UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant S
Filed by a Party other than the Registrant £
Check the appropriate box:
£ Preliminary Proxy Statement
£ Confidential, For Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
S Definitive Proxy Statement
£ Definitive Additional Materials
£ Soliciting Material Pursuant to §240.14a-12
FOOT LOCKER, INC.
(Name of Registrant as Specified in its Charter)
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
S No fee required.
£ Fee computed on table below per Exchange Act Rules 14a-6(I)(4) and 0-11.
|
|
|
(1) |
Title of each class of securities to which transaction applies: |
|
|
|
|
|
||
(2) |
Aggregate number of securities to which transaction applies: |
|
|
|
|
|
||
(3) |
Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is calculated and state how it was determined): |
|
|
|
|
|
||
(4) |
Proposed maximum aggregate value of transaction: |
|
|
|
|
|
||
(5) |
Total fee paid: |
|
|
|
|
£ Fee paid previously with preliminary materials.
£ Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
|
|
|
(1) |
Amount Previously Paid: |
|
|
|
|
|
||
(2) |
Form, Schedule or Registration Statement No.: |
|
|
|
|
|
||
(3) |
Filing Party: |
|
|
|
|
|
||
(4) |
Date Filed: |
|
|
|
|
NOTICE OF 2012 ANNUAL MEETING
AND
PROXY STATEMENT
TABLE OF CONTENTS
Page
i
ii
1
1
1
2
2
3
4
5
5 Persons Owning More than Five Percent of the Company’s Stock
6
7
7
7
7
8
8
8
8
9
9
9
9
9
9
10
10
11
11
11
11
12
12
12
12
14
14
14
15
16
16
17
17
17
21
21
22
37
38
41
45
49
50
Page
54
55
70
72
73
73
74
74
75
76 Proposal 2: Ratification of the Appointment of Independent Registered Public Accounting Firm
81
81
81
82 Proposal 3: Reapproval of the Performance Goals under the Annual Incentive
83
85 Deadlines and Procedures for Nominations and Shareholder Proposals
87
88
112 West 34th Street NOTICE OF 2012 ANNUAL MEETING OF SHAREHOLDERS
DATE:
May 16, 2012
TIME:
9:00 A.M., local time
PLACE:
Foot Locker, Inc., 112 West 34th Street, New York, New York 10120
RECORD DATE:
Shareholders of record on March 19, 2012 can vote at this meeting.
ITEMS OF BUSINESS:
•
Elect three members to the Board of Directors to serve for three-year terms.
•
Ratify the appointment of KPMG LLP as our independent registered public accounting firm for the 2012 fiscal year.
•
Reapprove the Performance Goals under the Foot Locker Annual Incentive Compensation Plan, as amended and restated.
•
Advisory approval of the compensation of our named executive officers.
•
Transact such other business as may properly come before the meeting and at any adjournment or postponement.
PROXY VOTING:
YOUR VOTE IS IMPORTANT TO US. Please vote as soon as possible in one of these ways:
•
Use the toll-free telephone number shown on the Notice of Internet Availability of Proxy Materials for the 2012 Annual Meeting of Foot Locker, Inc. (your “Foot Locker Notice”) or on your proxy card;
•
Visit the web site shown on your Foot Locker Notice or on your proxy card to vote via the Internet;
•
If you received a printed copy of the proxy card, you may mark, sign and return the enclosed proxy card using the postage-paid envelope provided; or
•
Follow the instructions on your proxy materials if your shares are held in the name of your bank, broker, or other holder of record.
Even if you plan to attend the annual meeting, we encourage you to vote in advance using one of these methods. April 5, 2012 i
New York, New York 10120
GARY M. BAHLER
Secretary
We are providing this summary of our 2012 Notice of Annual Meeting and Proxy Statement and the items to be voted on by our shareholders. This is only a summary. For more complete information, please review the complete Proxy Statement and our 2011 Annual Report on Form 10-K. 2012 ANNUAL MEETING OF SHAREHOLDERS Date and Time
Wednesday, May 16, 2012, at 9:00 a.m., local time Place
112 West 34th Street, New York, NY 10120 Record Date
March 19, 2012 Proposals to be Voted on by Shareholders and the Board of Directors’ Voting Recommendations Proposal Board Vote Page Reference Election of three directors FOR EACH NOMINEE 75-76 Ratification of the appointment of KPMG LLP
for 2012 FOR 81 Reapproval of the Performance Goals under
the Annual Incentive Compensation Plan FOR 83-84 Advisory Approval of Named Executive
Officers’ Compensation FOR 85-86 Election of Directors The following table provides summary information about each of the three directors standing for election at this meeting: Name
Age
Director
Occupation
Independent
Other Public Alan D. Feldman
60
2005
Chairman, President & CEO
Yes
Midas, Inc. and John Bean Jarobin Gilbert Jr.
66
1981
President & CEO
Yes
Midas, Inc. David Y. Schwartz
71
2000
Independent Business Adviser
Yes
Walgreen Co. and Ratification of Appointment of KPMG LLP We are asking our shareholders to ratify the appointment of KPMG LLP as our independent registered public accounting firm for fiscal 2012. The following is a summary of KPMG’s fees for 2011 and 2010: Category
2011
2010 Audit Fees
$
2,572,000
$
2,665,000 Audit-Related Fees
555,000
301,000 Tax Fees
153,000
141,000 All Other Fees
0
0 Total
$
3,280,000
$
3,107,000 ii
Recommendation
For More Detail
Since
Company Boards
of Midas, Inc.
Technologies Corporation
of DBSS Group, Inc.
Stage Stores, Inc.
Reapproval of the Performance Goals under the Annual Incentive Compensation Plan The Foot Locker Annual Incentive Compensation Plan, as amended and restated (the “Annual Bonus Plan”), is designed to comply with the requirements of Section 162(m) of the Internal Revenue Code. Under this section of the tax code, certain compensation in excess of $1 million paid to the CEO and the
three other most highly paid executive officers (other than the CFO) is not deductible. Compensation paid based on the achievement of pre-established performance goals is excluded from this deduction limit if the performance goals to be used are approved by shareholders. Our shareholders last approved the
performance goals for this plan at the 2008 annual meeting of shareholders, and Section 162(m) of the tax code requires that shareholders approve the performance goals under the plan at least every five years. A summary of the material features of the Annual Bonus Plan is provided beginning on Page 83. Advisory Approval of the Named Executive Officers’ Compensation We are asking shareholders to approve, on a nonbinding, advisory basis, the 2011 compensation of our named executive officers, as described in this proxy statement on Pages 22 through 73. Last year, our shareholders overwhelmingly approved our executive compensation program. Given this support, the
Company decided to retain the overall program, which ties the executives’ pay closely with Foot Locker’s performance, so that total compensation in any year will vary– sometimes significantly –based on our performance. In 2011 we had the financial and operating results shown in the following table. These results represent continued progress toward the goals contained in our long-range plan.
Financial Metric
2011
2010
Percent Increase Sales
$5,623 million
$5,049 million
11.4% Comparable Store Sales
9.8%
5.8%
— Net Income
$278 million
$169 million
64% Earnings per Share
$1.80
$1.07
68% Return on Invested Capital
11.8%
8.3%
— End-of-Year Market Capitalization
$4.01 billion
$2.75 billion
46% ROIC is a non-GAAP financial measure. There is a reconciliation to GAAP on Page 16 of our 2011 Form 10-K. Based upon the Company’s performance, payments were made to the named executive officers under the Annual Bonus Plan for 2011 and the Long-Term Bonus Plan for 2009-2011. Although long-term incentive payouts were earned for the 2010-2011 performance measurement period, they will not be paid out
until 2013. As described in the Compensation Discussion and Analysis section of this proxy statement, fiscal 2011 was a transition year under our long-term incentive program, reflecting the change we made two years ago to move to a two-year performance measurement period with an additional one-year holding
period, payable one-half in cash and one-half in equity, rather than having a three-year performance measurement period payable all in cash at the end of the performance period, provided, in both cases, that the performance goals are achieved. As a result of this change, two long-term performance measurement
periods ended in 2011 and were earned by the named executives based on the Company’s performance. Only one long-term performance award (2009-2011) was paid out, while the payout for the 2010-2011 performance measurement period will not be paid until 2013. Going forward, only one long-term
performance measurement period will end each year. iii
2011 over 2010
112 West 34th Street PROXY STATEMENT We are providing these proxy materials to you for the solicitation of proxies by the Board of Directors of Foot Locker, Inc. for the 2012 Annual Meeting of Shareholders and for any adjournments or postponements of this meeting. We are holding this annual meeting on May 16, 2012 at 9:00 A.M., local time, at
our corporate headquarters located at 112 West 34th Street, New York, New York 10120. In this proxy statement we refer to Foot Locker, Inc. as “Foot Locker,” “the Company,” “we,” “our,” or “us.” We are pleased this year once again to take advantage of the Securities and Exchange Commission rule that allows companies to furnish their proxy materials to shareholders over the Internet instead of mailing full sets of the printed materials. We believe that this procedure reduces costs, provides greater
flexibility to our shareholders, and lessens the environmental impact of our Annual Meeting. On or about April 5, 2012 we started mailing to most of our shareholders in the United States a Notice of Internet Availability of Proxy Materials (the “Foot Locker Notice”). The Foot Locker Notice contains instructions
on how to access and read our 2012 Proxy Statement and our 2011 Annual Report to Shareholders on the Internet and to vote online. If you received a Foot Locker Notice by mail, you will not receive paper copies of the proxy materials in the mail unless you request them. Instead, the Foot Locker Notice instructs
you on how to access and read the Proxy Statement and Annual Report and how you may submit your proxy over the Internet. If you received a Foot Locker Notice by mail and would like to receive a printed copy of the materials, please follow the instructions on the Foot Locker Notice for requesting the
materials, and we will promptly mail the materials to you. We are mailing to shareholders, or making available to shareholders via the Internet, this Proxy Statement, form of proxy card, and our 2011 Annual Report/Form10-K on or about April 5, 2012. Important Notice Regarding the Availability of Proxy Materials for the Shareholder Meeting The Company’s Proxy Statement and 2011 Annual Report/Form 10-K are available at QUESTIONS AND ANSWERS ABOUT THIS ANNUAL MEETING AND VOTING What is included in these proxy materials? The proxy materials include our 2012 Proxy Statement and 2011 Annual Report and Form 10-K. If you received printed copies of these materials by mail, these materials also include the proxy card for this annual meeting. May I obtain an additional copy of the Form 10-K? You may obtain an additional copy of our 2011 Form 10-K without charge by writing to our Investor Relations Department at Foot Locker, Inc., 112 West 34th Street, New York, New York 10120. It is also available free of charge through our corporate web site at http://www.footlocker-inc.com/investors.cfm?page=corporate-governance.
New York, New York 10120
To Be Held on May 16, 2012
http://materials.proxyvote.com/344849
http://www.proxyvoting.com/fl
What constitutes a quorum for the Annual Meeting? We will have a quorum and will be able to conduct the business of the Annual Meeting if the holders of a majority of the shares outstanding are present at the meeting, either in person or by proxy. We will count abstentions and broker non-votes, if any, as present and entitled to vote in determining whether
we have a quorum. What is the record date for this meeting? The record date for this meeting is March 19, 2012. If you were a Foot Locker shareholder on this date, you are entitled to vote on the items of business described in this proxy statement. Do I need a ticket to attend the Annual Meeting? You will need an admission ticket to attend the Annual Meeting. Attendance at the meeting will be limited to shareholders on March 19, 2012 (or their authorized representatives) having an admission ticket or proof of their share ownership, and guests of the Company. If you plan to attend the meeting, please
indicate this when you are voting by telephone or Internet or check the box on your proxy card, and we will promptly mail an admission ticket to you. If your shares are held in the name of a bank, broker, or other holder of record and you plan to attend the meeting, you can obtain an admission ticket in advance by providing proof of your ownership, such as a bank or brokerage account statement, to the Corporate Secretary at Foot Locker, Inc., 112 West 34th
Street, New York, New York 10120. If you do not have an admission ticket, you must show proof of your ownership of the Company’s Common Stock at the registration table at the door. What are shareholders voting on at this meeting? You are being asked to vote on the following four items:
•
Proposal 1:
Election of three directors in Class III;
•
Proposal 2:
Ratification of the appointment of KPMG LLP as our independent registered public accounting firm for 2012;
•
Proposal 3:
Reapproval of the performance goals under the Foot Locker Annual Incentive Compensation Plan, as amended and restated; and
•
Proposal 4:
Advisory approval of executive compensation. How does the Board of Directors recommend that I vote on the proposals? The Board recommends that you vote “FOR” Proposals 1, 2, 3 and 4. Could other matters be voted on at the Annual Meeting? We do not know of any other business that will be presented at the 2012 annual meeting. If any other matters are properly brought before the meeting for consideration, then the persons named as proxies will have the discretion to vote on those matters for you using their best judgment. Who may vote at the Annual Meeting? The only voting securities of Foot Locker are our shares of Common Stock. Only shareholders of record on the books of the Company on March 19, 2012 are entitled to vote at the annual meeting and any adjournments or postponements. Each share is entitled to one vote. There were 151,895,099 shares of
Common Stock outstanding on March 19, 2012. What are the voting requirements to elect directors and to approve the other proposals?
•
Proposal 1 (Election of Directors). Directors must be elected by a plurality of the votes cast by shareholders. (Please see our policy described on Page 7 regarding resignations by directors who do not receive more “for” votes than “withheld” votes.)
2
• Proposal 2 (Ratification of the Appointment of Independent Registered Public Accounting Firm). This proposal requires the favorable vote of a majority of the votes cast by shareholders to be approved. • Proposal 3 (Reapproval of the performance goals under the Annual Incentive Compensation Plan). This proposal requires the favorable vote of a majority of the votes cast by shareholders to be approved. • Proposal 4 (Advisory approval of executive compensation). The favorable vote of a majority of the votes cast by shareholders will constitute shareholder approval of our named executive officers’ compensation. What happens if I do not vote my shares? This depends on how you hold your shares and the type of proposal. If you hold your shares in “street name,” such as through a bank or brokerage account, it is important that you cast your vote if you want it to count for Proposals 1, 3, and 4. If you do not instruct your bank or broker how to vote your shares
on these proposals, no votes will be cast on your behalf. With regard to Proposal 2, your bank or broker will have discretion to vote any uninstructed shares for this proposal. If your stock ownership is reflected directly on the books and records of the Company’s transfer agent, you are a “shareholder of record.” If you do not cast your vote, then no votes will be cast on your behalf on any of the proposals. How will the votes be counted? Votes will be counted and certified by representatives of our transfer agent, Computershare, as inspectors of election. The inspectors of election are independent and are not employees of Foot Locker. Votes withheld for the election of one or more of the nominees for director will not be counted as votes cast for them. We do not count abstentions and broker non-votes, if any, in determining the votes cast for any proposal. With respect to Proposals 2, 3, and 4, if you abstain from voting, this will have no
effect on the vote since an abstention is not considered a vote cast. The Company’s Certificate of Incorporation and By-laws do not contain any provisions on the effect of abstentions or broker non-votes. Will my vote be confidential? We maintain the confidentiality of our shareholders’ votes. All proxy cards, electronic voting, voting instructions, ballots and voting tabulations identifying shareholders are kept confidential from the Company, except:
as necessary to meet any applicable legal requirements, • when a shareholder requests disclosure or writes a comment on a proxy card, • in a contested proxy solicitation, and • to allow independent inspectors of election to tabulate and certify the vote. How do I vote my shares? You may vote using any of the following methods:
•
Telephone
If you are located within the United States or Canada, you can vote your shares by telephone by calling the toll-free telephone number printed on your Notice of Internet Availability of Proxy Materials (“Notice”), on your proxy card, or in the instructions that accompany your proxy materials, as applicable,
and following the recorded instructions. You will need the control number printed on your Notice, on your proxy card, or in the instructions that accompany your proxy materials, as applicable. Telephone voting is available 24 hours a day and will be accessible until 11:59 P.M. Eastern Time on May 15, 2012. The
telephone voting system has easy to follow instructions and allows you to confirm that the system has properly recorded your vote. If you vote by telephone, you do NOT need to return 3
•
a proxy card or voting instruction form. If you are an owner in street name, please follow the instructions that accompany your proxy materials.
Internet
You can also choose to vote your shares by the Internet. You will need the control number printed on your Notice, on your proxy card, or in the instructions that accompany your proxy materials, as applicable. The web site for Internet voting is listed on your Notice, proxy card, or in the instructions that
accompany your proxy materials. Internet voting is available 24 hours a day and will be accessible until 11:59 P.M. Eastern Time on May 15, 2012. As with telephone voting, you will be able to confirm that the system has properly recorded your vote. If you vote via the Internet, you do NOT need to return a proxy
card or voting instruction form.
Mail
If you are a holder of record and received printed copies of the materials by mail, you may choose to vote by mail. Simply mark your proxy card, date and sign it, and return it in the postage-paid envelope that we included with your materials. If you hold your shares through a bank or brokerage account, please
complete and mail the voting instruction form in the envelope provided. You may also vote by ballot at the Annual Meeting if you decide to attend in person. If your shares are held in the name of a bank, broker or other holder of record, you must obtain a proxy, executed in your favor, from the holder of record to be able to vote at the meeting. All shares that have been properly voted and not revoked will be voted at the Annual Meeting. If you sign and return a proxy card but do not give voting instructions, the shares represented by that proxy card will be voted as recommended by the Board of Directors. Can I change my mind after voting my shares? You may revoke your proxy at any time before it is used by (i) sending a written notice to the Company at its corporate headquarters, (ii) delivering a valid proxy card with a later date, (iii) providing a later dated vote by telephone or Internet, or (iv) voting by ballot at the Annual Meeting. Can I vote shares held in employee plans? If you hold shares of Foot Locker Common Stock through the Foot Locker 401(k) Plan or the Foot Locker Puerto Rico 1165(e) Plan, your proxy card includes the number of shares allocated to your plan account. Your proxy card will serve as a voting instruction card for these shares for the plan trustee to vote
the shares. The trustee will vote only those shares for which voting instructions have been given. To allow sufficient time for voting by the trustees of these plans, your voting instructions must be received by May 12, 2012. Who pays the cost of this proxy solicitation? We will pay for the cost of the solicitation of proxies, including the preparation, printing and mailing of the proxy materials. Proxies may be solicited, without additional compensation, by our directors, officers, or employees by mail, telephone, fax, in person, or otherwise. We will request banks, brokers and other custodians, nominees and fiduciaries to deliver proxy materials to the beneficial owners of Foot Locker’s Common Stock
and obtain their voting instructions, and we will reimburse those firms for their expenses under the rules of the Securities and Exchange Commission and The New York Stock Exchange. In addition, we have retained Innisfree M&A Incorporated to assist us in the solicitation of proxies for a fee of $12,500 plus out-of-
pocket expenses. 4
•
•
•
Ballot at the Annual Meeting
BENEFICIAL OWNERSHIP OF THE COMPANY’S STOCK Directors and Executive Officers The following table shows the number of shares of Common Stock reported to us as beneficially owned by each of our directors and named executive officers as of March 19, 2012. The table also shows beneficial ownership by all directors, named executive officers, and executive officers as a group on that date,
including shares of Common Stock that they have a right to acquire within 60 days after March 19, 2012 by the exercise of stock options. No director, named executive officer, or executive officer beneficially owned one percent or more of the total number of outstanding shares as of March 19, 2012. Each person has sole voting and investment power for the number of shares shown unless otherwise noted.
Amount and Nature of Beneficial Ownership
Name
Common Stock
Stock Options
RSUs and
Total Gary M. Bahler
125,529
150,332
—
275,861 Jeffrey L. Berk
74,471
231,999
—
306,470 Nicholas DiPaolo
47,150
(c)
13,185
2,223
62,558 Alan D. Feldman
43,439
6,314
17,740
67,493 Jarobin Gilbert Jr.
37,096
13,185
2,223
52,504 Ronald J. Halls
81,752
140,000
—
221,752 Ken C. Hicks
503,050
866,666
—
1,369,716 Robert W. McHugh
167,582
239,999
—
407,581 Matthew M. McKenna
68,264
4,287
2,223
74,774 Richard A. Johnson
194,978
254,999
25,000
474,977 Guillermo G. Marmol
11,704
—
2,223
13,927 Lauren B. Peters
93,251
231,999
—
325,250 James E. Preston
109,574
8,336
2,223
120,133 Allen Questrom
2,104
—
2,223
4,327 David Y. Schwartz
38,844
13,185
31,237
83,266 Cheryl Nido Turpin
27,828
13,185
36,363
77,376 Dona D. Young
23,207
13,185
46,361
82,753 All 21 directors and executive officers as a group, including the named executive officers
1,894,374
2,639,620
170,038
4,704,032
(d) Notes to Beneficial Ownership Table
(a)
This column includes shares held in the Company’s 401(k) Plan, as well as the executives’ unvested shares of restricted stock listed below over which they have sole voting power but no investment power:
5
Beneficially Owned
Excluding
Stock Options(a)
Exercisable Within
60 Days After
3/19/2012
Deferred
Stock Units(b)
Name
Number of Unvested
K. Hicks
350,000
R. McHugh
45,000
L. Peters
45,000
R. Johnson
120,000
G. Bahler
25,000
J. Berk
25,000
(b)
This column includes (i) the number of deferred stock units credited as of March 19, 2012 to the account of the directors who elected to defer all or part of their annual retainer fee and (ii) time vested restricted stock units (“RSUs”). The deferred stock units and RSUs do not have current voting or investment
power. (c) Includes 1,050 shares held by his spouse. (d) This number represents approximately 3.1 percent of the shares of Common Stock outstanding at the close of business on March 19, 2012. Persons Owning More Than Five Percent of the Company’s Stock The following table provides information on shareholders who beneficially own more than five percent of our Common Stock according to reports filed with the Securities and Exchange Commission (“SEC”). To the best of our knowledge, there are no other shareholders who beneficially own more than five
percent of a class of the Company’s voting securities.
Name and Address
Amount and
Percent Ameriprise Financial, Inc.
7,908,546(a)
5.23
%(a) 145 Ameriprise Financial Center Minneapolis, MN 55474 Columbia Management Investment Advisers, LLC 225 Franklin Street Boston, MA 02110 BlackRock, Inc.
11,921,631(b)
7.88
%(b) 40 East 52nd Street New York, NY 10022 The Vanguard Group, Inc.
8,245,479(c)
5.45
%(c) 100 Vanguard Blvd. Malvern, PA 19355 Notes to Table on Persons Owning More than Five Percent of the Company’s Stock
(a)
Reflects shares beneficially owned as of December 31, 2011 according to Amendment No. 1 to Schedule 13G filed with the SEC jointly by Ameriprise Financial, Inc. (“AFI”) and Columbia Management Investment Advisers, LLC (“CMIA”). AFI is the parent holding company of CMIA, an investment adviser.
As reported in this schedule, CMIA holds shared voting power with respect to 861,927 shares and shared dispositive power with respect to 7,908,546 shares. AFI, as the parent company of CMIA, may be deemed to beneficially own the shares reported by CMIA. (b) Reflects shares beneficially owned as of December 31, 2011 according to Amendment No. 2 to Schedule 13G filed with the SEC. As reported in this schedule, BlackRock, Inc., a parent holding company, holds sole voting and dispositive power with respect to 11,921,631 shares. 6
Shares of Restricted
Stock
of Beneficial Owner
Nature of
Beneficial Ownership
of Class
(c) Reflects shares beneficially owned as of December 31, 2011 according to Schedule 13G filed with the SEC. As reported in this schedule, The Vanguard Group, Inc. (“Vanguard Group”), an investment adviser, holds sole voting power with respect to 108,147 shares, shared dispositive power with respect to
108,147 shares, and sole dispositive power with respect to 8,137,332 shares. Vanguard Fiduciary Trust Company, a wholly owned subsidiary of Vanguard Group, is the beneficial owner of 108,147 shares and directs the voting of these shares. Section 16(a) Beneficial Ownership Reporting Compliance Section 16(a) of the Securities Exchange Act of 1934 requires that our directors and executive officers file with the Securities and Exchange Commission reports of ownership and changes in ownership of Foot Locker’s Common Stock. Based on our records and other information, we believe that during the
2011 fiscal year, the directors and executive officers complied with all applicable SEC filing requirements except as follows: Ken Hicks filed one late Form 4 report with regard to an inadvertent intra-plan transfer of 125.801 shares held through the Foot Locker 401(k) Plan. This intra-plan transfer was executed on
May 23, 2011 on Mr. Hicks’ behalf by the plan’s record keeper in connection with an automatic quarterly rebalancing of Mr. Hicks’ 401(k) Plan account. Since Mr. Hicks was not aware of this transaction at the time of its execution, he did not timely report it on Form 4. Promptly upon being informed in February
2012 of the intra-plan transfer, Mr. Hicks reported it on a Form 4. CORPORATE GOVERNANCE INFORMATION The Board of Directors is committed to good corporate governance and has adopted Corporate Governance Guidelines and other policies and practices to guide the Board and senior management in this area. This section of the proxy statement summarizes our key corporate governance policies and practices. Corporate Governance Guidelines The Board of Directors has adopted Corporate Governance Guidelines. The Board periodically reviews the guidelines and may revise them when appropriate. The Corporate Governance Guidelines are available on the corporate governance section of the Company’s corporate web site at http://www.footlocker-inc.com/investors.cfm?page=corporate-governance. You may also obtain a printed copy of the guidelines by writing to the Corporate Secretary at the Company’s headquarters. Committee Charters The Board of Directors has adopted charters for the Audit Committee, the Compensation and Management Resources Committee, the Finance and Strategic Planning Committee, the Nominating and Corporate Governance Committee, and the Retirement Plan Committee. Copies of the charters for these
committees are available on the corporate governance section of the Company’s corporate web site at http://www.footlocker-inc.com/investors.cfm?page=corporate-governance. You may also obtain printed copies of these charters by writing to the Corporate Secretary at the Company’s headquarters. Policy on Voting for Directors Our Corporate Governance Guidelines provide that if a nominee for director in an uncontested election receives more votes “withheld” from his or her election than votes “for” election (a “Majority Withheld Vote”), then the director must offer his or her resignation for consideration by the Nominating and
Corporate Governance Committee (the “Nominating Committee”). The Nominating Committee will evaluate the resignation, weighing the best interests of the Company and its shareholders, and make a recommendation to the Board of Directors on the action to be taken. For example, the Nominating Committee
may recommend (i) accepting the resignation, (ii) maintaining the director but addressing what the Nominating Committee believes to be the underlying cause of the withheld votes, (iii) resolving that the director will not be re-nominated in the future for election, or (iv) rejecting the resignation. When making its
determination, the Nominating Committee will consider all factors that it deems relevant, including (i) any stated reasons why shareholders withheld votes from the 7
director, (ii) any alternatives for curing the underlying cause of the withheld votes, (iii) the director’s tenure, (iv) the director’s qualifications, (v) the director’s past and expected future contributions to the Board and to the Company, and (vi) the overall composition of the Board, including whether accepting the
resignation would cause the Company to fall below the minimum number of directors required under the Company’s By-laws or fail to meet any applicable Securities and Exchange Commission or New York Stock Exchange requirements. We will promptly disclose the Board’s decision on whether or not to accept
the director’s resignation, including, if applicable, the reasons for rejecting the offered resignation. The Board believes that a significant majority of the members of the Board should be independent, as determined by the Board based on the criteria established by The New York Stock Exchange. Each year, the Nominating Committee reviews any relationships between outside directors and the Company that
may affect independence. Currently, one of the current eleven members of the Board of Directors serves as an officer of the Company, and the remaining ten directors are independent under the criteria established by The New York Stock Exchange. As a general principle, the Board believes that the periodic rotation of committee assignments on a staggered basis is desired and provides an opportunity to foster diverse perspective and develop breadth of knowledge within the Board. We have had a lead director since 2004. The lead director’s responsibilities include reviewing and approving Board agendas; chairing executive sessions of the Board and meetings of the independent directors, both of which are held in conjunction with each quarterly Board meeting; leading the annual review of
the Chief Executive Officer’s performance; attending meetings of Board committees; and serving as a liaison between the independent directors and the Chief Executive Officer. The Board of Directors considers the periodic rotation of the lead director from time to time, taking into account experience, continuity
of leadership, and the best interests of the Company. James E. Preston currently serves as the lead director. Mr. Preston’s term as a director expires at the annual meeting of shareholders in 2013. In considering rotation of this leadership position, the Board has appointed Nicholas DiPaolo as lead director to succeed Mr. Preston in this position, effective at the end
of the 2012 annual shareholders’ meeting. The Board believes that Mr. DiPaolo is well-suited to serve as lead director, given his business and financial background and ten years of service on our Board. The Board believes that the rotation of the lead director position at this time will provide for an orderly
transition period and allow Mr. DiPaolo to benefit from Mr. Preston’s expertise. The Board of Directors evaluates, from time to time as appropriate, whether the same person should serve as Chairman of the Board and Chief Executive Officer, or whether the positions should be split, in light of all relevant factors and circumstances, and what it considers to be in the best interests of the
Company and its shareholders. In recent years, the Board has utilized various leadership structures. For example, from 2001 to 2004, the positions were separated, with a previously independent director serving as Chairman of the Board. From 2004 to August 2009, the positions of Chairman of the Board and Chief Executive Officer were
held by the same person, with the former Chairman of the Board serving as lead director until his death. Subsequently, James E. Preston, an independent director, was appointed as lead director. From August 2009 to January 2010, the positions were again separated, with the former Chairman and Chief Executive
Officer serving as Chairman of the Board and Mr. Preston, as independent lead director, continuing to serve in that capacity. Since January 31, 2010, Mr. Hicks has served as Chairman of the Board and Chief Executive Officer, and Mr. Preston continues to serve as the independent lead director 8
until the close of the 2012 annual shareholders meeting when Nicholas DiPaolo, an independent director, will succeed him as lead director. The Board believes that the current leadership structure is appropriate for the Company in light of the Company’s and the Board’s history of operating effectively when these positions have been combined; the availability of directors such as Mr. Preston and Mr. DiPaolo to serve as a strong, independent lead
director; the size of the Board, which allows a free flow of communication among its members and between the independent members and the Chairman; the important role played by our committee chairs; the independence of our directors; and Mr. Hicks’ background and experience. Executive Sessions of Non-Management Directors The Board of Directors holds regularly scheduled executive sessions of non-management directors in conjunction with each quarterly Board meeting. The lead director presides at these executive sessions. Board Members’ Attendance at Annual Meetings Although we do not have a policy on our Board members’ attendance at annual shareholders’ meetings, we encourage each director to attend these important meetings. The annual meeting is normally scheduled on the same day as a quarterly Board of Directors’ meeting. In 2011, all of the directors attended
the annual shareholders’ meeting. Director Orientation and Education We have an orientation program for new directors that is intended to educate a new director on the Company and the Board’s practices. At the orientation, the newly elected director generally meets with the Company’s Chief Executive Officer, the Chief Financial Officer, other senior financial officers of the
Company, and the General Counsel and Secretary to review the business operations, financial matters, investor relations, corporate governance policies, and the composition of the Board and its committees. Additionally, he or she has the opportunity to visit our stores at the Company’s New York headquarters, or
elsewhere, with a senior division officer for an introduction to store operations. We also provide the Board of Directors with educational training from time to time on subjects applicable to the Board and the Company, including with regard to retailing, accounting, financial reporting, and corporate governance,
using both internal and external resources. Payment of Directors Fees in Stock The non-employee directors receive one-half of their annual retainer fees, including committee chair and lead director retainer fees, in shares of the Company’s Common Stock, with the balance payable in cash. Directors may elect to receive up to 100 percent of their fees in stock. The Board has established a policy in its Corporate Governance Guidelines that directors retire from the Board at the annual meeting of shareholders following the director’s 72nd birthday. As part of the Nominating Committee’s regular evaluation of the Company’s directors and the overall needs of the
Board, the Nominating Committee may ask a director to remain on the Board for an additional period of time beyond age 72, or to stand for re-election after reaching age 72. For any director over age 72, the Nominating and Corporate Governance Committee evaluates that director each year in light of the
retirement policy to determine his or her continued service on the Board. As described on Page 74, the Nominating and Corporate Governance Committee has asked James E. Preston, age 78, to continue to serve on the Board through the end of his term in 2013. Change in a Director’s Principal Employment The Board has established a policy that any director whose principal employment changes is required to advise the Chair of the Nominating and Corporate Governance Committee of this change. 9
If requested by the Chair of the Committee, after consultation with the members of the Committee, the director will submit a letter of resignation to the Chair of the Committee, and the Committee would then meet to consider whether to accept or reject the letter of resignation. The Board of Directors has oversight responsibilities regarding risks that could affect the Company. This oversight is conducted primarily through the Audit Committee. The Audit Committee has established procedures for reviewing the Company’s risks. These procedures include regular risk monitoring by
Foot Locker management to update current risks and identify potential new and emerging risks, quarterly risk reviews by management with the Audit Committee, and an annual risk report to the full Board of Directors. The Audit Committee Chair reports on the committee’s meetings, considerations, and actions
to the full Board at the next Board meeting following each committee meeting. In addition, the Compensation and Management Resources Committee considers risk in relation to the Company’s compensation policies and practices. The committee’s independent compensation consultant provides an annual report
to the committee on risk relative to the Company’s compensation programs. The Company believes that this process for risk oversight is appropriate in light of the nature of the Company’s business, its size, and the active participation of senior members of management, including the Chief Executive Officer, in managing risk and holding regular discussions on risk with the Audit
Committee, the Compensation and Management Resources Committee, and the Board. The Board of Directors has adopted Stock Ownership Guidelines. The Guidelines were initially adopted in 2006 and were most recently amended as of the start of the 2012 fiscal year. These guidelines cover the Board of Directors, the Chief Executive Officer, and Other Principal Officers. The Guidelines—both
current and prior to the 2012 amendment—are as follows:
Covered Position
Ownership Guideline
Ownership Guideline Non-Employee Directors
4 x Annual Retainer Fee
3 x Annual Retainer Fee Chief Executive Officer
6 x Annual Base Salary
5 x Annual Base Salary Executive Vice Presidents
3 x Annual Base Salary
2 x Annual Base Salary
Senior Vice Presidents and CEOs of Operating Divisions
2 x Annual Base Salary
2 x Annual Base Salary
Managing Directors of Operating Divisions and Corporate Vice Presidents
0.5 x Annual Base Salary
N/A Shares of unvested restricted stock, unvested restricted stock units, and deferred stock units are counted towards beneficial ownership. Performance-based restricted stock units are counted once earned. Stock options and shares held through the Foot Locker 401(k) Plan are disregarded in calculating beneficial
ownership. Non-employee directors and executives who were serving in covered positions when the guidelines were originally adopted in February 2006 were required to be in compliance by February 2011. Non-employee directors who are elected to the Board after February 2006, as well as executives who are elected or
appointed after this date to positions covered by the ownership guidelines or who serve in positions that are newly-covered by these guidelines, must be in compliance within five years after the effective date of becoming subject to these guidelines. In the event of any later increase in the required ownership level,
whether as a result of an increase in the annual retainer fee or base salary or an increase in the required ownership multiple, then the target date for compliance with the increased ownership guideline will be five years after the effective date of such increase. All non-employee directors and executives who were required to be in compliance as of the end of the 2011 fiscal year are in compliance. The Company measures compliance with the guidelines at the 10
As of 2012
Prior to 2012
end of each fiscal year based on the market value of the Company’s stock, with the compliance determination at that point in time applying for the next fiscal year, regardless of fluctuations in the Company’s stock price. If a director or covered executive fails to be in compliance by the required compliance date, then he or she must hold the net shares obtained through future stock option exercises and the vesting of restricted stock and restricted stock units, after payment of applicable taxes, until coming into compliance with
the guidelines. In order to take into consideration fluctuations in the Company’s stock price, any person who has been in compliance with the guidelines as of the end of at least one of the two preceding fiscal years and who has not subsequently sold shares will not be subject to this holding requirement. For non-
employee directors, the Nominating and Corporate Governance Committee will consider a director’s failure to comply with the Guidelines when considering that director for re-election to the Board of Directors. Our Code of Business Conduct prohibits making contributions on behalf of the Company to political parties, political action committees, political candidates, or holders of public office. The Company is a member of several trade associations which, as part of their overall activities, may engage in advocacy
activities with regard to issues important to the retail industry. Communications with the Board of Directors The Board has established a procedure for shareholders and other interested parties to send communications to the non-management members of the Board of Directors. Shareholders and other interested parties who wish to communicate directly with the non-management directors of the Company should
send a letter to: Board of Directors The Secretary will promptly send a copy of the communication to the lead director, who may direct the Secretary to send a copy of the communication to the other non-management directors and may determine whether a meeting of the non-management directors should be called to review the communication. A copy of the Procedures for Communications with the Board of Directors is available on the corporate governance section of the Company’s corporate web site at http://www.footlocker-inc.com/ investors.cfm?page=corporate-governance. You may obtain a printed copy of the procedures by writing to
the Corporate Secretary at the Company’s headquarters. The Board of Directors and all of its committees have authority to retain outside advisors and consultants that they consider necessary or appropriate in carrying out their respective responsibilities. The independent accountants are retained by the Audit Committee and report directly to the Audit Committee.
In addition, the Committee is responsible for the selection, assessment, and termination of the internal auditors to which the Company has outsourced a portion of its internal audit function, which is ultimately accountable to the Audit Committee. Similarly, the consultant retained by the Compensation and
Management Resources Committee to assist it in the evaluation of senior executive compensation reports directly to that committee. The Company has adopted a Code of Business Conduct for directors, officers and employees, including our Chief Executive Officer, Chief Financial Officer, and Chief Accounting Officer. A copy of the Code of Business Conduct is available on the corporate governance section of the Company’s 11
c/o Secretary, Foot Locker, Inc.
112 West 34th Street
New York, NY 10120
corporate web site at http://www.footlocker-inc.com/investors.cfm?page=corporate-governance. You may obtain a printed copy of the Code of Business Conduct by writing to the Corporate Secretary at the Company’s headquarters. Any waivers of the Code of Business Conduct for directors and executive officers must be approved by the Audit Committee. We promptly disclose amendments to the Code of Business Conduct and any waivers of the Code for directors and executive officers on the corporate governance section of the
Company’s corporate website at http://www.footlocker-inc.com/investors.cfm?page=corporate-governance. The Board of Directors has responsibility for establishing broad corporate policies, reviewing significant developments affecting Foot Locker, and monitoring the general performance of the Company. Our By-laws provide for a Board of Directors consisting of between 7 and 13 directors. The exact number of
directors is determined from time to time by the entire Board. Our Board currently has 11 members. The Board of Directors held five meetings during 2011. All of our directors attended at least 75 percent of the meetings of the Board and committees on which they served in 2011. The Board of Directors, acting through the Nominating and Corporate Governance Committee, considers its members, including those directors being nominated for reelection to the Board at the 2012 annual meeting, to be qualified for service on the Board due to a variety of factors reflected in each director’s
experience, education, areas of expertise, and experience serving on the boards of directors of other organizations. Generally, the Board seeks individuals of broad-based experience who have the background, judgment, independence, and integrity to represent the shareholders in overseeing the Company’s
management in their operation of the business rather than specific, niche areas of expertise. Within this framework, specific items relevant to the Board’s determination for each director are listed in each director’s biographical information beginning on Page 75. A director is considered independent under the rules of the The New York Stock Exchange if he or she has no material or immaterial relationship to the Company that would impair his or her independence. In addition to the independence criteria established by The New York Stock Exchange, the Board of
Directors has adopted categorical standards to assist it in making its independence determinations regarding individual members of the Board. These categorical standards are contained in the Corporate Governance Guidelines, which are posted on the Company’s corporate web site at http://www.footlocker-inc.com/investors.cfm?page=corporate-governance. The Board of Directors has determined that the following categories of relationships are immaterial for purposes of determining whether a director is independent under the listing standards adopted by The New York Stock Exchange. 12
Categorical Relationship
Description
Investment Relationships with the Company
A director and any family member may own equities or other securities of the Company.
Relationships with Other Business Entities
A director and any family member may be a director, employee (other than an executive officer), or beneficial owner of less than 10 percent of the
shares of a business entity with which the Company does business, provided that the aggregate amount involved in a fiscal year does not exceed the
greater of $1,000,000 or 2 percent of either that entity’s or the Company’s annual consolidated gross revenue.
Relationships with Not-for-Profit Entities
A director and any family member may be a director or employee (other than an executive officer or the equivalent) of a not-for-profit organization
to which the Company (including the Foot Locker Foundation) makes contributions, provided that the aggregate amount of the Company’s
contributions in any fiscal year do not exceed the greater of $1,000,000 or 2 percent of the not-for-profit entity’s total annual receipts. The Board of Directors, upon the recommendation of the Nominating and Corporate Governance Committee, has determined that the following directors are independent under the rules of The New York Stock Exchange because they have no material or immaterial relationship to the Company that would
impair their independence:
Nicholas DiPaolo
James E. Preston
Alan D. Feldman
Allen Questrom
Jarobin Gilbert Jr.
David Y. Schwartz
Guillermo G. Marmol
Cheryl Nido Turpin
Matthew M. McKenna
Dona D. Young In making its decisions on independence, the Board of Directors reviewed recommendations from the Nominating and Corporate Governance Committee and considered the following relationships between the Company and organizations with which the current members of our Board are affiliated:
•
David Y. Schwartz and Cheryl Nido Turpin are non-employee directors of companies with which Foot Locker does business. The Board has determined that each of these relationships meets the categorical standard for Relationships with Other Business Entities and are immaterial for determining
independence. • Matthew M. McKenna is President and Chief Executive Officer of Keep America Beautiful, Inc., a not-for-profit organization to which the Company’s charitable foundation made a contribution of $15,000 in 2011. The Board has determined that Mr. McKenna’s relationship with Keep America Beautiful, Inc.
is immaterial for determining independence. • The Board of Directors has determined that Ken C. Hicks is not independent because Mr. Hicks is an executive officer of the Company. The Board of Directors has determined that all members of the Audit Committee, the Compensation and Management Resources Committee, and the Nominating and Corporate Governance Committee are independent as defined under the listing standards of The New York Stock Exchange and the director
independence standards adopted by the Board. 13
We individually inquire of each of our directors and executive officers about any transactions in which Foot Locker and any of these related persons or their immediate family members are participants. We also make inquiries within the Company’s records for information on any of these kinds of transactions.
Once we gather the information, we then review all relationships and transactions in which Foot Locker and any of our directors, executive officers or their immediate family members are participants to determine, based on the facts and circumstances, whether the Company or the related persons have a direct or
indirect material interest. The General Counsel’s office coordinates the related person review process. The Nominating and Corporate Governance Committee reviews any reported transactions involving directors and their immediate families in making its recommendation to the Board of Directors on the
independence of the directors. The Company’s written policies and procedures for related person transactions are included within the Corporate Governance Guidelines and Foot Locker’s Code of Business Conduct. Committees of the Board of Directors The Board has delegated certain duties to committees, which assist the Board in carrying out its responsibilities. There are six standing committees of the Board. Each director serves on at least two committees. The current committee memberships, the number of meetings held during 2011, and the functions of
the committees are described below.
Audit
Compensation
Finance and
Nominating
Retirement
Executive
N. DiPaolo, Chair
A. Feldman, Chair
D. Schwartz, Chair
D. Young, Chair
J. Gilbert Jr., Chair
K. Hicks, Chair
J. Gilbert Jr.
J. Preston
N. DiPaolo
J. Gilbert Jr.
N. DiPaolo
N. DiPaolo
G. Marmol
A. Questrom
A. Feldman
J. Preston
K. Hicks*
A. Feldman
M. McKenna
C. Turpin
G. Marmol
A. Questrom
L. Peters*
J. Gilbert Jr.
D. Schwartz
D. Young
M. McKenna
C. Turpin
L. Petrucci*
J. Preston
D. Schwartz
*Executive officer
D. Young The committee held eight meetings in 2011. The Audit Committee has a charter, which is available on the corporate governance section of our corporate web site at http://www.footlocker-inc.com/investors.cfm?page=corporate-governance. The report of the Audit Committee appears on Page 82. This committee appoints the independent accountants and is responsible for approving the independent accountants’ compensation. This committee also assists the Board in fulfilling its oversight responsibilities in the following areas:
•
accounting policies and practices, • the integrity of the Company’s financial statements, • compliance with legal and regulatory requirements, • risk oversight, • the qualifications, independence, and performance of the independent accountants, and • the qualifications, performance and compensation of the internal auditors. The Audit Committee has established procedures for the receipt, retention and treatment of complaints regarding accounting, internal accounting controls or auditing matters. 14
Committee
and
Management
Resources
Committee
Strategic
Planning
Committee
and Corporate
Governance
Committee
Plan
Committee
Committee
of the Company
The Board of Directors has determined that the Company has at least one audit committee financial expert, as defined under the rules of the Securities Exchange Act of 1934, serving on the Audit Committee. David Y. Schwartz has been designated as the audit committee financial expert. Mr. Schwartz is
independent under the rules of The New York Stock Exchange and the Securities Exchange Act of 1934. Compensation and Management Resources Committee The Compensation and Management Resources Committee (the “Compensation Committee”) held four meetings in 2011. The committee has a charter, which is available on the corporate governance section of the Company’s corporate web site at http://www.footlocker-
inc.com/investors.cfm?page=corporate-governance. The Compensation Committee determines the compensation of the Chief Executive Officer, reviews and approves all compensation for the Company’s executive management group, which consists of the executive officers and corporate officers, and determines significant elements of the compensation of the
chief executive officers of our operating divisions. Decisions regarding equity compensation for other employees are also the Compensation Committee’s responsibility. Decisions regarding non-equity compensation of the Company’s other associates are made by the Company’s management. The committee also
considers risk in relation to the Company’s compensation policies and practices. The Compensation Committee also administers Foot Locker’s various compensation plans, including the incentive plans, the equity-based compensation plans, and the employees stock purchase plan. Other than the 2007 Stock Incentive Plan, Committee members are not eligible to participate in these
compensation plans. This committee also reviews and makes recommendations to the Board of Directors concerning executive development and succession, including for the position of Chief Executive Officer. The Compensation Committee normally holds two meetings each year to review and approve the executive compensation program, the Chief Executive Officer’s compensation, annual salaries and bonuses for the executive management group and division CEOs, and to grant equity awards. In addition, at
another meeting during the year, the committee jointly reviews directors’ compensation with the Nominating and Corporate Governance Committee concerning the form and amount of directors’ compensation. Additional meetings of the Compensation Committee may be called during the year as necessary. The Compensation Committee has directly retained Compensation Advisory Partners (“CAP”) as its independent consultant on executive compensation matters, and CAP reports directly to the Compensation Committee and meets with the committee privately, without management present, and regularly
communicates privately with the Chair of the committee. CAP performs no other work for the Company. CAP provides a pay-for-performance analysis of executive compensation to the committee and a review of CEO compensation. The committee’s consultant advises the committee on risk in relation to Foot
Locker’s compensation policies and practices, and advises the committee on non-employee director compensation matters, including payment levels and trends. The Company utilizes the services of a different compensation consultant to provide advice on the executive compensation program and plan design and
provide information on general executive compensation trends and trends in the retail industry. The Senior Vice President—Human Resources, working with the Chairman and Chief Executive Officer, prepares compensation recommendations covering all elements of compensation for all corporate officers and heads of the Company’s operating divisions, other than the Chief Executive Officer himself,
which are forwarded to the Chair of the Compensation Committee for his review. The Chair of the Compensation Committee also discusses these recommendations with the Chief Executive Officer. Based on input from the Chair of the Committee, the Senior Vice President-Human Resources then finalizes the
compensation recommendations to review with the full committee. Our Senior Vice President and General Counsel also attends meetings of the Compensation Committee and participates in some of these discussions and preparations. The committee meets privately with its consultant, CAP, to discuss
compensation for the Chairman and Chief Executive Officer. Compensation Committee 15
meeting agendas are developed by the committee chair in consultation with the Chief Executive Officer and the Corporate Secretary. Committee members may suggest agenda items by communicating with one of these individuals. Agendas and related materials are circulated to Committee members prior to
meetings. The committee chair regularly reports on the committee’s meetings to the full Board. The Company’s CEO, Senior Vice President and General Counsel, Senior Vice President—Human Resources, Vice President—Human Resources, and Vice President and Associate General Counsel generally attend all
meetings of the committee. The committee’s consultant generally attends meetings at which the committee reviews the executive compensation program and non-employee director compensation. The Compensation Committee has the authority to delegate authority and responsibilities as it considers appropriate. The committee has delegated to the Committee Chair the authority to approve stock option grants between meetings of the committee. This authority is limited to option awards of 25,000
shares or less made to employees who are not executive officers of the Company. The Company’s Corporate Human Resources Department and the Corporate Secretary’s staff support the Compensation Committee in performing its duties. Compensation Committee Interlocks and Insider Participation Alan D. Feldman, Matthew M. McKenna, James E. Preston, Allen Questrom, Cheryl Nido Turpin, and Dona D. Young served on the Compensation and Management Resources Committee during 2011. None of the committee members was an officer or employee of the Company or any of its subsidiaries, and
there were no interlocks with other companies within the meaning of the SEC’s proxy rules. Finance and Strategic Planning Committee The Finance and Strategic Planning Committee held three meetings in 2011. This committee reviews the overall strategic and financial plans of the Company, including capital expenditure plans, proposed debt or equity issues of the Company, and the Company’s capital structure. The committee also considers
and makes recommendations to the Board of Directors concerning dividend payments and share repurchases, and reviews acquisition and divestiture proposals. Nominating and Corporate Governance Committee The Nominating and Corporate Governance Committee held four meetings in 2011. This committee has responsibility for overseeing corporate governance matters affecting the Company, including developing and recommending criteria and policies relating to service and tenure of directors. The committee is
responsible for collecting the names of potential nominees to the Board, reviewing the background and qualifications of potential candidates for Board membership, and making recommendations to the Board for the nomination and election of directors. The committee reviews membership on the Board
committees and, after consultation with the lead director and the Chief Executive Officer, makes recommendations to the Board regarding committee members and committee chair assignments annually. In addition, the committee meets jointly with the Compensation and Management Resources Committee to
review directors’ compensation and make recommendations to the Board concerning the form and amount of directors’ compensation. The Nominating and Corporate Governance Committee does not have a formal policy regarding board diversity. In selecting new directors and considering the re-nomination of existing directors, the Committee considers a variety of factors that it believes contribute to an individual’s ability to be an effective
director, as well as the overall effectiveness of the Board. These include independence, integrity, high personal and professional ethics, sound business judgment, and the ability and willingness to devote sufficient time to Board responsibilities. The Committee also considers an individual’s understanding of business,
finance, corporate governance, marketing, and other disciplines relevant to the oversight of a large publicly traded company; understanding of our industry; educational and professional background; international experience; personal accomplishment; community involvement; and geographic, gender, age, and ethnic
diversity. The Nominating and Corporate Governance Committee may establish criteria for candidates for Board membership. These criteria may include area 16
of expertise, diversity of experience, independence, commitment to representing the long-term interests of the Company’s stakeholders, and other relevant factors, taking into consideration the needs of the Board and the Company and the mix of expertise and experience among current directors. From time to time
the committee may retain the services of a third party search firm to identify potential director candidates. The committee will consider nominees to the Board of Directors recommended by shareholders that comply with the provisions of the Company’s By-Laws and relevant law, regulation, and stock exchange rules. The procedures for shareholders to follow to propose a potential director candidate are described
on Page 87. After a potential nominee is identified, the Committee Chair will review his or her biographical information and discuss with the other members of the committee whether to request additional information about the individual or to schedule a meeting with the potential candidate. The committee’s screening
process for director candidates is the same regardless of the source who identified the potential candidate. The committee’s determination on whether to proceed with a formal evaluation of a potential candidate is based on the person’s experience and qualifications, as well as the current composition of the Board
and its anticipated future needs. The Retirement Plan Committee held four meetings in 2011. This committee is responsible for overseeing the investment of the assets of the Company’s United States retirement plan and appointing, reviewing the performance of and, if appropriate, replacing the trustee of the Company’s pension trust and the
investment manager responsible for managing the funds of the U.S. pension trust. The committee also oversees the Company’s 401(k) Plan and Puerto Rico 1165(e) Plan and has certain administrative responsibilities for our United States retirement plans. The Executive Committee did not meet in 2011. Except for certain matters reserved to the Board, this committee has all of the powers of the Board in the management of the business of the Company during intervals between Board meetings. DIRECTORS’ COMPENSATION AND BENEFITS Non-employee directors are paid an annual retainer fee and meeting fees for attendance at each Board and committee meeting. The lead director and the committee chairs are paid an additional retainer fee for service in these capacities. We do not pay additional compensation to any director who is also an
employee of the Company for service on the Board or any committee. Effective January 1, 2012, the Board of Directors approved an increase in the directors’ annual retainer fee, committee chair retainer fees for the Finance and Strategic Planning Committee, the Nominating and Corporate Governance
Committee and the Retirement Plan Committee, and the meeting attendance fees. The increased fees were recommended jointly to the Board by the Nominating and Corporate Governance Committee and the Compensation and Management Resources Committee and were based on recommendations contained
in a review of Board and committee fees conducted by the Compensation Committee’s independent compensation consultant. The directors’ annual retainer fee and the retainer fees for these committee chairs were last increased in 2007, while the last increase in the meeting attendance fee was in 2005. The table
below summarizes the fees paid to the non-employee directors in 2011 and the increases approved for 2012. 17
Summary of Directors’ Compensation Annual Retainer
$100,000 (increased to $110,000 beginning January 2012)
The annual retainer is payable 50 percent in cash and 50 percent in shares of our Common Stock. Directors may elect to receive up to 100 percent of their annual retainer, including committee chair retainer, in stock.
We calculate the number of shares paid to the directors for their annual retainer by dividing their retainer fee by the closing price of a share of our stock on the last business day preceding the July 1 payment date. Committee Chair Retainers $25,000: Audit Committee $25,000: Compensation and Management Resources Committee $10,000: Finance and Strategic Planning Committee (increased to $15,000 beginning January 2012) $10,000: Nominating and Corporate Governance Committee (increased to $15,000 beginning January 2012) $10,000: Retirement Plan Committee
N/A: Executive Committee
The committee chair retainers are paid in the same form as the annual retainer. Lead Director Retainer
$50,000 payable in the same form as the annual retainer. Meeting Fees
$1,500 for attendance at each Board and committee meeting (increased to $2,000 beginning January 2012). Restricted Stock Units
In fiscal 2011, the directors received a grant of 2,223 restricted stock units (“RSUs”). The number of RSUs granted was calculated by dividing $50,000 by the closing price of a share of our stock on the date of grant. The RSUs will vest one year following the date
of grant – in May 2012. Each RSU represents the right to receive one share of the Company’s common stock on the vesting date. Deferral Election Non-employee directors may elect to receive all or a portion of the cash component of their annual retainer fee, including committee chair retainers, in the form of deferred stock units or to have these amounts placed in an interest account. Directors may also elect to receive all or part of the stock component
of their annual retainer fee in the form of deferred stock units. The interest account is a hypothetical investment account bearing interest at the rate of 120 percent of the applicable federal long-term rate, compounded annually, and set as of the first day of each plan year. A stock unit is an accounting equivalent of
one share of the Company’s Common Stock. Miscellaneous Directors and their immediate families are eligible to receive the same discount on purchases of merchandise from our stores, catalogs and Internet sites that is available to Company employees. The Company reimburses non-employee directors for their reasonable expenses in attending meetings of the Board
and committees, including their transportation expenses to and from meetings, hotel accommodations, and meals. 18
(increased to $15,000 beginning January 2012)
Fiscal 2011 Director Compensation The amounts paid to each non-employee director for fiscal 2011, including amounts deferred under the Company’s stock plan, and the RSUs granted to each director are reported in the tables below. DIRECTOR COMPENSATION
(a)
(b)
(c)
(d)
(e) Name
Fees Earned
Stock
Change in
Total N. DiPaolo
95,428
112,506
—
207,934 A. Feldman
17,000
184,356
(3)(4)
—
201,356 J. Gilbert Jr.
89,144
104,998
3,131
197,273 G. Marmol
74,926
100,009
—
174,935 M. McKenna
29,018
150,000
—
179,018 J. Preston
93,430
125,004
—
218,434 A. Questrom
62,342
100,009
—
162,351 D. Schwartz
86,125
123,458
(4)
—
209,583 C. Turpin
24,083
167,355
(3)(4)
—
191,438 D. Young
70,542
138,730
(4)
—
209,272 Notes to Director Compensation Table
(1)
Column (c) reflects the following three items:
Retainer fees paid in stock or deferred by the director. The fiscal 2011 grant date fair value for the portion of the annual retainer fees, including committee chair retainer fees and the lead director retainer fee, paid in shares of the Company’s common stock or deferred by the director, as shown in the
following table.
- Stock portion of retainer fee: In 2011, we made the annual stock payment to each director on July 1. Under the terms of the 2007 Stock Incentive Plan, the stock payment was valued at the closing price of a share of the Company’s common stock on June 30, which was $23.76. The 2011 grant date fair value is
equal to the number of shares received or deferred by the director multiplied by $23.76, calculated in accordance with stock-based compensation accounting rules (ASC Topic 718). Directors who deferred the stock portion of their annual retainer were credited with deferred stock units on the annual payment
date valued at $23.76 per unit. - Cash portion of retainer fee: For fiscal 2011, two directors deferred all or part of the cash portion of their annual retainer fees and were credited during the fiscal year with deferred stock units on the quarterly cash retainer payment dates, valued at the fair market value on the payment dates, as follows:
January 3, 2011 ($19.75; pro rated for 2 months of fiscal year), April 1, 2011 ($19.80), July 1, 2011 ($24.10), October 3, 2011 ($19.34), and January 3, 2012 ($23.99; pro rated for 1 month of fiscal year). The 2011 grant date fair value is equal to the number of deferred stock units received multiplied by the fair
market value on the payment dates, calculated in accordance with stock-based compensation accounting rules (ASC Topic 718). 19
or Paid in Cash
($)
Awards
($)(1)(2)
Pension
Value and
Nonqualified
Deferred
Compensation
Earnings
($)
•
Retainer Fees Paid in Stock or Deferred into Deferred Stock Units
Name
Number of
Number of
Grant Date N. DiPaolo
2,630
—
62,489 A. Feldman
—
5,637.7629
125,417 J. Gilbert Jr.
2,314
—
54,981 G. Marmol
2,104
—
49,991 M. McKenna
4,208
—
99,982 J. Preston
3,156
—
74,987 A. Questrom
2,104
—
49,991 D. Schwartz
—
2,314.8148
55,000 C. Turpin
—
4,322.6322
95,833 D. Young
—
2,546.2963
60,500
•
Dividend equivalents. The fiscal 2011 grant date fair value for dividend equivalents credited in the form of additional stock units to four directors during the year on the quarterly dividend payment dates, valued at the fair market value of the Company’s common stock on the dividend payment dates, as
shown in the following table. The total number of deferred stock units credited to directors’ accounts in fiscal 2011, including the dividend equivalents and the units credited representing 2011 retainer fees, and the total number of units held at the end of fiscal 2011 are reported in the following table:
Name
04/29/11
07/29/11
10/28/11
01/27/12
Total # of
Total # of A. Feldman
79.2854
104.0178
107.0504
96.2369
6,024.3534
15,517.4643 D. Schwartz
198.5396
215.7053
209.7188
179.9346
3,118.7131
29,013.0924 C. Turpin
229.5072
248.9493
246.7757
211.7287
5,259.5931
34,139.6481 D. Young
309.4607
328.1544
319.0471
273.7361
3,776.6946
44,137.8773
•
Restricted Stock Units (“RSUs”). The fiscal 2011 grant date fair value for the RSUs granted to the nonemployee directors in 2011 is shown in the following table. The number of RSUs granted was calculated by dividing $50,000 by $22.50, which was the closing price of a share of our stock on the date of
grant. The RSUs will vest in May 2012. As provided under the SEC’s rules, the amounts shown exclude the impact of estimated forfeitures related to service-based vesting conditions. For additional information on the valuation assumptions, please refer to Note 21 to the Company’s financial statements in our
2011 Form 10-K. The following table shows the aggregate number of RSUs granted in 2011 and the number of RSUs outstanding at the end of the 2011 fiscal year:
Restricted Stock Units
Name
Number of RSUs
Grant Date
Number of RSUs N. DiPaolo
2,223
50,018
2,223 A. Feldman
2,223
50,018
2,223 J. Gilbert Jr.
2,223
50,018
2,223 G. Marmol
2,223
50,018
2,223 M. McKenna
2,223
50,018
2,223 J. Preston
2,223
50,018
2,223 A. Questrom
2,223
50,018
2,223 D. Schwartz
2,223
50,018
2,223 C. Turpin
2,223
50,018
2,223 D. Young
2,223
50,018
2,223 20
Shares
Deferred
Stock Units
Fair Value
($)
FMV:
$21.52
FMV:
$21.73
FMV:
$22.52
FMV:
$26.44
Units
Credited in
2011
Units
Held at
01/28/12
Granted in 2011
Fair Value
($)
Outstanding on
1/28/2012
(2)
No stock options were granted to the nonemployee directors in 2011. The table below provides information on the number of stock options outstanding for each of the nonemployee directors at the end of the 2011 fiscal year:
Name
Number of Stock Options N. DiPaolo
13,185 A. Feldman
6,314 J. Gilbert Jr.
13,185 G. Marmol
— M. McKenna
4,287 J. Preston
8,336 A. Questrom
— D. Schwartz
13,185 C. Turpin
13,185 D. Young
13,185
(3)
Quarterly cash payments for fiscal 2011 deferred in the form of stock units under Foot Locker’s stock plan. (4) Stock payment deferred in the form of stock units under Foot Locker’s stock plan. Directors’ Retirement Plan The Directors’ Retirement Plan was frozen as of December 31, 1995. Consequently, only Jarobin Gilbert Jr. and James E. Preston are entitled to receive a benefit under this plan when their service as directors ends because they had completed at least five years of service as directors on December 31, 1995.
Messrs. Gilbert and Preston will receive an annual retirement benefit of $24,000 for a period of 10 years after they leave the Board or until their death, if sooner. Directors and Officers Indemnification and Insurance We have purchased directors and officers liability and corporation reimbursement insurance from a group of insurers comprising ACE American Insurance Co., Zurich American Insurance Co., Arch Insurance Co., Federal Insurance Co.., Navigators Insurance Co., and XL Insurance Bermuda Ltd. These
policies insure the Company and all of the Company’s wholly owned subsidiaries. They also insure all of the directors and officers of the Company and the covered subsidiaries. The policies were written for a term of 12 months, from October 12, 2011 until October 12, 2012. The total annual premium for these
policies, including fees and taxes, is $976,100. Directors and officers of the Company, as well as all other employees with fiduciary responsibilities under the Employee Retirement Income Security Act of 1974, as amended, are insured under policies issued by a group of insurers comprising Arch Insurance Co., St.
Paul Mercury Insurance Co., Federal Insurance Co., and Continental Casualty Co., which have a total premium, including fees and taxes, of $308,750 for the 12-month period ending October 12, 2012. The Company has entered into indemnification agreements with its directors and officers, as approved by shareholders at the 1987 annual meeting. The Company has completed a risk-related review and assessment of our compensation program and considered whether our executive compensation is reasonably likely to result in a material adverse effect on the Company. As part of this review, the independent compensation consultant to the Compensation
and Management Resources Committee reviewed risk in relation to the Company’s compensation policies and practices with the Company’s human resources executives directly involved in compensation matters. The consultant reviewed the compensation policies and practices in effect for 21
Outstanding on 1/28/2012
corporate and division employees through the manager level, store managers, and store associates and reviewed the features we have built into the compensation programs to discourage excessive risk taking by employees, including a balance between different elements of compensation, differing time periods for
different elements, consistent Company-wide programs, plan performance targets based on the corporate budgeting process, and stock ownership guidelines for senior management. Compensation Discussion and Analysis This section explains our executive compensation program as it relates to the following “named executive officers” whose compensation information is presented in the tables following this discussion and analysis:
Ken C. Hicks
Chairman of the Board, President and Chief Executive Officer
Richard A. Johnson
Executive Vice President and Group President—Retail Stores
Robert W. McHugh
Executive Vice President—Operations Support and former Executive Vice President and Chief Financial Officer
Lauren B. Peters
Executive Vice President and Chief Financial Officer
Gary M. Bahler
Senior Vice President, General Counsel and Secretary
Jeffrey L. Berk
Senior Vice President—Real Estate
Ronald J. Halls
Retired President and Chief Executive Officer—Foot Locker International 2011 Summary Our executive compensation program is designed to attract, motivate, and retain talented retail company executives in order to maintain and enhance the Company’s performance and its return to shareholders. In order to accomplish this, we have a compensation program for our executives that ties pay closely
to performance. A significant portion of the compensation of each of the named executive officers shown in this year’s Summary Compensation Table on page 38 is based on the Company’s performance and the performance of our share price. The more senior an executive’s position, the greater the portion of his
or her compensation that is tied to performance. The Compensation and Management Resources Committee (the “Compensation Committee”), composed of five independent directors, oversees the compensation program. Our 2011 Results. In 2011 we had the financial and operating results shown in the following table. These results represent continued progress toward the goals contained in our long-range plan.
Financial Metric
2011
2010
Percent Increase Sales
$5,623 million
$5,049 million
11.4
% Comparable Store Sales
9.8%
5.8%
— Net Income
$278 million
$169 million
64
% Earnings per Share
$1.80
$1.07
68
% Return on Invested Capital
11.8%
8.3%
— End-of-Year Market Capitalization
$4.01 billion
$2.75 billion
46
% Our total shareholder return (stock price appreciation plus reinvested dividends) in 2011 was 53 percent. During the year we transferred $104 million to our shareholders through share repurchases and paid quarterly dividends to shareholders totaling $101 million. Our market capitalization during the year
increased by 46 percent, from $2.75 billion to $4.01 billion. ROIC is a non-GAAP financial measure. There is a reconciliation to GAAP on Page 16 of our 2011 Form 10-K. Base Salaries. The Chief Executive Officer’s base salary was unchanged in 2011 from 2010. As part of the Compensation Committee’s normal annual compensation review, the other named executive 22
2011 over 2010
officers received base salary increases ranging from 1.3 to 6.4 percent, which were based on the executive’s performance and a position-oriented analysis of peer group salaries. In July 2011, Mr. Johnson was promoted to the position of Executive Vice President and Group President—Retail Stores, and received an
additional base salary increase of 7.4 percent, and Ms. Peters was promoted to the position of Executive Vice President and Chief Financial Officer and received an additional base salary increase of 20 percent. Mr. Halls retired from the Company in July 2011 in connection with a management reorganization that eliminated his position. The compensation shown for Mr. Halls in the Summary Compensation Table includes his base salary, annual bonus, and long-term incentive compensation for 2011, all prorated as of
his retirement date. Annual Bonus. Both our annual and long-term bonus programs are formula-driven, with targets established by the Compensation Committee based upon financial targets included in the business plan approved each year by our Finance and Strategic Planning Committee and Board of Directors. Our annual and
long-term bonus programs for the named executive officers pay out based upon the Company’s results, without individual performance adjustments. At the beginning of 2011, the Compensation Committee established a performance target under the Annual Incentive Compensation Plan (the “Annual Bonus Plan”) based on the Company achieving pre-tax income of $308.4 million, a 6 percent increase over 2010 pre-tax income. In 2011, the Company
achieved pre-tax income of $431.3 million, a 68 percent increase over 2010 and 40 percent greater than the target, which resulted in maximum annual cash bonuses of 218.75 percent of base salary for the Chief Executive Officer and 87.5 percent of base salary for the other named executive officers. Long-Term Incentive Programs. In 2010, we made a change to our long-term incentive program. For years prior to 2010, the long-term bonus is determined based upon performance over a three-year performance measurement period and is paid in cash. Beginning in 2010, the bonus is determined based upon
performance over a two-year performance measurement period, with an additional one-year holding period, and the award is denominated one-half in cash and one-half in restricted stock units (RSUs). Consequently, two long-term performance measurement periods ended in 2011—the 2009-2011 three-year
performance measurement period under the old program and the 2010-2011 performance measurement period under the new program. The pay-out for the three-year 2009-2011 performance measurement period was based upon a performance target established by the Compensation Committee under the Long-Term Incentive Compensation Plan (the “Long-Term Bonus Plan”) in 2009. This target was based on the Company achieving annual
average return-on-invested-capital (“ROIC”) of 5.91 percent for the three-year period. For the period, the Company achieved average annual ROIC of 8.22 percent, significantly in excess of the target, which resulted in maximum long-term cash bonuses of 180 percent of initial base salary being paid to the named
executive officers. The amount earned for the two-year 2010-2011 performance measurement period (which will not actually be paid to participants until 2013, following the completion of the additional one-year holding period) was based upon performance targets established by the Compensation Committee in 2010. The targets
were based on the Company achieving average annual net income of $104.8 million (which accounts for 70% of the pay-out) and ROIC of 6.54 percent (which accounts for 30% of the pay-out). For the period, the Company achieved average annual net income of $225.7 million and ROIC of 10.23 percent, both
significantly in excess of target. As a result, the named executive officers earned a maximum pay-out for the performance period—for Mr. Hicks, 350 percent of initial base salary and for the other named executive officers, 150 percent of initial base salary. Pay-outs will be calculated and made one-half in cash and
one-half in RSUs. The pay-out to Mr. Hicks for the 2009-2011 performance measurement period was prorated for the portion of the performance period he was employed by the Company, and the pay-out to Mr. Johnson for a portion of the period was based on a lower target applicable to him as a division executive. For both
performance measurement periods, the pay-out to Mr. Halls was pro-rated as of his retirement date in 2011. The base salaries used to calculate the pay-outs to Mr. Johnson and Ms. Peters were adjusted to account for the promotion increases they received in 2011. 23
In 2011, the Compensation Committee established long-term incentive performance targets for the 2011-2012 performance measurement period based upon net income (70%) and ROIC (30%). The Committee will determine whether pay-outs have been earned for that performance period at the end of 2012. If
pay-outs are earned, they will be calculated one-half in cash and one-half in RSUs, and actual payment will be made to participating executives following an additional one-year holding period, that is, in 2014. In addition, the Compensation Committee established a “performance gate” so that no pay-outs will be
made for the 2011-2012 performance measurement period unless average annual after-tax income for the performance period equals or exceeds actual 2010 after-tax income. As a consequence of the change in performance period, for compensation reporting purposes, two long-term bonus payments are shown in the Summary Compensation Table—the 2009-2011 three-year performance measurement period under the old program and the cash portion of the pay-out under the 2010-
2011 two-year performance measurement period under the new program. The long-term incentive compensation shown as having been earned by the named executive officers in 2011 for the 2010-2011 two-year performance measurement period will not actually be paid to them until 2013. Going forward, only one
long-term incentive performance measurement period will end each year. A breakdown of the incentive compensation payments for each of the named executive officers is shown in the table below:
Executive Officer
2011 Annual Bonus
2009-2011
Cash Pay-
Cash Portion
Total as Shown in Ken C. Hicks
$
2,406,250
$
1,622,802
$
4,029,052
$
1,925,000
$
5,954,052 Lauren B. Peters
384,179
701,726
1,085,905
307,932
1,393,837 Robert W. McHugh
538,125
1,035,000
1,573,125
450,000
2,023,125 Richard A. Johnson
670,104
1,049,272
1,719,376
546,841
2,266,217 Gary M. Bahler
470,936
945,000
1,415,936
399,638
1,815,574 Jeffrey L. Berk
426,146
851,513
1,277,659
361,893
1,639,552 Ronald J. Halls
342,891
1,126,236
1,469,127
435,327
1,904,454 Our annual and long-term incentive programs are performance-based. When we meet or exceed our targets, as we did in 2011, payments are made to participants, including the named executive officers. When we do not, as was the case in 2009, no payments are made. Following is a three-year history of bonus
payments to our named executive officers: Annual Bonus Plan Payout Long-Term Bonus Plan Payout 2011 Maximum 2010-11: Maximum 2009-11: Maximum 2010 Maximum Between Threshold and Target 2009 0 0 Stock Options. The Compensation Committee made stock option awards to each of the named executive officers in 2011. As part of its normal annual compensation review, the Committee awarded options to purchase 500,000 shares of common stock to Mr. Hicks; 80,000 shares to Messrs. Halls, Johnson, and
McHugh, 50,000 shares to Mr. Bahler, and 40,000 shares to Ms. Peters and Mr. Berk. These stock options have a three-year vesting schedule, with one-third of the award vesting each year, conditioned on continued employment through the applicable vesting dates. The option price is $18.84 per share, the closing
price on the date of grant. Of the 500,000 shares granted to Mr. Hicks, the Compensation Committee viewed 300,000 shares as his normal annual grant and 200,000 shares as a special grant in recognition of his performance in 2010 and for retention purposes. The Compensation Committee also awarded 50,000
shares of time-based restricted stock to Mr. Hicks. This award cliff vests in three years, conditioned on continued employment through the vesting date, and was made in recognition of Mr. Hicks’ performance in 2010 and for retention purposes. 24
Long-Term
Bonus
out in 2012
for 2011
of
2010-2011
Long-Term
Bonus
Summary
Compensation
Table
July 2011 Management Reorganization. In connection with the management reorganization that took place in July 2011, the Compensation Committee took additional action with regard to certain of the named executive officers, as follows:
•
In connection with Mr. Johnson’s promotion to Executive Vice President and Group President—Retail Stores, his annual base salary was increased from $745,000 to $800,000 and he was awarded 20,000 shares of restricted stock, cliff vesting in three years, conditioned on continued employment through the
vesting date. • In connection with Mr. McHugh’s promotion to Executive Vice President—Operations Support, he was awarded 20,000 shares of restricted stock, cliff vesting in three years, conditioned on continued employment through the vesting date. • In connection with Ms. Peters’ promotion to Executive Vice President and Chief Financial Officer, her annual base salary was increased from $395,707 to $475,000; she was awarded 40,000 options at an option price of $24.75 (the closing price on the date of grant). This grant was in addition to the 40,000
options awarded to her as part of the normal annual compensation review, in order to bring Ms. Peters’ total option grant to a level consistent with option grants made to the other executive vice presidents. The options vest in three equal annual installments in the three-year period following the grant date,
conditioned on continued employment through the vesting date. Additionally, she was awarded 20,000 shares of restricted stock, cliff vesting in three years, conditioned on continued employment through the vesting date. Key Compensation Policies. In addition to the specific compensation programs outlined above, the Company has adopted a number of other policies related to executive compensation:
•
With regard to executive compensation matters, our Compensation Committee directly retains, and is advised by, an independent compensation consultant who performs no other work for the Company. • Other than with regard to our executive relocation program applicable to all executives, we do not provide a tax gross-up with regard to any compensation, benefit, or perquisite paid by the Company. This also encompasses any amount paid to an executive upon termination of employment or a change-in-
control. • We have stock ownership guidelines for our senior executives. In 2011, we required the Chief Executive Officer to hold shares having a value equal to or exceeding five times his base salary, and other senior executives, including the other named executive officers, of two times base salary. All of the named
executive officers met these stock ownership requirements as of the end of 2011. As of the beginning of 2012, we increased the stock ownership requirement for the Chief Executive Officer to six times base salary and for the executive vice presidents, to three times base salary. • With regard to the long-term incentive program, the Compensation Committee has established a “performance gate” so that no amounts can be paid-out under the program unless the Company’s average annual after-tax income for the performance period exceeds the Company’s after-tax income in the year
prior to the commencement of the performance period. 2011 Say-on-Pay Vote. At our 2011 annual meeting, 99 percent of shareholders voting on the advisory vote on executive compensation supported the executive compensation program. The Compensation Committee considered the results of the 2011 say-on-pay vote and shareholders’ strong support of our
executive compensation program. In light of this, in reviewing the executive compensation program for 2012, the Compensation Committee decided to retain the general overall program design implemented in 2010, which ties executives’ pay closely with Company performance. In the future, the Compensation
Committee will continue to consider the executive compensation program in light of changing circumstances and shareholder feedback. In the balance of this Compensation Discussion and Analysis, we provide greater detail about our compensation program for the named executive officers. * * * 25
What are the objectives of our compensation program? The objectives of our compensation program are to attract, motivate, and retain talented retail industry executives in order to maintain and enhance the Company’s performance and its return to shareholders. What is our compensation program designed to reward? We have designed our compensation program to align the financial interests of our executives, including the named executive officers, with those of our shareholders. For that reason, it is designed to reward the overall effort and contribution of our executives as measured by the Company’s performance in
relation to targets established by the Compensation Committee, more than individual performance. Key concepts underlying our program are:
•
Executive compensation should be balanced between annual and long-term compensation and between cash and equity-based compensation (stock options and RSUs). • The compensation program should align the interests of executives with those of the Company’s shareholders by rewarding both efforts to increase the Company’s share price and the achievement of performance goals that contribute to the Company’s long-term health and growth. • A substantial portion of the compensation of our executives, whether paid out currently or on a long-term basis, should be dependent on the Company’s performance. • More-senior executives should have a greater portion of their compensation at risk, whether through performance-based bonus programs or through stock price appreciation. What are our elements of compensation? The elements of compensation for the named executive officers are:
•
base salary • performance-based annual cash bonus • performance-based long-term incentive, payable in a combination of cash and RSUs • long-term equity-based compensation (stock options and, in special situations, restricted stock) • retirement and other benefits • perquisites Why do we pay each element of compensation and how do we determine the amount for each element of compensation, or the formula that determines the amount? In 2011, as in prior years, we established benchmarks for base salary and total compensation for each named executive officer based upon a study conducted by ClearBridge Compensation Group, a nationally recognized compensation consultant. These benchmarks are based upon compensation for comparable
positions at a peer group consisting of 21 national retail companies with annual sales of $1 billion to $10 billion. The Compensation Committee determined that these companies were the appropriate peer group for executive compensation purposes based upon the nature of their business, their revenues, and the
pool from which they recruit their executives. The peer group used in 2011 was unchanged from that used in 2010. The 21 companies included in the peer group were: 26
Abercrombie & Fitch
Aeropostale, Inc.
American Eagle Outfitters Inc.
ANN INC.
Borders Group, Inc.
Brown Shoe Company, Inc.
Charming Shoppes
Collective Brands Inc.
Dick’s Sporting Goods Inc.
Dillards Inc.
Family Dollar Stores
Finish Line Inc.
Genesco Inc.
Limited Brands Inc.
Pacific Sunwear California Inc.
Radioshack Corp.
Quiksilver Inc.
Ross Stores Inc.
Saks Inc.
Talbots Inc.
Timberland Co.
Since the date of our 2011 compensation review, two of the companies included in the peer group—Borders Group, Inc. and Timberland Co.—are no longer publicly traded and will not be included in the peer group in future years. The goal of the Compensation Committee is to provide competitive total compensation opportunities for the named executive officers that vary with Company performance. The Committee uses the peer group benchmark information as a reference point in evaluating executive compensation, but does not
attempt to match the compensation of each executive position in the Company precisely with that of an equivalent position in the peer group. The Committee also takes into consideration factors such as performance, responsibility, experience, and length of time an executive has served in a position. Base Salaries We pay base salaries to provide our named executive officers with current, regular compensation that is appropriate to their position, experience, and responsibilities. We pay higher base salaries to those named executive officers with greater overall responsibility. Other than Mr. Hicks (whose rate of base pay
did not change in 2011 from 2010), the other named executive officers received base salary increases in 2011 that ranged from 1.3 percent to 6.4 percent. These increases were determined based principally upon the executive’s performance and his or her base salary as compared to salaries for comparable positions
in the peer group. In addition, in connection with their promotions in July 2011, Mr. Johnson received an additional base salary increase of 7.4 percent and Ms. Peters, of 20 percent. Performance-Based Annual Cash Bonus We pay performance-based annual cash bonuses to our named executive officers under the Annual Bonus Plan in order to provide incentive for them to work toward the Company’s achievement of annual performance goals established by the Compensation Committee. Payments are calculated as a percentage
of actual base salary earned by the executive during the year. Our Annual Bonus Plan allows the Compensation Committee, in establishing performance targets under the plan, to choose one or more performance measures from a list of ten factors that have been approved by our shareholders. For 2011, for the named executive officers, the Compensation Committee
established a performance target under the Annual Bonus Plan based upon the Company’s achievement of a prescribed level of pre-tax income. All bonus targets and calculations are based on the results of continuing operations. The performance targets established by the Compensation Committee are based upon
the business plan and budget reviewed and approved each year by the Finance and Strategic Planning Committee and the Board of Directors. The Annual Bonus Plan targets and the actual amount of pre-tax income achieved for 2011 were as follows: 27
Threshold
Target
Maximum
Actual Pre-tax income
$277.6 million
$308.4 million
$370.1 million
$437.1 million Bonus pay-outs are calculated on the basis of straight-line interpolation between the threshold, target, and maximum points. Target payments under the Annual Bonus Plan for the named executive officers and actual payments for 2011 based upon the Company’s performance were as follows:
Target
Range
Actual 2011 Pay-out
Mr. Hicks
125% of Base
Salary
31.25 % to 218.75% of Base
Salary
218.75% of Base Salary
Messrs. McHugh, Johnson, Bahler, Berk, and Halls and Ms. Peters
50% of Base
Salary
12.5% to 87.5% of Base
87.5% of Base Salary Mr. Halls’ annual bonus payment for 2011 was prorated as of his retirement date. If the Company does not achieve threshold performance, as was the case in 2009, then no annual bonus would be paid. Executives who do not receive a “meets expectations” rating or higher in their annual performance review are normally ineligible to receive an annual bonus payment. Performance-Based Long-Term Incentive Program We pay performance-based long-term bonuses to our named executive officers in order to provide incentive for them to work toward the Company’s achievement of performance goals established by the Compensation Committee for each performance period. In 2010, the Compensation Committee modified
the way in which long-term bonuses are calculated and paid, and moved from a three-year performance measurement period to a two-year performance measurement period with an additional one-year holding period. As a result of this, for one year only—2011—two separate long-term incentive performance
measurement periods ended. We separately discuss below the long-term bonus for the 2009-2011 performance measurement period and the long-term bonus for the 2010-2011 performance measurement period. 2009-2011 Performance Measurement Period In 2009, the Compensation Committee established a target for the 2009-2011 performance measurement period under the Long-Term Bonus Plan based on the achievement of a target level of ROIC. This performance target was based upon the business plan and budget for the three-year period reviewed and
approved by the Finance and Strategic Planning Committee and the Board of Directors. The Company must achieve 80 percent of target after-tax income on its planned invested capital base before a threshold-level bonus is paid; the maximum pay-out level is reached if after-tax income reaches 120 percent of
target. The actual invested capital base will also fluctuate, and the final pay-out for the performance period will also depend upon the invested capital base achieved during the period. The target, along with the actual average three-year ROIC for the period, are shown in the table below:
Threshold
Target
Maximum
Actual Three-year average ROIC
5.3%
5.9%
6.5%
8.25% Target long-term bonus payments for senior corporate officers for the 2009-2011 performance measurement period were established by the Compensation Committee in 2009 at the 90 percent level for all named executive officers, which was consistent with the Committee’s practice in prior years. The target
payment level, possible range of payments, and actual pay-out, based on the three-year average ROIC, were as follows: 28
Salary
Target
Range
Actual 90% of Initial Base Salary
22.5% to 180% of Initial Base Salary
180% of Initial Base Salary If the Company does not achieve threshold performance, then no long-term bonus would be paid. Mr. Hicks participated for a pro-rated portion of the 2009-2011 performance period, beginning with the commencement of his employment by the Company in August 2009. Mr. Johnson participated in the Plan
for the entire performance period; however, his target pay-out for 2009, when he was a divisional executive, was 50 percent of initial base salary, moving to 90 percent when he assumed a new position in 2010. Pay-out levels are based on an executive’s rate of base salary payable in the first year of the three-year performance measurement period. In addition, we adjust on a pro rata basis as applicable the rate of base salary on which pay-out levels are based and target bonus levels for promotions that occur during a
performance measurement period. 2010-2011 Performance Measurement Period In 2010, the Compensation Committee made certain changes to the compensation program for executives, which were more fully described in our 2011 Compensation Discussion and Analysis. One of the changes was to the long-term incentive program, with regard to which the Committee decided that:
•
Awards would be denominated 50 percent in cash, payable under the Long-Term Bonus Plan, and 50 percent in RSUs, payable under the Stock Incentive Plan. The same performance target is established for both the cash and RSU portions of the award. • The performance measurement period would be two, rather than three years. • While award pay-outs are calculated following the end of the two-year performance measurement period, payments would not be made to participants for another year—that is, until the end of a three-year period. • The performance target would be based on net income (70 percent) and ROIC (30 percent). • The target awards for all of the named executive officers other than Mr. Hicks would be 75 percent of initial base salary, with a range from 18.75 percent at threshold to 150 percent at maximum performance. Given his greater responsibility for developing and implementing the Company’s long-term strategic
plan, the Compensation Committee determined that Mr. Hicks’ target award would be 175 percent of initial base salary, with a range from 43.75 percent at threshold to 350 percent at maximum performance. In 2010, the Compensation Committee established the net income and ROIC targets for the 2010-2011 performance measurement period. These performance targets were based upon the business plan and budget for the two-year period reviewed and approved by the Finance and Strategic Planning Committee
and the Board of Directors. The targets, along with the actual performance for the period, are shown in the table below:
Threshold
Target
Maximum
Actual Average Annual Net Income
$83.8 million
$104.8 million
$125.7 million
$225.9 million Two-year Average ROIC
5.9%
6.5%
7.2%
10.3% The target payment level, possible range of payments, and actual pay-out, based on the Company’s actual performance measured against these performance goals was as follows: 29
Target
Range
Actual
Mr. Hicks
175% of Initial
Base Salary
43.75% to 350% of Initial Base
Salary
350% of Initial Base Salary
Other Named Executive Officers
75% of Initial
Base Salary
18.75% to 150% of Initial Base
Salary
150% of Initial Base Salary As noted above, the awards are denominated one-half in cash and one-half in RSUs. There is a one-year holding period, so that the payouts will not actually be made to executives until 2013. The RSUs allocated to each executive were valued at the closing price on the date of grant. The actual cash and RSU
awards for each of the named executive officers for the 2010-11 performance period were as follows:
Cash
RSUs Mr. Hicks
$
1,925,000
127,484 Ms. Peters
307,932
19,882 Mr. McHugh
450,000
29,802 Mr. Johnson
546,841
35,652 Mr. Bahler
399,638
26,467 Mr. Berk
361,893
23,967 Mr. Halls
435,327
28,778 The amount shown for Mr. Halls was prorated as of his retirement date in 2011. In addition, the base salaries on which the awards were calculated were adjusted, on a pro rata basis, for the promotional base salary increases received by Mr. Johnson and Ms. Peters in July 2011. The amounts included in the non-equity incentive plan compensation column of the Summary Compensation Table are composed of three elements: the 2011 annual bonus, the long-term bonus for the 2009-2011 performance measurement period, and the cash portion of the long-term bonus for the 2010-2011
performance measurement period. While the cash portion of the 2010-2011 long-term bonus will not actually be paid to the executives until 2013, under SEC rules, we are showing it in the Summary Compensation Table this year. The table on page 39 summarizes the amounts that are included in the incentive plan
compensation column of the Summary Compensation Table. 30
Provisions Applicable to All Performance Periods ROIC is a non-GAAP financial measure. For purposes of calculating the long-term bonus, we define ROIC as follows:
Operating Profit after Taxes (Numerator)= Average Invested Capital (Denominator)= Pre-tax income Average total assets +/- interest expense/income - average cash, cash equivalents, and short-term investments + implied interest portion of operating lease payments - average year-end inventory +/- Unusual/non-recurring items - non-interest-bearing current liabilities + Long-term bonus expense + 13-month average inventory = Earnings before long-term bonus expense, interest and taxes + average estimated asset base of capitalized operating leases - Estimated income tax expense = Operating Profit after Taxes = Average Invested Capital Certain items used in the calculation of ROIC for bonus purposes, such as the implied interest portion of operating lease payments, certain unusual or non-recurring items, average estimated asset base of capitalized operating leases, and 13-month average inventory, while calculated from our financial records,
cannot be calculated from our audited financial statements. Prior to the Compensation Committee’s determining whether bonus targets have been achieved, the Company’s independent registered public accounting firm, at the request, and for the restricted use, of the Compensation Committee, reviews the bonus
calculations. There is a calculation of basic ROIC, which is not precisely the same as the calculation used for incentive compensation purposes because of the exclusion of certain extraordinary items (see discussion below of disregarded items), and a reconciliation to GAAP, on Page 16 of our 2011 Form 10-K. Clawback Policy We do not have a formal policy with regard to the adjustment or recovery of incentive payments if it is determined, at a future date, that the relevant performance measures upon which the payments are based are restated or adjusted. We have not had this situation arise, and if it were to arise, we would expect
to make an evaluation at that time based upon the circumstances and the role of each individual executive in the events that gave rise to the restatement or adjustment. We expect to review this and establish a formal policy once the Securities and Exchange Commission has issued final clawback rules. Items Disregarded for Annual Bonus and Long-Term Incentive Calculations Under normal circumstances, the Compensation Committee has no discretion to increase annual bonus or long-term incentive payments, which are formula-driven based upon Company performance, and our program for the named executive officers does not provide for discretionary adjustments based upon
individual performance. The Compensation Committee has not adjusted, either upward or downward, any of the annual bonus or long-term incentive payments to the named executive officers shown in the Summary Compensation Table from pay-outs calculated based upon the applicable formula. When determining
bonus and incentive payments, consistent with Section 162(m) of the Internal Revenue Code, the Committee is required to disregard certain events that it determines to be unusual or non-recurring. When establishing the targets, the Committee normally specifies certain items that it considers to be unusual or non-
recurring, and these events, if they occur, are automatically excluded when calculating payments. All of the references in this Compensation Discussion and Analysis to target and actual performance levels refer to amounts after taking into consideration these adjustments. 31
ROIC
=
Long-Term Equity-Based Awards A. Stock Options We make stock option awards to our named executive officers in order to more closely align their interests with those of our shareholders. Equity-based awards are the responsibility of the Compensation Committee, which is composed entirely of independent directors. The Committee awards stock options
with exercise prices equal to the fair market value of our stock on the date of grant. Therefore, executives who receive stock options will only realize value if there is appreciation in the share price. Stock option awards of the same size are normally made each year to executives holding comparable positions, with larger awards being made to those with greater responsibility. Under the 2007 Stock Incentive Plan, fair market value is defined as the closing price on the grant date. The Compensation
Committee has not granted options with an exercise price of less than the fair market value on the grant date. Options normally vest at the rate of one-third of the total grant per year over the first three years of the ten-year option term, subject to accelerated vesting in certain circumstances. The Compensation
Committee does not normally consider an executive’s gains from prior stock awards in making new awards. B. Restricted Stock Units As noted above in our discussion of the Performance-Based Long-Term Bonus Incentives, beginning with the 2010-2011 performance measurement period, one-half of the long-term bonus award is denominated in RSUs. C. Restricted Stock We normally make restricted stock awards only in special circumstances, such as related to promotions, special performance, or retention, rather than as part of an executive’s normal compensation package. In 2011, in accordance with this policy, the Compensation Committee made the following restricted
stock awards, all of which cliff vest on the third anniversary of the award:
Executive
No. of Shares
Reason for Award
Mr. Hicks
50,000
In recognition of the Company’s performance in 2010 and for
retention
Mr. Johnson
20,000
In connection with his promotion to Executive Vice President
and Group President—Retail Stores
Mr. McHugh
20,000
In connection with his promotion to Executive Vice
President—Operations Support
Ms. Peters
20,000
In connection with her promotion to Executive Vice
President and Chief Financial Officer D. Stock Ownership Guidelines We have adopted stock ownership guidelines for our directors and senior executives, including the named executive officers, in order to encourage a meaningful financial investment in the Company and thus further align the interests of our senior executives with those of our shareholders. In 2011, the
guidelines required that the Chief Executive Officer own shares having a value at least equal to five times his base salary and that the other named executive officers own shares having a value at least equal to two times base salary. In determining whether an executive meets the guidelines, we consider owned
shares, restricted stock, and restricted stock units, but we do not consider stock options. As of the end of 2011, all of the named executive officers met these stock ownership guidelines. As of 2012, we have increased the stock ownership guideline for the Chief Executive Officer to six times base salary and for the
executive vice presidents to three times base salary. 32
We do not permit our executive officers to take short or long positions in our shares or to hedge their economic interest in their shares. Retirement and Other Benefits A. Retirement Plan and Excess Cash Balance Plan All United States-based associates of the Company who meet the eligibility requirements are participants in the Foot Locker Retirement Plan. The Retirement Plan and the method of calculating benefits payable under it are described on page 70. All of the named executive officers are participants in the
Retirement Plan. The Internal Revenue Code limits the amount of compensation that may be taken into consideration in determining an individual’s retirement benefits. Therefore, those participants in the Retirement Plan, including the named executive officers, whose compensation exceeds the Internal Revenue
Code limit are also participants in the Excess Cash Balance Plan, described on page 70, which provides a benefit equal to the difference between the amount a participant receives from the Retirement Plan and the amount the participant would have received were it not for the Internal Revenue Code limits. B. 401(k) Plan The Company maintains a 401(k) Plan for its eligible U.S. associates, and all of the named executive officers other than Mr. Berk participate in it. The 401(k) Plan permits participants to contribute the lesser of 40 percent of eligible compensation or the limit prescribed by the Internal Revenue Code to the
401(k) Plan on a before-tax basis. The Company will match 25 percent of the first 4 percent of pay that is contributed to the 401(k) Plan, and the Summary Compensation Table includes, in All Other Compensation, the amount of the Company match for each of the named executive officers. The Company match is
made in shares of Company stock, valued on the last trading day of the plan year. Participants in the 401(k) Plan may diversify their matching contributions at any time into any of the other investment options available under the plan at any time. C. Supplemental Executive Retirement Plan The Company maintains a Supplemental Executive Retirement Plan (“SERP”), described on page 71, for certain senior officers of the Company and other key employees, including the named executive officers. The SERP is an unfunded plan administered by the Compensation Committee, which sets an annual
target incentive award for each participant consisting of a percentage of base salary and annual bonus based on the Company’s performance against target. Contributions range from 4 percent to 12 percent of base salary and annual bonus, depending on the Company’s performance against the established target,
with an 8 percent contribution being made for target performance. The target established by the Compensation Committee under the SERP is normally the same as the target performance under the Annual Bonus Plan. Participant accounts accrue simple interest at the rate of 6 percent annually. The SERP also
provides for the continuation of medical and dental insurance benefits to vested participants following their retirement. Based upon the Company’s performance in 2011, a credit of 12 percent of 2011 base salary and annual bonus was made to the SERP for each of the named executive officers. As of the end of 2011, the account balances of the named executive officers ranged from $450,933 for Mr. McHugh to $1,095,191 for Mr.
Bahler. Under the terms of the SERP, executives are vested in their account balances based upon a combination of age and service. As of the end of 2011, Mr. Johnson, Mr. McHugh, Mr. Berk, and Mr. Bahler were vested in the SERP and Mr. Hicks and Ms. Peters had not met the plan’s age plus service vesting
requirements. Mr. Halls was vested in the SERP at the time of his retirement in 2011. The Retirement Plan takes into account only base salary and annual bonus in determining pension benefits. Credits to our SERP are based only on base salary and annual bonus. Therefore, stock awards have no effect on the calculation of benefits or payments under these plans. 33
Perquisites We provide the named executive officers with certain perquisites, which the Compensation Committee believes are reasonable and consistent with its overall objective of attracting and retaining talented retail industry executives. The Company provides the named executive officers with an automobile
allowance, financial planning, medical expense reimbursement, annual physical, supplemental long-term disability insurance, and life insurance. In addition, the Company reimburses Mr. Hicks for the reasonable expenses of using a car service for transportation in the New York metropolitan area. We also reimbursed Mr. Halls for a limited amount of travel expenses for his spouse when she accompanied him on business trips in 2011. Given the responsibility that Mr. Halls had for our international businesses, and the amount of time he spent traveling outside the United States on Company business, we
considered this to be a reasonable perquisite uniquely applicable to his situation and responsibilities. We do not provide a gross-up to executives for the income tax liability they incur due to the perquisites they receive. The only exception to this is that, pursuant to our relocation policy applicable to all executives, we provide a tax gross-up to executives for moving and other relocation expenses that we
reimburse. How does each element of compensation fit into our overall compensation objectives? How does each element affect our decisions regarding other elements? As stated at the beginning of this discussion and analysis, the objectives of our compensation program are to attract, motivate, and retain talented retail industry executives in order to maintain and enhance the Company’s performance and its return to shareholders.
•
Base salaries fit into these compensation objectives by attracting and retaining talented retail company executives by paying them base salaries commensurate with their position, experience and responsibilities. • The performance-based annual and long-term incentive plans are designed to reward executives for enhancing the Company’s performance through the achievement of performance targets. • Long-term equity-based awards are designed to reward executives for increasing our return to our shareholders through increases in our stock price. Restricted stock awards may, in addition, serve to help retain key executives. Base salaries of named executive officers rarely change materially from year-to-year unless there has been a change in responsibility or other special factors apply. Bonus target pay-outs, both annual and long-term, are established by level of position. Mr. Hicks’ annual bonus target is specified in his
employment agreement. In determining total compensation, stock options are valued by the Committee’s outside compensation consultant using the Black-Scholes model. Awards of RSUs and restricted stock awards are valued based upon the share price at the time of grant. The goal of the Compensation
Committee is to balance annual, mid-term, and long-term compensation opportunities, as well as balance the mix of cash and equity in the executive compensation program. Compensation Plans and Risk We believe that our compensation program encourages our named executive officers to take energetic action to improve the Company’s performance without encouraging them to take undue risk. The annual and long-term incentive elements of the program are paid based upon performance as compared to
the Company’s annual and two-year business plans, which are prepared each year by the Company’s management and reviewed and approved by the Finance and Strategic Planning Committee and the Board of Directors. While in some years these business plans have proven to be aggressive—as shown in hindsight
when the plans are not achieved and bonuses are not paid—our history suggests that, on balance, they are reasonably achievable under normal business conditions. This encourages our executives to manage the business well without pressuring them to take undue risks in order to obtain a bonus payment. 34
Our equity-based compensation for the named executive officers is designed with a similar goal in mind. Equity grants are reasonable in relation to overall compensation. Stock options normally vest ratably over a three-year period and have a 10-year term, reducing the risk that an executive will take short-
term action to inflate the price of the Company’s stock for a brief period. Beginning with the 2010-2011 performance measurement period, long-term incentive pay-outs are calculated at the conclusion of the two-year performance measurement period, but not actually paid to the participant until an additional year has passed. In addition to serving as a retention vehicle, this also
requires that the executive continue to have the value of the stock portion of his or her award at risk, dependent on fluctuations in stock price, for an additional year. It also allows a year to pass in which any issues concerning the Company’s operating or financial performance may surface before payments are
made. In addition, there are certain other factors related to our compensation programs for the named executive officers that we believe help reduce the likelihood that our compensation programs will encourage our executives to take undue risk:
•
As the bonus targets are based on the business plan, any significant deviation from the plan undertaken by management during the course of the year must be reviewed and approved by the Board of Directors. • As a retail company, we believe that one of the more significant risks we run is to encourage management to achieve profit without taking into account the capital used, particularly working capital invested in inventory. We have therefore designed our long-term incentive plan for senior management,
including the named executive officers, to take into account ROIC as well as net income in determining whether a bonus will be paid. • We have designed our plans so that executives who receive a “Not Meeting Expectations” or “Unsatisfactory” rating under the Company’s annual performance appraisal process are not eligible to receive an annual bonus payment. This helps prevent an individual executive from taking any action inconsistent
with the business plan or otherwise exposing the Company to undue risk. • Cash incentive payments and equity grants are not outsized in relation to base salary. At target, the Chief Executive Officer has the opportunity to earn 125 percent of his base salary in annual bonus and 175 percent of his base salary in long-term bonus. Comparable percentages for the other named executive
officers are 50 percent and 75 percent. • Annual cash bonus and the cash portion of the long-term bonus awards to executives are capped and do not include excessive leverage. Bonus pay-outs are calculated on the basis of straight-line interpolation between the threshold, target, and maximum points. • There is a balance between annual, mid-term, and long-term compensation plans for executives, as well as a balance between the use of cash and equity. Please see Page 21 of the proxy statement for a discussion of compensation and risk in our compensation plans more generally, and the procedures we followed to evaluate this. Compensation Committee Procedure The Compensation Committee normally holds two scheduled meetings for the purpose of considering executive compensation. In 2011, the Committee followed this procedure and, in addition, held two additional meetings—one in May to consider compensation changes for those executives, including three of the
named executive officers, whose responsibilities changed during the course of the year, and one in November to consider certain possible changes to the executive compensation program for 2012. The Compensation Committee has retained as its advisor an executive compensation consultant—Compensation Advisory Partners—that is independent and performs no other work for the Company. Compensation Advisory Partners is retained directly by the Compensation Committee, reports to it directly and
meets with the Committee privately, without management present, and regularly communicates privately with the Chair of the Committee. Management utilizes the services of a 35
different compensation consultant to provide advice on the executive compensation program and plan design. At its first scheduled meeting, held in February, the Committee reviewed a report from the Company’s outside compensation consultant on the Company’s executive compensation program, general executive compensation trends, trends in the retail industry, and specific background information on each senior
management position. The Committee’s compensation consultant reviewed a report on risk in relation to the Company’s compensation policies and practices. The Committee also reviewed a report from its compensation consultant providing a pay-for-performance analysis of our executive compensation program
and a separate report providing a review of the Chief Executive Officer’s compensation. The Committee held a private meeting with its consultant, without management present. Based upon the material reviewed and the discussion of the Committee at this meeting, our Senior Vice President—Human Resources and the Human Resources Department, working with our Chairman of the Board and Chief Executive Officer, prepared compensation recommendations, covering all elements
of compensation, for all corporate officers and heads of our operating divisions, other than the Chief Executive Officer himself. These were then forwarded to the Chair of the Compensation Committee for his review. There were also discussions between the Chairman of the Board and Chief Executive Officer and
the Chair of the Compensation Committee with regard to these proposals. Based upon input from the Chair of the Compensation Committee, the Human Resources Department then finalized these recommendations and prepared material for review by the Compensation Committee. Our Senior Vice President and
General Counsel also attended meetings of the Compensation Committee and participated in some of these discussions and preparations. The Compensation Committee held a second regularly scheduled meeting in March to consider these recommendations and set compensation for the Company’s executives. At this meeting, the Committee reviewed a spreadsheet that set out all elements of proposed compensation for each of the Company’s
senior executives, including the named executive officers, in order to assist in its evaluation of the compensation proposals for 2011. At this meeting the Committee also discussed privately, without management being present, compensation for the Chairman of the Board and Chief Executive Officer for 2011, established his target awards under the Annual Bonus Plan and long-term incentive program, and made the stock awards to him
shown in the table on Page 41. Except in the case of promotions or other unusual circumstances, the Compensation Committee considers stock awards only at this meeting, which is normally held within a few weeks following the issuance of the Company’s full-year earnings release for the prior year. It is also at this meeting that the
Compensation Committee determined whether performance targets under the Annual Bonus Plan for the prior year and under the long-term incentive program for the performance period that ended in the prior year had been achieved, determined the amount of annual and long-term bonus pay-outs, and
established annual bonus targets for the upcoming year and long-term bonus targets for the upcoming two-year performance period. In 2011, in addition to the stock option awards to the named executive officers made at the Compensation Committee’s regularly scheduled meeting in March, at a special meeting in May the Committee also made restricted stock and, in the case of Ms. Peters, stock option, awards to the three named executive
officers (Mr. Johnson, Mr. McHugh, and Ms. Peters) who moved to new positions on July 1. At this meeting, the Committee also approved increases in base salary for Mr. Johnson and Ms. Peters. In 2011, the Compensation Committee also met in November to consider certain possible changes to the executive compensation program for 2012. The Compensation Committee has delegated authority to its Chair to approve stock option awards of up to 25,000 shares to any single individual other than a corporate officer. The Chair generally uses this authority to approve stock option grants made during the course of the year in connection with
promotions or new hires. In 2011, the Chair used this authority to approve grants of options to two executives, who were not named executive officers, to purchase a total of 11,500 shares. Those options are priced at fair market value on the date the Chair signs the approval. Neither the Compensation 36
Committee nor its Chair has delegated authority to management to make stock option, restricted stock, or RSU awards. Executive Employment Agreements As more fully described on pages 50 to 53, we have employment agreements with each of our named executive officers. Other than the agreement with Mr. Hicks, which was separately negotiated when he joined the Company in 2009, the agreements with the named executive officers are in the same form. Our employment agreements with the named executive officers provide for severance payments to the executive if we terminate the executive’s employment without cause or if we give the executive good reason to terminate employment. These payments to the named executive officers, calculated as if
termination of employment occurred at the end of our last fiscal year, are set out in the tables on pages 55 to 69. The named executive officers receive an enhanced severance payment if the executive’s employment is terminated without cause or if the executive terminates employment for good reason within two years following a change-in-control. For an executive to receive the enhanced severance payment, two events
must occur: first, employment must be terminated for one of the specified reasons, and second, this termination must occur within two years following a change-in-control. We believe that these provisions, which we have had in place for a number of years, provide appropriate protection to our executives,
comparable to that available at other publicly traded companies, and, with regard to the enhanced severance following a change-in-control, protect us from losing key executives during a period when a change-in-control may be threatened or pending. None of the named executive officers is entitled to a gross-up
payment upon a change-in-control. All of the named executive officers have agreed in their employment contracts not to compete with the Company for two years following the termination of employment and not to hire Company employees during that same period. This restriction does not apply following a change-in-control. Accounting and Tax Considerations While we review both the accounting and tax effects of various components of compensation, these effects are not a significant factor in the Compensation Committee’s allocation of compensation among the different components. In general, it is our position that compensation paid to executive officers should
be fully deductible for U.S. tax purposes, and we have structured our bonus and option programs so that payments made under them are deductible. In certain instances, however, we believe that it is in the Company’s best interests, and that of its shareholders, to have the flexibility to pay compensation that is not
deductible under the limitations of Section 162(m) of the Internal Revenue Code in order to provide a compensation package consistent with our program and objectives. The portion of base salary paid to Mr. Hicks that exceeds $1,000,000, the value of time-based restricted stock awards made to him, and
potentially a portion of the value of time-based restricted stock awards made to one or more of the other named executive officers, are not expected to be deductible. The Compensation and Management Resources Committee of the Board of Directors has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management and, based on that review and discussion, has recommended to the Board of Directors that
the Compensation Discussion and Analysis be included in this proxy statement. Alan D. Feldman, Chair 37
James E. Preston
Allen Questrom
Cheryl Nido Turpin
Dona D. Young
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
(i)
(j)
Name and Principal Position (1)
Year
Salary
Bonus
Stock
Option
Non-Equity
Change
All Other
Total Ken C. Hicks
2011
1,100,000
500,000
2,867,015
2,878,750
5,954,052
520,474
238,856
14,059,147 Chairman, President
2010
1,100,000
500,000
1,741,431
1,339,500
2,776,881
428,331
174,648
8,060,791 and CEO
2009
506,349
1,000,000
5,050,000
1,753,860
—
19,855
265,601
8,595,665 Lauren B. Peters
2011
439,061
—
827,696
549,216
1,393,837
174,519
300,996
3,685,325 Executive VP and
2010
380,414
—
260,619
178,600
588,810
126,894
210,980
1,746,317 CFO
2009
369,334
—
248,250
71,730
—
95,901
215,041
1,000,256 Robert W. McHugh
2011
615,000
—
960,009
460,600
2,023,125
220,847
202,093
4,481,674 Executive VP—
2010
593,750
—
407,095
357,200
903,634
167,909
254,132
2,683,720 Operations Support
2009
562,500
—
248,250
71,730
—
87,952
180,683
1,463,160 Richard A. Johnson
2011
765,833
—
1,078,663
460,600
2,266,217
271,336
212,136
5,054,785 Executive VP and
2010
700,000
—
1,878,945
357,200
908,686
220,127
312,436
4,377,394 Group President—
2009
525,000
—
248,250
71,730
407,822
85,301
788,791
2,126,894 Retail Stores Gary M. Bahler
2011
538,213
—
405,003
287,875
1,815,574
317,599
143,642
3,507,906 Senior VP, General
2010
530,881
—
361,539
178,600
828,346
239,847
50,820
2,190,033 Counsel and
2009
524,975
—
248,250
71,730
—
240,552
142,785
1,228,292 Secretary Jeffrey L. Berk
2011
487,024
—
366,400
230,300
1,639,552
221,502
148,377
3,093,155 Senior VP—Real
2010
480,159
—
327,389
178,600
747,972
182,936
108,820
2,025,876 Estate
2009
473,063
—
248,250
71,730
—
138,282
127,131
1,058,456 Ronald J. Halls
2011
391,875
—
148,459
450,344
1,904,454
22,535
993,020
3,910,687 Retired President
2010
766,875
—
524,134
357,200
1,156,116
217,229
121,144
3,142,698 and CEO—
2009
750,000
—
1,020,000
299,735
—
106,393
212,524
2,388,652 Foot Locker, Inc.— International Notes to Summary Compensation Table
(1)
Ken C. Hicks has served as Chairman of the Board since January 31, 2010 and as President and Chief Executive Officer since August 17, 2009. Lauren B. Peters has served as Executive Vice President and Chief Financial Officer since July 1, 2011. Prior to this, she served as Senior Vice President—Strategic Planning. Robert W. McHugh has served as Executive Vice President—Operations Support since July 1, 2011. He previously served as Executive Vice President and Chief Financial Officer from May 1, 2009 to June 30, 2011 and as Senior Vice President and Chief Financial Officer prior to May 1, 2009. Richard A. Johnson has served as Executive Vice President and Group President—Retail Stores since July 1, 2011. He served as President and Chief Executive Officer of Foot Locker U.S., Lady Foot Locker, Kids Foot Locker, and Footaction from January 8, 2010 to June 30, 2011 and as President and Chief
Executive Officer of Foot Locker Europe prior to January 8, 2010. Ronald J. Halls served as President and Chief Executive Officer of Foot Locker, Inc.–International through May 26, 2011. He retired from the Company on July 31, 2011. (2) This column reflects the sign-on bonus Mr. Hicks received in connection with the commencement of his employment in August 2009, a portion of which was paid on his employment commencement date in 2009, with the balance paid to him over a two-year period on the first and second anniversaries of his
employment date. (3) The amounts in these columns reflect the stock and option awards granted in the designated years. The amounts represent the aggregate grant date fair value of the awards granted in each respective year calculated in accordance with stock-based compensation accounting rules (ASC Topic 718). A discussion of
the assumptions used in computing the award values may be found in Note 21 to our financial statements in our Form 10-K for 2011. As provided under the SEC’s rules, the amounts 38
($)
($)(2)
Awards
($)(3)(4)
Awards
($)(3)
Incentive Plan
Compensation($)(5)
in Pension
Value and
Nonqualified
Deferred
Compensation
Earnings($)(6)
Compensation($)(7)
($)
shown exclude the impact of estimated forfeitures related to service-based vesting conditions and include for restricted stock awards expected dividend payments at the same rate as paid on our shares of Common Stock. Please see the Grants of Plan-Based Awards table on Page 41 for additional information on
awards granted in 2011. The amounts shown in the table do not necessarily reflect the actual value that may be recognized by the named executives. (4) The amounts in column (e) include for all of the named executives the grant date fair value of performance-based restricted stock units (RSUs) granted in 2011 for the long-term performance measurement period of 2011-2012 and in 2010 for the long-term performance measurement period of 2010-2011, valued
at grant date based upon the probable outcome of meeting the performance conditions. The amounts shown reflect the achievement of the maximum level performance, are consistent with the estimate of the aggregate compensation cost to be recognized over the service period determined at the grant date
under FASB ASC Topic 718, and exclude the effect of estimated forfeitures. The value shown for Mr. Halls for 2011 is pro rated to his retirement date. For 2011, column (e) also includes for Messrs. Hicks, Johnson and McHugh and Ms. Peters, their 2011 restricted stock awards and, for 2010, Mr. Johnson’s
restricted stock award. Please see the Grants of Plan-Based Awards table on Page 41 for additional information on the awards granted in 2011. (5) For 2011, this column reflects the sum of the cash incentive payments made in 2012 under the Annual Incentive Compensation Plan (“Annual Bonus Plan”) for 2011 and the Long-Term Incentive program (“LTI”) for the 2009-2011 performance measurement period, and the cash portion of the earned LTI
incentive for the 2010-2011 performance measurement period that is payable in 2013 if the executive continues to be employed by us on the payment date, as shown in the following table. For 2009, this column reflects the payment made to Mr. Johnson under the Foot Locker Europe annual bonus plan; none of
the other executives received an annual bonus for 2009. Payouts
in 2012 Payout
in 2013 Name Annual
Bonus Plan LTI Total
Cash LTI Total
as K.
Hicks $ 2,406,250 $ 1,622,802 $ 4,029,052 $ 1,925,000 $ 5,954,052 L.
Peters 384,179 701,726 1,085,905 307,932 1,393,837 R.
McHugh 538,125 1,035,000 1,573,125 450,000 2,023,125 R.
Johnson 670,104 1,049,272 1,719,376 546,841 2,266,217 G.
Bahler 470,936 945,000 1,415,936 399,638 1,815,574 J.
Berk 426,146 851,513 1,277,659 361,893 1,639,552 R.
Halls 342,891 1,126,236 1,469,127 435,327 1,904,454
(6)
Amounts shown in column (h) represent the annual change in pension value during each of our last three fiscal years for each of the executives. Please see Page 72 for more information on 2011 pension benefits. (7) This column includes perquisites and other compensation, and the amounts attributable to the executives for 2011 are shown in the tables below. We valued these perquisites at the incremental cost to the Company of providing the personal benefits to the executives, which represents the actual cost attributable
to providing these personal benefits. Please note:
•
The amounts shown for financial planning and medical expense reimbursement reflect amounts reimbursed in 2011, which may also include reimbursement of amounts submitted in 2011 for expenses incurred in 2010. • The amounts shown in the table under the 401(k) Match column represent the dollar value of the Company’s matching contribution under the Foot Locker 401(k) Plan made to the named executive’s account in shares of Common Stock. The shares of stock for the 2011 matching contribution were valued at
$24.075 per share. 39
Cash Payment for
2011
2009-2011
Performance
Period
(Cash Payout)
Bonus Payments
Received in 2012
2010-2011
Performance
Period
(Cash Payout
Earned—
Payable in 2013)
Shown in
Summary
Compensation
Table
• The amounts shown under the column Accrual for Post-Termination Medical reflect the amounts accrued in 2011 for the actuarial present value of the future cost of providing this benefit to these individuals. • For Mr. Halls, the relocation expense reimbursement and related tax gross-up relates to his relocation from the United States to New Zealand following his retirement in July 2011 in accordance with the terms of the Company’s agreement with Mr. Halls and the Company’s executive relocation policy.
Name
Auto
Car Service
Financial
Medical
Executive
Supp. LTD
Accrual
Universal
401(k)
Total K. Hicks
28,915
11,440
8,270
9,344
968
12,515
158,209
6,745
2,450
238,856 L. Peters
8,970
—
—
2,013
495
—
285,190
1,878
2,450
300,996 R. McHugh
13,750
—
—
5,000
618
—
180,275
—
2,450
202,093 R. Johnson
—
—
14,215
4,642
555
6,075
180,275
3,924
2,450
212,136 G. Bahler
14,932
—
8,270
4,056
—
5,565
106,239
2,130
2,450
143,642 J. Berk
963
—
—
6,491
—
—
140,923
—
—
148,377
Name
Auto
Medical
Spousal
Relocation
Tax
Severance
Auto
Total R. Halls
17,614
5,000
29,452
69,637
56,577
795,000
19,740
993,020 40
Allowance
Expense
Reimbursement
Planning
Expense
Reimbursement
Physical
Insurance
Premiums
for Post-
Termination
Medical
Life
Insurance
Premium
Match
Allowance
Expense
Reimbursement
Travel
Reimbursement
Expense
Reimbursement
Gross-Up
on
Relocation
Benefit
Lease
Cancellation
Reimbursement
The following Grants of Plan-Based Awards Table shows the awards made to the named executive officers in 2011 under the Annual Bonus Plan and the Long-Term Bonus Plan, as well as the restricted stock, restricted stock unit, and stock option awards under the Company’s Stock Incentive Plan.
(a)
(b)
Estimated Future Payouts
Estimated Future Payouts
(i)
(j)
(k)
(l)
(c)
(d)
(e)
(f)
(g)
(h)
Name
Grant
Threshold
Target
Maximum
Threshold
Target
Maximum
All
All
Exercise
Grant K. Hicks
03/23/11(1)
343,750
1,375,000
2,406,250
03/23/11(2)
240,625
962,500
1,925,000
03/23/11(2)
12,773
51,089
102,177
1,925,015
03/23/11(3)
500,000
18.84
2,878,750
03/23/11(4)
50,000
942,000 L. Peters
03/23/11(1)
49,463
197,854
346,244
03/23/11(2)
37,098
148,390
296,780
03/23/11(2)
1,970
7,877
15,753
296,787
05/26/11(2)
5,896
23,586
47,171
05/26/11(2)
239
953
1,906
47,174
03/23/11(3)
40,000
18.84
230,300
05/26/11(3)
40,000
24.75
318,912
05/26/11(4)
20,000
495,000 R. McHugh
03/23/11(1)
77,500
310,000
542,500
03/23/11(2)
58,125
232,500
465,000
03/23/11(2)
3,086
12,341
24,682
465,009
03/23/11(3)
80,000
18.84
460,600
05/26/11(4)
20,000
495,000 R. Johnson
03/23/11(1)
93,125
372,500
651,875
03/23/11(2)
69,844
279,375
558,750
03/23/11(2)
3,708
14,829
29,658
558,757
05/26/11(2)
4,090
16,360
32,720
05/26/11(2)
166
661
1,322
32,720
03/23/11(3)
80,000
18.84
460,600
05/26/11(4)
20,000
495,000 G. Bahler
03/23/11(1)
67,500
270,000
472,500
03/23/11(2)
50,625
202,500
405,000
03/23/11(2)
2,688
10,749
21,497
405,003
03/23/11(3)
50,000
18.84
287,875 J. Berk
03/23/11(1)
61,066
244,262
427,459
03/23/11(2)
45,799
183,197
366,393
03/23/11(2)
2,431
9,724
19,448
366,400
03/23/11(3)
40,000
18.84
230,300 R. Halls
03/23/11(1)
99,375
397,500
695,625
03/23/11(2)
74,531
298,125
596,250
03/23/11(2)
3,957
15,825
31,649
596,267
03/23/11(3)
80,000
18.84
450,344 Notes to Grants of Plan-Based Awards Table
(1)
Annual Incentive Awards Amounts shown reflect the payment levels at threshold, target, and maximum performance for the 2011 fiscal year under the Annual Bonus Plan and reflect the potential amounts that would be paid at the end of the period if the applicable performance goals were achieved. The estimated bonus payouts are
based on a percentage of the executive’s base salary. For Mr. Hicks, the threshold, target, and maximum amounts represent 31.25 percent, 125 percent, and 218.75 percent, respectively, of his annual base salary. For the other named executives, the threshold, target, and maximum amounts represent 12.5 percent,
50 percent, and 87.5 percent, respectively, of each executive’s annual base salary. Due to Mr. Halls’ retirement in 2011, he was eligible to receive a pro 41
Under Non-Equity Incentive
Plan Awards
Under Equity Incentive
Plan Awards
Date
($)
($)
($)
(#)
(#)
(#)
Other
Stock
Awards:
Number of
Shares
of Stock
or Units
(#)
Other
Option
Awards:
Number of
Securities
Under-
lying
Options
(#)
or Base
Price of
Option
Awards
($/Sh)
Date
Fair
Value of
Stock
and
Option
Awards(5)
rata portion of the amounts shown in the table. The annual bonus payments actually made to the named executives for 2011 are shown in Note 5 to the Summary Compensation Table on Page 39. (2) Long-Term Incentive Awards Provided the performance goals for the 2011-2012 long-term performance measurement period are achieved, the payout structure of the executives’ awards is as follows: (a) 50 percent of the award would be payable in cash under the Long-Term Bonus Plan, (b) 50 percent of the award would be payable in
restricted stock units under the 2007 Stock Incentive Plan, and (c) both the cash portion and the stock portion of the payout would be subject to a time-based, one-year holding period following the end of the performance measurement period before payout to the executives. The amounts shown in the table
reflect the estimated payment levels in cash and number of restricted stock units at threshold, target, and maximum performance for the 2011-2012 performance measurement period. Columns (c), (d), and (e) show the estimated cash payments and columns (f), (g), and (h) show the number of restricted stock
units that would be paid out at threshold, target and maximum performance if the applicable performance goals are achieved. The amounts shown for Mr. Halls would be pro rated to his retirement date. The threshold, target and maximum number of restricted stock units for each executive was calculated on the date of grant on the basis of that day’s closing stock price of a share of the Company’s Common Stock. The closing prices on the grant dates of March 23, 2011 and May 26, 2011 were $18.84 and $24.75,
respectively. Similarly, the grant date fair values of the restricted stock unit awards are based on the closing stock prices on the grant dates. The actual number of restricted stock units paid out will be based on the Company’s performance compared to targets. The value of the restricted stock units received by
an executive will depend upon the Company’s stock price on the payment date in 2014. No dividends are paid or accrued for the restricted stock units. Mr. Johnson and Ms. Peters each received an additional grant of restricted stock units with regard to the 2011-2012 performance measurement period due to
their promotions during 2011 and related salary increases. For Mr. Hicks, the aggregate payout in cash and stock at threshold, target and maximum performance would be 43.75 percent, 175 percent and 350 percent, respectively, of his base salary in the first year of the performance period. For the other named executives, the aggregate payout at threshold, target and
maximum performance would be 18.75 percent, 75 percent and 150 percent, respectively, of their base salaries in the first year of the performance period. No amounts would be paid to the executives under the long-term incentive awards unless the performance goals for the performance measurement period
are achieved. (3) Stock Option Grants The amounts in column (j) reflect the number of stock options granted in 2011 under the 2007 Stock Incentive Plan. The exercise price reflected in column (k) is equal to the closing price of a share of the Company’s Common Stock on the grant date. In general, no portion of any stock option may be exercised
until the first anniversary of its date of grant. Vested options may be exercised for ten years following the date of grant, unless the option is cancelled or exercised sooner than this. If the executive retires, becomes disabled, or dies while employed by the Company or one of its subsidiaries, all unexercised options
that are then exercisable, plus those options that would have become exercisable on the next anniversary of the grant date, will remain (or become) exercisable as of that date. Moreover, upon the occurrence of a Change in Control, all outstanding options will become immediately exercisable as of that date. In
general, options may remain exercisable for up to three years following a participant’s retirement or termination due to disability, and for up to one year for any other termination of employment for reasons other than cause. The vesting schedule for options granted to the executives in 2011 is shown below. 42
Name
Date of Grant
Number of Shares
Vesting Schedule K. Hicks
03/23/11
500,000
03/23/12:
166,666 shares
03/23/13:
166,667 shares
03/23/14:
166,667 shares L. Peters
03/23/11
40,000
03/23/12:
13,333 shares
03/23/13:
13,333 shares
03/23/14:
13,334 shares
05/26/11
40,000
05/26/12:
13,333 shares
05/26/13:
13,333 shares
05/26/14:
13,334 shares R. McHugh
03/23/11
80,000
03/23/12:
26,666 shares
03/23/13:
26,667 shares
03/23/14:
26,667 shares R. Johnson
03/23/11
80,000
03/23/12:
26,666 shares
03/23/13:
26,667 shares
03/23/14:
26,667 shares G. Bahler
03/23/11
50,000
03/23/12:
16,666 shares
03/23/13:
16,667 shares
03/23/14:
16,667 shares J. Berk
03/23/11
40,000
03/23/12:
13,333 shares
03/23/13:
13,333 shares
03/23/14:
13,334 shares R. Halls
03/23/11
80,000
03/23/12:
26,666 shares*
03/23/13:
26,667 shares*
03/23/14:
26,667 shares*
*
The first tranche of this grant became exercisable on his retirement date— July 31, 2011 —and the balance of the grant was cancelled. (4) Restricted Stock Awards The amount shown in the table under column (i) represents the number of shares of restricted stock granted to the named executives in 2011 under the 2007 Stock Incentive Plan. For Mr. Hicks, the award will fully vest on March 23, 2014, provided he remains employed as Chief Executive Officer of the
Company through the vesting date. For Ms. Peters and Messrs. Johnson and McHugh, the awards will fully vest on June 30, 2014, provided they remain employed by the Company through the vesting date. Each of these executives has the right to receive all regular cash dividends payable after the date of grant
to all record holders of our Common Stock. The grant date fair value of the restricted stock award shown in column (l) includes expected dividend payments on the shares. (5) Grant Date Fair Value The amounts shown in column (l) reflect the aggregate grant date fair value of the restricted stock, restricted stock unit, and stock option awards granted in 2011, calculated in accordance with stock-based compensation accounting rules (FASB ASC Topic 718). A discussion of the assumptions used in computing
the award values may be found in Note 21 to our financial statements in our Form 10-K for 2011. As provided under the SEC’s rules, the amounts shown exclude the impact of estimated forfeitures related to service-based vesting conditions and include, where applicable, expected dividend payments at the same
rate as paid on our shares of Common Stock. For option awards, the value is calculated by multiplying the Black-Scholes value by the number of options granted. For restricted stock, the fair value is calculated by multiplying the closing price of our Common Stock on The New York Stock Exchange on the
award date by the number of shares granted. For the performance-based restricted stock units awarded under the 2007 Stock Incentive Plan in connection with the 2011-2012 long-term performance measurement period, the fair value is calculated based upon the probable outcome of meeting the performance
conditions at the maximum performance level and multiplying the number of units that would be received at that level by the closing price of a share of our Common Stock on the grant date. This is consistent with the estimate of the aggregate compensation cost to be recognized over the service period 43
determined at the grant date under FASB ASC Topic 718. All of these values are shown in the table below.
Name
Black-Scholes
Black-Scholes
Restricted
Restricted
Performance-Based
Performance-Based K. Hicks
$
5.7575
—
$
18.84
—
$
18.84
— L. Peters
$
5.7575
$
7.9728
—
$
24.75
$
18.84
$
24.75 R. McHugh
$
5.7575
—
—
$
24.75
$
18.84
— R. Johnson
$
5.7575
—
—
$
24.75
$
18.84
$
24.75 G. Bahler
$
5.7575
—
—
—
$
18.84
— J. Berk
$
5.7575
—
—
—
$
18.84
— R. Halls
$
5.6293
—
—
—
$
18.84
— Salary. The annual base salaries and cash bonuses earned by our named executives for 2011 are set forth in the Summary Compensation Table. Including the cash long-term incentive earned for the 2010-2011 performance period that is payable in 2013, these amounts represented the following percentages of
the named executives’ total compensation for 2011: Mr. Hicks (53.7%), Ms. Peters (49.7%), Mr. McHugh (58.9%), Mr. Johnson (60%), Mr. Bahler (67.1%), Mr. Berk (68.8%), and Mr. Halls (58.7%). Information on the named executives’ employment agreements appears beginning on Page 50. 44
Value for Stock
Options Granted
On March 23,
2011
Value for Stock
Option Granted
On May 26,
2011
Stock Award
Granted on
March 23,
2011
Stock Awards
Granted on
May 26,
2011
Restricted Stock
Unit Awards
Granted on
March 23,
2011
Restricted Stock
Unit Awards
Granted on
May 26,
2011
The following table, Outstanding Equity Awards at Fiscal Year-End shows the number of outstanding stock options, both vested and unvested, and the number of unvested shares of restricted stock or restricted stock units held by the named executives at the end of the 2011 fiscal year. OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END (a)
Option Awards
Stock Awards
(b)
(c)
(d)
(e)
(f)
(g)
(h)
(i)
(j)
Name
Number of
Number of
Equity
Option
Option
Number
Market
Equity Incentive
Equity Incentive K. Hicks
500,000
100,000
—
10.10
08/25/2019
—
—
—
—
100,000
200,000
—
15.10
03/23/2020
0
500,000
—
18.84
03/23/2021
—
—
—
—
—
450,000
11,898,000
—
—
—
—
—
—
—
—
—
127,484
3,370,677
—
—
—
—
—
—
—
12,773
337,718 L. Peters
47,500
0
—
16.02
04/18/2012
—
—
—
—
40,000
0
—
10.245
04/16/2013
—
—
—
—
32,000
0
—
25.385
04/01/2014
—
—
—
—
25,000
0
—
28.155
03/23/2015
—
—
—
—
25,000
0
—
23.92
03/22/2016
—
—
—
—
20,000
0
—
23.42
03/28/2017
—
—
—
—
25,000
0
—
11.66
03/26/2018
—
—
—
—
16,666
8,334
—
9.93
03/25/2019
—
—
—
—
13,333
26,667
—
15.10
03/23/2020
—
—
—
—
0
40,000
—
18.84
03/23/2021
—
—
—
—
0
40,000
—
24.75
05/26/2021
—
—
—
—
—
—
—
—
—
45,000
1,189,800
—
—
—
—
—
—
—
—
—
19,882
525,680
—
—
—
—
—
—
—
2,209
58,406 R. McHugh
20,000
0
—
10.245
04/16/2013
—
—
—
—
20,000
0
—
25.385
04/01/2014
—
—
—
—
20,000
0
—
28.155
03/23/2015
—
—
—
—
30,000
0
—
21.48
11/21/2015
—
—
—
—
20,000
0
—
23.42
03/28/2017
—
—
—
—
25,000
0
—
11.66
03/26/2018
—
—
—
—
16,666
8,334
—
9.93
03/25/2019
—
—
—
—
26,666
53,334
—
15.10
03/23/2020
—
—
—
—
0
80,000
—
18.84
03/23/2021
—
—
—
—
—
—
—
—
—
45,000
1,189,800
—
—
—
—
—
—
—
—
—
29,802
787,965
—
—
—
—
—
—
—
3,086
81,594 R. Johnson
30,000
0
—
10.245
04/16/2013
—
—
—
—
30,000
0
—
25.385
04/01/2014
—
—
—
—
20,000
0
—
28.155
03/23/2015
—
—
—
—
20,000
0
—
23.92
03/22/2016
—
—
—
—
20,000
0
—
23.42
03/28/2017
—
—
—
—
20,000
0
—
18.80
07/30/2017
—
—
—
—
10,000
0
—
11.66
03/26/2018
—
—
—
—
16,666
8,334
—
9.93
03/25/2019
—
—
—
—
26,666
53,334
—
15.10
03/23/2020
—
—
—
—
0
80,000
—
18.84
03/23/2021
—
—
—
—
—
—
—
—
—
25,000
661,000
—
—
—
—
—
—
—
120,000
3,172,800
—
—
—
—
—
—
—
—
—
35,652
942,639
—
—
—
—
—
—
—
3,874
102,429 G. Bahler
32,000
0
—
25.385
04/01/2014
—
—
—
—
25,000
0
—
28.155
03/23/2015
—
—
—
—
25,000
0
—
23.92
03/22/2016
—
—
—
—
20,000
0
—
23.42
03/28/2017
—
—
—
—
25,000
0
—
11.66
03/26/2018
—
—
—
—
16,666
8,334
—
9.93
03/25/2019
—
—
—
—
13,333
26,667
—
15.10
03/23/2020
—
—
—
—
0
50,000
—
18.84
03/23/2021
—
—
—
—
—
—
—
—
—
25,000
661,000
—
—
—
—
—
—
—
—
—
26,467
699,787
—
—
—
—
—
—
—
2,688
71,071 Table Continued on Next Page 45
Securities
Underlying
Unexercised
Options
(#)
Exercisable(1)
Securities
Underlying
Unexercised
Options
(#)
Unexercisable(1)
Incentive
Plan Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options
(#)
Exercise
Price
($)
Expiration
Date
of Shares
or Units
of Stock
That Have
Not Vested
(#)(2)
Value of
Shares or
Units of
Stock
That Have
Not Vested
($)(3)
Plan Awards:
Number of
Unearned
Shares,
Units or
Other Rights
That Have
Not Vested
(#)(2)
Plan Awards:
Market or
Payout
Value of
Unearned
Shares, Units
or Other Rights
That Have
Not Vested
($)(3)
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END (cont.) (a)
Option Awards
Stock Awards
(b)
(c)
(d)
(e)
(f)
(g)
(h)
(i)
(j)
Name
Number of
Number of
Equity
Option
Option
Number
Market
Equity Incentive
Equity Incentive J. Berk
40,000
0
—
10.245
04/16/2013
—
—
—
—
32,000
0
—
25.385
04/01/2014
—
—
—
—
25,000
0
—
28.155
03/23/2015
—
—
—
—
25,000
0
—
23.92
03/22/2016
—
—
—
—
20,000
0
—
23.42
03/28/2017
—
—
—
—
25,000
0
—
11.66
03/26/2018
—
—
—
—
16,666
8,334
—
9.93
03/25/2019
—
—
—
—
13,333
26,667
—
15.10
03/23/2020
—
—
—
—
0
40,000
—
18.84
03/23/2021
—
—
—
—
—
—
—
—
—
25,000
661,000
—
—
—
—
—
—
—
—
—
23,967
633,687
—
—
—
—
—
—
—
2,431
64,276 R. Halls
20,000
0
—
25.385
04/01/2014
—
—
—
—
30,000
0
—
28.155
07/31/2014
—
—
—
—
30,000
0
—
23.92
07/31/2014
—
—
—
—
30,000
0
—
24.755
07/31/2014
—
—
—
—
30,000
0
—
23.42
07/31/2014
—
—
—
—
26,666
0
—
18.84
07/31/2014
—
—
—
—
—
—
—
—
—
—
—
28,778
760,890
—
—
—
—
—
—
—
990
26,176 Notes to Table on Outstanding Equity Awards at Fiscal Year-End
(1)
The Vesting Schedules for the options shown in columns (b) and (c) are as follows:
Name
Total Number of
Date of Grant
Vesting Date for 1/3
Vesting Date for 1/3
Vesting Date for 1/3 K. Hicks
300,000
08/25/2009
08/25/2010
08/25/2011
08/25/2012
300,000
08/25/2009
02/25/2010
*
08/25/2010
*
—
300,000
03/23/2010
03/23/2011
03/23/2012
03/23/2013
500,000
03/23/2011
03/23/2012
03/23/2013
03/23/2014
1,400,000 L. Peters
47,500
04/18/2002
04/18/2003
04/18/2004
04/18/2005
40,000
04/16/2003
04/16/2004
04/16/2005
04/16/2006
32,000
04/01/2004
04/01/2005
04/01/2006
04/01/2007
25,000
03/23/2005
03/23/2006
03/23/2007
03/23/2008
25,000
03/22/2006
03/22/2007
03/22/2008
03/22/2009
20,000
03/28/2007
03/28/2008
03/28/2009
03/28/2010
25,000
03/26/2008
03/26/2009
03/26/2010
03/26/2011
25,000
03/25/2009
03/25/2010
03/25/2011
03/25/2012
40,000
03/23/2010
03/23/2011
03/23/2012
03/23/2013
40,000
03/23/2011
03/23/2012
03/23/2013
03/23/2014
40,000
05/26/2011
05/26/2012
05/26/2013
05/26/2014
359,500 R. McHugh
20,000
04/16/2003
04/16/2004
04/16/2005
04/16/2006
20,000
04/01/2004
04/01/2005
04/01/2006
04/01/2007
20,000
03/23/2005
03/23/2006
03/23/2007
03/23/2008
30,000
11/21/2005
11/21/2006
11/21/2007
11/21/2008
Securities
Underlying
Unexercised
Options
(#)
Exercisable(1)
Securities
Underlying
Unexercised
Options
(#)
Unexercisable(1)
Incentive
Plan Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options
(#)
Exercise
Price
($)
Expiration
Date
of Shares
or Units
of Stock
That Have
Not Vested
(#)(2)
Value of
Shares or
Units of
Stock
That Have
Not Vested
($)(3)
Plan Awards:
Number of
Unearned
Shares,
Units or
Other Rights
That Have
Not Vested
(#)(2)
Plan Awards:
Market or
Payout
Value of
Unearned
Shares, Units
or Other Rights
That Have
Not Vested
($)(3)
Securities Underlying
Unexercised Options
of Total Grant
of Total Grant
of Total Grant