as well as on the boards of the Carnegie Institute, the Dean's Council of the Leavey School of Business at Santa Clara University and the Dean's Council of the School of Engineering at the State University of New York at Buffalo. In 2007, Mr. Tyabji published "Husband, Wife & Company: An Honest Perspective on Success in Life and Work," a book on the interrelationships between family and career. Mr. Tyabji brings a wealth of experience in broadband and wireless technologies and is a significant contributor to the development of our technological growth and connected world strategy. His financial acumen and background as an entrepreneurial business leader are valuable assets to the Board. |
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Class 1 Directors Terms expire in 2012
(ages as of February 26, 2011)
Lisa M. Caputo, 47, has been a director since December 2009. Ms. Caputo is managing director and senior banker of the Public Sector Group of Citigroup's Institutional Clients Group. Citigroup, Inc. is a leading financial services company. In 2000, Ms. Caputo founded Citi's Women & Co. business, a membership service that provides financial education and services for women, and is currently its chairman after serving as its chief executive officer from 2000 to 2010. As such, she is a driving force for women in leadership, an area of focus for us. Since joining Citi in 2000, Ms. Caputo has held other leadership positions within the Company. Prior to her current role, Ms. Caputo oversaw Citigroup's global marketing and corporate affairs in her role as global | ||
chief marketing officer and executive vice president from 2007 to 2010. From 2005 to 2007, Ms. Caputo acted as chief marketing and community relations officer of Citi's Global Consumer Group. Prior to that, she acted as senior managing director of business operations and planning of Citi's Global Consumer Group and also served as chief of staff to Citi's Global Consumer Group's chief executive officer. From 1998 to 1999, Ms. Caputo was vice president, global communications and synergy for Disney Publishing Worldwide, the world's largest publisher of children's books and magazines. From 1996 to 1998, she was vice president of corporate communications for CBS Corporation, a mass media company. From 1992 to 1996, Ms. Caputo served in President Bill Clinton's administration, both as press secretary for First Lady Hillary Rodham Clinton, and as deputy assistant to the President. Ms. Caputo also serves on the boards of WNET Channel 13, The Sesame Workshop, New Visions for Public Schools, the J. William Fulbright Foreign Scholarship Board and The Creative Coalition. She is a member of the International Steering Committee for FINCA International, the Advisory Council on Media Relations for Brown University, The New York Presbyterian Sloane Hospital Advisory Committee, the Women@NBCU Advisory Board, the Council on Foreign Relations and the Financial Women's Association. With her broad background with various for-profit companies and non-profit organizations, Ms. Caputo brings to the Board extensive marketing expertise, global and corporate communications experience and political savvy. She is also a highly respected, well-connected leader and is credited for her comprehensive approach, intelligence and tenacity. | ||
Brian J. Dunn, 50, has been a director since June 2009 when he was also named our CEO. A 26-year veteran of our company, Mr. Dunn began his career with us as a store associate in 1985 when we operated only a dozen stores. From 2006 until being named to his current position, Mr. Dunn served as President and Chief Operating Officer. From 2004 to 2006, Mr. Dunn was President Retail, North America. From 2002 to 2004, he served as, Executive Vice President Best Buy U.S. Retail. Prior to that, he served as, Senior Vice President, Regional Vice President, Regional Manager, District Manager and Store Manager. During his time with us, Mr. Dunn has made significant contributions to our market share growth, employee retention, vendor |
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relationships and customer satisfaction scores. Mr. Dunn also serves on the board of The Best Buy Children's Foundation. He previously served on the boards of Dick's Sporting Goods, a full-line sporting goods retailer, and the Greater Twin Cities United Way. Mr. Dunn has established himself as a powerful representative of our brand, an advocate for our unique culture, and a decisive architect of organizational transformation. His personal involvement in the site selection and opening process of over five hundred stores provides him with valuable commercial real estate experience. In addition, Mr. Dunn's day-to-day leadership provides him with intimate knowledge of our operations. His reputation as a leader and success in retail, branding and market expansion are valuable assets to the Board as it looks to move forward in an ever-changing retail environment. |
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Kathy J. Higgins Victor, 54, has been a director since November 1999. Since 1994, she has been president of Centera Corporation, an executive development and leadership coaching firm that she founded, located in Minneapolis, Minnesota. From 1991 to 1994, she was senior vice president of human resources at Northwest Airlines, Inc. (now Delta Air Lines), a commercial airline, and prior to that held senior executive positions at The Pillsbury Company (subsequently acquired by General Mills, Inc.), a producer of grain and other foodstuffs, and Burger King Corporation, which operates and franchises a worldwide system of Burger King restaurants. She is also on the board of trustees of the University of St. Thomas. Ms. Higgins Victor's roles |
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with these highly branded public companies and academic institution give her extensive experience in the areas of established company cultures, executive compensation and human resources. Through her professional background, Ms. Higgins Victor brings to the Board large company leadership expertise, a dedication to continuous improvement and entrepreneurial experience. In addition, her experience in executive development, succession planning and leadership coaching continues to be a valuable asset to the Board, particularly in her role as Chairwoman of the Nominating Committee. | ||
Rogelio M. Rebolledo, 66, has been a director since August 2006. In 2007, Mr. Rebolledo retired from his position as chairman of PBG Mexico, the Mexican operations of The Pepsi Bottling Group, Inc., a manufacturer and distributor of Pepsi-Cola beverages. He also served as president and chief executive officer of The Pepsi Bottling Group's Mexico operations from January 2004 until being named chairman. From 2001 to 2003, he was president and chief executive officer of Frito-Lay International, a producer of snack foods and subsidiary of PepsiCo. He began his 30-year career with PepsiCo in 1976 at Sabritas, the salty snack food unit of Frito-Lay International in Mexico, where he was responsible for the development of the international Frito-Lay business, |
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first in Latin America and then in Asia. Mr. Rebolledo serves on the board of Kellogg Company, a manufacturer and marketer of ready-to-eat cereal and convenience foods. He previously served on the boards of The Pepsi Bottling Group; Applebee's International, Inc., a restaurant chain (now DineEquity, Inc.); and ALFA Corporation, a manufacturer of high-tech aluminum engine heads and blocks based in Mexico. His experience in oversight responsibility for multi-national operations and international expansion at Pepsi and Frito-Lay is highly valuable to the Board as it makes decisions about our international expansion. Through his time with these companies, in addition to his board service at Kellogg, Applebee's and ALFA, he brings a wealth of knowledge and experience in large company leadership, marketing, branding, international business and global market entry key elements of our strategic priorities. |
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Gérard R. Vittecoq, 62, has been a director since September 2008. Since 2004, he has been a group president and executive office member of Caterpillar, Inc., a manufacturer of construction and mining equipment, diesel and natural gas engines and industrial gas turbines based in Peoria, Illinois. He is responsible for the company's Energy and Power Systems Group, which includes its Industrial Power Systems & Growth Markets division, Large Power Systems and Growth Markets division, Marine and Petroleum Power division, Electrical Power division, Progress Rail division / EMD and solar division. He is also responsible for driving enterprise profit and loss accountability for Caterpillar's Europe-Africa-Middle East ("EAME") region. He joined Caterpillar in 1975 and |
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has served in various accounting- and finance-related roles within the company. From 1987 to 1990, he was in charge of strategy projects and was appointed director of strategy & planning in 1990, where he served until 1995. From 1995 to 1997, he was managing director of Caterpillar France S.A. In 1997, he became managing director of Caterpillar Belgium S.A. He was elected a vice president in January 2001, overseeing the EAME Product Development & Operations division. He is a member of the IMD (International Institute for Management Development) Foundation board, a member of the Evian Group: Free Trade Think Tank, an executive member of the World Business Council for Sustainable Development, a vice president of the board of the Swiss-American Chamber of Commerce, and a board member of the Arteres Foundation, a non-profit organization that supports public medicine and healthcare in Geneva, Switzerland. Through Mr. Vittecoq's extensive tenure with Caterpillar, he has gained international management experience, branding knowledge and financial expertise. Mr. Vittecoq's background as an accomplished business leader and his financial acumen, in addition to his political savvy, are valuable assets to the Board as it focuses on our further expansion in the global marketplace. |
Director Not standing for re-election at the Meeting
(age as of February 26, 2011)
Elliot S. Kaplan, 74, has been a director and Secretary since January 1971. Since 1961, he has been an attorney with the law firm of Robins, Kaplan, Miller & Ciresi L.L.P., Minneapolis, Minnesota, which serves as our primary external general counsel. He is also an owner and director of the Bank of Naples in Naples, Florida. In addition, he serves on the executive board of the Minnesota Historical Society and the board of the Robins, Kaplan, Miller & Ciresi Foundation for Children, and is a trustee of the University of Minnesota Foundation. He also previously served on the boards of infoUSA, Inc, a direct marketing company; The Minneapolis Institute of Arts; and PACER Center, an organization that seeks to expand opportunities for children and young adults | ||
with disabilities. His years of legal practice provide Mr. Kaplan with a deep understanding of business litigation, intellectual property litigation and licensing, antitrust and trade regulation, and corporate governance, all of which help Mr. Kaplan provide an experienced legal perspective to our Board. Mr. Kaplan also brings historical knowledge of our culture to the Board. On April 6, 2011, Mr. Kaplan notified us that he would be retiring as a director of the Board and Secretary at the end of his term on June 21, 2011 and would not stand for re-election at the Meeting. |
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table provides information about the number of shares of our common stock beneficially owned at February 26, 2011, by our Chairman of the Board, our CEO, our Chief Financial Officer and each of our three other most highly compensated executive officers during the most recent fiscal year. The table provides similar information for each director including the director nominees, all directors and executive officers as a group, and each person or institution that we know who beneficially owns more than 5% of the outstanding shares of our common stock.
Name and Address(1) |
Number of Shares Beneficially Owned |
Percent of Shares Beneficially Owned |
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Richard M. Schulze |
70,011,003 | (2) | 17.80% | |
Brian J. Dunn |
832,602 | (3) | * | |
James L. Muehlbauer |
245,960 | (4) | * | |
Shari L. Ballard |
298,535 | (5) | * | |
Michael A. Vitelli |
131,847 | (6) | * | |
Carol Surface |
31,427 | (7) | * | |
Lisa M. Caputo |
14,512 | (8) | * | |
Kathy J. Higgins Victor |
57,980 | (9) | * | |
Ronald James |
70,531 | (10) | * | |
Elliot S. Kaplan |
132,061 | (11) | * | |
Sanjay Khosla |
23,250 | (12) | * | |
George L. Mikan III |
27,000 | (13) | * | |
Matthew H. Paull |
72,669 | (14) | * | |
Rogelio M. Rebolledo |
39,350 | (15) | * | |
Hatim A. Tyabji |
144,250 | (16) | * | |
Gérard R. Vittecoq |
25,937 | (17) | * | |
All directors and executive officers, as a group (23 individuals) |
72,918,133 | (18) | 18.42% | |
Fidelity (FMR LLC) |
21,975,749 | (19) | 5.52% |
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SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires that our directors, executive officers and shareholders who own more than 10% of our common stock file initial reports of ownership with the SEC and the NYSE. They must also file reports of changes in ownership with the SEC and the NYSE. In addition, they are required by SEC regulations to provide us copies of all Section 16(a) reports that they file with the SEC. Based solely on a review of such Section 16(a) reports, management and the Board believe our directors, executive officers and shareholders who own more than 10% of our outstanding equity securities complied with the reporting requirements during the fiscal year ended February 26, 2011, except that due to administrative delay (i) a report was not filed in a timely manner for a withholding of shares for tax purposes in connection with an exercise of stock options on March 1, 2010, by Carol A. Surface, Executive Vice President and Chief Human Resources Officer; (ii) reports were not filed in a timely manner for an award of equity-based incentive awards on April 7, 2010, by Joseph M. Joyce, Senior Vice President, General Counsel and Assistant Secretary; James L. Muehlbauer, Executive Vice President and Chief Financial Officer; and Kalendu Patel, Executive Vice President and President, Asia; (iii) a report was not filed in a timely manner for the sale of our common stock on April 21, 2010, by Frank D. Trestman, a former director; and (iv) a report was not filed in a timely manner for a withholding of shares for tax purposes in connection with an exercise of stock options on July 7, 2008, by Michael A. Vitelli, Executive Vice President, PresidentAmericas.
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EXECUTIVE AND DIRECTOR COMPENSATION
Compensation Discussion and Analysis
Our Compensation Discussion and Analysis ("CD&A") describes our executive compensation programs for fiscal 2011, and explains how the Compensation Committee made its compensation decisions for our named executive officers ("NEOs") for fiscal 2011. The NEOs are our CEO, Brian J. Dunn; our Executive Vice President Finance and Chief Financial Officer ("CFO"), James L. Muehlbauer; and our three other most highly compensated officers: Shari L. Ballard, Executive Vice President, PresidentAmericas; Michael A. Vitelli, Executive Vice President, PresidentAmericas; and Carol A. Surface, Executive Vice President and Chief Human Resources Officer.
As described in this CD&A, we designed an executive compensation program for fiscal 2011 to attract and retain highly qualified executives and establish a strong relationship between executive pay and our performance based on achievement of the enterprise-wide goals and benchmarks described below.
Our key compensation decisions for fiscal 2011, as explained in further detail below, are:
For ease of use, this CD&A is divided into four sections:
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Philosophy, Objectives and Principles
Total Rewards Philosophy. We believe our success depends on employees at all levels using their unique strengths, experiences and ideas to foster innovation and build strong customer relationships. While our compensation and benefit programs are important tools in attracting and retaining talented employees, we also believe that non-monetary factors such as work environment, learning and development opportunities, and relationships between employees and managers are critical to provide a rewarding employee experience. Collectively, these elements comprise our "Total Rewards" philosophy.
Objectives. Our Total Rewards philosophy seeks to meet the following compensation objectives:
We implement these objectives by employing broad-based programs that are designed to align employee interests with company goals and create a common vision of success.
Principles of Executive Compensation. The Compensation Committee uses the following Principles of Executive Compensation as a means to assess our executive compensation program and to provide guidance to management on the Compensation Committee's expectations for our overall executive compensation structure.
Principles of Executive Compensation
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The following table summarizes the roles of each of the key participants in the executive compensation decision-making process.
Key Participant |
Member(s) |
Role in Decision-Making Process |
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Compensation Committee | Ronald James (Chair) Kathy J. Higgins Victor |
Established our Total Rewards philosophy and our compensation objectives. | ||
George L. Mikan, III | ||||
Hatim A. Tyabji | Determines, approves and oversees executive compensation, including the design, competitiveness and effectiveness of our compensation programs. Also oversees the development, evaluation and approval of incentive compensation, equity-based pay and other material employee benefit plans for all employees, including the NEOs. | |||
Certain matters that do not materially impact our NEOs have been delegated by the Compensation Committee to members of management in order to ensure timely decision-making, maintain compliance with legal or regulatory obligations or for administrative reasons. For example, such delegations include: |
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to our CEO, the authority to appoint officers at the vice president level; |
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to our Executive Vice President and Chief Human Resources Officer, the authority to modify officer titles, provided that the modification does not impact the officer's compensation or role; and |
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to our Executive Vice President and Chief Human Resources Officer, the authority to amend our benefit plans for limited and immaterial purposes, such as to comply with applicable laws and regulations. |
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The Compensation Committee's charter is available on our Web site at www.bby.com select the "Investor Relations" link and then the "Corporate Governance" link. |
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Compensation Committee's Independent Compensation Consultant | Don Delves of The Delves Group |
Reports directly to the Compensation Committee and participates in its meetings, but provides no other consulting or other services to us. | ||
Reviews the recommendations of management with the Compensation Committee to ensure that the recommendations are aligned with our stated objectives and are reasonable when compared to our peer market for executive and director talent. | ||||
CEO | Brian J. Dunn | Generally attends when management presents compensation recommendations to the Compensation Committee for our other executive officers and provides his perspective. Does not participate in or otherwise influence management's recommendations for himself. | ||
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Key Participant |
Member(s) |
Role in Decision-Making Process |
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Human Resources ("HR") | As led by Ms. Surface, during the first quarter of each fiscal year, provides the Compensation Committee with compensation recommendations for our executive officers. | |||
HR's presentation includes a summary of the application of several internal and external factors to each of our executive officers, which we refer to as our "Executive Compensation Framework." HR generally applies and analyzes the internal factors and works with Towers Watson to apply and analyze the external factors. |
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Our other NEOs do not participate in the development of compensation recommendations or the approval process, although they may provide perspective on recommendations for their direct reports. |
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HR's Compensation Consultant | Towers Watson | Assists HR in the development and analysis of external compensation data that management uses to facilitate its executive and director compensation recommendations to the Compensation Committee. | ||
Attends Compensation Committee meetings to address matters directly related to its engagement, including questions regarding external market data and related analyses. It also assisted the Compensation Committee in reviewing compensation relative to risk. |
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Reports directly to HR and does not engage with the Compensation Committee, except with regard to the aforementioned matters and at the request and under the direction of HR. |
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Provides non-executive compensation consulting and other services expressly at the direction of HR and without the direct engagement of the Compensation Committee. |
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Executive Compensation Framework. For fiscal 2011, each element of compensation and the level of total direct compensation for each of our NEOs was determined by referencing our Executive Compensation Framework. Our Executive Compensation Framework consists of a set of internal and external factors that allow for a comprehensive, multi-faceted evaluation of total compensation based on each individual's personal attributes and talents, the internal "value" of their role, and objective external market data. The factors are not required to carry equal weight and not all of the factors are considered in determining the compensation recommendation for each individual. We believe that the diversity of the factors included in our Executive Compensation Framework and our flexibility in their application enhances our ability to develop compensation packages that (i) further our compensation objectives, (ii) further one or more of our strategic initiatives, and (iii) produce the highest return on our compensation investment.
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For fiscal 2011, the internal and external factors that comprised our Executive Compensation Framework were as follows:
We applied the external factors to each NEO based on a review of publicly available compensation data for our peer group of companies and the Fortune 100, and in some instances, we also consulted survey data.(1) We used available information and monitored actions taken by our peers to evaluate market trends and to assess the overall competitiveness of our executive compensation levels. We did not, however, seek to establish total direct compensation that falls within a prescribed range relative to our peer group of companies or the Fortune 100. In addition, the Compensation Committee may at times use our peer group of companies to evaluate:
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Peer Group. The criteria we used to determine our peer group of companies in fiscal 2011 was unchanged from the criteria we used in fiscal 2010. Our peer group has remained stable since fiscal 2008, with few exceptions. We continue to use the same factors to select our peers: predominantly retail or wholesale companies with more than $5 billion in revenue and significant revenue generated outside of the U.S. Our peer group at the time compensation was determined for our NEOs in fiscal 2011 was comprised of the following companies:
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Elements of Our Compensation and Benefit Programs
Overview. The fiscal 2011 compensation for our NEOs included the following elements:
Element |
Form(s) of Compensation |
Purpose |
Performance Metric(s) |
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Base Salary |
Cash | Provide competitive, fixed compensation to attract and retain exceptional executive talent | Not performance-based | |||
Short-Term Incentive |
Cash | Create a strong financial incentive for achieving or exceeding company goals | Net operating profit, revenue, gross profit rate | |||
Long-Term Incentive |
Stock options | Create a strong financial incentive for increasing shareholder value and encourage a significant equity stake in our company | Best Buy common stock price | |||
Individual Recognition Restricted Stock Award |
Restricted stock | Recognize superior performance rendered and attract and retain exceptional executive talent | Performance-and not performance-based | |||
Signing Bonus |
Cash | Provide compensation to attract exceptional executive talent | Not performance-based | |||
Health, Retirement and Other Benefits |
Eligibility to participate in benefit plans generally available to our employees, including health, retirement, stock purchase, severance, life insurance and disability plans | Plans are part of our broad-based employee benefits program | Not performance-based | |||
Executive Benefits and Perquisites |
Annual executive physical exam, supplemental long-term disability insurance, four weeks of paid vacation, expanded employee discount, stock ownership target planning and tax planning/preparation services | Provide competitive benefits to promote the health, well-being and financial security of our executive officers | Not performance-based | |||
Fiscal 2011 Pay Mix. The Compensation Committee does not establish a set pay mix for our executive officers. However, our executive compensation program does emphasize long-term compensation versus short-term compensation. The resulting target pay mix for fiscal year 2011 for our CEO and our other NEOs, on average, is shown below. Actual salary levels, short-term incentive awards (identified in the table below as "STI" and discussed in
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further detail in Short-Term Incentive) and long-term incentive awards (identified in the table below as "LTI" and discussed in further detail in Long-Term Incentive) vary based on factors in the Executive Compensation Framework.
CEO |
Other NEOs on average |
Each element in the target pay mix is discussed below and shown in the Summary Compensation Table on page 50.
Base Salary The Compensation Committee generally determines base salary levels for the NEOs and other executive officers during the second quarter of each fiscal year, with changes becoming effective during that quarter. The base salaries for the NEOs that became effective in the second quarter of fiscal 2011 ("Fiscal 2011 Base Salary") were established based on an assessment of each officer under our Executive Compensation Framework. The Fiscal 2011 Base Salary and the comparable Fiscal 2010 Base Salary for each of the NEOs, as well as the key factors the Compensation Committee considered, were as follows: |
Name |
Fiscal 2011 Base Salary |
Fiscal 2010 Base Salary |
Percent Change |
Key Factors |
||||
---|---|---|---|---|---|---|---|---|
Mr. Dunn | $1,100,000 | $1,000,000 | 10% | Internal Factors: | ||||
Highest ranking officer in our company |
||||||||
Highly complex position responsible for balancing short- and long-term strategic and operational decisions |
||||||||
Increased accountability for driving company growth in the connected world |
||||||||
Strong motivator and leader; established record of building markets while living and teaching company values |
||||||||
Maturity in role |
||||||||
External Factors: |
||||||||
Salary and total direct compensation below median of Fortune 100 and salary at median and total compensation below median of our peer group, in each case as compared to other chief executive officers |
37
Name |
Fiscal 2011 Base Salary |
Fiscal 2010 Base Salary |
Percent Change |
Key Factors |
||||
---|---|---|---|---|---|---|---|---|
Mr. Muehlbauer |
$675,000 |
$642,000 |
5% |
Internal Factors: |
||||
Strong aptitude for risk mitigation and process development |
||||||||
Success in bringing discipline and order to complex multi-national business |
||||||||
External Factors: |
||||||||
Total direct compensation below median of Fortune 100 and our peer group, in each case as compared to other chief financial officers |
||||||||
High level of turnover among Fortune 100 chief financial officers |
||||||||
Ms. Ballard |
$700,000 |
$650,000 |
8% |
Internal Factors: |
||||
Expansion of role for fiscal 2011 |
||||||||
Proven ability to rally teams around our philosophy and approach |
||||||||
Ability to balance strong customer focus with employee advocacy |
||||||||
External Factors: |
||||||||
Total direct compensation below median of Fortune 100 and of our peer group, in each case as compared to blend of 3rd and 4th highest compensated officers |
||||||||
Mr. Vitelli |
$700,000 |
$600,000 |
17% |
Internal Factors: |
||||
Expansion of role for fiscal 2011 |
||||||||
Strong and deep industry knowledge and networks |
||||||||
Manages communication to vendor community with high degree of authority and influence |
||||||||
External Factors: |
||||||||
Total direct compensation below median of Fortune 100 and of our peer group, in each case as compared to blend of 3rd and 4th highest compensated officers |
||||||||
Ms. Surface |
$490,000 |
N/A |
N/A |
Internal Factors: |
||||
Broad global experience |
||||||||
Transformational skills |
||||||||
External Factors: |
||||||||
Total direct compensation above 75th percentile as compared to other top human resources executives and below median of our peer group as compared to 5th highest compensated officer |
38
Short-Term Incentive We believe that it is important that a higher percentage of total cash compensation for higher ranking positions be linked to our performance. For fiscal 2011, the NEOs were eligible for performance-based, short-term incentive awards pursuant to our fiscal 2011 Short-Term Incentive Program ("STI"). Fiscal 2011 STI awards were payable in cash and were expressed as a target payout percentage of salary. The NEOs' fiscal 2011 STI payments were made after the end of the fiscal year. |
The fiscal 2011 STI is comprised of several different plans that have unique performance criteria to align with the varying responsibilities and geographic areas served by the group of employees eligible for each plan. For fiscal 2011, Messrs. Dunn and Muehlbauer and Ms. Surface were eligible for the Enterprise Executive STI Plan and Ms. Ballard and Mr. Vitelli were eligible for the Americas Regional STI Plan.
Fiscal 2011 STI Performance Criteria. In May 2010, the Compensation Committee approved the performance criteria, in the form of metrics, and the target performance levels for each metric for each of the fiscal 2011 STI plans. The performance metrics were designed to support our fiscal 2011 business priorities, specifically centering on profitable growth and margin. Net operating profit was included as a key metric because it reflects the decisions and actions of a short-term environment while still taking sales, general and administrative expenses into account. The Americas Regional STI Plan metrics were designed to provide consistency with the Enterprise Executive STI Plan metrics, but focus more directly on the performance of our businesses in the United States, Canada and Mexico. Since Ms. Ballard and Mr. Vitelli's roles specifically involve the management of the businesses in these regions, these metrics are more appropriate for their scope of responsibility, while Messrs. Dunn and Muehlbauer and Ms. Surface's responsibilities apply to the entire enterprise, regardless of region.
In establishing the target performance levels, the Compensation Committee considered our historical performance and target setting practices, as well as investor and market expectations.
39
The following tables set forth the performance metrics and target performance target levels, as well as our actual fiscal 2011 performance against each metric for the Enterprise Executive STI Plan and Americas Regional STI Plan:
Enterprise Executive STI Plan (Messrs. Dunn and Muehlbauer and Ms. Surface)(1)
Fiscal 2011 Performance Metric |
Weight of Metric |
Threshold Performance |
Target Performance |
Maximum Performance |
Actual Performance (as adjusted) |
(2) |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Enterprise net operating profit ("NOP") |
50 | % | </=$2,450 | $2,601-2,650 | >/=$2,851 | $ | 2,340 | ||||||||
Enterprise Revenue |
25 | % | </=$51,799 | $53,000-$53,999 | >/=$55,000 | $ | 50,445 | ||||||||
Enterprise Gross Profit Rate ("GPR") |
25 | % | </=24.64% | 24.95%-25.04% | >/=25.45% | 25.21 | % |
Americas Regional STI Plan (Ms. Ballard and Mr. Vitelli)(1)
Fiscal 2011 Performance Metric |
Weight of Metric |
Threshold Performance |
Target Performance |
Maximum Performance |
Actual Performance (as adjusted) |
(2) |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Enterprise NOP |
25 | % | </=$2,450 | $2,601-2,650 | >/=$2,851 | $ | 2,340 | ||||||||
Americas net operating profit ("Americas NOP") |
25 | % | </=$2,399 | $2,550-2,599 | >/=$2,800 | $ | 2,240 | ||||||||
Americas Revenue |
25 | % | </=$44,099 | $45,300-45,699 | >/=$47,300 | $ | 42,589 | ||||||||
Americas Gross Profit Rate ("Americas GPR") |
25 | % | </=24.44% | 24.75%-25.84% | >/=25.25% | 25.03 | % |
Determination of Fiscal 2011 STI Target Payout. In June 2010, the Compensation Committee approved the total fiscal 2011 target compensation for each NEO, including approval of the target payout percentages for our NEOs under the fiscal 2011 STI. The Compensation Committee generally applies a tiered approach in determining the potential target payout percentages for each NEO, establishing a target payout at 100%, 125% or 200% of salary for each individual. The specific target payout percentage for each NEO is determined by applying our Executive Compensation Framework, with particular emphasis placed on the following factors:
40
For fiscal 2011, the NEOs did not receive an increase in their target payout percentages and, therefore, the tiered target payouts of 100%, 125% or 200% of salary remained the same as the NEOs' target payouts for fiscal 2010. For each of the metrics, the NEOs could earn zero to two times their weighted target payout percentage for that metric, making the maximum fiscal 2011 STI payout two times their target payout percentage. However, due to lower-than-expected performance, fiscal 2011 STI payouts were actually reduced from fiscal 2010. Since we did not exceed our threshold performance level for two out of the three performance metrics in the Enterprise Executive STI Plan and three out of the four performance metrics in the Americas Regional STI Plan, the only metrics to have weight in the determination of the fiscal 2011 STI payments for our NEOs were Enterprise GPR and Americas GPR, respectively. The fiscal 2011 target payout percentages and the actual fiscal 2011 STI payout for each NEO are set forth in the table below:
|
Target Payout Percentage |
Target Payout Value, based on Salary |
(1) |
Fiscal 2011 STI Payment |
Fiscal 2011 STI Payment, as a Percentage of Salary |
(1) |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mr. Dunn |
200 | % | $ | 2,133,334 | $ | 746,667 | 70 | % | |||||||||
Mr. Muehlbauer |
125 | % | $ | 830,000 | $ | 290,500 | 43.75 | % | |||||||||
Ms. Ballard |
125 | % | $ | 854,166 | $ | 298,958 | 43.75 | % | |||||||||
Mr. Vitelli |
125 | % | $ | 833,335 | $ | 291,667 | 43.75 | % | |||||||||
Ms. Surface |
100 | % | $ | 476,666 | $ | 166,833 | 35 | % |
Long-Term Incentive Awards of equity-based compensation to our executive officers encourage a strong ownership stake in our company and align the interest of the NEOs and our shareholders. All equity-based incentive awards for our NEOs and directors must be approved by the Compensation Committee. During fiscal 2011, we made long-term incentive awards to our NEOs and other eligible employees (typically, manager level and above) pursuant to our |
||
Long-Term Incentive Program ("LTI") as approved by the Compensation Committee in April 2010. LTI awards are made under our Omnibus Plan. The fiscal 2011 LTI awards made to our NEOs were in the form of non-qualified stock options, granted in equal quarterly installments that have a term of ten years and become exercisable over a four-year period at the rate of 25% per year, beginning one year from the date of grant. The exercise price for such options was equal to the closing price of our common stock on the grant date, as quoted on the NYSE. |
Under the terms of the Omnibus Plan, we may not grant stock options at a discount to fair market value. Unless otherwise determined by the Compensation Committee, "fair market value" as of a given date is the closing price of our common stock as quoted on the NYSE on such date or, if the shares were not traded on that date, the most recent preceding date when the shares were traded.
Determination of Fiscal 2011 LTI Award. In June 2010, the Compensation Committee approved the total fiscal 2011 target compensation for each NEO, which included approval of the number of stock options awarded to each NEO under the fiscal 2011 LTI. LTI award amounts are determined based upon the application of our Executive
41
Compensation Framework, with overall compensation mix and external market data for equivalent roles being key factor in the determination of the award made to each NEO.
Mr. Dunn received a fiscal 2011 LTI award that represented a 75% increase over his prior-year LTI award to acknowledge his tenure in the role of CEO and external competitive data. Likewise, Mr. Muehlbauer received a 50% increase over his prior-year LTI award due to external market conditions. Mr. Vitelli and Ms. Ballard each received approximately a 21% increase over their prior year LTI awards in acknowledgement of their May 2010 expansions of role. Ms. Surface's fiscal 2011 LTI award was determined when she joined us during the first quarter of fiscal 2011 and no changes were made to her LTI award in June 2010.
The fiscal 2011 LTI awards for each NEO are set forth in the following table:
Name |
Number of Shares subject to Fiscal 2011 LTI Option Award |
|||
---|---|---|---|---|
Mr. Dunn |
350,000 | |||
Mr. Muehlbauer |
120,000 | |||
Ms. Ballard |
80,000 | |||
Mr. Vitelli |
80,000 | |||
Ms. Surface |
66,252 |
Quarterly installments of LTI awards are granted near the beginning of each fiscal quarter. Since fiscal 2011 LTI awards were determined during the second quarter of fiscal 2011, the NEOs received in fiscal 2011 two installments of LTI grants pursuant to their fiscal 2010 LTI award and two installments of LTI grants pursuant to their fiscal 2011 LTI award. The following table sets forth the number of shares subject to options received by each NEO as LTI grants during fiscal 2011:
Name |
Number of Shares subject to Options Received during Fiscal 2011 |
|||
---|---|---|---|---|
Mr. Dunn |
275,000 | |||
Mr. Muehlbauer |
100,000 | |||
Ms. Ballard |
73,126 | |||
Mr. Vitelli |
73,126 | |||
Ms. Surface |
66,252 |
Additional information regarding the LTI awards granted to the NEOs in fiscal 2011 is included in the Grants of Plan-Based Awards table on page 52.
Special Awards Ms. Surface received a $600,000 signing bonus and 32,500 shares of time-based restricted stock (vesting 25% upon grant and 25% on each successive anniversary for three years) when she joined us in March 2010. The Compensation Committee determined both awards by applying the existing compensation arrangements factor of our Executive Compensation Framework. The Compensation Committee felt that Ms. Surface's extensive |
||
experience in international human resources made her a valuable asset to lead our global human resources organization. The awards were granted to replace forgone equity-based awards from her previous employer. |
42
Other Compensation Benefits and Perquisites. Our executive officers, including our NEOs, are generally offered the same employee benefits and perquisites offered to all U.S.-based employees, as summarized in the table below: |
Benefit or Perquisite |
All Full-Time U.S.-Based Employees |
Executive Officers |
|||||
---|---|---|---|---|---|---|---|
Accidental Death & Dismemberment |
ü | ü | |||||
Business Travel and Accident |
ü | ü | |||||
Executive Business Travel & Accident |
ü | ||||||
Deferred Compensation Plan |
ü | (1) | ü | (1) | |||
Employee Discount |
ü | ü | |||||
Expanded Employee Discount(2) |
ü | ||||||
Employee Stock Purchase Plan |
ü | ü | |||||
Health Insurance |
ü | ü | |||||
Executive Physical Exam |
ü | ||||||
Life Insurance |
ü | ü | |||||
Long-Term Disability |
ü | ü | |||||
Executive Long-Term Disability |
ü | ||||||
Retirement Savings Plan |
ü | ü | |||||
Severance Plan |
ü | ü | |||||
Short-Term Disability |
ü | ü | |||||
Stock Ownership Target Planning |
ü | ||||||
Tax Planning and Preparation |
ü |
We provide the executive benefits and perquisites denoted above to compete for executive talent and to promote the health, well-being and financial security of our NEOs. A description of executive benefits and perquisites, and the costs associated with providing them for the NEOs, are reflected in the "All Other Compensation" column of the Summary Compensation Table on page 50.
Deferred Compensation Plan. We sponsor the Best Buy Co., Inc. Fifth Amended and Restated Deferred Compensation Plan, as amended ("Deferred Compensation Plan") that is unfunded and unsecured. We believe the plan provides a tax-deferred retirement savings vehicle that plays an important role in attracting and retaining executive talent. Additional information about the Deferred Compensation Plan is included in Non-Qualified Deferred Compensation on page 55.
Employee Stock Purchase Plan. Our 2008 Employee Stock Purchase Plan ("ESPP") allows employees, including our NEOs, to purchase our common stock at a discount. The stock purchase price is 85% of the lesser of the closing price quoted on the NYSE at the beginning or at the end of a semi-annual purchase period. There is a maximum purchase
43
value of $25,000 per calendar year for all plan participants. Beginning with purchases in September 2011, shares acquired through the ESPP will be subject to a 12-month holding period except in limited circumstances (such as death, disability, etc.).
Retirement Savings Plan. Our Retirement Savings Plan is intended to meet the requirements of Section 401(k) of the Internal Revenue Code of 1986 (the "Code"). All of our NEOs are eligible to participate in the plan. The plan provides a safe harbor that allows U.S.-based employees to contribute pre-tax income and immediately vest in company matching contributions. The plan is expected to provide an improved opportunity for such employees to achieve retirement income security. However, the plan is not expected to provide sufficient income replacement relative to our NEOs' anticipated retirement needs. The potential retirement income gap for our NEOs may be filled by other reward elements, including long-term incentives, or by the deferral of a portion of base salary or short-term incentive awards under the Deferred Compensation Plan. Under the Retirement Savings Plan, we match employee contributions, including those made by our NEOs, at rates approved by the Compensation Committee. For fiscal 2011, we matched 100% of the first 3% and 50% of the next 2% of eligible pre-tax earnings (up to Internal Revenue Service limits) contributed by plan participants.
Although we intend to continue the Retirement Savings Plan, as well as to make matching contributions, the Compensation Committee may terminate the plan or discontinue the matching contributions at its sole discretion. If the Retirement Savings Plan were to be terminated, all company-matching funds would immediately vest. JPMorgan Chase Bank has served as the trustee for the Retirement Savings Plan since April 2004. We do not sponsor any other retirement plans in which our NEOs participate.
Severance Plan. We have a severance plan that complies with the applicable provisions of the Employee Retirement Income Security Act (ERISA). Although there are differences in benefits depending on the employee's job level, the basic elements of the plan are comparable for all eligible employees. The plan covers all full-time and part-time U.S. employees of Best Buy Co., Inc., Best Buy Stores, L.P., Best Buy International Holdings, Inc. and Best Buy Enterprise Services, Inc., and their domestic subsidiaries, including the NEOs, who have at least six months of continuous service, except for those subject to a separate severance agreement. The plan covers involuntary terminations due to job elimination and discontinuation, office closing, reduction in force, business restructuring and other circumstances as we determine. Eligible terminated employees receive a severance payment ranging from 6 months to two years of base salary, with basic employee benefits such as medical, dental and life insurance continued for an equivalent period. The NEOs are eligible for 2 years of salary and equivalent benefit continuation.
Special Long-Term Incentive Awards. Special long-term incentive awards may be granted at any time, as deemed necessary for new hires, promotions, and recognition or retention purposes. We do not coordinate or time the release of material information around our grant dates in order to affect the value of the compensation, nor do our NEOs play a role in the selection of grant dates.
Stock Ownership, Tax and Other Policies
Executive Stock Ownership Guidelines. The Compensation Committee has established stock ownership guidelines to promote the alignment of officer and shareholder interests and to encourage behaviors that have a positive influence on stock price appreciation and total shareholder return. The guidelines apply to all officers, including the NEOs, and are part of an effort to encourage stock ownership by our officers and to instill a pay-for-performance culture. Under the guidelines, we expect our officers, including the NEOs, to acquire ownership of a fixed number of shares, based on
44
their position. The stock ownership expectation generally remains effective for as long as the officer holds the position. The guidelines provide for stock ownership levels for our NEOs as follows:
Name |
Ownership Target |
(1) |
||
---|---|---|---|---|
Mr. Dunn |
140,000 shares | |||
Mr. Muehlbauer |
55,000 shares | |||
Ms. Ballard |
55,000 shares | |||
Mr. Vitelli |
55,000 shares | |||
Ms. Surface |
35,000 shares |
In addition to shares personally owned by each officer, the following forms of stock ownership count toward the ownership target:
Until the ownership target is met, our officers and NEOs must comply with a 50% holding requirement (of after-tax value). We expect that until the ownership target is met, officers will retain: (i) 50% of the net proceeds received from the exercise of a stock option in the form of Best Buy common stock; and (ii) 50% of shares net of taxes issued in connection with the lapse of restrictions on restricted stock or performance share awards. The ownership target does not need to be met within a certain timeframe and our officers are considered in compliance with the guidelines as long as progress towards the ownership target is being made. In fiscal 2011, all NEOs were in compliance with the ownership guidelines.
Tax Deductibility of Compensation. Section 162(m) of the Code limits the deductibility of compensation in excess of $1 million paid to the chief executive officer and each of our four most highly compensated executive officers (other than the chief executive officer and chief financial officer), unless the compensation qualifies as "performance-based compensation." Among other things, in order to be deemed performance-based compensation, the compensation must be based on the achievement of pre-established, objective performance criteria and must be pursuant to a plan that has been approved by our shareholders. It is intended that all performance-based compensation paid in fiscal 2011 to our NEOs under the plans and programs described above will qualify for deductibility, either because the compensation is below the threshold for non-deductibility provided in Section 162(m), or because the payment of amounts in excess of $1 million qualify as performance-based compensation under the provisions of Section 162(m).
We believe that it is important to continue to be able to take available company tax deductions with respect to the compensation paid to our NEOs. Therefore, we strive to take all actions that may be necessary under Section 162(m) to qualify for available tax deductions related to executive compensation. We do not, however, make compensation decisions based solely on the availability of a deduction under Section 162(m).
Clawback and Restrictive Covenant Provisions. Our senior management performance awards have typically included clawback provisions, particularly where it has been difficult to match the period of an employee's influence on business results. We may exercise our rights under such provisions if other strategies to mitigate unjust rewards are difficult to achieve. In September 2010, we adopted a new Clawback Policy to comply with the Dodd-Frank Wall Street Reform
45
and Consumer Protection Act, with final policy language to be determined after the SEC adopts related rules. We also expanded our 2007 Clawback Policy to cover all executive officer incentive award agreements. In addition to the clawback provisions, we include confidentiality, non-compete, non-solicitation and in select situations, non-disparagement provisions.
Re-pricing of Stock Options. Under the terms of our Omnibus Plan, a stock option may not, without the approval of our shareholders, be: (1) amended to reduce its initial exercise price, except in the case of a stock split or similar event; or (ii) canceled and replaced by a stock option having a lower exercise price.
Accounting Treatment. We account for equity-based awards based on their grant date fair value. Compensation expense for these awards is recognized over the requisite service period of the award (or to an employee's eligible retirement date, if earlier). However, if an award is subject to a performance condition, the recognized expense will vary based on our estimate of the number of shares that will ultimately vest.
Transactions in Company Securities. All employees and non-employee directors are prohibited from purchasing or selling options of our common stock and from short selling our securities. Pursuant to our Securities Trading Policy, trading in put or call options, straddles, equity swaps, or other derivative securities related to our common stock are also prohibited.
46
Towers Watson U.S. CDB General Industry Executive Database 2010 Descriptive Statistics Report
General Industry >$20 Billion
Number of Participants: 101
3M | Ford | Nissan North America* | ||
7-Eleven* | General Dynamics | Nokia | ||
Abbott Laboratories | General Motors | Northrop Grumman | ||
Accenture | GlaxoSmithKline | Novartis | ||
Air Liquide* | Grupo Ferrovial* | Novartis Consumer Health* | ||
Alcatel Lucent* | Hannaford* | Orange Business Services* | ||
Alcoa | HBO* | PepsiCo | ||
Amazon.com | Henkel of America* | Pfizer | ||
Archer Daniels Midland | Hewlett Packard | Redcats USA* | ||
AstraZeneca | Hilton Worldwide | Rio Tinto* | ||
AT&T | Hitachi Data Systems* | Roche Diagnostics* | ||
Bayer CropScience* | Hoffmann-La Roche* | Sanofi-Aventis* | ||
Best Buy | Honeywell | Sanofi-Pasteur* | ||
Boehringer Ingelheim* | IBM | Schlumberger | ||
Bristol-Myers Squibb | IKON Office Solutions* | Siemens* | ||
Burlington Northern Santa Fe* | Intel | Sodexo* | ||
Cadbury* | International Paper | Sony Corporation* | ||
Cardinal Health | Johnson & Johnson | Sprint Nextel | ||
Cargill | Johnson Controls | Sunoco | ||
CHS | Kimberly-Clark | Target | ||
Cisco Systems | Koch Industries | Time Warner | ||
Coca-Cola | Kohl's | Time Warner Cable | ||
Continental Automotive Systems* | Lafarge North America* | T-Mobile USA* | ||
CVS Caremark | Lockheed Martin | TUI* | ||
Dannon* | McDonald's | U.S. Foodservice | ||
Dell | McKesson | Unilever United States* | ||
Delta Air Lines | MedImmune* | United Parcel Service | ||
Diageo North America* | Merck & Co. | United Technologies | ||
Dow Chemical | Microsoft | Valero Energy | ||
DuPont | Motorola | Verizon | ||
Eli Lilly | Murphy Oil | Volvo Group North America* | ||
Express Scripts | Nestlé USA* | Walt Disney | ||
Fairchild Controls* | NetJets* | Wm. Wrigley Jr.* | ||
Fluor | NIKE |
* Subsidiary
47
Towers Watson U.S. CDB Retail/Wholesale Executive Database 2010 Report
Number of Participants: 40
Aeropostale | Hannaford | Phillips-Van Heusen | ||
Ann Taylor Stores | Harry Winston | School Specialty | ||
A&P | Home Shopping Network | 7-Eleven | ||
Best Buy | J.C. Penney Company | Starbucks | ||
Big Lots | J. Crew | Stop & Shop | ||
BJ's Wholesale Club | Kohl's | Target | ||
Blockbuster | Levi Strauss | United Rentals | ||
COACH | L.L. Bean | Valero Energy | ||
Columbia Sportswear | Mary Kay | VF | ||
Cracker Barrel | Nash-Finch | Warnaco | ||
Old Country Stores | NIKE | Wendy's/Arby's Group | ||
CVS Caremark | Office Depot | Whole Foods Market | ||
Denny's | Pep Boys | Zale | ||
Gap | PetSmart |
48
Compensation and Human Resources Committee Report on Executive Compensation
The Compensation Committee has reviewed and discussed the "Compensation Discussion and Analysis," above, with management. Based on this review and discussion, the Compensation Committee recommended to the Board that the "Compensation Discussion and Analysis" be included in our Annual Report on Form 10-K for the fiscal year ended February 26, 2011, and in this proxy statement.
COMPENSATION AND HUMAN RESOURCES COMMITTEE
Ronald James (Chair)
Kathy J. Higgins Victor
George L. Mikan, III
Hatim A. Tyabji
49
Compensation of Executive Officers
The table below summarizes the total compensation earned by each of our NEOs during fiscal 2011, fiscal 2010 and fiscal 2009, as applicable:
Name and Title |
Fiscal Year |
Base Salary |
(1) |
Bonus |
(2) |
Stock Awards |
(3) |
Option Awards |
(4) |
Non-Equity Incentive Plan Compensation |
(5) |
Change in Pension Value and Non- Qualified Deferred Compensation Earnings |
(6) |
All Other Compensation |
(7) |
Total |
|||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Brian J. Dunn | 2011 | $ | 1,061,540 | $ | | $ | | $ | 3,206,125 | $ | 746,667 | | $ | 15,168 | $ | 5,029,500 | |||||||||||||||||||||||||||
Chief Executive | 2010 | 961,541 | | | 6,220,000 | 2,996,009 | | 54,510 | 10,232,060 | ||||||||||||||||||||||||||||||||||
Officer | 2009 | 876,926 | | 0 | (8) | 1,487,640 | | | 15,140 | 2,379,706 | |||||||||||||||||||||||||||||||||
James L. Muehlbauer |
2011 |
662,308 |
|
|
1,172,700 |
290,500 |
|
16,801 |
2,142,309 |
||||||||||||||||||||||||||||||||||
Executive Vice | 2010 | 622,616 | | | 1,012,000 | 1,311,450 | | 12,145 | 2,958,211 | ||||||||||||||||||||||||||||||||||
President | 2009 | 551,878 | | 876,600 | (8) | 862,400 | | | 16,541 | 2,307,419 | |||||||||||||||||||||||||||||||||
Finance and Chief | |||||||||||||||||||||||||||||||||||||||||||
Financial Officer | |||||||||||||||||||||||||||||||||||||||||||
Shari L. Ballard |
2011 |
680,770 |
|
|
864,835 |
298,958 |
|
14,928 |
1,859,491 |
||||||||||||||||||||||||||||||||||
Executive Vice | 2010 | 650,001 | | | 838,075 | 1,365,002 | | 67,090 | 2,920,168 | ||||||||||||||||||||||||||||||||||
President and | 2009 | 630,770 | | 0 | (8) | 714,175 | | | 12,329 | 1,357,274 | |||||||||||||||||||||||||||||||||
President | |||||||||||||||||||||||||||||||||||||||||||
Americas | |||||||||||||||||||||||||||||||||||||||||||
Michael A. Vitelli |
2011 |
661,540 |
|
|
864,835 |
291,667 |
|
18,110 |
1,836,152 |
||||||||||||||||||||||||||||||||||
Executive Vice | 2010 | 553,445 | | | 838,075 | 987,228 | | 41,153 | 2,419,901 | ||||||||||||||||||||||||||||||||||
President and | 2009 | 474,278 | | 0 | (8) | 431,200 | | | 13,649 | 919,127 | |||||||||||||||||||||||||||||||||
President | |||||||||||||||||||||||||||||||||||||||||||
Americas | |||||||||||||||||||||||||||||||||||||||||||
Carol A. Surface |
2011 |
457,308 |
600,000 |
1,196,000 |
789,393 |
166,833 |
|
65,172 |
3,274,706 |
||||||||||||||||||||||||||||||||||
Executive Vice | 2010 | | | | | | | | | ||||||||||||||||||||||||||||||||||
President and | 2009 | | | | | | | | | ||||||||||||||||||||||||||||||||||
Chief Human | |||||||||||||||||||||||||||||||||||||||||||
Resources | |||||||||||||||||||||||||||||||||||||||||||
Officer |
50
Name |
Retirement Plan Contribution |
(a) |
Life and Long-Term Disability Insurance Premiums |
(b) |
Tax Services Reimbursement |
(c) |
Executive Physical |
(d) |
Other |
Total |
||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Brian J. Dunn |
$ | 10,338 | $ | 3,158 | $ | 1,595 | | $ | 77 | (e) | $ | 15,168 | ||||||||||||||||
James L. Muehlbauer |
10,003 |
2,216 |
|
|
4,582 |
(f) |
16,801 |
|||||||||||||||||||||
Shari L. Ballard |
10,419 |
1,840 |
|
|
2,670 |
(g) |
14,929 |
|||||||||||||||||||||
Michael A. Vitelli |
10,415 |
4,532 |
195 |
2,761 |
207 |
(e) |
18,110 |
|||||||||||||||||||||
Carol A. Surface |
12,815 |
1,059 |
|
6,013 |
45,285 |
(h) |
65,172 |
Name |
Probable Grant Date Fair Value of Performance-Based Award |
Target Grant in Shares |
Maximum Grant in Shares |
Maximum Grant Date Fair Value of Performance-Based Award |
|||||
---|---|---|---|---|---|---|---|---|---|
Brian J. Dunn |
$0 | 190,000 | 475,000 | $19,565,250 | |||||
James L. Muehlbauer |
0 |
100,000 |
250,000 |
10,297,500 |
|||||
Shari L. Ballard |
0 |
82,750 |
206,875 |
8,521,181 |
|||||
Michael A. Vitelli |
0 |
50,000 |
125,000 |
5,148,750 |
51
The table below summarizes the LTI and special award grants made to each of our NEOs during fiscal 2011:
|
|
|
|
|
|
|
|
|
|
|
All Other Stock Awards: Number of Shares of Stock or Units (#) |
All Other Option Awards: Number of Securities Underlying Options (#) |
|
|
|
|||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
|
|
Estimated Future Payouts Under Non-Equity Incentive Plan Awards |
|
Estimated Future Payouts Under Equity Incentive Plan Awards |
|
Exercise or Base Price of Option Awards ($/Sh) |
|
|||||||||||||||||||||||||||||||||
|
|
|
|
(2) |
|
|
||||||||||||||||||||||||||||||||||||
|
Grant Date |
Grant Date Fair Value |
|
Threshold ($) |
Target ($) |
Maximum ($) |
Threshold (#) |
Target (#) |
Maximum (#) |
|
|
|||||||||||||||||||||||||||||||
Name |
(1) |
|
(3) |
(3) |
||||||||||||||||||||||||||||||||||||||
Brian J. Dunn |
| | $ | 0 | $ | 2,133,334 | $ | 4,266,668 | | | | | | | ||||||||||||||||||||||||||||
|
4/7/2010 | $ | 689,500 | | | | | | | | 50,000 | $ | 44.20 | |||||||||||||||||||||||||||||
|
6/23/2010 | 596,000 | | | | | | | | 50,000 | 36.63 | |||||||||||||||||||||||||||||||
|
9/20/2010 | 1,010,625 | | | | | | | | 87,500 | 38.32 | |||||||||||||||||||||||||||||||
|
1/12/2011 | 910,000 | | | | | | | | 87,500 | 35.67 | |||||||||||||||||||||||||||||||
James L. |
|
|
0 |
830,000 |
1,660,000 |
|
|
|
|
|
|
|||||||||||||||||||||||||||||||
Muehlbauer |
4/7/2010 | 275,800 | | | | | | | | 20,000 | 44.20 | |||||||||||||||||||||||||||||||
|
6/23/2010 | 238,400 | | | | | | | | 20,000 | 36.63 | |||||||||||||||||||||||||||||||
|
9/20/2010 | 346,500 | | | | | | | | 30,000 | 38.32 | |||||||||||||||||||||||||||||||
|
1/12/2011 | 312,000 | | | | | | | | 30,000 | 35.67 | |||||||||||||||||||||||||||||||
Shari L. |
|
|
0 |
854,166 |
1,708,332 |
|
|
|
|
|
|
|||||||||||||||||||||||||||||||
Ballard |
4/7/2010 | 228,404 | | | | | | | | 16,563 | 44.20 | |||||||||||||||||||||||||||||||
|
6/23/2010 | 197,431 | | | | | | | | 16,563 | 36.63 | |||||||||||||||||||||||||||||||
|
9/20/2010 | 231,000 | | | | | | | | 20,000 | 38.32 | |||||||||||||||||||||||||||||||
|
1/12/2011 | 208,000 | | | | | | | | 20,000 | 35.67 | |||||||||||||||||||||||||||||||
Michael A. |
|
|
0 |
833,335 |
1,666,670 |
|
|
|
|
|
|
|||||||||||||||||||||||||||||||
Vitelli |
4/7/2010 | 228,404 | | | | | | | | 16,563 | 44.20 | |||||||||||||||||||||||||||||||
|
6/23/2010 | 197,431 | | | | | | | | 16,563 | 36.63 | |||||||||||||||||||||||||||||||
|
9/20/2010 | 231,000 | | | | | | | | 20,000 | 38.32 | |||||||||||||||||||||||||||||||
|
1/12/2011 | 208,000 | | | | | | | | 20,000 | 35.67 | |||||||||||||||||||||||||||||||
Carol A. |
|
|
0 |
476,666 |
953,332 |
|
|
|
|
|
|
|||||||||||||||||||||||||||||||
Surface |
3/1/2010 | (4) | 1,196,000 | | | | | | | 32,500 | | | ||||||||||||||||||||||||||||||
|
4/7/2010 | 228,404 | | | | | | | | 16,563 | 44.20 | |||||||||||||||||||||||||||||||
|
6/23/2010 | 197,431 | | | | | | | | 16,563 | 36.63 | |||||||||||||||||||||||||||||||
|
9/20/2010 | 191,303 | | | | | | | | 16,563 | 38.32 | |||||||||||||||||||||||||||||||
|
1/12/2011 | 172,255 | | | | | | | | 16,563 | 35.67 |
52
Outstanding Equity Awards at Fiscal Year-End
The following table provides a summary of the equity-based awards outstanding for each of the NEOs as of the end of fiscal 2011:
|
Option Awards | Stock Awards | |||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Name |
Option Grant Date |
(1)(2) |
Number of Securities Underlying Unexercised Options Exercisable (#) |
Number of Securities Underlying Unexercised Options Unexercisable (#) |
Option Exercise Price |
Option Expiration Date |
Stock Award Grant Date |
(1) |
Number of Shares or Units of Stock That Have Not Vested(#) |
Market Value of Shares or Units of Stock That Have Not Vested |
(3) |
Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Right That Have Not Vested (#) |
Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($) |
(3) |
|||||||||||||||||||||||
Brian J. |
1/12/2011 | 87,500 | $ | 35.67 | 1/11/2021 | ||||||||||||||||||||||||||||||||
Dunn |
9/20/2010 | 87,500 | 38.32 | 9/19/2020 | |||||||||||||||||||||||||||||||||
|
6/23/2010 | 50,000 | 36.63 | 6/22/2020 | |||||||||||||||||||||||||||||||||
|
4/7/2010 | 50,000 | 44.20 | 4/6/2020 | |||||||||||||||||||||||||||||||||
|
6/23/2009 | 50,000 | 150,000 | 32.98 | 6/22/2019 | ||||||||||||||||||||||||||||||||
|
6/23/2009 | 75,000 | 225,000 | 32.98 | 6/22/2019 | ||||||||||||||||||||||||||||||||
|
10/31/2008 | 69,000 | 69,000 | 26.88 | 10/30/2018 | 8/5/2008 | (4) | 95,000 | $ | 3,075,150 | |||||||||||||||||||||||||||
|
10/18/2007 | 103,500 | 34,500 | 47.84 | 10/17/2017 | ||||||||||||||||||||||||||||||||
|
10/23/2006 | 138,000 | 55.46 | 10/22/2016 | |||||||||||||||||||||||||||||||||
|
11/8/2005 | 80,000 | 46.80 | 11/7/2015 | |||||||||||||||||||||||||||||||||
|
10/11/2004 | 47,250 | 36.73 | 10/10/2014 | |||||||||||||||||||||||||||||||||
|
11/3/2003 | 51,750 | 39.59 | 11/2/2013 | |||||||||||||||||||||||||||||||||
|
1/16/2003 | 30,000 | 19.11 | 1/15/2013 | |||||||||||||||||||||||||||||||||
|
4/11/2002 | 65,588 | 34.18 | 4/10/2012 | |||||||||||||||||||||||||||||||||
|
4/27/2001 | 48,938 | 24.71 | 4/26/2011 | |||||||||||||||||||||||||||||||||
James L. |
1/12/2011 | 30,000 | $ | 35.67 | 1/11/2021 | ||||||||||||||||||||||||||||||||
Muehlbauer |
9/20/2010 | 30,000 | 38.32 | 9/19/2020 | |||||||||||||||||||||||||||||||||
|
6/23/2010 | 20,000 | 36.63 | 6/22/2020 | |||||||||||||||||||||||||||||||||
|
4/7/2010 | 20,000 | 44.20 | 4/6/2020 | |||||||||||||||||||||||||||||||||
|
1/13/2010 | 5,000 | 15,000 | 39.73 | 1/12/2020 | ||||||||||||||||||||||||||||||||
|
9/17/2009 | 5,000 | 15,000 | 37.59 | 9/15/2019 | ||||||||||||||||||||||||||||||||
|
6/23/2009 | 10,000 | 30,000 | 32.98 | 6/22/2019 | ||||||||||||||||||||||||||||||||
|
10/31/2008 | 40,000 | 40,000 | 26.88 | 10/30/2018 | 8/5/2008 | (4) | 50,000 | $ | 1,618,500 | |||||||||||||||||||||||||||
|
4/18/2008 | (5) | 5,000 | $ | 161,850 | ||||||||||||||||||||||||||||||||
|
10/18/2007 | 30,727 | 10,243 | 47.84 | 10/17/2017 | ||||||||||||||||||||||||||||||||
|
10/23/2006 | 10,380 | 55.46 | 10/22/2016 | |||||||||||||||||||||||||||||||||
|
11/8/2005 | 30,053 | 46.80 | 11/7/2015 | |||||||||||||||||||||||||||||||||
|
10/11/2004 | 28,500 | 36.73 | 10/10/2014 | |||||||||||||||||||||||||||||||||
|
11/3/2003 | 25,500 | 39.59 | 11/2/2013 | |||||||||||||||||||||||||||||||||
|
1/16/2003 | 7,500 | 19.11 | 1/15/2013 | |||||||||||||||||||||||||||||||||
|
4/11/2002 | 16,875 | 34.18 | 4/10/2012 | |||||||||||||||||||||||||||||||||
|
3/4/2002 | 4,220 | 31.04 | 3/3/2012 | |||||||||||||||||||||||||||||||||
Shari L. |
1/12/2011 | 20,000 | $ | 35.67 | 1/11/2021 | ||||||||||||||||||||||||||||||||
Ballard |
9/20/2010 | 20,000 | 38.32 | 9/19/2020 | |||||||||||||||||||||||||||||||||
|
6/23/2010 | 16,563 | 36.63 | 6/22/2020 | |||||||||||||||||||||||||||||||||
|
4/7/2010 | 16,563 | 44.20 | 4/6/2020 | |||||||||||||||||||||||||||||||||
|
1/13/2010 | 4,140 | 12,423 | 39.73 | 1/12/2020 | ||||||||||||||||||||||||||||||||
|
9/17/2009 | 4,140 | 12,423 | 37.59 | 9/16/2019 | ||||||||||||||||||||||||||||||||
|
6/23/2009 | 8,281 | 24,844 | 32.98 | 6/22/2019 | ||||||||||||||||||||||||||||||||
|
10/31/2008 | 33,125 | 33,125 | 26.88 | 10/30/2018 | 8/5/2008 | (4) | 41,375 | $ | 1,339,309 | |||||||||||||||||||||||||||
|
10/18/2007 | 49,650 | 16,550 | 47.84 | 10/17/2017 | ||||||||||||||||||||||||||||||||
|
10/23/2006 | 66,200 | 55.46 | 10/22/2016 | |||||||||||||||||||||||||||||||||
|
11/8/2005 | 30,005 | 46.80 | 11/7/2015 | |||||||||||||||||||||||||||||||||
|
10/11/2004 | 19,350 | 36.73 | 10/10/2014 | |||||||||||||||||||||||||||||||||
|
11/3/2003 | 32,325 | 39.59 | 11/2/2013 | |||||||||||||||||||||||||||||||||
Michael A. |
1/12/2011 | 20,000 | $ | 35.67 | 1/11/2021 | ||||||||||||||||||||||||||||||||
Vitelli |
9/20/2010 | 20,000 | 38.32 | 9/19/2020 | |||||||||||||||||||||||||||||||||
|
6/23/2010 | 16,563 | 36.63 | 6/22/2020 | |||||||||||||||||||||||||||||||||
|
4/7/2010 | 16,563 | 44.20 | 4/6/2020 | |||||||||||||||||||||||||||||||||
|
1/13/2010 | 4,140 | 12,423 | 39.73 | 1/12/2020 | ||||||||||||||||||||||||||||||||
|
9/17/2009 | 4,140 | 12,423 | 37.59 | 9/16/2019 | ||||||||||||||||||||||||||||||||
|
6/23/2009 | 8,281 | 24,844 | 32.98 | 6/22/2019 | ||||||||||||||||||||||||||||||||
|
10/31/2008 | 20,000 | 20,000 | 26.88 | 10/30/2018 | 8/5/2008 | (4) | 25,000 | $ | 809,250 | |||||||||||||||||||||||||||
|
10/18/2007 | 7,863 | 2,622 | 47.84 | 10/17/2017 | ||||||||||||||||||||||||||||||||
|
10/23/2006 | 23,465 | 55.46 | 10/22/2016 | |||||||||||||||||||||||||||||||||
|
11/08/2005 | 15,027 | 46.80 | 11/07/2015 | |||||||||||||||||||||||||||||||||
|
10/11/2004 | 3,000 | 36.73 | 10/10/2014 | |||||||||||||||||||||||||||||||||
|
02/09/2004 | 19,125 | 35.73 | 02/08/2014 | |||||||||||||||||||||||||||||||||
|
53
|
Option Awards | Stock Awards | |||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Name |
Option Grant Date |
(1)(2) |
Number of Securities Underlying Unexercised Options Exercisable (#) |
Number of Securities Underlying Unexercised Options Unexercisable (#) |
Option Exercise Price |
Option Expiration Date |
Stock Award Grant Date |
(1) |
Number of Shares or Units of Stock That Have Not Vested(#) |
Market Value of Shares or Units of Stock That Have Not Vested |
(3) |
Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Right That Have Not Vested (#) |
Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($) |
(3) |
|||||||||||||||||||||||
Carol A. |
1/12/2011 | 16,563 | $ | 35.67 | 1/11/2021 | ||||||||||||||||||||||||||||||||
Surface |
9/20/2010 | 16,563 | 38.32 | 9/19/2020 | |||||||||||||||||||||||||||||||||
|
6/23/2010 | 16,563 | 36.63 | 6/22/2020 | |||||||||||||||||||||||||||||||||
|
4/7/2010 | 16,563 | 44.20 | 4/6/2020 | 3/1/2010 | (6) | 24,375 | $ | 789,019 |
Options Exercised and Stock Vested
The table below provides a summary of the value realized in connection with stock option awards exercised and stock awards vested for our NEOs during fiscal 2011:
|
Option Awards | |
Stock Awards | |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Name |
Number of Shares Acquired on Exercise (#) |
Value Realized on Exercise |
(1) |
Number of Shares Acquired on Vesting (#) |
Value Realized on Vesting ($) |
(2) |
||||||||||
Brian J. Dunn |
21,798 | (3) | $ | 316,378 | 0 | (4) | $ | 0 | ||||||||
James L. Muehlbauer |
| | 5,000 | (5) | 224,450 | |||||||||||
Shari L. Ballard |
| | 0 | (4) | 0 | |||||||||||
Michael A. Vitelli |
| | 0 | (6) | 0 | |||||||||||
Carol A. Surface |
| | 8,125 | (7) | 299,000 |
54
shares awarded in fiscal 2011 (0) was determined based on the level of growth of (i) comparable store sales, (ii) profit, and (iii) revenue during the three-year incentive period.
Non-Qualified Deferred Compensation
The following table shows the account balances at February 26, 2011, and the contributions and earnings during fiscal 2011, for our NEOs under the Deferred Compensation Plan. The Deferred Compensation Plan allows highly compensated employees, including the NEOs, and directors to defer:
Name |
Executive Contributions in Fiscal 2011 |
(1) |
Registrant Contributions in Fiscal 2011 |
Aggregate Earnings (Losses) in Fiscal 2011 |
Aggregate Withdrawals/ Contributions |
Aggregate Balance at February 26, 2011 |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Brian J. Dunn |
$ | | $ | | $ | | $ | | $ | | ||||||||
James L. Muehlbauer |
| | 178,941 | (175,393 | ) | 849,422 | ||||||||||||
Shari L. Ballard |
281,558 | | 171,048 | | 1,145,538 | |||||||||||||
Michael A. Vitelli |
| | | | | |||||||||||||
Carol A. Surface |
| | | | |
Investments. Amounts deferred under and contributed to the Deferred Compensation Plan are credited or charged with the performance of investment options selected by the participants. The investment options are notional and do not represent actual investments, but rather serve as a measurement of performance. The options available under the Deferred Compensation Plan and their rates of return for the calendar year ended December 31, 2010, were as follows:
Investment |
Rate of Return |
(1) |
||
---|---|---|---|---|
NVIT Money Market |
0.00% | |||
PIMCO VIT Total Return |
-0.95% | |||
PIMCO VIT High-Yield Bond |
2.31% | |||
Fidelity VIP II Asset Manager |
6.62% | |||
Vanguard VIF Diversified Value |
9.02% | |||
Vanguard VIF Equity Index |
10.69% | |||
MFS VIT Growth Series |
12.57% | |||
Franklin VIPT Small Cap Value Securities |
17.67% | |||
Wells Fargo Advantage VT Small Cap Growth |
18.21% | |||
Vanguard VIF International |
7.34% |
55
Distributions. Participants who elect to defer compensation under the Deferred Compensation Plan also select when the deferred amounts will be distributed to them. Distributions may be made in a specific year, or at a specified time that begins at or after the participant's retirement. Distributions are paid in a lump sum or in quarterly installments, depending on the participant's election at the time of deferral. However, if a participant's employment ends prior to retirement, a distribution is made promptly in a lump sum or in quarterly installments, depending on the account balance.
Employer-Matching Contributions and Vesting. Prior to 2004, the Deferred Compensation Plan provided for employer-matching contributions. Since January 1, 2004, we do not provide employer-matching contributions for amounts deferred under the plan. Participants are fully vested in their contributions and employer contributions.
Potential Payments Upon Termination or Change-in-Control
We do not have employment or change-in-control agreements or arrangements with our NEOs. However, we do have a severance plan that covers our NEOs and includes involuntary terminations due to job elimination and discontinuation, office closing, reduction in force, business restructuring and other circumstances as we determine at our discretion. For more details on the severance plan, see Benefits and Perquisites on page 43.
The only amounts we would pay to our NEOs upon termination of employment or a change-in-control are those provided in the severance plan and equity-based incentive awards granted under our LTI or pursuant to special awards. The table below provides for each NEO, as of the end of fiscal 2011, the severance amount and the value of in-the-money stock options and stock awards, calculated based on the closing price of our common stock as quoted on the NYSE on February 25, 2011, the last trading day in
56
fiscal 2011. The table also summarizes the potential value of amounts payable under the severance plan and LTI awards for each NEO under various scenarios.
|
|
Termination | |
|
|
|
|
||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Name |
|
Involuntary |
(1) |
Voluntary |
(2) |
Following Change-in- Control |
(3) |
Death or Disability |
(4) |
Retirement |
(5) |
||||||||||||||||
Brian J. Dunn |
Cash | $ | 2,200,000 | $ | | $ | 2,200,000 | $ | | $ | | ||||||||||||||||
|
Stock options | 1,151,475 | 1,151,475 | 1,530,285 | 1,530,285 | 1,530,285 | |||||||||||||||||||||
|
Stock awards | | | 3,075,150 | 3,075,150 | 3,075,150 | |||||||||||||||||||||
|
Total | $ | 3,351,475 | $ | 1,151,475 | $ | 6,805,435 | $ | 4,605,435 | $ | 4,605,435 | ||||||||||||||||
James L. Muehlbauer |
Cash |
$ |
1,350,000 |
$ |
|
$ |
1,350,000 |
$ |
|
$ |
|
||||||||||||||||
|
Stock options | 324,663 | 324,663 | 544,263 | 544,263 | 544,263 | |||||||||||||||||||||
|
Stock awards | | | 1,780,350 | 1,780,350 | 1,618,500 | |||||||||||||||||||||
|
Total | $ | 1,674,663 | $ | 324,663 | $ | 3,674,613 | $ | 2,324,613 | $ | 2,324,613 | ||||||||||||||||
Shari L. Ballard |
Cash |
$ |
1,400,000 |
$ |
|
$ |
1,400,000 |
$ |
|
$ |
|
||||||||||||||||
|
Stock options | 181,856 | 181,856 | 363,713 | 363,713 | 363,713 | |||||||||||||||||||||
|
Stock awards | | | 1,339,309 | 1,339,309 | 1,339,309 | |||||||||||||||||||||
|
Total | $ | 1,581,856 | $ | 181,856 | $ | 3,103,022 | $ | 1,703,022 | $ | 1,703,022 | ||||||||||||||||
Michael A. Vitelli |
Cash |
$ |
1,400,000 |
$ |
|
$ |
1,400,000 |
$ |
|
$ |
|
||||||||||||||||
|
Stock options | 109,800 | 109,800 | 219,600 | 219,600 | 219,600 | |||||||||||||||||||||
|
Stock awards | | | 809,250 | 809,250 | 809,250 | |||||||||||||||||||||
|
Total | $ | 1,509,800 | $ | 109,800 | $ | 2,428,850 | $ | 1,028,850 | $ | 1,028,850 | ||||||||||||||||
Carol A. Surface |
Cash |
$ |
980,000 |
$ |
|
$ |
980,000 |
$ |
|
$ |
|
||||||||||||||||
|
Stock options | | | | | | |||||||||||||||||||||
|
Stock awards | | | 789,019 | 789,019 | | |||||||||||||||||||||
|
Total | $ | 980,000 | $ | | $ | 1,769,019 | $ | 789,019 | $ | | ||||||||||||||||
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Overview of Director Compensation
In April of each year, the Compensation Committee reviews the total compensation paid to non-management directors. The purpose of the review is to ensure that the level of compensation is appropriate to attract and retain a diverse group of directors with the breadth of experience necessary to perform the Board's duties, and to fairly compensate directors for their service. The review is comprehensive and includes consideration of qualitative and comparative factors. To ensure directors are compensated relative to the scope of their responsibilities, the Compensation Committee considers: (i) the time and effort involved in preparing for Board, committee and management meetings and the additional duties assumed by committee chairs; (ii) the level of continuing education required to remain informed of broad corporate governance trends, and material developments and strategic initiatives within our company; and (iii) the risks associated with fulfilling fiduciary duties. To supplement the qualitative analysis, the Compensation Committee also considers the total value of the compensation as compared with director compensation at other Fortune 100 companies and our peer group of companies, which is described in Factors in Decision-Making beginning on page 33.
Director Summary Compensation Table
The following table summarizes the compensation earned during fiscal 2011 by our non-management directors, as well as by Messrs. Schulze and Anderson (management directors who were not our full-time employees in fiscal 2011):
Name |
Fees Earned or Paid In Cash |
(1) |
Option Awards |
(2) |
Non-qualified Deferred Compensation Earnings |
(3) |
All Other Compensation |
Total |
||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Bradbury H. Anderson(4) |
$ | | $ | 147,200 | $ | | $ | 79,446 | (5) | $ | 226,646 | |||||||||||
Lisa M. Caputo |
75,000 | 147,200 | | | 222,200 | |||||||||||||||||
Kathy J. Higgins Victor |
85,000 | 147,200 | | | 232,200 | |||||||||||||||||
Ronald James |
86,250 | 147,200 | | | 233,450 | |||||||||||||||||
Elliot S. Kaplan* |
85,000 | 147,200 | | | 232,200 | |||||||||||||||||
Sanjay Khosla |
82,500 | 147,200 | | | 229,700 | |||||||||||||||||
Allen U. Lenzmeier(4) |
24,107 | 147,200 | | | 165,950 | |||||||||||||||||
George L. Mikan III |
75,000 | 147,200 | | | 222,200 | |||||||||||||||||
Matthew H. Paull |
82,500 | 147,200 | | | 229,700 | |||||||||||||||||
Rogelio M. Rebolledo |
75,000 | 147,200 | | | 222,200 | |||||||||||||||||
Richard M. Schulze |
| | (6) | | 166,655 | (7) | 161,406 | |||||||||||||||
Frank D. Trestman(4) |
28,929 | 147,200 | | 18,750 | (8) | 188,629 | ||||||||||||||||
Hatim A. Tyabji |
90,000 | 147,200 | | | 237,200 | |||||||||||||||||
Gérard R. Vittecoq |
75,000 | 147,200 | | | 222,200 |
Annual retainer |
$ | 75,000 | |||
Annual committee chair retainer (Audit Committee or Compensation Committee) |
15,000 | ||||
Annual committee chair retainer (all other committees) |
10,000 | ||||
Lead Independent Director retainer |
10,000 |
The annual retainer and the annual committee chair retainer for non-management directors who serve during only a portion of a fiscal year are prorated. All annual retainers are paid in quarterly installments.
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Management directors, Richard M. Schulze and Brian J. Dunn, did not receive any cash compensation for their service as directors during fiscal 2011.
Employment & Consulting Arrangements for Bradbury H. Anderson
In June 2009, we entered into an employment arrangement with Mr. Anderson, our former CEO, to provide services to us through June 2010 in connection with our transition to a new CEO. Pursuant to this employment arrangement, Mr. Anderson received an annual salary of $75,000; was eligible to receive options to purchase the same number of shares granted to non-management directors, as described in Director Equity Awards below; and received the following benefits: (i) reimbursement of all business-related expenses, including travel, entertainment, room and board; (ii) full administrative support services at our corporate campus; and (iii) eligibility to participate in the Retirement Savings Plan and Deferred Compensation Plan. Mr. Anderson was not eligible to participate in our equity-based compensation programs for employees, except our ESPP. In June 2010, the employment arrangement with Mr. Anderson was extended through November 2010.
In November 2010, we entered into an Executive Consulting Agreement with Mr. Anderson in which Mr. Anderson agrees to provide mentorship, education and consulting services to members of management at the request of our CEO for a fee of $5,000 per consulting session.
Employment Arrangement for Richard M. Schulze
In April 2007, we entered into an amended employment arrangement with Mr. Schulze, a founder of Best Buy, Chairman of the Board and our former CEO. Mr. Schulze is responsible for Board oversight, corporate strategic planning and mentoring company officers. Mr. Schulze also periodically represents our company at public functions and actively engages with our employees at designated company functions. Pursuant to our employment arrangement with Mr. Schulze, he receives an annual salary of $150,000 for as long as he is physically and mentally proficient to act as Chairman, subject to his election as a director by our shareholders. The arrangement allows for annual
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increases based on the consumer price index. Mr. Schulze is not eligible to participate in our equity-based compensation programs for employees. However, he is eligible to receive options to purchase the same number of shares granted to non-management directors, as described in Director Equity Awards below. In addition, we provided the following benefits to Mr. Schulze in fiscal 2011: (i) reimbursement of all business-related expenses, including travel, entertainment, room and board; (ii) eligibility for Mr. Schulze and his spouse to participate in health benefit programs generally available to our employees; (iii) office facilities at our corporate campus, including full administrative support services; and (iv) eligibility to participate in the Retirement Savings Plan and Deferred Compensation Plan.
Advisory Council to the Board
In April 2010, the Board established an Advisory Council to allow certain departing directors to be an ongoing resource to management and to the Board in order to minimize the potential loss of historical knowledge and company culture following their departure. Members of the Advisory Council are invited by the Chairman and the chairs of the Board's other standing committees. Members of the Advisory Council receive an annual retainer of $25,000.
During fiscal 2011, Mr. Trestman served as a member of the Advisory Council following his retirement from the Board in June 2010.
Director Equity Awards
A significant portion of director compensation is linked to our stock performance in the form of stock option grants. Each April, in connection with the Compensation Committee's annual review of director compensation, the Compensation Committee considers a stock option award for directors. On April 7, 2010, the Compensation Committee granted to each then-serving director, other than management directors who are eligible to participate in our equity-based compensation programs for employees, an option to purchase 10,000 shares of our common stock at an exercise price of $44.20 per share. The grants were made under the Omnibus Plan, vested immediately on the grant date and can generally be exercised over a ten-year period. Mr. Schulze requested that he not be granted a long-term incentive award and that options to purchase the number of shares he would have received be contributed to a discretionary award pool to be distributed to our employees.
The Compensation Committee also considers stock option grants for new directors at the time they are appointed to the Board. Because annual director stock option grants are made in April, special appointment-based grants are prorated based on the number of months remaining prior to the time when the Compensation Committee expects to consider the next annual director grant.
Director Stock Ownership Guidelines
The Compensation Committee has established stock ownership guidelines for our non-management directors. Each non-management director is expected to own shares of our common stock equivalent in value to five times their annual cash retainer. Newly appointed directors have five years from their date of appointment to achieve the expected level of stock ownership.
Deferred Compensation Plan
Each calendar year, we offer our directors the opportunity to defer up to 100% of their annual and committee chair retainers under the Deferred Compensation Plan which is described in Non-Qualified Deferred Compensation Plan on page 55. No company contributions or matching contributions are made for the benefit of directors under the Deferred Compensation Plan.
Other Benefits
We reimburse all directors for travel and other necessary business expenses incurred in performance of their services for us. In addition, all directors are covered under a directors' and officers' indemnity insurance policy.
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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
It is our policy not to participate in material related party transactions with officers, directors, controlling persons and other insiders unless the transaction provides us with a demonstrable incremental benefit and the terms are competitive with terms available from unaffiliated third parties.
Pursuant to our Related Party Transactions Policy, if a related party transaction (as defined by SEC rules and the policy) involving an amount greater than $120,000 is proposed, members of the Audit Committee who have no financial interest in the transaction review the transaction to determine whether the necessary incremental benefit is present and whether the transaction should be recommended to the Board for approval. Members of the Board who have no financial interest in the transaction then review and, if appropriate, approve the transaction. In addition, ongoing related-party transactions are reviewed annually by the Audit Committee and the Board to ensure that such transactions continue to provide the necessary incremental benefit to us and have competitive terms.
We have a policy of not participating in real estate transactions with officers, directors, controlling persons and other insiders unless they are approved by the members of the Board who have no financial interest in the transaction. The Board must determine that any real estate transaction with an insider has terms that are competitive with terms available from unaffiliated third parties.
We do not have any credit arrangements between our officers, directors, controlling persons and other insiders.
Elliot S. Kaplan, director and our Secretary, is a partner with the law firm of Robins, Kaplan, Miller & Ciresi L.L.P. ("RKMC"), which serves as our primary external general counsel. Mr. Kaplan has announced his intent to not seek reelection as a director at our 2011 Meeting. The Board reviews the fees we pay to RKMC annually to ensure that they are competitive with fees charged by other law firms comparable in size and expertise. We paid approximately $12.0 million in legal fees to RKMC during fiscal 2011. In light of Mr. Kaplan's relationship with RKMC, the Board approved the transactions with RKMC and our continued business dealings with the firm.
Jane K. Kirshbaum, Mr. Kaplan's daughter, is employed with us as Senior Corporate Counsel. Ms. Kirshbaum's base salary for fiscal 2011 was $165,000, and she was eligible for a short-term incentive award, payable in cash, with a target payout of 30% of her base salary. Ms. Kirshbaum's total cash compensation for fiscal 2011 was $XXX,XXX. Also during fiscal 2011, we awarded Ms. Kirshbaum options to purchase 347 shares of Best Buy common stock at an exercise price of $44.20 per share, options to purchase 338 shares of Best Buy common stock at an exercise price of $36.63 per share, options to purchase 338 shares of Best Buy common stock at an exercise price of $38.32 per share, and options to purchase 338 shares of Best Buy common stock at an exercise price of $35.67 per share. The stock options expire in April 2020, June 2020, September 2020 and January 2021, respectively, and vest ratably over four years.
Michael J. Stillman, Mr. Kaplan's step-son, is employed by us as Vice President Best Buy Connect. Mr. Stillman's base salary for fiscal 2011 was $221,000 and he was eligible for a short-term incentive award, payable in cash, with a target payout of 45% of his base salary. Mr. Stillman's total cash compensation for fiscal 2011 was $XXX,XXX. Also during fiscal 2011, we awarded Mr. Stillman options to purchase 2,125 shares of Best Buy common stock at an exercise price of $44.20 per share, options to purchase 2,125 shares of Best Buy common stock at an exercise price of $36.63 per share, options to purchase 2,125 shares of Best Buy common stock at an exercise price of $38.32 per share, and options to purchase 2,125 shares of Best Buy common stock at an exercise price of $35.67 per share. The
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stock options expire in April 2020, June 2020, September 2020 and January 2021, respectively, and vest ratably over four years.
Mr. Kaplan's family members were compensated at levels comparable to the compensation paid to non-family members in similar positions at our company.
We lease two of our U.S. Best Buy stores from Mr. Schulze, a founder of Best Buy and our Chairman of the Board. During fiscal 2011, we paid aggregate rents of approximately $1.0 million for the two stores leased from Mr. Schulze. The leases include escalation clauses, and one provides for percentage rent based on gross sales. Depending upon our exercise of successive renewal options, the leases run through 2011 and 2018, respectively. We entered into both real estate leases with Mr. Schulze prior to 1990, and the Board approved the leases (with Mr. Schulze not voting). The Board relied on one or more of its members who had no financial interest in the properties to review market comparisons, look into alternative rental agreements and negotiate with Mr. Schulze. The Board determined that these real estate leases were in our best interest and had terms that are competitive with terms available from unaffiliated third parties. Renewals of these leases are reviewed by the Audit Committee pursuant to our Related Party Transactions Policy.
During fiscal 2011, we also leased airplanes and chartered aircraft services, on a non-exclusive basis, from entities owned by the Richard M. Schulze Revocable Trust, under trust agreement dated June 14, 2001, as amended and restated, of which Mr. Schulze is a trustee. The leases expired in fiscal 2011 and we now use such airplanes only pursuant to a block charter agreement. Annually, the Board reviews the arrangements for these airplanes to ensure that the terms are competitive with terms available from unaffiliated third parties. We pay an hourly rate for use of the airplanes, without any required fractional ownership. Our senior management generally use the airplanes when it is more economical or practical than flying commercial airlines. The total amount paid to Mr. Schulze's entities for use of the airplanes during fiscal 2011 was approximately $854,000. All extensions or renewals of the block charter agreement are subject to a competitive bidding process to ensure fair terms.
We purchase certain store fixtures from Phoenix Fixtures, Inc. ("Phoenix"), a company owned by Mr. Schulze's brother. Our decision to conduct business with Phoenix was based on both qualitative and quantitative factors including product quality, pricing, customer service, and design flexibility. In light of Mr. Schulze's relationship with Phoenix, the Board reviewed our transactions with Phoenix and determined that the transactions were on fair terms to us and that Phoenix provides significant advantages with respect to service and delivery as compared with its competitors. Accordingly, the Board approved the transactions and our continued business dealings with Phoenix. The total amount paid to Phoenix during fiscal 2011 was approximately $9.7 million USD and $427,000 CAD. All transactions with Phoenix during fiscal 2011 were subject to a competitive bidding process to ensure fair prices and terms.
Susan S. Hoff, Mr. Schulze's daughter, is Chairperson and Chief Executive Officer of The Best Buy Children's Foundation, for which she has served as principal executive officer since the inception of the foundation. In addition, Ms. Hoff serves as a Vice President of our company. Ms. Hoff's base salary for fiscal 2011 was $242,000 and she was eligible for a short-term incentive award, payable in cash, with a target payout of 45% of her base salary. During fiscal 2011, Ms. Hoff received $XXX,XXX in total cash compensation. Also during fiscal 2011, Ms. Hoff was awarded options to purchase 3,000 shares of Best Buy common stock at an exercise price of $44.20 per share, options to purchase 2,850 shares of Best Buy common stock at an exercise price of $36.63 per share, options to purchase 2,850 shares of Best Buy common stock at an exercise price of $38.32 per share, and options to purchase 2,850 shares of Best Buy common stock at an exercise price of $35.67 per share. The stock options expire in April 2020, June 2020, September 2020 and January 2021, respectively, and vest ratably over four years. Ms. Hoff's compensation was deemed reasonable by the Compensation Committee based upon the responsibilities encompassed by her role.
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The information contained in this Audit Committee Report shall not be deemed to be "soliciting material" or "filed" or incorporated by reference in future filings with the SEC, or subject to the liabilities of Section 18 of the Securities Exchange Act of 1934, except to the extent that we specifically incorporate it by reference into a document filed under the Securities Act of 1933 or the Securities Exchange Act of 1934.
The Audit Committee is comprised of four members and acts under a written charter adopted and approved by the Board. The Audit Committee's charter is posted on our Web site at www.bby.com select the "Investor Relations" link and then the "Corporate Governance" link. All members of the Audit Committee meet the SEC and NYSE definitions of independence and financial literacy for audit committee members. In addition, the Board has determined that all members of the Audit Committee are "audit committee financial experts" for purposes of SEC rules. No member of the Audit Committee serves on the audit committee of more than three public companies.
The Audit Committee met ten times, including six times via conference call, during fiscal 2011. The Audit Committee schedules its meetings to ensure it has sufficient time to devote appropriate attention to all of its tasks. The Audit Committee meetings include regular executive sessions with our independent registered public accounting firm, Deloitte & Touche LLP ("D&T"), our internal auditors and management. The Audit Committee also discusses with our internal auditors and D&T the overall scope and plans for their respective audits.
Recommendation Regarding Financial Statements
The Audit Committee, on behalf of the Board, reviewed and discussed with both management and D&T our annual audited consolidated financial statements for the fiscal year ended February 26, 2011, and our quarterly operating results for each quarter in such fiscal year, along with the related significant accounting and disclosure issues. These reviews included discussions with D&T of matters required to be discussed pursuant to Statement on Auditing Standards No. 114, The Auditor's Communication With Those Charged With Governance, and discussions with management about the quality, not just the acceptability, of the accounting principles, the reasonableness of significant judgments and the clarity of the disclosures in the consolidated financial statements.
In reliance on the reviews and discussions referred to above, the Audit Committee recommended to the Board, and the Board approved, that our annual audited consolidated financial statements be included in our Annual Report on Form 10-K for the fiscal year ended February 26, 2011, as filed with the SEC.
Auditor Independence and Pre-Approval Policy
The Audit Committee reviewed and discussed with D&T its independence from us and our management. As part of that review, the Audit Committee received from D&T the written disclosures and the letter required by applicable rules of the Public Company Accounting Oversight Board regarding independent accountants' communications with audit committees concerning independence. In addition, the Audit Committee reviewed all services provided by and the amount of fees paid to D&T in fiscal 2011. In reliance on the reviews and discussions with management and D&T, the Audit Committee believes that the services provided by D&T were compatible with, and did not impair, its independence.
Consistent with SEC rules regarding auditor independence, the Audit Committee has responsibility for appointing, setting fees for and overseeing the work of our independent registered public accounting firm. In recognition of this
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responsibility, it is the policy of the Audit Committee to pre-approve all permissible services provided by our independent registered public accounting firm except for minor audit-related engagements which in the aggregate do not exceed 5% of the fees we pay to our independent registered public accounting firm during a fiscal year.
Each year, prior to engaging our independent registered public accounting firm, management submits to the Audit Committee for approval a list of services expected to be provided during that fiscal year within each of the three categories of services described below, as well as related estimated fees, which are generally based on time and materials.
As appropriate, the Audit Committee then pre-approves the services and the related estimated fees. The Audit Committee requires our independent registered public accounting firm and management to report actual fees versus the estimate periodically throughout the year by category of service. During the year, circumstances may arise when it becomes necessary to engage our independent registered public accounting firm for additional services not contemplated in the initial annual proposal. In those instances, the Audit Committee pre-approves the additional services and related fees before engaging our independent registered public accounting firm to provide the additional services.
AUDIT COMMITTEE
Hatim A. Tyabji (Chair)
George L. Mikan III
Matthew H. Paull
Gérard R. Vittecoq
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ITEM OF BUSINESS NO. 2 RATIFICATION OF APPOINTMENT OF OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
THIS SECTION SHOULD BE READ IN CONJUNCTION WITH THE "AUDIT COMMITTEE REPORT" ON PAGES 63-64.
The Audit Committee appointed Deloitte & Touche LLP as our independent registered public accounting firm for the fiscal year ending March 3, 2012. We will ask shareholders to ratify the appointment of D&T as our independent registered public accounting firm at the Meeting. Representatives of D&T are expected to be present at the Meeting. They will have the opportunity to make a statement if they desire to do so and are expected to be available to respond to appropriate questions.
Principal Accountant Services and Fees
For the fiscal years ended February 26, 2011, and February 27, 2010, D&T served as our independent registered public accounting firm. The following table presents the aggregate fees incurred for services rendered by D&T during fiscal 2011 and fiscal 2010, respectively. The fees listed below were pre-approved by our Audit Committee pursuant to the Audit Committee's pre-approval policy described on pages 63-64:
Service Type |
Fiscal 2011 |
Fiscal 2010 |
|||||
---|---|---|---|---|---|---|---|
Audit Fees(1) |
$ | 3,490,000 | $ | 3,702,000 | |||
Audit-Related Fees(2) |
2,960,000 | 3,272,000 | |||||
Tax Fees(3) |
395,000 | 298,000 | |||||
All Other Fees |
| | |||||
Total Fees |
$ | 6,845,000 | $ | 7,272,000 | |||
It is our policy that our independent registered public accounting firm be engaged to provide primarily audit and audit-related services. However, pursuant to the policy, in certain circumstances and using stringent standards in its evaluation, the Audit Committee may authorize our independent registered public accounting firm to provide tax services when it determines that D&T is the most efficient and effective tax service provider.
The Board recommends that shareholders vote FOR the proposal to ratify the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for the fiscal year ending March 3, 2012.
If the appointment of Deloitte & Touche LLP were not to be ratified by the shareholders, the Audit Committee would not be required to appoint another independent registered public accounting firm, but would give consideration to an unfavorable vote.
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ITEM OF BUSINESS NO. 3 APPROVAL OF AN AMENDMENT TO AND RESTATEMENT OF OUR AMENDED AND RESTATED BY-LAWS
We are proposing an amendment to and restatement of our Amended and Restated By-laws. The proposed amendment to Section 1 of Article III of our by-laws would remove the maximum for the number of directors serving on the Board and expressly authorize the Board to determine the number of directors serving from time to time, but no less than annually. If the amendment is approved by the shareholders, each class of directors will consist, as nearly as possible, of one-half of the total number of directors.
The complete text of the Amended and Restated By-laws as they are proposed to be amended ("Amended By-laws") is included in Appendix B-1 to this proxy statement. This summary does not contain all of the information that may be important to you, and is qualified in its entirety by reference to the text of the Amended By-laws. You are urged to read the Amended By-laws in their entirety.
Information about the Amendment to our By-laws
The Board has concluded that it is in the best interests of Best Buy and its shareholders to authorize the Board to determine the number of directors serving from time to time, consistent with its practice throughout the Company's history. The Board increased the authorized number of directors over the past five years to accommodate the transition of the CEO and incoming and departing directors; however it was not the intention of the Board to maintain the increase going forward. The Board will continue to evaluate its structure to align with our company's needs and shareholder interests, and providing the Board with the authority to change the number of directors as needed enables the Board to ensure this alignment is efficiently and effectively maintained.
The Board approved the amendment to and restatement of our Amended and Restated By-Laws as described above, and recommends that shareholders vote FOR the amendment and restatement.
The affirmative vote of at least a majority of the voting power of the shares present, in person or by proxy, and entitled to vote (excluding broker non-votes) is required to approve the amendment to and restatement of our Amended and Restated By-laws.
IT IS INTENDED THAT, UNLESS OTHERWISE INSTRUCTED, THE SHARES REPRESENTED BY THE PROXY WILL BE VOTED "FOR" THE PROPOSAL TO AMEND AND RESTATE ARTICLE III OF THE AMENDED AND RESTATED BY-LAWS.
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ITEM OF BUSINESS NO. 4 APPROVAL OF AMENDMENTS TO THE BEST BUY CO., INC. 2004 OMNIBUS STOCK AND INCENTIVE PLAN, AS AMENDED
What is the Omnibus Plan?
The Best Buy Co., Inc. 2004 Omnibus Stock and Incentive Plan was adopted by the Board of Directors and approved by our shareholders in June 2004. Amendments to the plan were adopted by the Board of Directors and approved by our shareholders in 2007 and 2009 (as amended in 2009, the plan is referred to in this proxy statement as the "Omnibus Plan"). The Omnibus Plan is the means by which we provide long-term incentives to a broad range of our employees.
The Omnibus Plan permits the granting of stock options (including both incentive and non-qualified stock options); stock appreciation rights ("SARs"); restricted stock and restricted stock units; performance awards of cash, stock or property; dividend equivalents; and other stock grants. Eligible recipients under the Omnibus Plan include any employee, officer, consultant, advisor or director providing services to us or to any of our affiliates, who is selected by the Compensation Committee.
The Omnibus Plan is our only plan that provides for the issuance of shares of our common stock upon completion of future awards of equity based compensation. Currently, the aggregate number of shares of our common stock that may be issued under all stock-based awards made under the Omnibus Plan is 51.5 million (representing the original 16 million authorized in 2004; the 3-for-2 stock split on August 3, 2005, which increased the initial authorized amount to 24 million; the additional 14 million authorized by shareholders in 2007; and the additional 13.5 million authorized by shareholders in 2009). The maximum number of shares of common stock that may be awarded under the Omnibus Plan pursuant to grants of restricted stock, restricted stock units, dividend equivalents and other stock awards is 21 million. Our non-employee directors, as a group, may not be granted awards in the aggregate of more than 5% percent of the shares of common stock available for awards under the Omnibus Plan. As context to our annual rate of equity-based awards, it is important to note that we completed an accelerated share repurchase in fiscal 2008 to acquire $3.0 billion in shares of common stock, thereby increasing the rate of grant and overhang.
As of February 26, 2011, approximately 3.4 million shares of our common stock remained available under the Omnibus Plan for awards in the aggregate, all of which were available for grants of restricted stock, restricted stock units and other stock awards; and 2.0 million shares of common stock remained available for awards to non-employee directors. From the adoption of the Omnibus Plan through the end of fiscal 2011, we have made equity-based awards at an annual rate of 1.3% to 1.7% of our outstanding common stock, excluding two large grants made under the Omnibus Plan in August 2008. The first of these grants was a performance-based restricted stock unit incentive (2.4 million shares) with aggressive performance targets for 20 instrumental leaders. The second was a non-routine equity-based grant (6.8 million shares) for an additional 3,700 employees concurrent with the grant to the top leaders. Combined, these grants were beyond our historical norms, and those of the retail industry, for equity-based compensation.
What is the purpose of the Omnibus Plan?
The purpose of the Omnibus Plan is to promote the interests of Best Buy and our shareholders by aiding us in motivating, attracting and retaining employees, officers, consultants, advisors and directors who we expect will contribute to our growth and financial performance. The Board believes that the combination of short-term and
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long-term incentive compensation is essential in attracting, retaining and motivating individuals to enhance the likelihood of our future success. The 2011 amendments to the Omnibus Plan will allow the types and specific terms of future awards to be based on our then-current objectives for aligning compensation with shareholder value. Shareholder approval of the amendments to the Omnibus Plan will allow us to continue to award short-term and long-term incentives that achieve these goals.
What is Best Buy's long-term incentive compensation philosophy?
We believe the contributions provided by each employee, both individually and as part of a team, are key to our long-term success. Over our history, we have faced a series of challenges. The outcomes of these challenges have contributed to our growth and to our view of the role of long-term incentive compensation as a vehicle to help us overcome the challenges and to share in the success of our growth. In a company such as ours, where the growth trajectory can be uneven, innovation is the key ingredient of our ability to achieve our vision and mission. Historically, innovation has originated from many sources within our company many of which are not top-level management. Innovative employees are not always the most highly compensated, but they typically feel a personal stake in making Best Buy a success. As we focus increasing attention on individual customer needs and aspirations, our conviction has grown that we excel in meeting the unique needs of our customers whenever we unleash the potential of all of our employees.
We use equity-based long-term incentives as one tool in inspiring our people, encouraging innovation and unleashing the individual talents of our employees. These incentives are in alignment with our Total Rewards Philosophy, which balances our strategy with cost and with what employees value. We believe that equity-based compensation can be highly effective in building an employee's personal stake in our success. Therefore, we have designed several programs, such as our Retirement Savings Plan, Employee Stock Purchase Plan, Chairman's Award Program and the Brad Anderson Legacy Stock Award Program which awards deserving employees that otherwise wouldn't be eligible for a long-term incentive award, to include equity-based components that continually reinforce the connections among our employees, customers and shareholders. Using equity-based compensation for a portion of total compensation aligns the dreams and aspirations of our employees and their families with our shareholders' interests.
In general, we have provided long-term incentives to a broader range of employees than most other large corporations have done. For example, our store managers receive long-term incentives to create a long-term ownership stake in our success. Including store managers in our long-term incentive program helps us ensure that they will act as owners and share in our long-term success as owners. In fact, including grants made during fiscal 2011, over 95% of the recipients of our long-term incentives were non-officers.
While we reward a broad base of employees, we also believe that equity-based compensation is a key component in well-designed executive compensation. Part of our long-term compensation philosophy is designed to ensure that those who perform strategic policy-making functions, and have greater responsibilities and accountability for the organization's financial success, have an ownership interest in the organization. Furthermore, when recruiting executive talent from external sources, we believe the leverage provided by equity-based compensation is an integral part of aligning the new executives' interests with the interests of our shareholders.
Why is Best Buy requesting additional shares under the Omnibus Plan now?
We are requesting a 13 million share increase in the number of shares of common stock available under the Omnibus Plan. This request is being made two years after our last request for an increase in shares subject to the Omnibus Plan. Without a replenishment of shares this fiscal year we will not have the flexibility during fiscal 2012 to maintain our long-term incentive program at current levels and make other discretionary equity awards. We believe performance-
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based restricted stock grants designed to motivate our leaders to achieve specific business goals and other new hire, retention or recognition awards are critical to our ability to recruit and retain key individuals.
According to our estimates, if we make only our regular long-term incentive and director grants for fiscal 2012 and the beginning of fiscal 2013, we will be nearly out of shares before our 2012 Regular Meeting of Shareholders. Proceeding in this manner would jeopardize our ability to make additional performance-based equity awards and other discretionary grants, and potentially the ability to allow eligible employees to choose between stock options and restricted stock per the design of our long-term incentive program.
We believe that our equity-based incentive programs and our emphasis on employee stock ownership have been integral to our success in the past and are crucial to our ability to recruit, retain and motivate participants to achieve our corporate performance goals in fiscal 2012 and in the years that follow. Therefore, we believe that the proposed amendments to the Omnibus Plan are critical to our long-term performance and shareholder returns.
How is Best Buy proposing to amend the Omnibus Plan?
On April 7, 2011, the Board adopted amendments to the Omnibus Plan, subject to the approval of our shareholders, to:
The Omnibus Plan also contains two clarifications, which are not subject to the approval of our shareholders, to:
Has the Board adopted the amendments to the Omnibus Plan?
Yes. The Board adopted the proposed amendments to the Omnibus Plan on April 7, 2011, although the amendments to increase the maximum number of shares of common stock and proportionally increase the number of shares of our common stock that may be awarded pursuant to grants of restricted stock, restricted stock units and other stock awards are subject to the approval of our shareholders. We are now asking you to approve these amendments to the Omnibus Plan. These amendments to the Omnibus Plan will become effective upon the approval of our shareholders. In the remainder of this section of the proxy statement, the Omnibus Plan, as amended by these proposed amendments, is referred to as the "amended Omnibus Plan."
What are the key features of the amended Omnibus Plan?
The material terms of the amended Omnibus Plan are summarized below. The amended Omnibus Plan has been designed to meet the requirements of Section 162(m) of the Code regarding the deductibility of executive compensation and to minimize the risk of premature income taxes and related penalties on participating employees under Section 409A of the Code.
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The following summary is qualified in its entirety by reference to the full text of the amended Omnibus Plan in Appendix C-1 included with this proxy statement. A copy of the amended Omnibus Plan may also be obtained from us free of charge upon written request and is also available on our Web site at www.bby.com select the "Investor Relations" link and then the "Corporate Governance" link.
Who is eligible to receive awards under the amended Omnibus Plan?
Eligible recipients under the amended Omnibus Plan include any employee, officer, consultant, advisor or director providing services to us or to any of our affiliates, who is selected by the Compensation Committee of the Board. As of February 26, 2011, approximately 100,000 employees were eligible to participate in the amended Omnibus Plan.
What is the term of the amended Omnibus Plan?
Unless discontinued or terminated by the Board, the amended Omnibus Plan will expire on June 23, 2014. No awards may be made after that date. However, unless otherwise expressly provided in an applicable award agreement, any award granted under the amended Omnibus Plan, and before expiration of the plan, may extend beyond the end of such period through the award's normal expiration date.
How is the amended Omnibus Plan administered?
The Compensation Committee will administer the amended Omnibus Plan and will have full power and authority to determine when and to whom awards will be granted, and the type, amount, form of payment and other terms and conditions of each award, consistent with the provisions of the amended Omnibus Plan. In addition, the Compensation Committee can specify whether, and under what circumstances, awards to be received under the amended Omnibus Plan may be deferred automatically or at the election of either the holder of the award or the Compensation Committee, if any such deferral complies with or is exempt from Section 409A of the Code. Subject to the provisions of the amended Omnibus Plan, the Compensation Committee may amend or waive the terms and conditions, or accelerate the exercisability, of an outstanding award. The Compensation Committee has authority to interpret the amended Omnibus Plan and to establish rules and regulations for the administration of the amended Omnibus Plan. In addition, the Board may exercise the powers of the Compensation Committee at any time, except with respect to the grant of awards to our executive officers.
How many shares will be available for issuance under the amended Omnibus Plan?
The aggregate number of shares of our common stock that may be issued under all equity-based awards made under the amended Omnibus Plan will be 64.5 million. Certain awards under the amended Omnibus Plan will be subject to further limitations as follows:
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The Compensation Committee may adjust the number of shares of common stock and share limits described above in the case of a stock dividend or other distribution, including a stock split, merger or other similar corporate transaction or event, in order to prevent dilution or enlargement of the benefits or potential benefits intended to be provided under the amended Omnibus Plan.
If any shares of our common stock subject to any award or to which an award relates are forfeited or are reacquired by us, or if any award terminates without the delivery of any shares, the shares previously set aside for such awards will be available for future awards under the amended Omnibus Plan.
What types of awards can be issued under the amended Omnibus Plan?
The amended Omnibus Plan permits the granting of:
Under the amended Omnibus Plan, awards may be granted alone, in addition to, in combination with or in substitution for, any other award granted under the amended Omnibus Plan or any of our other compensation plans. Awards can be granted for no cash consideration or for cash or other consideration as determined by the Compensation Committee or as required by applicable law. Awards may provide that upon the grant or exercise thereof, the holder will receive cash, shares of our common stock or other securities, or property, or any combination of these in a single payment, in installments or on a deferred basis. The exercise price per share of common stock under any stock option and the grant price of any SAR may not be less than the fair market value of a share of common stock on the date of grant of such option or SAR, except to satisfy legal requirements of foreign jurisdictions or if the award is in substitution for an award previously granted by an entity acquired by us. Determinations of fair market value under the amended Omnibus Plan will be made in accordance with methods and procedures established by the Compensation Committee and intended to comply with or be exempt from Section 409A of the Code. The term of awards will not be longer than ten years from the date of grant.
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Stock Options. The holder of an option will be entitled to purchase a number of shares of our common stock at a specified exercise price during a specified time period, all as determined by the Compensation Committee. The option exercise price may be payable either in cash or, at the discretion of the Compensation Committee, in other securities or other property having a fair market value on the exercise date equal to the exercise price. Those securities may include shares of common stock already held by the person exercising the option or, in the case of non-qualified option, shares to be received upon exercise of the option.
Stock Appreciation Rights. The holder of a SAR is entitled to receive the excess of the fair market value (calculated as of the exercise date or, at the Compensation Committee's discretion, as of any time during a specified period before or after the exercise date) of a specified number of shares of our common stock over the grant price of the SAR. SARs vest and become exercisable in accordance with a vesting schedule established by the Compensation Committee.
Restricted Stock and Restricted Stock Units. The holder of restricted stock will own shares of our common stock subject to restrictions imposed by the Compensation Committee (including, for example, restrictions on the right to transfer or vote the restricted shares or to receive any dividends with respect to the shares) for a specified time period determined by the Compensation Committee. The holder of restricted stock units will have the right, subject to any restrictions imposed by the Compensation Committee, to receive shares of our common stock, or a cash payment equal to the fair market value of those shares, at some future date determined by the Compensation Committee. The minimum vesting period for these awards is over a period of at least three years from the date of grant, unless the award is conditioned on personal performance, or our performance or that of our affiliates, in which case the award must vest over a period of at least one year from the date of grant. The Compensation Committee also may permit accelerated vesting in the case of a participant's death, disability or retirement, or a change in control of Best Buy. If the participant's employment or service terminates during the vesting period for any other reason, the restricted stock and restricted stock units will be forfeited, unless the Compensation Committee determines that it would be in our best interest to waive the remaining restrictions.
Performance Awards. Performance awards granted under the amended Omnibus Plan are intended to qualify as "performance-based compensation" within the meaning of Section 162(m) of the Code, and to comply with or be exempt from Section 409A of the Code. Performance awards give participants the right to receive payments in cash, stock or property based solely upon the achievement of certain performance goals during a specified performance period. The Compensation Committee must designate all participants for each performance period, and establish performance goals and target awards for each participant no later than 90 days after the beginning of each performance period (or if earlier, within the first 25% of the performance period) and within the parameters of Section 162(m) of the Code. Performance goals must be based solely on one or more of the following business criteria:
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The measure of performance may be set by reference to an absolute standard or a comparison to specified companies or groups of companies, or other external measures, and may be applied at individual and/or organizational levels. In any calendar year, the maximum aggregate amount payable to any employee covered by Section 162(m) of the Code pursuant to awards made under the amended Omnibus Plan is $5 million, whether paid in cash, shares or other property, with that dollar amount to increase after 2009 by 5% per year.
Dividend Equivalents. The holder of a dividend equivalent award will be entitled to receive payments (in cash, shares of our common stock, other securities or other property) equivalent to the amount of cash dividends paid by us to our shareholders, with respect to the number of shares of common stock determined by the Compensation Committee. Dividend equivalents will be subject to other terms and conditions as determined by the Compensation Committee. Dividend equivalents are not permitted on appreciation awards (e.g. SARs and stock options), and will not be paid out on unearned performance awards.
Other Stock Awards. The Compensation Committee may grant unrestricted shares of our common stock, subject to terms and conditions determined by the Compensation Committee and the amended Omnibus Plan limitations.
May awards be transferred?
Unless otherwise provided by the amended Omnibus Plan, no award (other than shares of unrestricted stock) granted under the amended Omnibus Plan, and no right under any such award, will be transferable by a participant without consideration except by will or by the laws of descent and distribution.
May awards be re-priced?
Without the approval of our shareholders, no option or SAR may be amended to reduce its initial exercise or grant price, and no option or SAR may be canceled and replaced with an option, SAR or other award having a lower exercise price, except in connection with a stock dividend or other distribution, including a stock split, merger or other similar corporate transaction or event, in order to prevent dilution or enlargement of the benefits, or potential benefits intended to be provided under the amended Omnibus Plan.
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May the amended Omnibus Plan be amended further?
Yes. The Board may amend, alter, suspend, discontinue or terminate the amended Omnibus Plan at any time, except that prior shareholder approval will be required for any amendment to the amended Omnibus Plan that:
Subject to the provisions of the amended Omnibus Plan or an award agreement, the Compensation Committee may not amend any outstanding award agreement without the participant's consent, if the action would adversely affect the participant's rights.
What are the federal income tax consequences of awards under the amended Omnibus Plan?
Grant of Options and SARs. The grant of a stock option or SAR is not expected to result in any taxable income for the recipient.
Exercise of Options and SARs. When the holder of a non-qualified stock option exercises the option, the holder must recognize ordinary income equal to the excess of the fair market value of the shares of our common stock acquired on the date of exercise over the exercise price, and we will generally be entitled at that time to an income tax deduction for the same amount. The holder of an incentive stock option generally will have no taxable income upon exercising the option (except that an alternative minimum tax liability may arise), and we will not be entitled to an income tax deduction. Upon exercising a SAR, the amount of any cash received and the fair market value on the exercise date of any shares of our common stock received are taxable to the recipient as ordinary income and generally deductible by us.
Disposition of Shares Acquired Upon Exercise of Options and SARs. The tax consequence upon a person's disposition of shares of common stock acquired through the exercise of an option or SAR will depend on how long the shares have been held, and whether the shares were acquired by exercising an incentive stock option or by exercising a non-qualified stock option or SAR. Generally, there will be no tax consequence to us in connection with a person's disposition of shares of common stock acquired under an option or SAR, except that we may be entitled to an income
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tax deduction in the case of the disposition of shares acquired under an incentive stock option before the applicable incentive stock option holding periods set forth in the Code have been satisfied.
Awards Other Than Options and SARs. As to other awards granted under the Omnibus Plan that are payable either in cash or shares of our common stock that are either transferable or not subject to substantial risk of forfeiture, the holder of the award must recognize ordinary income equal to (a) the amount of cash received or, as applicable; (b) the excess of (i) the fair market value of the shares received (determined as of the date of receipt) over (ii) the amount (if any) paid for the shares by the holder of the award. We will generally be entitled at that time to an income tax deduction for the same amount.
As to an award that is payable in shares of our common stock that are restricted from transfer and subject to substantial risk of forfeiture unless a special election is made by the holder of the award under the Code, the holder must recognize ordinary income equal to the excess of (i) the fair market value of the shares received (determined as of the first time the shares become transferable or not subject to substantial risk of forfeiture, whichever occurs earlier) over (ii) the amount (if any) paid for the shares by the holder of the award. We will generally be entitled at that time to an income tax deduction for the same amount.
Our Income Tax Deduction. Subject to the usual rules concerning reasonable compensation, and assuming that, as expected, performance awards paid under the amended Omnibus Plan are "qualified performance-based compensation" within the meaning of Section 162(m) of the Code, we will generally be entitled to a corresponding income tax deduction at the time a participant recognizes ordinary income from awards made under the amended Omnibus Plan. However, we will not receive any income tax deduction when a participant recognizes capital gain income upon disposition of shares of common stock received pursuant to an incentive stock option or any other form of award.
Delivery of Shares for Tax Obligation. Under the amended Omnibus Plan, the Compensation Committee may permit participants receiving or exercising awards, subject to the discretion of the Compensation Committee and upon such terms and conditions as it may impose, to deliver to us shares of common stock (either shares received upon the receipt or exercise of the award, or shares previously owned by the holder of the option) to satisfy federal and state income tax obligations.
Section 409A of the Code. The Compensation Committee will administer and interpret the amended Omnibus Plan and all award agreements in a manner intended to satisfy the requirements of Section 409A of the Code, so as to minimize the risk of any adverse tax results thereunder to a holder of an award. If any provision of the amended Omnibus Plan or any award agreement would result in such adverse consequences, the Compensation Committee may amend that provision or take other reasonably necessary action to minimize the participants' risk of any adverse tax results; no such action shall be deemed to impair or otherwise adversely affect the rights of an holder of an award under the amended Omnibus Plan.
What future awards will be granted under the amended Omnibus Plan?
The number and types of awards that will be granted in the future under the amended Omnibus Plan are not determinable, as the Compensation Committee will make these determinations in its sole discretion. The closing price of a share of our common stock as reported on the NYSE on May , 2011, was $XX.XX. No awards granted under the Omnibus Plan before the date of the Meeting have been made subject to shareholder approval of the amended Omnibus Plan.
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Equity Compensation Plan Information
The following table provides information about our common stock that may be issued under our equity compensation plans as of February 26, 2011: