DEF 14A 1 ltgt2014_def14a.htm TARGET CORPORATION - DEF 14A TARGET CORPORATION - DEF 14A

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 (Amendment No. __)

 

  Filed by the Registrant    Filed by a Party other than the Registrant

 

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TARGET CORPORATION

 

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  PROXY STATEMENT  
    AND NOTICE OF ANNUAL MEETING
OF SHAREHOLDERS
         
    Wednesday, June 11, 2014 at 1:30 p.m. CDT
   

Union Station

400 South Houston Street
Dallas, Texas 75202

   

 

 

Dear Fellow Shareholder,

 

As we approach our 2014 Annual Meeting of Shareholders, your Board of Directors is proud to look back at the past five decades, during which Target has built a powerful brand and established a strong record of performance through our commitment to bring irresistible value, inspiration and an exceptional shopping experience to our guests. While we continued to invest in key strategies throughout 2013 that upheld our “Expect More. Pay Less.” brand promise and drove sustained growth, we also faced challenges that tested our resilience:

 

our financial results for the year fell short of our expectations,
our unprecedented expansion into Canada presented unexpected challenges that adversely affected performance, and
just prior to the most recent holiday season, we experienced a data breach following a criminal attack on our systems that shook our guests’ confidence in Target.

 

Yet, even with these challenges, our financial discipline and strong capital position provided the capacity to return approximately $2.5 billion to our shareholders in the form of dividends and share repurchases. As we look ahead, we remain confident in our core strategy, committed to faster innovation and better execution, and resolute in continuing to reward our shareholders for many years to come.

 

As we announced on May 5, 2014, after extensive discussions with the Board, Gregg Steinhafel stepped down as President and Chief Executive Officer and as a member of our Board of Directors. We are extremely grateful to Gregg for his tireless leadership and significant contributions to our company throughout his 35-year career.

 

We believe this transition offers an opportunity to make Target an even stronger company. The Board has commenced a comprehensive search to select Target’s next CEO. Until a replacement is named, John Mulligan, Target’s Chief Financial Officer, assumes the additional responsibilities of Interim President and Chief Executive Officer. At the same time, I have taken on the role of Interim Chair of your Board. John and I will continue to engage Target’s leadership team and leverage the Board’s expertise to deliver Target’s brand promise to guests, accelerate Target’s transformation, and position the company to generate strong financial performance in 2014 and beyond.

 

On behalf of the Board of Directors, I invite you to attend Target Corporation’s 2014 Annual Meeting of Shareholders. The accompanying proxy statement and 2013 Annual Report on Form 10-K contain information about:

 

the date, location, and time of the meeting,
business matters on which you are encouraged to vote at this year’s meeting,
executive compensation disclosures, including a description of the extensive shareholder outreach we conducted following last year’s Say on Pay vote and related changes that strengthen the pay-for-performance link in our compensation programs, as well as an explanation of the impact of the recent leadership change, and
our 2013 financial results.

 

If you are not able to join us for the meeting, it is still important for you to vote your shares. We urge you to read the enclosed materials carefully and vote in accordance with the Board of Directors’ recommendations.

 

Your Board of Directors remains unanimous and steadfast in the belief that Target will emerge from this transition as an even stronger, better performing company.

 

We value your feedback and thank you for your continued support of Target.

 

 

Roxanne S. Austin

 

Interim Chair of the Board of Directors

 

2014 Proxy Statement    TARGET CORPORATION     3

 

 

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2014 Proxy Statement    TARGET CORPORATION     4

 

 

  Notice of 2014 Annual Meeting of Shareholders  
 

 

Wednesday, June 11, 2014

1:30 p.m. Central Daylight Time

Union Station located at 400 South Houston Street, Dallas, Texas 75202

 

TO OUR SHAREHOLDERS

 

You are invited to attend Target Corporation’s 2014 Annual Meeting of Shareholders to be held at Union Station located at 400 South Houston Street, Dallas, Texas 75202 on Wednesday, June 11, 2014 at 1:30 p.m. Central Daylight Time.

 

PURPOSE

 

Shareholders will vote on the following items of business:

 

 
  1. Election of all 10 directors named in our proxy statement to our Board of Directors for the coming year;  
  2. Ratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm;  
  3. Approval, on an advisory basis, of our executive compensation;  
  4. The shareholder proposals contained in this proxy statement, if properly presented at the meeting; and  
  5. Transaction of any other business properly brought before the meeting or any adjournment.  
     
 

You may vote if you were a shareholder of record at the close of business on April 14, 2014. We hope you will be able to attend the Annual Meeting, but if you cannot do so, it is important that your shares be represented. If you plan to attend the meeting, please follow the instructions provided in Question 12 “How can I attend the Annual Meeting?” on page 73 of the proxy statement.

 

Following the formal business of the meeting, our Interim President and CEO will provide prepared remarks, followed by a question and answer session.

 

We urge you to read the proxy statement carefully, and to vote in accordance with the Board of Directors’ recommendations by telephone or Internet, or by signing, dating, and returning the enclosed proxy card in the postage-paid envelope provided, whether or not you plan to attend the Annual Meeting.

 

Thank you for your continued support.

 

Sincerely,

 
     
     
     
  Timothy R. Baer  
  Corporate Secretary  
   

Approximate Date of Mailing of Proxy Materials

May 20, 2014 

 

2014 Proxy Statement    TARGET CORPORATION     5

 

Table of Contents

 

PROXY SUMMARY 8
   
NOTICE OF INTERNET AVAILABILITY OF PROXY MATERIALS 9
   
GENERAL INFORMATION ABOUT CORPORATE GOVERNANCE AND THE BOARD OF DIRECTORS 10
   
Corporate Governance Highlights 10
Our Directors 11
Board Leadership Structure 11
Management Succession Planning 11
Risk Oversight 12
Committees 12
Board and Shareholder Meeting Attendance 13
Director Independence 13
Policy on Transactions with Related Persons 13
Business Ethics and Conduct 14
Communications with Directors 14
   
ITEM ONE ELECTION OF DIRECTORS 15
   
Election Process 15
Board Composition 15
Board Renewal and Nomination Process 15
2014 Nominees for Director 16
Director Compensation 22
   
STOCK OWNERSHIP INFORMATION 25
   
Stock Ownership Guidelines 25
Beneficial Ownership of Directors and Officers 27
Beneficial Ownership of Target’s Largest Shareholders 28
Section 16(a) Beneficial Ownership Reporting Compliance 28
   
COMPENSATION COMMITTEE REPORT 29
   
COMPENSATION DISCUSSION AND ANALYSIS 29
   
Introduction 29
Executive Summary 30
Our Performance Framework for Executive Compensation 36
Other Benefit Elements 43
Compensation Governance 44

 

2014 Proxy Statement    TARGET CORPORATION     6

 
EXECUTIVE COMPENSATION TABLES 47
   
Summary Compensation Table 47
Grants of Plan-Based Awards in Fiscal 2013 50
Outstanding Equity Awards at 2013 Fiscal Year-End 51
Option Exercises and Stock Vested in Fiscal 2013 53
Pension Benefits for Fiscal 2013 53
Nonqualified Deferred Compensation for Fiscal 2013 55
Potential Payments Upon Termination or Change-in-Control 57
Equity Compensation Plan Information 61
   
OTHER VOTING ITEMS 62
   
Item Two Ratification of Appointment of Ernst & Young LLP as Independent Registered Public Accounting Firm 62
Item Three Advisory Approval of Executive Compensation (“Say on Pay”) 64
Item Four Shareholder Proposal to Eliminate Perquisites 66
Item Five Shareholder Proposal to Adopt a Policy for an Independent Chairman 67
Item Six Shareholder Proposal to Adopt a Policy Prohibiting Discrimination “Against” or “For” Persons 68
   
QUESTIONS AND ANSWERS ABOUT OUR ANNUAL MEETING AND VOTING 70
   
APPENDIX A RECONCILIATION OF NON-GAAP FINANCIAL MEASURES TO GAAP MEASURES 76

 

2014 Proxy Statement    TARGET CORPORATION     7

 

PROXY STATEMENT
Annual Meeting of Shareholders June 11, 2014

 

The Board of Directors of Target Corporation solicits the enclosed proxy for the 2014 Annual Meeting of Shareholders, and for any adjournment thereof.

 

PROXY SUMMARY

 

This summary highlights information described in other parts of this proxy statement, and does not contain all of the information you should consider in voting. Please read the entire proxy statement carefully before voting.

 

TARGET 2014 ANNUAL MEETING OF SHAREHOLDERS

 

       
  June 11, 2014 Union Station  
  1:30 p.m. Central Daylight Time 400 South Houston Street  
    Dallas, Texas 75202  
       

 

ITEMS OF BUSINESS

 

         
      BOARD’S  
  ITEM   RECOMMENDATION  
  Election of 10 Directors (page 15)   FOR each Director Nominee  
  Ratification of Independent Registered Public Accounting Firm (page 62)   FOR  
  Advisory Approval of Executive Compensation (page 64)   FOR  
  Shareholder Proposals, if Properly Presented (pages 66-69)   AGAINST  
         

 

QUESTIONS AND ANSWERS ABOUT OUR ANNUAL MEETING AND VOTING

 

We encourage you to review the “Questions and Answers About Our Annual Meeting and Voting” beginning on page 70 for answers to common questions on the rules and procedures surrounding the proxy and annual meeting process, as well as the business to be conducted at our Annual Meeting.

 

ADMISSION AT THE MEETING

 

If you plan to attend the Annual Meeting in person, please see the information in Question 12 “How can I attend the Annual Meeting?” on page 73. We strongly encourage you to pre-register. If you plan to bring a guest you must pre-register by June 6, 2014. Any attendee who does not present identification and establish proof of ownership will not be admitted to the Annual Meeting.

 

2014 Proxy Statement    TARGET CORPORATION     8

 

VOTING

 

If you held shares of Target common stock as of the record date (April 14, 2014) you are entitled to vote at the Annual Meeting.

 

Your vote is important. Thank you for voting.

 

ADVANCE VOTING METHODS AND DEADLINES

 

METHOD   INSTRUCTION     DEADLINE
 

Internet
 

   Go to website identified on proxy card

   Enter Control Number on proxy card

•   Follow instructions on the screen

 

   

Internet and telephone voting are available 24 hours a day, seven days a week up to these deadlines:

   Registered Shareholders or Beneficial Owners –11:59 p.m. Eastern Daylight Time on June 10, 2014

   Participants in the Target 401(k) Plan – 6:00 a.m. Eastern Daylight Time on June 9, 2014

 


Telephone
 

   Call the toll-free number identified on proxy card

   Enter Control Number on proxy card

   Follow the recorded instructions

     
 

Mail
 

   Mark your selections on the enclosed proxy card

   Date and sign your name exactly as it appears on proxy card

   Promptly mail the proxy card in the enclosed postage-paid envelope

    Return promptly to ensure it is received before the date of the Annual Meeting or, for participants in the Target 401(k) Plan, by 6:00 a.m. Eastern Daylight Time on June 9, 2014

 

Any proxy may be revoked at any time prior to its exercise at the Annual Meeting. Please see the information in Question 3 “What is a proxy and what is a proxy statement?” on page 70.

 

VOTING AT THE MEETING

 

All registered shareholders may vote in person at the Annual Meeting. Beneficial owners may vote in person at the Annual Meeting if they have a legal proxy. Please see the information in Question 6 “How do I vote?” on page 70. In either case, shareholders wishing to attend the meeting must follow the procedures under “Admission at the Meeting.”

 

NOTICE OF INTERNET AVAILABILITY OF PROXY MATERIALS

 

Important Notice Regarding the Availability of Proxy Materials for the Shareholders Meeting to be held on June 11, 2014.

 

The proxy statement and annual report are available at www.proxyvote.com.

 

2014 Proxy Statement    TARGET CORPORATION     9

 

GENERAL INFORMATION ABOUT CORPORATE GOVERNANCE AND THE BOARD OF DIRECTORS

 

CORPORATE GOVERNANCE HIGHLIGHTS

 

At Target, we have actively supported strong corporate governance practices for decades. Many of the principles that provide the foundation for the practices and policies that guide us today were initiated by the Dayton brothers during their tenure as our leaders. Our Board of Directors recognizes that our corporate governance practices must continually evolve to appropriately balance the interests of the Board, shareholders and management in order to effectively serve our guests, team members, shareholders and the communities in which we do business. Supporting that philosophy, we have adopted many leading corporate governance practices, including:

 

             
          MORE  
  PRACTICE   DESCRIPTION   INFORMATION  
  BOARD COMPOSITION AND ACCOUNTABILITY      
  Independence   A majority of our directors must be independent. Currently, all of our directors are independent, and all of our committees consist exclusively of independent directors.    
  Diversity of Relevant Experiences   The composition of our Board represents broad perspectives, experiences, and knowledge relevant to our business while maintaining a balanced approach to gender and ethnic diversity.    
  Lead Independent Director   Our Corporate Governance Guidelines require a Lead Independent Director position with specific responsibilities to ensure independent oversight of management whenever our CEO is also the Chair of the Board.    
  Annual Management Succession Planning Review   Our Board conducts an annual review of management development and succession planning.    
  Director Tenure Policies   Our director tenure policies include mandatory retirement at age 72, a maximum term limit of 20 years and a separate five-year term limit for directors who retire from active employment in order to ensure the Board regularly benefits from new, fresh perspectives. In addition, a director is required to submit an offer of resignation for consideration by the Board upon any change in the director’s principal employment.    
  Director Overboarding Policy   Our director overboarding policy requires a director to submit an offer of resignation for consideration by the Board if the director becomes overboarded. Any director who is not serving as CEO of a public company is expected to serve on no more than five public company boards (including our Board), and any director serving as a CEO of a public company is expected to serve on no more than two outside public company boards (including our Board).      
  SHAREHOLDER RIGHTS      
  Annual Election of Directors   All directors are elected annually, which reinforces our Board’s accountability to shareholders.    
  Majority Voting Standard for Director Elections   Our Articles of Incorporation mandate that directors be elected under a “majority voting” standard in uncontested elections—each director must receive more votes “For” his or her election than votes “Against” in order to be elected.    
  Director Resignation Policy   An incumbent director who is not re-elected must promptly offer to resign. The Nominating & Governance Committee will make a recommendation on the offer and the Board must accept or reject the offer within 90 days and publicly disclose its decision and rationale.    
  Single Voting Class   Target common stock is the only class of voting shares outstanding.    
  10% Threshold for Special Meetings   Shareholders holding 10% or more of Target’s outstanding stock have the right to call a special meeting of shareholders.      
  No Poison Pill   We do not have a poison pill.      
  COMPENSATION      
  Follow Leading Practices   See “Target’s Executive Compensation Practices.”    
             

 

2014 Proxy Statement    TARGET CORPORATION     10

 

OUR DIRECTORS

 

                             
  NAME   AGE   DIRECTOR SINCE   COMPANY   TITLE   INDEPENDENT   OTHER CURRENT
PUBLIC COMPANY
BOARDS
 
  Roxanne S. Austin   53   2002   Austin Investment Advisers   President   Yes   4  
  Douglas M. Baker, Jr.   55   2013   Ecolab Inc.   Chairman & CEO   Yes   2  
  Calvin Darden   64   2003   Darden Development Group, LLC   Chairman   Yes   2  
  Henrique De Castro   48   2013   Yahoo! Inc. (Until January 2014)   Former COO   Yes   0  
  James A. Johnson   70   1996   Johnson Capital Partners   Founder   Yes   2  
  Mary E. Minnick   54   2005   Lion Capital   Partner   Yes   2  
  Anne M. Mulcahy   61   1997   Save The Children Federation, Inc.   Chairman of the Board of Trustees   Yes   3  
  Derica W. Rice   49   2007   Eli Lilly and Company   EVP, Global Services and CFO   Yes   0  
  Kenneth L. Salazar   59   2013   WilmerHale   Partner   Yes   0  
  John G. Stumpf   60   2010   Wells Fargo & Company   Chairman, President & CEO   Yes   2  
                             

 

BOARD LEADERSHIP STRUCTURE

 

We do not have an express policy as to whether the roles of Chair of the Board and Chief Executive Officer should be combined or separated. Instead, the Board prefers to maintain the flexibility to determine which leadership structure best serves the interests of Target based on the circumstances. However, if the Chair/CEO roles are combined, our Corporate Governance Guidelines require that we have a Lead Independent Director position to complement the Chair’s role, and to serve as the principal liaison between the non-management directors and the Chair.

 

The Board believes that there are many strong governance practices in place at Target that balance any risk of concentration of authority that may exist with a combined Chair/CEO position, including the requirement to have an Independent Lead Director in those situations.

 

As recently announced, Roxanne S. Austin, one of our independent directors, was elected to the role of Interim Chair of the Board by the independent directors in connection with the departure of our former Chairman of the Board, President and CEO. As Interim Chair of the Board, Ms. Austin has primary responsibility for leading the Board. However, because Ms. Austin is currently serving as Interim Chair, and no decision has been made to make the role of independent Chair permanent, the Board determined that James A. Johnson should remain in the role of Lead Independent Director to provide continuity during this period of transition and to work closely with Ms. Austin in leading the Board.

 

       
  LEAD INDEPENDENT DIRECTOR  
  Annual Election: Elected annually by the independent, non-management directors.  
  Regular Duties:  
  Has the authority to convene meetings of the Board and executive sessions consisting solely of independent directors at every meeting;  
  Presides at all meetings of the Board of Directors at which the Chair of the Board is not present, including executive sessions of independent directors;  
  Conducts the annual performance reviews of the CEO, with input from the other independent directors, and serves as the primary liaison between the CEO and the independent directors;  
  Approves meeting schedules, agendas and the information furnished to the Board to ensure that the Board has adequate time and information for discussion; and  
  Engages in consultation and direct communication with major shareholders as appropriate.  
       

 

MANAGEMENT SUCCESSION PLANNING

 

One of the primary responsibilities of the Board is to ensure that Target has a high-performing management team in place. On an annual basis, the Board conducts a detailed review of management development and succession planning activities to maximize the pool of internal candidates who can assume top management positions without undue interruption.

 

In connection with the recent departure of our former President & CEO, the Board appointed an experienced executive from that pool of internal candidates, John J. Mulligan, our Chief Financial Officer, to serve in the additional capacities of Interim President & CEO while the Board conducts a comprehensive CEO search for a permanent replacement.

 

2014 Proxy Statement    TARGET CORPORATION     11

 

RISK OVERSIGHT

 

The primary responsibility for the identification, assessment and management of the various risks that we face belongs with management. The Board’s oversight of these risks occurs as an integral and continuous part of the Board’s oversight of our business. For example, our principal strategic risks are reviewed as part of the Board’s regular discussion and consideration of our strategy, and the alignment of specific initiatives with this strategy. Similarly, at every meeting the Board reviews the principal factors influencing our operating results, including the competitive environment, and discusses with our senior executive officers the major events, activities and challenges affecting their respective functional areas. The Board’s ongoing oversight of risk also occurs at the Board Committee level on a more focused basis, as described in the description of each Committee’s responsibilities, as applicable.

 

COMMITTEES

 

The Board has the following Committees and Committee composition as of the date of this proxy statement. All members of each Committee are independent directors.

 

                   
          COMMITTEE   NUMBER OF MEETINGS  
      RESPONSIBILITIES   MEMBERS   DURING FISCAL 2013  
  AUDIT
COMMITTEE(1)
 

Assists the Board with the oversight of our financial reporting process and our compliance programs

Oversees the integrity of our financial statements and internal controls, the independent auditor’s qualifications and independence and performance of our internal audit function

Oversees compliance with legal and regulatory requirements, our business ethics program and review and approval of transactions with related persons

Performs duties and activities described in the Report of the Audit Committee on page 63

Supplements the Board’s ongoing oversight of risk, through periodic review of our risk assessment process, which facilitates identification and consideration of our risk exposures in the context of our overall strategic objectives

  Ms. Austin (Chair)
Ms. Minnick
Ms. Mulcahy
Mr. Rice
  7    
                   
  COMPENSATION
COMMITTEE(2)
 

Determines the composition and value of non-CEO executive officer compensation and makes recommendations with respect to CEO compensation to the independent members of the Board, who collectively have final approval authority

Reviews our compensation philosophy, selection and relative weightings of different compensation elements to balance risk, reward and retention objectives, the alignment of incentive compensation performance measures with our strategy, and specific compensation levels for each executive officer

Reviews the compensation provided to non-management directors and makes recommendations to the independent members of the Board

Discusses with its compensation consultant the results of the regular review of whether our compensation policies and practices create material risks to Target (see page 46 of the Compensation Discussion and Analysis for more details about our most recent compensation policies risk assessment)

  Mr. Johnson (Chair)
Mr. Baker
Mr. Darden
Mr. Stumpf
  5    
                   
  NOMINATING &
GOVERNANCE
COMMITTEE
 

Oversees our corporate governance practices

Identifies individuals qualified to become Board members

Makes recommendations on overall composition of the Board and its Committees

Leads annual Board self-evaluation process

  Ms. Mulcahy (Chair)
Mr. Baker
Mr. Darden
  3    
                   
  CORPORATE
RESPONSIBILITY

COMMITTEE
 

Reviews and evaluates our public affairs, community relations, corporate social responsibility and reputation management programs

Is primarily responsible for oversight of reputational risk

  Mr. Salazar (Chair)
Mr. Darden
Mr. De Castro
Mr. Johnson
Ms. Minnick
  3    
                   
  FINANCE
COMMITTEE
 

Reviews our primary financial policies and strategies, including our liquidity position, funding requirements, ability to access the capital markets, interest rate exposures and policies regarding return of cash to shareholders

Oversees financial risks, including liquidity, market risks, and use of derivatives

  Mr. Rice (Chair)
Ms. Austin
Mr. De Castro
Mr. Stumpf
  2    
                   

 

2014 Proxy Statement    TARGET CORPORATION     12

 
(1) The Board of Directors has determined that all members of the Audit Committee satisfy the applicable audit committee independence requirements of the New York Stock Exchange (NYSE) and the Securities and Exchange Commission (SEC). The Board also determined that all members have acquired the attributes necessary to qualify them as “audit committee financial experts” as defined by applicable SEC rules. The determination for each of Ms. Austin, Ms. Mulcahy and Mr. Rice was based on past experiences as a principal financial officer, principal accounting officer, controller, public accountant or auditor, or actively supervising a person holding one of those positions. For Ms. Minnick, the determination was based on her experience with analyzing the financial statements and financial performance of portfolio companies of Lion Capital.
   
(2) The Board of Directors has determined that all members of the Compensation Committee satisfy the applicable compensation committee independence requirements of the NYSE and the SEC.

 

BOARD AND SHAREHOLDER MEETING ATTENDANCE

 

The Board of Directors met five times during fiscal 2013. All directors attended at least 75% of the aggregate total of meetings of the Board and Board Committees on which the director served during the last fiscal year.

 

Eleven of our twelve then-serving directors attended our June 2013 Annual Meeting of Shareholders. The Board has a policy requiring all directors to attend all Annual Meetings of Shareholders, absent extraordinary circumstances.

 

DIRECTOR INDEPENDENCE

 

The Board of Directors believes that a majority of its members should be independent directors. The Board annually reviews all relationships that directors have with Target to affirmatively determine whether the directors are independent. If a director has a material relationship with Target, that director is not independent. The listing standards of the New York Stock Exchange (NYSE) detail certain relationships that, if present, preclude a finding of independence.

 

The Board affirmatively determined that all non-management directors are independent. The Board specifically considered the following transactions and concluded that none of the transactions impaired any director’s independence. In addition, none of the transactions listed below are related party transactions because none of the directors have a direct or indirect material interest in the listed transactions.

 

                 
  DIRECTOR   ENTITY AND RELATIONSHIP   TRANSACTIONS   % OF ENTITY’S
ANNUAL REVENUES
IN EACH OF 
LAST 3 YEARS
 
  Douglas M. Baker, Jr.     Ecolab Inc.
Chairman & CEO
  We purchase supplies, servicing, repairs and merchandise from Ecolab.   Less than 0.01%    
  Henrique De Castro   Yahoo! Inc.
Former COO
  We purchase advertising, search marketing, and other services from Yahoo!   Less than 0.3%  
  Mary E. Minnick     Each portfolio company of Lion Capital(1)
Partner in Lion Capital
  We purchase merchandise for resale from portfolio companies of Lion Capital.   Less than 2% of each portfolio company  
  Anne M. Mulcahy     Save the Children Federation
Chairman of Board of Trustees
  We make charitable contributions to Save the Children.   Less than 2%    
  Kenneth L. Salazar        WilmerHale
Partner   
  After fiscal 2013, WilmerHale was engaged to provide legal services, but did not receive any payments in any of the last three fiscal years.(2)   Not applicable       
  John G. Stumpf         Wells Fargo & Company
Chairman, President & CEO    
  Wells Fargo provides commercial banking, brokerage, trust and equipment financing services, and serves as a non-lead participant in Target’s syndicated revolving credit facility.(3)   Less than 0.02%        
                 

 

(1) Ms. Minnick’s indirect ownership in each of these portfolio companies is less than 5%.
   
(2) WilmerHale represented to us that Mr. Salazar will not receive any of the fees from the Target relationship, and that total fees are expected to be less than 2% of the firm’s annual revenues. Mr. Salazar will not personally provide any of the legal services to Target.
   
(3) Target does not use Wells Fargo for any investment banking, consulting or advisory services.

 

POLICY ON TRANSACTIONS WITH RELATED PERSONS

 

The Board of Directors has adopted a written policy requiring that any transaction: (a)  involving Target; (b)  in which one of our directors, nominees for director, executive officers, or greater than five percent shareholders, or their immediate family members, have a direct or indirect material interest; and (c) where the amount involved exceeds $120,000 in any fiscal year, be approved or ratified by a majority of independent directors of the full Board or by a designated committee of the Board. The Board has designated the Audit Committee as having responsibility for reviewing and approving all such transactions except those dealing with compensation of executive officers and directors, or their immediate family members, in which case it will be reviewed and approved by the Compensation Committee.

 

2014 Proxy Statement    TARGET CORPORATION     13

 

In determining whether to approve or ratify any such transaction, the independent directors or relevant committee must consider, in addition to other factors deemed appropriate, whether the transaction is on terms no less favorable to Target than those involving unrelated parties. No director may participate in any review, approval or ratification of any transaction if he or she, or his or her immediate family member, has a direct or indirect material interest in the transaction.

 

We did not have any transactions requiring review and approval in accordance with this policy during fiscal 2013 and through the date of this proxy statement.

 

BUSINESS ETHICS AND CONDUCT

 

We are committed to conducting business lawfully and ethically. All of our directors and named executive officers, like all Target team members, are required to act at all times with honesty and integrity. Our Business Conduct Guide covers areas of professional conduct, including conflicts of interest, the protection of corporate opportunities and assets, employment policies, confidentiality, vendor standards and intellectual property, and requires strict adherence to all laws and regulations applicable to our business. Our Business Conduct Guide also describes the means by which any employee can provide an anonymous report of an actual or apparent violation of our Business Conduct Guide.

 

We intend to disclose any future amendments to, or waivers from, any provision of our Business Conduct Guide involving our directors, our principal executive officer, principal financial officer, principal accounting officer, controller or other persons performing similar functions on our website within four business days following the date of any such amendment or waiver. No waivers were sought or granted in fiscal 2013.

 

COMMUNICATIONS WITH DIRECTORS

 

Shareholders and other interested parties seeking to communicate with any individual director or group of directors may send correspondence to Target Board of Directors, c/o Corporate Secretary, 1000 Nicollet Mall, TPS-2670, Minneapolis, Minnesota 55403 or may send an email to BoardOfDirectors@target.com, which is managed by the Corporate Secretary. The Corporate Secretary, in turn, has been instructed by the Board to forward all communications, except those that are clearly unrelated to Board or shareholder matters, to the relevant Board members.

 

2014 Proxy Statement    TARGET CORPORATION     14

 
ITEM ONE ELECTION OF DIRECTORS

 

ELECTION PROCESS

 

Our election process is backed by sound corporate governance principles:

 

  All directors are elected annually;
     
  Directors are elected under a “majority voting” standard – each director in an uncontested election must receive more votes “For” his or her election than votes “Against” in order to be elected; and
     
  An incumbent director who is not re-elected must promptly offer to resign. The Nominating & Governance Committee will make a recommendation on the offer and the Board must accept or reject the offer within 90 days and publicly disclose its decision and rationale.

 

BOARD COMPOSITION

 

The criteria the Board follows in determining the composition of the Board is simple: directors are to have broad perspective, experience, knowledge and independence of judgment. The Board as a whole should consist predominantly of persons with strong business backgrounds that span multiple industries.

 

At least annually the Board seeks input from each of its members with respect to the current composition of the Board in light of our current and future business strategies as a means to identify any backgrounds or skill sets that may be helpful in maintaining or improving alignment between Board composition and our business. This input is then used by our Nominating & Governance Committee in its director search process.

 

The Board does not have a specific policy regarding consideration of gender, ethnic or other diversity criteria in identifying director candidates; however, the Board has had a longstanding commitment to, and practice of, maintaining diverse representation on the Board.

 

BOARD RENEWAL AND NOMINATION PROCESS

 

The Nominating & Governance Committee is responsible for identifying individuals qualified to become Board members and making recommendations on director nominees to the full Board. The Committee considers the following two factors in its efforts to identify potential director candidates:

 

  The input from the Board’s self-evaluation process to identify the backgrounds or skill sets that are desired; and
     
  The future needs of the Board in light of anticipated director retirements under our Board tenure policies.

 

The Board maintains the following tenure policies (contained in our Corporate Governance Guidelines) as a means of ensuring that the Board is regularly renewed with fresh perspectives:

 

     
  TENURE POLICIES  
  Term Limit   Directors may not serve on the Board for more than 20 years, or five years after they retire from active employment, whichever occurs first  
  Mandatory Retirement   Directors must retire at age 72  
  Change in Principal Employment   Directors must offer to resign upon any substantial change in principal employment  
         

 

We had the following changes in our Board since our 2013 Annual Meeting:

 

         
  DEPARTURES   ADDITIONS  
  Mary N. Dillon – Resigned due to substantial change in principal employment   Kenneth L. Salazar – Identified by independent search firm; brings substantial public policy expertise to the Board  
  Solomon D. Trujillo – Retired after five years elapsed since retiring from active employment and reaching 20 year term limit      
  Gregg W. Steinhafel – Resigned in connection with stepping down as President & CEO of Target        
           

 

2014 Proxy Statement    TARGET CORPORATION     15

 

In addition to the changes listed above, the following directors are scheduled to complete their service on our Board within the next five years under our tenure policies:

 

         
  DIRECTOR TENURE POLICY
IMPLICATED
YEAR  
  James A. Johnson Mandatory Retirement 2015  
  Anne M. Mulcahy Term Limit 2017  
         

 

The Nominating  & Governance Committee has retained an independent search firm to assist in identifying director candidates, and will also consider recommendations from shareholders. Any shareholder who wishes the Committee to consider a candidate should submit a written request and related information to our Corporate Secretary no later than December 31 of the calendar year preceding the next Annual Meeting of Shareholders.

 

2014 NOMINEES FOR DIRECTOR

 

After considering the recommendations of the Nominating & Governance Committee, the Board has set the number of directors at 10 and nominated the persons described below to stand for election. All nominees are incumbent directors. The Board believes that each of these nominees is qualified to serve as a director of Target and the specific qualifications of each nominee that were considered by the Board follow each nominee’s biographical description. Equally as important, the Board believes that the combination of backgrounds, skills and experiences has produced a Board that is well-equipped to exercise oversight responsibilities for Target’s shareholders and other stakeholders.

 

The following table describes key characteristics of our business and experiences of our Board.

 

         
  TARGET’S BUSINESS CHARACTERISTICS   COLLECTIVE EXPERIENCES  
  Target’s scale and complexity requires aligning many different areas of our operations, including marketing, merchandising, supply chain, technology, human resources, property development, credit card servicing and our community and charitable activities.   Leadership. Experience as executive officer level business leader or senior government leader.  
  Our brand is the cornerstone of our strategy to provide a relevant and affordable differentiated shopping experience for our guests.   Marketing or Brand Management. Marketing or managing well-known brands or the types of consumer products and services we sell.  
  We own most of our stores and a network of distribution centers.   Real Estate. Real estate acquisitions and dispositions or property management experience.  
  We have a large and global workforce, which represents one of our key resources, as well as one of our largest operating expenses.   Workforce Management. Managing a large or global workforce.  
  Our business has become increasingly complex as we have expanded our offerings as well as the channels and geographies in which we deliver our shopping experience. This increased complexity requires increasingly sophisticated technology infrastructure.   Technology. Leadership and understanding of technology, digital platforms and new media, data security, and data analytics.  
  Our business has both U.S. and Canada retail operations, and involves sourcing merchandise domestically and internationally from a large number of vendors and distributing it through our network of distribution centers.   Multi-National Operations or Supply Chain Logistics. Executive officer roles at multi-national organizations or in global operations.  
  We are a large public company committed to disciplined financial and risk management, legal and regulatory compliance and accurate disclosure.   Finance or Risk Management. Financial stewardship, risk management or credit card servicing.  
  To be successful, we must preserve, grow and leverage the value of our reputation with our guests, team members, the communities in which we operate and our shareholders.   Public Affairs or Corporate Governance. Public sector experience, community relations or corporate governance expertise.  
         

 

In addition, our Board’s composition represents a balanced approach to director tenure, allowing the Board to benefit from the experience of longer-serving directors combined with fresh perspectives from newer directors:

 

       
    NUMBER OF  
  TENURE ON BOARD DIRECTOR NOMINEES  
  More than 10 years 4  
  5 to 10 years 2  
  Less than 5 years 4  
       

 

We have no reason to believe that any of the nominees will be unable or unwilling for good cause to serve if elected. However, if any nominee should become unable for any reason or unwilling for good cause to serve, proxies may be voted for another person nominated as a substitute by the Board, or the Board may reduce the number of directors.

 

2014 Proxy Statement    TARGET CORPORATION     16

 
             
 

  Roxanne S. Austin

Age 53

Director since 2002

Independent Interim Chair of the Board

Committees

Audit (Chair)

Finance

 

 

 

BACKGROUND

 

Roxanne S. Austin is President of Austin Investment Advisors, a private investment and consulting firm, a position she has held since January 2004. From June 2009 until July 2010, she also served as President, Chief Executive Officer and a director of Move Networks, Inc., an Internet television services provider.

 

   
 

 

QUALIFICATIONS

 

Ms. Austin provides the Board with financial, operational and risk management expertise, and substantial knowledge of new media technologies, which were developed during Ms. Austin’s previous service as President and COO of DirecTV, Executive Vice President and CFO of Hughes Electronics Corporation and Partner of Deloitte & Touche.

 

 
 

 

OTHER PUBLIC COMPANY BOARDS

 

 
   

Current

 

Abbott Laboratories(1)

 

AbbVie Inc.(1)

 

Teledyne Technologies Incorporated

 

LM Ericsson Telephone Company

 

Past 5 Years

 

None

 

   
             

 

(1)AbbVie Inc. became a public company in January 2013 following its separation from Abbott Laboratories. Ms. Austin was serving on the Board of Abbott Laboratories at the time of the separation and became a director of AbbVie Inc. in connection with the separation.

 

             
 

  Douglas M. Baker, Jr.

Age 55

Director since 2013

Independent

Committees

Compensation

Nominating & Governance

 

 

 

BACKGROUND

 

Douglas M. Baker, Jr., is Chairman and Chief Executive Officer of Ecolab Inc., a provider of water and hygiene services and technologies for the food, hospitality, industrial and energy markets. He has served as Chairman of the Board of Ecolab since May 2006 and Chief Executive Officer since July 2004, and served as President from 2002 to 2011.

 

   
 

 

QUALIFICATIONS

 

Mr. Baker provides the Board with valuable global marketing, sales and general management experience, as well as operational and governance perspectives. His current role as CEO of a large publicly-held company provides the Board with additional top-level perspective in organizational management.

 

 
 

 

OTHER PUBLIC COMPANY BOARDS

 

 
   

Current

 

Ecolab Inc.

 

U.S. Bancorp

 

 

Past 5 Years

 

None

 

   
             

 

2014 Proxy Statement    TARGET CORPORATION     17

 
             
 

  Calvin Darden

Age 64

Director since 2003

Independent

Committees

Compensation

Corporate Responsibility

Nominating & Governance

 

 

BACKGROUND

 

Calvin Darden is Chairman of Darden Development Group, LLC, a real estate development company, a position he has held on a full-time basis since November 2009. From February 2006 to November 2009, he was Chairman of The Atlanta Beltline, Inc., an urban revitalization project for the City of Atlanta.

 

   
 

 

 

QUALIFICATIONS

 

Mr. Darden provides the Board with significant experience in supply chain networks, logistics, customer service and management of a large-scale workforce obtained over his 33-year career with United Parcel Service of America, Inc., and more recently has developed expertise in community relations and real estate development.

 

 
 

 

OTHER PUBLIC COMPANY BOARDS

 

 
   

Current

 

Coca-Cola Enterprises, Inc.

 

Cardinal Health, Inc.

 

 

 

 

Past 5 Years

 

None

 

   
             

 

             
 

 Henrique De Castro

Age 48

Director since 2013

Independent

Committees

Corporate Responsibility

Finance

 

 

BACKGROUND

 

Henrique De Castro is the former Chief Operating Officer of Yahoo! Inc., a digital media company that delivers personalized digital content and experiences worldwide by offering online properties and services to users. He held that position from November 2012 to January 2014. He previously served Google Inc. as President, Partner Business Worldwide from March 2012 to November 2012, President, Global Media, Mobile & Platforms from June 2009 to March 2012, and as Managing Director, European Sales from July 2006 to May 2009.

 

   
 

 

QUALIFICATIONS

 

Mr. De Castro provides the Board with valuable insight into media, mobile and technology platforms. His experiences at Yahoo! and Google, as well as his prior experience at Dell Inc. provides him with global perspectives on leading operations, strategy, partner management and revenue generation in the technology and media industries.

 

 
 

 

OTHER PUBLIC COMPANY BOARDS

 

 
   

Current

 

None

 

Past 5 Years

 

None

 

   
             

 

2014 Proxy Statement    TARGET CORPORATION     18

 
             
 

  James A. Johnson

Age 70

Director since 1996

Lead Independent Director

Committees

Compensation (Chair)

Corporate Responsibility

 

 

BACKGROUND

 

James A. Johnson founded Johnson Capital Partners, a private consulting company, in January 2000 and he continues to be actively engaged with that firm. Mr. Johnson was Vice Chairman of Perseus, LLC, a merchant banking private equity firm, from April 2001 to June 2012.

 

   
 

 

QUALIFICATIONS

 

Mr. Johnson has more than 40 years of experience in the business and public sectors. Mr. Johnson provides the Board with strong leadership and consensus-building capabilities as well as a solid understanding of public policy dynamics, corporate governance and reputation management issues.

 

 
 

 

OTHER PUBLIC COMPANY BOARDS

 

 
   

Current

 

The Goldman Sachs Group, Inc.

 

Forestar Group Inc.

 

 

 

 

 

Past 5 Years

 

None

 

   
             

 

             
 

  Mary E. Minnick

Age 54

Director since 2005

Independent

Committees

Audit

Corporate Responsibility

 

 

BACKGROUND

 

Mary E. Minnick is a Partner of Lion Capital, a consumer-focused private investment firm, a position she has held since May 2007.

 

   
 

 

QUALIFICATIONS

 

Ms. Minnick provides the Board with substantial expertise in building brand awareness, general management, product development, marketing, distribution and sales on a global scale obtained over her 23-year career with The Coca-Cola Company. Her current position with Lion Capital provides the Board with additional insights into the retail business and consumer marketing trends outside the United States.

 

 
 

 

OTHER PUBLIC COMPANY BOARDS

 

 
   

Current

 

The WhiteWave Foods Company

 

Heineken NV

 

 

 

 

Past 5 Years

 

None

 

   
             

 

2014 Proxy Statement    TARGET CORPORATION     19

 
             
 

  Anne M. Mulcahy

Age 61

Director since 1997

Independent

Committees

Nominating & Governance (Chair)

Audit

 

 

BACKGROUND

 

Anne M. Mulcahy is Chairman of the Board of Trustees of Save The Children Federation, Inc., a non-profit organization dedicated to creating lasting change in the lives of children throughout the world, a position she has held since March 2010. She previously served as Chairman of the Board of Xerox Corp., a document management company, from January 2002 to May 2010, and Chief Executive Officer of Xerox from August 2001 to July 2009.

 

   
 

 

QUALIFICATIONS

 

Ms. Mulcahy obtained extensive experience in all areas of business management as she led Xerox through a transformational turnaround. This experience, combined with her leadership roles in business trade associations and public policy activities, provides the Board with additional expertise in the areas of organizational effectiveness, financial management and corporate governance.

 

 
 

 

OTHER PUBLIC COMPANY BOARDS

 

 
   

Current

 

Graham Holdings Company

 

Johnson & Johnson

 

LPL Financial Holdings Inc.

 

Past 5 Years

 

Citigroup Inc.

 

   
             

 

             
 

  Derica W. Rice

Age 49

Director since 2007

Independent

Committees

Finance (Chair)

Audit

 

 

BACKGROUND

 

Derica W. Rice is Executive Vice President, Global Services and Chief Financial Officer of Eli Lilly and Company, a pharmaceutical company, positions he has held since January 2010 and May 2006, respectively. From May 2006 to December 2009, he served as Eli Lilly’s Senior Vice President and Chief Financial Officer.

 

   
 

 

QUALIFICATIONS

 

Mr. Rice’s career with Eli Lilly has provided him with substantial experience in managing worldwide financial operations. His expertise gives the Board additional skills in the areas of financial oversight, risk management and the alignment of financial and strategic initiatives.

 

 
 

 

OTHER PUBLIC COMPANY BOARDS

 

 
   

Current

 

None

 

 

 

 

Past 5 Years

 

None

 

   
             

 

2014 Proxy Statement    TARGET CORPORATION     20

 
             
 

  Kenneth L. Salazar

Age 59

Director since 2013

Independent

Committees

Corporate Responsibility (Chair)

 

 

BACKGROUND

 

Kenneth L. Salazar is a Partner at WilmerHale, a full service business law firm, a position he has held since June 2013. Previously, Mr. Salazar served as the U.S. Secretary of the Interior from 2009 to 2013; U.S. Senator from Colorado from 2005 to 2009 and as Attorney General of Colorado from 1999 to 2005.

 

 

 

QUALIFICATIONS

 

Mr. Salazar has substantial public policy experience at both the state and federal levels. Mr. Salazar provides the Board with additional insights on public policy issues and leadership on matters involving multiple stakeholder stewardship.

 

 
 

 

OTHER PUBLIC COMPANY BOARDS

 

 
   

Current

 

None

 

 

 

 

 

Past 5 Years

 

None

 

   
             

 

             
 

  John G. Stumpf

Age 60

Director since 2010

Independent

Committees

Compensation

Finance

 

 

BACKGROUND

 

John G. Stumpf is Chairman of the Board, President and Chief Executive Officer of Wells Fargo & Company, a banking and financial services company. He has been President since August 2005, Chief Executive Officer since June 2007, and Chairman since January 2010. A 31-year veteran of Wells Fargo, he has held various operational and managerial positions throughout his career.

 

   
 

 

QUALIFICATIONS

 

Mr. Stumpf’s current role as Chairman, President and Chief Executive Officer of Wells Fargo, and long career in banking, provides the Board with expertise in brand management, financial oversight and stewardship of capital.

 

 
 

 

OTHER PUBLIC COMPANY BOARDS

 

 
   

Current

 

Chevron Corporation

 

Wells Fargo & Company

 

 

Past 5 Years

 

None

 

   
             

 

2014 Proxy Statement    TARGET CORPORATION     21

 

DIRECTOR COMPENSATION

 

General Description of Director Compensation

 

Our non-employee director compensation program allows directors to choose one of two forms of annual compensation:

 

  a combination of cash and restricted stock units (RSUs); or

 

  RSUs only.

 

Effective January 8, 2014, to be consistent with our decision to eliminate stock options as part of executive officer compensation, we ceased granting stock options to our non-employee directors.

 

Each form under the compensation program is intended to provide $260,000 in value to non-employee directors as follows:

 

               
      CASH     RSUs  
  Combination (Cash and RSUs) $   90,000   $   170,000  
  RSUs Only $   0   $   260,000  
               

 

The forms of annual compensation have the following terms:

 

  The cash retainer is paid pro-rata in quarterly installments. Directors may defer receipt of all or a portion of any cash retainer into the Director Deferred Compensation Plan. Deferrals earn market returns based on the investment alternatives chosen by them from the funds offered by Target’s 401(k) Plan, including the Target Corporation Common Stock Fund.
     
  RSUs are settled in shares of Target common stock immediately following a director’s departure from the Board. Dividend equivalents are paid on RSUs in the form of additional RSUs. RSUs are granted in January and vest quarterly over a one-year period.

 

The Lead Independent Director and Committee Chairpersons receive additional compensation for those roles, which is paid (a) in cash if the director elects a combination of cash and RSUs, or (b) in RSUs if the director elects all RSUs. Compensation for Lead Independent Director and Committee Chairpersons is as follows:

 

           
  ROLE   AMOUNT  
  Lead Independent Director   $   25,000  
  Audit Committee Chairperson   $   30,000  
  Compensation Committee Chairperson   $   20,000  
  Nominating & Governance Committee Chairperson   $   15,000  
  Corporate Responsibility Committee Chairperson   $   15,000  
  Finance Committee Chairperson   $   15,000  
           

 

New directors also receive a one-time grant of RSUs with a $50,000 grant date fair value upon joining the Board, as well as a pro-rated portion of the annual compensation based on the date they joined the Board using the combination of cash and RSUs and, for new directors who joined before January 8, 2014, options. The size of the option grants are based on the estimated fair value as determined under the Towers Watson Black-Scholes option pricing methodology. Stock options are immediately vested, but are not exercisable until one year after the grant date, and have a ten-year term.

 

Interim Chair of the Board

 

On May 5, 2014, Mr. Steinhafel stepped down as President & CEO, and resigned as a Director and Chairman. Roxanne S. Austin, one of our independent directors, was elected by the independent directors to serve as Interim Chair of the Board. In connection with Ms. Austin’s additional duties as Interim Chair, the Board determined to provide her an additional annual cash retainer of $190,000, pro-rated for the time Ms. Austin serves as Interim Chair.

 

2014 Proxy Statement    TARGET CORPORATION     22

 

Director Compensation Table

 

                    
              CHANGE IN     
              PENSION VALUE     
              AND NONQUALIFIED     
             DEFERRED     
     FEES EARNED OR  STOCK  OPTION  COMPENSATION     
  NAME  PAID IN CASH  AWARDS(1)(2)  AWARDS(1)(2)  EARNINGS(3)(4)  TOTAL(5)  
  Roxanne S. Austin(6)  $  120,000   $  170,013   $  0   $  0   $  290,013   
  Douglas M. Baker, Jr.  $  75,000   $  295,058   $  54,049   $  0   $  424,107   
  Calvin Darden  $  90,000   $  170,013   $  0   $  0   $  260,013   
  Henrique De Castro  $  75,000   $  385,105   $  54,049   $  0   $  514,154   
  Mary N. Dillon(7)  $  0   $  0   $  0   $  0   $  0   
  James A. Johnson(6)  $  135,000   $  170,013   $  0   $  17,037   $  322,050   
  Mary E. Minnick  $  0   $  260,061   $  0   $  0   $  260,061   
  Anne M. Mulcahy(6)  $  0   $  170,013   $  0   $  0   $  170,013   
  Derica W. Rice(6)  $  12,500   $  275,027   $  0   $  0   $  287,527   
  Kenneth L. Salazar  $  45,000   $  265,096   $  40,780   $  0   $  350,876   
  Stephen W. Sanger(6)(7)  $  0   $  0   $  0   $  1,831   $  1,831   
  John G. Stumpf  $  90,000   $  170,013   $  0   $  0   $  260,013   
  Solomon D. Trujillo(6)(7)  $  105,000   $  170,013   $  0   $  41,597   $  316,610   
                              

 

(1) Amounts represent the aggregate grant date fair value of RSUs and stock options that were granted in fiscal 2013, as computed in accordance with FASB ASC Topic 718, Stock Compensation, which uses assumptions that differ from the assumptions used in the Towers Watson Black-Scholes methodology referred to above. See Note 24, Share-Based Compensation, to our consolidated financial statements for fiscal 2013 for a description of our accounting and the assumptions used. Details on the stock awards granted during fiscal 2013 are as follows:

 

           
     STOCK AWARDS (RSUs)  OPTION AWARDS  
         GRANT DATE      GRANT DATE  
  NAME  # OF UNITS   FAIR VALUE  # OF SHARES   FAIR VALUE  
  Ms. Austin   2,715   $  170,013    0   $  0   
  Mr. Baker   4,615   $  295,058    5,570   $  54,049   
  Mr. Darden   2,715   $  170,013    0   $  0   
  Mr. De Castro   6,053   $  385,105    5,570   $  54,049   
  Ms. Dillon   0   $  0    0   $  0   
  Mr. Johnson   2,715   $  170,013    0   $  0   
  Ms. Minnick   4,153   $  260,061    0   $  0   
  Ms. Mulcahy   2,715   $  170,013    0   $  0   
  Mr. Rice   4,392   $  275,027    0   $  0   
  Mr. Salazar   4,098   $  265,096    3,601   $  40,780   
  Mr. Sanger   0   $  0    0   $  0   
  Mr. Stumpf   2,715   $  170,013    0   $  0   
  Mr. Trujillo   2,715   $  170,013    0   $  0   
                         

 

2014 Proxy Statement    TARGET CORPORATION     23

 
(2) The aggregate number of unexercised stock options (which were granted in years prior to fiscal 2013) and unvested RSUs outstanding at fiscal year-end held by directors was as follows:

 

             
    STOCK   RESTRICTED  
  NAME OPTIONS   STOCK UNITS  
  Ms. Austin 42,513     2,715    
  Mr. Baker 5,570     2,715    
  Mr. Darden 48,904     2,715    
  Mr. De Castro 5,570     4,153    
  Ms. Dillon 0     0    
  Mr. Johnson 86,222     2,715    
  Ms. Minnick 0     4,153    
  Ms. Mulcahy 35,124     2,715    
  Mr. Rice 0     4,392    
  Mr. Salazar 3,601     2,715    
  Mr. Sanger 112,485     0    
  Mr. Stumpf 17,889     2,715    
  Mr. Trujillo 65,689     2,715    
             

 

(3) Amount reported represents above-market earnings on nonqualified deferred compensation, consisting of an additional 8.18% annual return on a frozen deferred compensation plan. Prior to December 31, 1996, deferrals were allowed under our Deferred Compensation Plan Directors (DCP-Director). No new deferrals or participants were allowed after that year. Participants’ DCP-Director accounts are credited each month with earnings based on the average Moody’s Bond Indices Corporate AA rate for June of the preceding calendar year, plus an additional annual return of 6%. The minimum crediting rate is 12% and the maximum is 20%.
   
(4) In addition to amounts reported, non-employee directors who were elected prior to 1997 are eligible to receive a lump-sum payment in the February following the date they leave their directorship. The payment is equal to the present value of an annual payment stream of $25,000 (i.e., the director’s fee in effect as of December 31, 1996) for a period equal to the number of years of service of the individual as a director before December 31, 1996. The present value is based on a discount rate of 4.67% based on the Moody’s Bond Indices Corporate AA rate on December 31, 2013. During fiscal 2013, there were three directors eligible to receive a benefit under this program, one of whom retired before the end of the year and one of whom retired subsequent to the end of the year. Those directors, and their benefit values are:

 

 

       
    RETIREMENT  
  NAME BENEFIT  
  Mr. Johnson $  18,780  
  Mr. Sanger $  17,181  
  Mr. Trujillo $  53,094  
         

 

(5) In addition to the amounts reported, all directors also receive a 10% discount on merchandise purchased at Target stores and Target.com, both during active service and following retirement. Non-employee directors are also provided with $100,000 of accidental death life insurance.
   
(6) The following directors received additional compensation in fiscal 2013 for their roles as Committee Chairpersons and, in the case of Mr. Johnson, as Lead Independent Director. The additional compensation is reflected in “Fees Earned or Paid in Cash” and/or “Stock Awards” based on the form of annual compensation selected by the director as described above under the heading “General Description of Director Compensation.” Amounts paid as Stock Awards were granted in January of fiscal 2012.

 

       
  NAME ROLE(S) DURING FISCAL 2013  
  Ms. Austin Audit Chairperson  
  Mr. Johnson Lead Independent Director  
    Compensation Chairperson  
  Ms. Mulcahy Finance Chairperson (until March 2013)  
    Nominating & Governance Chairperson (from March 2013)  
  Mr. Rice Finance Chairperson (from March 2013)  
  Mr. Sanger Nominating & Governance Chairperson (until March 2013)  
  Mr. Trujillo Corporate Responsibility Chairperson  
       

 

(7) Mr. Sanger retired from the Board on March 13, 2013 as a result of five years elapsing since retiring from active employment. Ms. Dillon resigned from the Board on June 24, 2013 as a result of her appointment as Chief Executive Officer of Ulta Salon, Cosmetics & Fragrance, Inc. Mr. Trujillo retired from the Board on March 31, 2014 as a result of five years elapsing since retiring from active employment and reaching the 20 year term limit. Mr. Sanger, Ms. Dillon and Mr. Trujillo served as independent directors until their respective retirements and resignation.

 

2014 Proxy Statement    TARGET CORPORATION     24

 

STOCK OWNERSHIP INFORMATION

 

STOCK OWNERSHIP GUIDELINES

 

Stock ownership that must be disclosed in this proxy statement includes shares directly or indirectly owned, and shares issuable or options exercisable that the person has the right to acquire within 60  days. Our stock ownership guidelines vary from the required ownership disclosure in that they do not include any options, but do include share equivalents held under deferred compensation arrangements, as well as unvested RSUs and performance-based RSUs (PBRSUs) at the minimum share payout. We believe our stock ownership guidelines for our directors and executive officers are aligned with shareholders’ interests because the guidelines reflect equity that has economic exposure to both upside and downside risk.

 

All directors and executive officers are expected to achieve the required levels of ownership under our stock ownership guidelines within five years of their election or appointment. If a director or executive officer has not satisfied the ownership guideline amounts by the compliance deadline, he or she must retain all shares acquired on the vesting of equity awards or the exercise of stock options (in all cases net of exercise costs and taxes) until compliance is achieved. All directors and named executive officers (NEOs) currently comply with our guidelines.

 

         
  OWNERSHIP GUIDELINES BY POSITION  
  DIRECTORS   CEO OTHER NEOS  
  Fixed Value of $270,000   5X base salary 3X base salary  
           

 

     
  EQUITY USED TO MEET STOCK OWNERSHIP GUIDELINES  
  YES   NO  
  Outstanding shares that the person beneficially owns or is deemed to beneficially own, directly or indirectly, under the federal securities laws   Options, regardless of when they are exercisable    
  RSUs and PBRSUs (at their minimum share payout, which is 75% of the target payout level), whether vested or unvested   Performance Share Units (PSUs) because their minimum share payout is 0% of the target payout level  
  Deferred compensation amounts that are indexed to Target common stock, but ultimately paid in cash      
         

 

2014 Proxy Statement    TARGET CORPORATION     25

 

The following table shows the holdings of our directors and NEOs recognized for purposes of our stock ownership guidelines as of April 14, 2014, and the respective ownership guidelines calculations.

 

                                           
    SHARES                   TOTAL STOCK   STOCK  
    DIRECTLY OR                   OWNERSHIP FOR   OWNERSHIP  
    INDIRECTLY   RSUs &   SHARE   GUIDELINES   GUIDELINES  
    OWNED   PBRSUs   EQUIVALENTS   (# OF SHARES)(1)   CALCULATION  
  DIRECTORS                                 TOTAL VALUE(2)  
  Roxanne S. Austin   0       16,375       0       16,375     $   973,003    
  Douglas M. Baker, Jr.(3)   0       4,650       0       4,650   $   276,303    
  Calvin Darden   4,042       16,375       735       21,152   $   1,256,873    
  Henrique De Castro(3)   0       6,098       0       6,098   $   362,343    
  James A. Johnson   0       16,562       905       17,467   $   1,037,906    
  Mary E. Minnick   886       47,468       421       48,775   $   2,898,185    
  Anne M. Mulcahy   7,114       23,517       0       30,631   $   1,820,094    
  Derica W. Rice   0       39,149       0       39,149   $   2,326,234    
  Kenneth L. Salazar(3)   0       4,129       0       4,129   $   245,345    
  John G. Stumpf   0       8,726       0       8,726   $   518,499    
  NAMED EXECUTIVE                                 MULTIPLE OF  
  OFFICERS                                 BASE SALARY(2)  
  Gregg W. Steinhafel(4)   537,628       128,133       548,890       1,214,651       48.1    
  John J. Mulligan(4)   12,322       42,278       10,223       64,822       5.5    
  Kathryn A. Tesija   202,689       60,661       9,164       272,513       17.0    
  Tina M. Schiel   18,876       40,008       11,400       70,284       5.8    
  Jeffrey J. Jones II   192       61,905       0       62,097       5.3    
                                           

 

(1) The “Total Stock Ownership” calculation, like the required disclosure of “Total Shares Beneficially Owned” on page 27, starts with “Shares Directly or Indirectly Owned” but differs by (a) excluding all options, regardless of whether they can be converted into common stock on or before June 13, 2014, and (b) including (i) share equivalents that are held under deferred compensation arrangements and (ii) RSUs and PBRSUs (at their minimum share payout, which is 75% of the target payout level), whether vested or unvested, even if they will be converted into common stock more than 60 days from April 14, 2014.
   
(2) Based on closing stock price of $59.42 as of April 14, 2014.
   
(3) Mr. Baker and Mr. De Castro joined the Board on March 13, 2013, and Mr. Salazar joined the Board on July 2, 2013. They currently comply with our stock ownership guidelines because they have five years from those respective dates to meet the required $270,000 stock ownership level.
   
(4) On May 5, 2014, Mr. Steinhafel stepped down as President & CEO and Mr. Mulligan was appointed to serve in the additional capacities of Interim President & CEO.

 

2014 Proxy Statement    TARGET CORPORATION     26

 

BENEFICIAL OWNERSHIP OF DIRECTORS AND OFFICERS

 

Included below is information regarding the shares of Target common stock (our only outstanding class of equity securities) which are beneficially owned on April 14, 2014 or which the person has the right to acquire within 60 days of April 14, 2014 for each director, executive officer named in the Summary Compensation Table on page 47, and all current Target directors and executive officers as a group.

 

                           
    SHARES                    
    DIRECTLY OR   SHARES   STOCK OPTIONS   TOTAL SHARES  
    INDIRECTLY   ISSUABLE   EXERCISABLE   BENEFICIALLY  
    OWNED   WITHIN 60 DAYS(1)   WITHIN 60 DAYS   OWNED(2)  
  DIRECTORS                        
  Roxanne S. Austin 0     14,323     42,513     56,836    
  Douglas M. Baker, Jr.(3) 0     2,598     5,570     8,168    
  Calvin Darden 4,042     14,323     48,904     67,269    
  Henrique De Castro(3) 0     2,961     5,570     8,531    
  James A. Johnson 0     14,510     86,222     100,732    
  Mary E. Minnick 886     44,331     0     45,217    
  Anne M. Mulcahy 7,114     21,465     35,124     63,703    
  Derica W. Rice 0     35,832     0     35,832    
  Kenneth L. Salazar(3) 0     2,077     3,601     5,678    
  John G. Stumpf 0     6,674     17,889     24,563    
  NAMED EXECUTIVE OFFICERS                        
  Gregg W. Steinhafel(4) 537,628     0     1,410,825     1,948,453    
  John J. Mulligan(4) 12,322     0     151,563     163,885    
  Kathryn A. Tesija 202,689     0     293,860     496,549    
  Tina M. Schiel 18,876     171     158,023     177,070    
  Jeffrey J. Jones II 192     0     68,154     68,346    
  ALL CURRENT DIRECTORS AND EXECUTIVE OFFICERS                        
  As a group (19 persons) 327,838 (5)   162,011     2,258,675     2,748,524    
                           

 

(1) Includes shares of common stock that the named individuals may acquire on or before June 13, 2014 pursuant to the conversion of vested RSUs into common stock.
   
(2) All directors and executive officers as a group own less than 1% of Target’s outstanding common stock. The persons listed have sole voting and investment power with respect to the shares listed except that Mr. Steinhafel has shared voting and investment power over 361,101 shares.
   
(3) Mr. Baker and Mr. De Castro joined the Board on March 13, 2013, and Mr. Salazar joined the Board on July 2, 2013.
   
(4) On May 5, 2014, Mr. Steinhafel stepped down as President & CEO and Mr. Mulligan was appointed to serve in the additional capacities of Interim President & CEO.
   
(5) Includes shares of common stock owned by executive officers in the Target 401(k) Plan as of April 14, 2014.

 

2014 Proxy Statement    TARGET CORPORATION     27

 

BENEFICIAL OWNERSHIP OF TARGET’S LARGEST SHAREHOLDERS

 

The table below sets forth certain information as to each person or entity known to us to be the beneficial owner of more than five percent of our common stock:

 

             
    NUMBER OF        
    COMMON SHARES   PERCENT OF
CLASS(1)
 
  NAME AND ADDRESS
OF >5% BENEFICIAL OWNER
BENEFICIALLY
OWNED
   
  State Street Corporation 61,211,911 (2)    9.7 %  
  One Lincoln Street            
  Boston, Massachusetts 02111            
  The Vanguard Group 34,467,771 (3)    5.4 %  
  100 Vanguard Boulevard            
  Malvern, Pennsylvania 19355            
               

 

(1) Based on shares outstanding on April 14, 2014.
   
(2) State Street Corporation (State Street) reported its direct and indirect beneficial ownership in various fiduciary capacities (including as trustee under Target’s 401(k) Plan) on a Schedule 13G filed with the SEC on February 4, 2014. The filing indicates that as of December 31, 2013, State Street had sole voting power for 0 shares, shared voting power for 61,211,911 shares, sole dispositive power for 0 shares and shared dispositive power for 61,211,911 shares.
   
(3) The Vanguard Group (Vanguard) reported its direct and indirect beneficial ownership on a Schedule 13G/A filed with the SEC on February 12, 2014. The filing indicates that as of December 31, 2013, Vanguard had sole voting power for 1,024,898 shares, shared voting power for 0 shares, sole dispositive power for 33,507,165 shares and shared dispositive power for 960,606 shares.

 

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

 

SEC rules require disclosure of those directors, officers and beneficial owners of more than 10% of our common stock who fail to timely file reports required by Section 16(a) of the Securities Exchange Act of 1934 during the most recent fiscal year. Based solely on review of reports furnished to us and written representations that no other reports were required during the fiscal year ended February 1, 2014, all Section 16(a) filing requirements were met.

 

2014 Proxy Statement    TARGET CORPORATION     28

 

COMPENSATION COMMITTEE REPORT

 

The Compensation Committee has reviewed and discussed the following Compensation Discussion and Analysis with management. Based on this review and discussion, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in our annual report on Form 10-K and this proxy statement.

 

COMPENSATION COMMITTEE

 

James A. Johnson, Chair

Douglas M. Baker, Jr.

Calvin Darden

John G. Stumpf

 

COMPENSATION DISCUSSION AND ANALYSIS

 

INTRODUCTION

 

This Compensation Discussion and Analysis (CD&A) focuses on how hour Named Executive Officers (NEOs) where compensated for fiscal 2013 (February 3, 2013 through February 1, 2014) and how their fiscal 2013 compensation aligns with our pay for performance philosophy.

 

On May 5, 2014, Mr. Steinhafel stepped down as President & Chief Executive Officer and resigned as a Director. Mr. Mulligan assumed the additional responsibilities of Interim President & Chief Executive Officer. For fiscal 2013, our NEOs were:

 

       
  NAME PRINCIPAL POSITION  
  Gregg W. Steinhafel Former Chairman, President & Chief Executive Officer  
  John J. Mulligan Interim President & Chief Executive Officer, Chief Financial Officer  
  Kathryn A. Tesija Executive Vice President, Merchandising & Supply Chain  
  Tina M. Schiel Executive Vice President, Stores  
  Jeffrey J. Jones II Executive Vice President & Chief Marketing Officer  
       

 

Our CD&A is divided into the following sections:

 

  Executive Summary
     
  Our Performance Framework for Executive Compensation
     
  Other Benefit Elements
     
  Compensation Governance

 

2014 Proxy Statement    TARGET CORPORATION     29

 

EXECUTIVE SUMMARY

 

We have undertaken a significant overhaul of our compensation programs since our June 2013 shareholder meeting. Each program change was grounded in direct feedback from our shareholders, and every compensation decision for 2013 was made against a backdrop of 2013 actual results which fell short of our expectations. We are confident these changes and 2013 compensation decisions demonstrate Target’s strong commitment to our pay for performance philosophy and high standards of corporate governance. Fiscal year 2013 pay decisions are described throughout this CD&A.

 

Our Leadership Transition

 

As announced on May 5, 2014, after extensive discussions with the Board, Gregg Steinhafel stepped down as President & Chief Executive Officer and resigned as a Director. The Board appointed John Mulligan, our Chief Financial Officer, to serve in the additional capacities of Interim President & CEO.

 

In connection with Mr. Steinhafel’s departure from Target, he is eligible to receive severance benefits under our existing Income Continuance Policy (ICP) when his employment terminates. The severance benefits and the other consequences of Mr. Steinhafel’s departure, including repayment of certain enhanced early retirement benefits and forfeiture of certain equity awards, all of which are consistent with our pre-existing compensation plans, are described in more detail in “CEO Departure” on page 57.

 

In addition to the 2013 pay decisions described throughout this CD&A, the following compensation decisions were approved in May 2014:

 

The Board and Mr. Steinhafel have agreed that he will remain employed by Target in an advisory capacity to assist with the leadership transition through no later than August 23, 2014. During this advisory period, he will continue to receive the same base salary and benefits that were in effect on the date he stepped down as President & CEO. In addition, due to Mr. Steinhafel’s age and years of service with Target, under the pre-existing program he will remain eligible for a fiscal 2014 short-term incentive opportunity under Target’s Short-Term Incentive Plan based on Target’s actual financial performance, with the cash payout, if any, pro-rated based on his length of employment during the year. The Board determined that the amount of the short-term incentive payout opportunity for the portion of the payout, if any, attributable to the advisory period will be based on the same terms as in effect on the date he stepped down as President and CEO.
   
The Board increased Mr. Mulligan’s base salary from $700,000 to $1 million, and approved a one-time grant, effective May 22, 2014, of restricted stock units (RSUs) outside of our annual grant. The RSUs have a market value on the grant date of $1 million and will vest in one-third increments on each anniversary of the grant date. In addition, in connection with the appointment of Mr. Mulligan to the additional capacities of Interim President and Chief Executive Officer, the Board increased his fiscal 2014 short-term incentive opportunity from 80% to 90% of his base salary. The increase in the short-term incentive opportunity will be pro-rated for the time period during which Mr. Mulligan serves in the additional capacities.

 

The Board remains committed to attracting and retaining premier talent, and has commenced a comprehensive search to select our next CEO.

 

Results of 2013 Advisory Vote to Approve Executive Compensation

 

We have always believed that open dialogue with our shareholders is critical to our success, and we take their feedback seriously. At our June 2013 annual meeting of shareholders, shareholders approved our Say on Pay proposal in support of our executive compensation program. However, the support level was well below what we deem to be acceptable. As a result, we embarked on a significant shareholder outreach effort to listen to concerns about our executive compensation plans and governance, and we have taken specific actions in response to this feedback.

 

Shareholder Outreach and Compensation Program Changes

 

Since our June 2013 Say on Pay vote, we have held meetings or hosted calls with shareholders representing approximately 40% of shares voted and two proxy advisory firms. The majority of the conversations were led by either Jim Johnson, Lead Independent Director and Chair of our Board’s Compensation Committee, or Anne Mulcahy, the Chair of our Board’s Nominating & Governance Committee. We value the feedback provided by our shareholders and look forward to continued, open dialogue on compensation matters and other issues relevant to our business.

 

The Board’s overarching goal is to deliver on our pay for performance philosophy by offering compensation strategies that incent strong results, attract and retain a premier management team, and are supported by shareholders.

 

2014 Proxy Statement    TARGET CORPORATION     30

 

The summary below highlights the key themes we heard from our shareholders, the actions the Compensation Committee has taken, and the results of those actions.

 

             
  SHAREHOLDER FEEDBACK   COMPENSATION COMMITTEE ACTIONS   RESULT  
  CEO pay: Overall pay for our former CEO was too high given Target’s performance relative to peers, most clearly in our trailing 3-year Total Shareholder Return (TSR).  

Recalibrated our former CEO’s total at-goal compensation package, resulting in a target level that was below the median compensation level of our combined retail and general industry peer groups for 2013.

 

Reduced the annual long-term incentive (LTI) grant for our former CEO to $8 million(1), representing a reduction of $3.75 million from prior year.

 

Approved fiscal 2013 short-term incentive plan (STIP) payout of $0 given below threshold financial performance.

 

Eliminated the age-acceleration feature from our former CEO’s pension plan with no replacement value.

 

 

Results in 2013 actual total direct compensation (TDC) of $9.5 million(1), which is a decrease of $6.6 million (41%) from the prior year and well below the median actual compensation of our combined retail and general industry peer groups.

 

Removing the age-acceleration feature of our former CEO’s legacy pension plan increases the performance-focus of our pay program. No replacement value will be provided in lieu of this removed benefit, which lowered 2013 reported pay by $1.52 million.

 
  Pay for performance link: Linking pay to relative performance is paramount – while most of executive pay is at-risk and requires future share-price performance, more should be explicitly tied to relative performance versus peers.  

Increased use of performance share units (PSUs) by removing stock options and increasing PSUs from 25% to 75% of annual LTI mix.

 

Added performance-based restricted stock units (PBRSUs) tied to relative TSR as 25% of annual LTI mix.

 

100% of annual LTI mix is performance-based and tied to relative performance vs. our retail peers.

 

Increased use of PSUs and the introduction of PBRSUs, which will be adjusted based on relative TSR, strengthens the link between pay and relative performance.

 
             
  PSU plan: Our PSU plan – which demands 60th percentile performance vs. peers to achieve goal payout – is good, but expanding its weight within the LTI mix and adding a returns-based metric to the plan would make it better.   Along with increasing PSUs from 25% to 75% of annual LTI mix, we also added a third relative metric, return on invested capital (ROIC), to our PSU plan.  

This creates a balanced PSU portfolio focused on the key metrics we use to manage our business and drive shareholder returns over time:

• Top line growth (change in market share)

• Earnings per share (EPS) growth

• ROIC

 
             

 

(1) For more details on the components and amounts for TDC, please see the table on page 35.

 

2014 Proxy Statement    TARGET CORPORATION     31

 

Target’s Executive Compensation Practices

 

The following practices and policies ensure alignment of interests between shareholders and executives and sound corporate governance practices.

 

             
  COMPENSATION       MORE  
  PRACTICE TARGET POLICY   INFORMATION  
  Pay for Performance YES A significant percentage of the total direct compensation package is performance-based. 100% of our annual LTI is performance-based.    
             
  Robust stock ownership guidelines YES We have stock ownership guidelines for executive officers of 5x base salary for CEO, 3x base salary for non-CEO executive officers and $270,000 for directors.    
             
  Annual Shareholder “Say on Pay” YES We value our shareholders’ input on our executive compensation programs. Our Board of Directors seeks an annual non-binding advisory vote from shareholders to approve the executive compensation disclosed in our CD&A, tabular disclosures and related narrative of this proxy statement.    
             
  Annual compensation risk assessment YES A risk assessment of our compensation programs is performed on an annual basis.    
             
  Clawback policy YES Our policy allows recovery of incentive cash and equity compensation if it is earned based on inaccurate financial statements.    
             
  Independent compensation consultant YES The Compensation Committee retains an independent compensation consultant to advise on the executive compensation program and practices.    
             
  Hedging of company stock NO Executive officers and members of the Board of Directors may not directly or indirectly engage in transactions intended to hedge or offset the market value of Target common stock owned by them.    
             
  Pledging of company stock NO Executive officers and members of the Board of Directors may not directly or indirectly pledge Target common stock as collateral for any obligation.      
             
  Tax gross-ups NO We do not provide tax gross-ups to our executive officers.    
             
  Dividends on unearned performance awards NO We do not pay dividends on unearned performance awards.      
             
  Repricing or exchange of underwater stock options NO Our equity incentive plan does not permit repricing or exchange of underwater stock options without shareholder approval.      
             
  Employment contracts NO None of our current named executive officers has an employment contract.    
             

 

2014 Proxy Statement    TARGET CORPORATION     32

 

Performance Highlights

 

Target’s Total Sales, Reported EPS, U.S. Segment ROIC, and TSR performance over the past five fiscal years are shown below:

 

Total Sales (in millions)   Reported EPS
     
     
     
U.S. Segment ROIC   Total Shareholder Return
     
     

 

(1) 2012 reflects 53 weeks of sales.

 

The Board and management team have demonstrated a strong commitment to returning capital to shareholders over the past five fiscal years.

 

 

 

2014 Proxy Statement    TARGET CORPORATION     33

 

Target’s senior management team is responsible for and committed to driving the following key strategies that position Target for future growth:

 

       
  Canadian Retail
Market Entry
A real estate acquisition representing a significant opportunity for Target to extend our brand and stores beyond the U.S. for the first time. Target opened 124 Canadian stores in 2013, which is the largest one year set of store openings in company history.  
       
  Omnichannel Investments A seamless and integrated guest experience across all of Target’s stores and digital platforms including mobile, social and Target.com. We are committed to an omnichannel strategy that enables our guests to engage with Target anywhere, anytime.  
       
  REDcard Rewards
Program
A compelling loyalty program in which REDcard guests receive an additional 5% off our already low prices every day on nearly all purchases in our stores and at Target.com. This game changing program drives guest engagement and loyalty which significantly increases trip frequency and spending.  
       
  CityTarget A new, smaller urban market format. This flexible format allows us to operate stores in densely populated urban areas, reaching guests who find it difficult to visit our suburban stores.  
       
  Credit Card Receivables
Transaction
The sale in March 2013 of our entire consumer credit card portfolio, which freed up approximately $6 billion of company capital.  
       
  Store Remodel Program An innovative layout in more than 1,200 of our general merchandise stores that features perishable food and an expanded assortment of dry, dairy and frozen food, as well as category enhancements throughout the store, which is leading our guests to choose to shop more often.  
       

 

2013 Performance Review

 

While Target has a strong record of performance over time, our financial results in 2013 fell well short of our expectations. We experienced softer-than-expected sales in our U.S. segment, reflecting a challenging consumer environment, including the impact of the payroll tax increase and the fourth quarter impact of the data breach. At the same time, 2013 sales and profits from 124 new store openings in Canada, our first international expansion, were well below our initial expectations, resulting in significant earnings dilution.

 

Even with these pressures, our strong financial position provided the capacity to return approximately $2.5 billion to our shareholders in the form of dividends and share repurchase. While 2013 performance was clearly disappointing, the Board remains confident in Target’s strategy, its commitment to operational excellence and its ability to deliver meaningful shareholder value over time.

 

2014 Proxy Statement    TARGET CORPORATION     34

 

2013 Compensation Decisions

 

 

In response to shareholder feedback, we embarked on a comprehensive overhaul of our executive compensation program to even better align compensation with company performance. As a result, the Compensation Committee approved the following compensation decisions in fiscal 2013:

 

Recalibrated our former CEO’s total at-goal compensation package resulting in a target level that was below the median compensation level of our combined retail and general industry peer groups for 2013.

 

Our former CEO did not receive a fiscal 2013 STIP payout due to below-threshold financial performance.

 

Our former CEO’s $8 million annual LTI grant made in connection with fiscal 2013 performance was significantly lower than prior year’s grant.

 

Eliminated the age acceleration feature of our former CEO’s supplemental pension plan which created a reduction in benefit of $1.52 million in 2013 with no replacement value.

 

Our former CEO did not receive a base salary increase for 2014.

 

   
Except for Mr. Mulligan, the other NEOs also received no base salary increases for 2014.

 

The Compensation Committee exercised its negative discretion to provide no fiscal 2013 STIP payouts in connection with personal performance for our other NEOs.

 

Annual LTI is 100% tied to our performance relative to our retail peers.

 

Increased use of PSUs by removing stock options and increasing PSUs from 25% to 75% of annual LTI mix. Also added a third metric, ROIC, to the PSU plan.

 

Added performance-based RSUs tied to relative TSR as 25% of annual LTI mix.

 


 

The TDC package determined by the Compensation Committee for 2013 for each NEO is provided below. This table is not a substitute for the information disclosed in the Summary Compensation Table on page 47. Differences are explained in the footnotes below.

 

                   
  FISCAL 2013 COMPENSATION COMPONENT  MR. STEINHAFEL  MR. MULLIGAN  MS. TESIJA  MS. SCHIEL  MR. JONES 
  Base Salary  $  1,500,000  $  700,000  $  950,000  $  725,000  $  700,000 
  STIP Payout  $  0  $  0  $  0  $  0  $  0 
  Annual LTI Award  $  8,000,000  $  3,000,000  $  5,000,000  $  3,250,000  $  3,000,000 
  Total 2013 TDC(1)  $  9,500,000  $  3,700,000  $  5,950,000  $  3,975,000  $  3,700,000 
  Total 2012 TDC(1)  $  16,130,000  $  4,239,571  $  6,919,700  $  4,724,900  $  4,129,542 
  % change year-over-year   -41%  -13%  -14%  -16%  -10%
                        

 

(1) TDC excludes items shown under “Change in Pension Value and Nonqualified Deferred Compensation Earnings” and “All Other Compensation” in the Summary Compensation Table. TDC for a fiscal year includes (i) base salary levels approved for that year, (ii) STIP payouts related to performance for that year, and (iii) annual LTI awards representing the intended grant date present value approved in connection with performance for that year. Annual LTI Award for 2013 TDC reflects LTI awards approved in January 2014 for fiscal 2013 performance, and for 2012 TDC reflects LTI awards approved in January 2013 and March 2013 for fiscal 2012 performance. The aggregate grant date fair value of awards made each fiscal year as reported in the Summary Compensation Table is computed in accordance with FASB ASC Topic 718, and differs from the Compensation Committee’s intended grant date present value. The number of shares granted for annual LTI awards is determined by dividing the intended grant date present value by the grant date price. The grant date price for PSUs, PBRSUs and RSUs is based on the volume-weighted average price and for options is based on the Towers Watson Black-Scholes option pricing methodology.

 

2014 Proxy Statement    TARGET CORPORATION     35

 

OUR PERFORMANCE FRAMEWORK FOR EXECUTIVE COMPENSATION

 

Our compensation programs are structured to align the interests of our executive officers with the interests of our shareholders. They are designed to attract, retain, and motivate a premier management team to sustain our distinctive brand and its competitive advantage in the marketplace, and to provide a framework that encourages outstanding financial results and shareholder returns over the long term.

 

         
               
                 
  Performance-Based 87%       Performance-Based 84%  
                 

 

   
  How CEO Pay is Tied to Performance
     
  The following pay elements are performance-based and represent a significant percentage of the total direct compensation package.
     
  STI – The financial STIP payout was 0% for fiscal 2013. Payouts range from 75% to 300% when performance levels are 5% below and 5% above goal, respectively.
     
  PSUs – Payouts range from 0% to 175% of goal depending on our performance relative to our retail peer group.
     
  PBRSUs – Payouts range from 75% to 125% of goal depending on TSR performance relative to our retail peer group.

 

2014 Proxy Statement    TARGET CORPORATION     36

 

Elements of Fiscal 2013 Executive Total Direct Compensation

 

                         
      ELEMENT   KEY
CHARACTERISTICS
  LINK TO
SHAREHOLDER
VALUE
  HOW WE DETERMINE
AMOUNT
  KEY
DECISIONS
 
   FIXED   Base Salary   Fixed compensation component payable in cash, representing the smallest portion of TDC for our NEOs. Reviewed annually and adjusted when appropriate.   A means to attract and retain talented executives capable of driving superior performance.   Scope and complexity of each executive officer’s roles, individual skills, contributions, market data and prior experience.   Approved in January of 2013, our NEOs, other than our former CEO, received a salary increase.

 

Approved in January of 2014, our former CEO and NEOs received no base salary increases. Mr. Mulligan received a base salary increase in May 2014.

 
                         
  PERFORMANCE BASED   Short Term Incentives   Variable compensation component payable in cash based on performance against annually established financial goals and assessment of individual performance (excluding former CEO).   Incentive targets are tied to achievement of key annual strategic, operational, and financial measures.

 

Our former CEO’s STIP is exclusively tied to financial measures.

  Financial portion of award based on:

- Earnings Before Interest and Taxes (Incentive EBIT)

- Economic Value Added (Incentive EVA)

 

Personal scores are based on critical factors upon which we believe leadership and performance should be assessed, but which are not quantifiable. We do not use a personal score in our former CEO’s STIP.

  Weak performance against goals resulted in no financial payout for the former CEO and other NEOs for fiscal 2013.

 

In addition, the Compensation Committee exercised its negative discretion to provide no fiscal 2013 STIP payouts to the other NEOs in connection with personal performance. See page 39.

 
    Performance Share Unit Awards   PSUs cliff vest three years from the date of grant and payouts are based on relative three-year performance versus our retail peer group.   PSUs recognize our executive officers for achieving superior long-term relative performance in:

 

-Market share change

-EPS growth

-ROIC

  Grant award levels based on individual performance, potential future contributions, historical grant amounts, retention considerations and market data.

 

Actual award payout based on change in market share and EPS compound annual growth rate versus retail peer group (added relative ROIC with the award granted in January 2014).

  Payout: PSU award granted in March 2011 and paid out in March 2014 at 77% of the goal number of shares.

 

Annual LTI Mix: Beginning with the award granted in January 2014, increased PSUs to 75% of total annual LTI award. See page 39.

 
    Performance Based Restricted Stock Unit Awards   PBRSUs cliff vest three years from the date of grant with the number of shares based on relative three-year TSR performance versus our retail peer group.   Fosters a culture of ownership, aligns the long-term interests of Target’s executive officers with our shareholders and rewards or penalizes based on relative TSR performance.   Grant awards based on individual performance, historical grant amounts, retention considerations and market data.

 

Actual award payout based on TSR versus retail peer group.

  PBRSUs comprise 25% of total annual LTI granted. See page 39.  
                         

 

2014 Proxy Statement    TARGET CORPORATION     37

 

Base Salary

 

We provide base salary as a means to provide a stable amount of cash compensation to our executive officers. In alignment with our pay-for-performance philosophy, it represents the smallest portion of TDC.

 

In January 2013, Ms. Tesija received a fiscal 2013 base salary increase due to her expanded role, including responsibility for our supply chain. Upon completion of the first year in their new respective roles on the Executive Committee, Mr. Mulligan and Mr. Jones received base salary increases for 2012 performance and market considerations. Ms. Schiel also received a base salary increase to reflect her performance in 2012.

 

In January 2014, the Compensation Committee held our former CEO’s fiscal 2014 base salary flat. Additionally, the Compensation Committee approved no base salary increases for the rest of our NEOs at that time. Mr. Mulligan received an increase in May 2014 at the time he was appointed to his additional capacities as Interim President & CEO.

 

Short-Term Incentives

 

All NEOs are eligible to earn cash awards under our STIP program, which is designed to motivate and reward executives for performance on key annual measures. STIP metrics are thoughtfully balanced to incent both profitability (Incentive EBIT) and investment discipline (Incentive EVA).

 

Performance Metrics

 

Our STIP program is based on critical metrics and appropriately challenging goals set at the beginning of the performance period:

 

  Incentive EBIT. Incentive EBIT represents 50% of the financial component of the STIP payout. For fiscal 2013, Incentive EBIT included U.S. Segment EBIT and Canadian Segment EBIT.
     
  Incentive EVA. Incentive EVA accounts for the other 50% of the financial component of the STIP payout. Incentive EVA is a measure of earnings after an estimated after-tax cost of capital charge. A positive Incentive EVA performance indicates we are generating returns on invested capital at rates higher than the cost of capital. For fiscal 2013, Incentive EVA included U.S. Segment and Canadian Segment.
     
  Personal Performance (excludes Former CEO). Personal performance payments correspond to a predetermined percentage of base salary tied to a payout matrix for each personal performance review score. The maximum personal performance payout is equal to 46.7% of base salary. Review scores are a subjective element within our mix of variable compensation elements to recognize the critical factors upon which we believe leadership and performance should be assessed, but which are not quantifiable, including: enterprise leadership, the development of a high performing and diverse team, a strong commitment to high ethical standards, and the achievement of strategic goals and objectives for the year.

 

The following tables summarize the total short-term incentive opportunity for financial performance measures at 5% below goal, goal, and 5% above goal, and a representative incentive opportunity for the personal performance aspect of the short-term incentive program under various performance levels as a percentage of base pay. 2013 actual payouts, included in the table below, are further discussed in the next section. The table is not a substitute for the information disclosed in the Grants of Plan-Based Awards in Fiscal 2013 table located on page 50.

 

     
 

Illustrative Payouts for Former CEO (as a % of base salary)

 
   

PERFORMANCE LEVEL

 
    5% BELOW GOAL   GOAL   5% ABOVE GOAL     2013 ACTUAL
PAYOUT
 
  Financial Component
(50% Incentive EBIT, 50% Incentive EVA)
75%   150%   300%   $  0  
                     

 

     
 

Illustrative Payouts for Other NEOs (as a % of base salary)

 
   

PERFORMANCE LEVEL

 
    BELOW GOAL(1)   GOAL(2)   ABOVE GOAL(3)     2013 ACTUAL
PAYOUT
 
  Financial Component 20%   53%   120%     $  0  
  (50% Incentive EBIT, 50% Incentive EVA)                  
  Personal Performance Component 20%   27%   40%     $  0  
  Total(4) 40%   80%   160%     $  0  
                     

 

(1) Reflects financial performance at 5% below goal and “effective” personal performance.
(2) Reflects financial performance at-goal and “excellent” personal performance.

 

2014 Proxy Statement    TARGET CORPORATION     38

 
(3) Reflects financial performance at 5% above goal and “outstanding” personal performance.
(4) In May 2014, the Board increased Mr. Mulligan’s fiscal 2014 short-term incentive opportunity amounts, pro-rated for the time period during which he serves in the additional capacities of Interim President & CEO. Using this table for illustrative payouts for that opportunity, the below goal payout would be 45%, goal payout would be 90% and above goal payout would be 180%.

 

Fiscal 2013 Performance Goals and How We Performed in Comparison to These Goals

 

The final STIP goals were based on our overall 2013 performance goals, which were reviewed, discussed and approved by the Board at the beginning of the year. When approving these goals the Board takes into account our business strategies, the economic environment and how the annual goal aligns with our long range plan.

 

Historically, STIP goals have proven appropriately challenging, including 0% payout in 2013. For fiscal 2013, our Incentive EBIT and Incentive EVA goal amounts were $5,459 million and $712 million, respectively. The threshold amounts to receive a payout were $5,186 million for Incentive EBIT and $536 million for Incentive EVA. Our actual results were below threshold for both metrics resulting in a $0 financial payout, as further detailed in our Reconciliation of Incentive EBIT to Consolidated GAAP EBIT in Appendix A.

 

Based on below threshold financial performance, our former CEO did not receive a payout for fiscal 2013. Our other NEOs also received no payout for financial performance. In addition, the Compensation Committee exercised its negative discretion to provide no fiscal 2013 STIP payouts to the other NEOs in connection with personal performance.

 

Long-Term Incentives

 

To align our executive officers’ pay outcomes with long-term performance, annual LTI grants are 100% performance-based and comprise the majority of each NEO’s total compensation.

 

Value of LTI Awarded

 

In determining the amount of individual long-term incentive awards, the Compensation Committee considered each NEO’s performance during the fiscal year, shareholder feedback garnered from the outreach conducted, potential future contributions, historical annual grant amounts, retention considerations, as well as market data for comparable executives from our retail and general industry peer groups.

 

The Board of Directors targeted our former CEO’s total at-goal compensation package below the median compensation level of our combined retail and general industry peer groups for 2013. As a result, our former CEO’s annual grant for 2013 performance represented a significant reduction from the prior year. The Compensation Committee also left the rest of the NEOs’ LTI grants for 2013 performance unchanged from the prior year’s annual grant amounts.

 

Mix of LTI

 

Once the total annual grant amount is determined, the Compensation Committee grants 75% of this value in PSUs and 25% in PBRSUs. As noted previously, the annual grant made in January 2014 in connection with fiscal 2013 performance is the first to reflect this change. In prior years, the annual grant was comprised of 50% stock options, 25% PSUs, and 25% RSUs. Under the new LTI approach, strong long-term performance relative to peers on critical metrics becomes the key driver of compensation realized by executive officers.

 

2014 Proxy Statement    TARGET CORPORATION     39

 

PSUs

 

In January 2014, the Committee granted the 2014 PSU awards in connection with fiscal 2013 performance. Our PSUs have a three-year performance period and are settled in stock. As described previously, we added ROIC as a third metric of our PSU plan beginning in 2014 to ensure that the plan payout reflects the same key metrics we use to manage our business and drive shareholder returns over time.

 

  Change in market share. A company’s change in market share, expressed as a percentage, is calculated by subtracting (a) from (b), as described below:

 

    (a) The Company’s domestic net sales in the baseline year is divided by the market’s domestic net sales for the baseline year. The “market” is the sum of the domestic net sales for us and our retail peer group.
       
    (b) The Company’s domestic net sales in the final year of the performance period is divided by the market for the final year.

 

  EPS Growth. Compound annual growth rate of reported EPS for both our results and our retail peer group.
     
  ROIC. Three year average net operating profit after-tax (NOPAT) divided by average invested capital for both our results and our retail peer group.

 

With these three independent metrics, our PSU program supports the critical drivers of our success: to grow top-line relative to the retail sector, to grow it profitably, and to ensure prudent deployment of capital to drive the business.

 

For the 2014 PSU grants which will payout in 2017 (2014-2016 PSU cycle), the Canadian Segment is:

 

  excluded from market share change and EPS growth because inclusion may have caused an inappropriately low baseline from which to measure performance, and
     
  included in ROIC to ensure participants are held accountable for the significant startup investment related to this key growth initiative.

 

The Compensation Committee affirmatively excluded the following items related to the sale of our U.S. consumer credit card receivables portfolio because they are not part of our core operations over the period covered by the 2014-2016 PSU cycle:

 

  one-time gain driven by the sale of our “held for sale” credit card receivables to TD Bank Group (TD) at par value,
     
  one-time gain due to the recognition of a beneficial interest asset, which effectively represented a receivable for the present value of future profit-sharing Target expected to receive on the receivables sold,
     
  quarterly reductions to the beneficial interest asset relating to profit-sharing payments received from TD, and
     
  transaction fees and debt repurchase associated with the deal.

 

A reconciliation of the non-GAAP measure of EPS for PSUs to GAAP EPS is provided in Appendix A.

 

2014 Proxy Statement    TARGET CORPORATION     40

 

The following example illustrates PSU payouts at various levels of performance:

 

For more information about our Peer Groups see pages 44-45.

 

Adjustments

 

The intent of our PSU program is to measure performance relative to the retail peer group (defined on page 45) on the previously described measures. To achieve this measurement in an objective manner, we base the initial rankings on annual reported financial results of Target and each member of the retail peer group. The Compensation Committee has reserved discretion to adjust the reported financial results for Target or any member of the retail peer group if it believes such adjustments are necessary to properly gauge Target’s relative performance. Since the implementation of our relative performance plan, the only adjustment to our peers’ results was a reduction in sales to remove the impact of the 53rd week in the retail accounting calendar to ensure consistency on relative market share performance across companies. Adjustments to Target and peers’ results, if any, are disclosed in the proxy in the year of award payout.

 

2014 Proxy Statement    TARGET CORPORATION     41

 

2011-2013 PSU Payout

 

In March 2014, the NEOs received payouts with respect to the PSU awards that were granted in March 2011 for the three-year performance period ended February 1, 2014. These awards were paid at 77% of the goal number of shares. The following table summarizes the rankings and payout results for awards granted in fiscal 2011 with a base year of fiscal 2010 and a final performance year of fiscal 2013:

 

           
  METRIC RANKING   PAYOUT   TOTAL PAYOUT    
  Market Share 7th 88% 77%  
  EPS Growth 11th 66%  
           

 

No adjustments were made to competitors’ results. At the time of grant, the Compensation Committee excluded the impact over this period of the sale of our U.S. consumer credit card receivables portfolio to TD Bank Group from Target’s EPS results as it does not reflect our core operations. The Compensation Committee also excluded the impact of our Canadian Segment from Target’s EPS results at the beginning of the performance period as the Canadian Segment was not an operating entity during the entire three-year period. Similarly, the metric of domestic market share change by definition also excluded the impact of the Canadian Segment. In this case, including the Canadian Segment would have otherwise increased Target’s market share results as Canada was not an operating entity in the base year. A reconciliation of the non-GAAP measure of EPS for PSUs to GAAP EPS is provided in Appendix A.

 

PBRSUs

 

Beginning in January 2014, we introduced PBRSUs to our NEOs annual LTI grant mix so that it is 100% tied to Target’s performance relative to retail peers. The PBRSU amount will be adjusted up or down by 25 percentage points if Target’s TSR is in the top one-third or bottom one-third for the retail peer group, respectively, over the three year vesting period. These stock-settled awards cliff vest three years from the date of grant.

 

     
 

PBRSU Payout Schedule

 
  TSR PERFORMANCE RANKING   PERCENT OF GOAL  
  1-5   125%  
  6-10   100%  
  11-15   75%  
         

 

2014 Proxy Statement    TARGET CORPORATION     42

 

OTHER BENEFIT ELEMENTS

 

We offer other benefit components designed to encourage retention of key talent including:

 

  Pension plan. We maintain a pension plan for team members hired prior to January 2009 who meet certain eligibility criteria. We also maintain supplemental pension plans for those team members who are subject to IRS limits on the basic pension plan or whose pensions are adversely impacted by participating in our deferred compensation plan. Our pension formula under these plans is the same for all participants—there are no enhanced benefits provided to executive officers beyond extending the pension formula to earnings above the qualified plan limits.
     
    Mr. Steinhafel was the only remaining participant in a legacy pension plan with an age acceleration feature that treated him as five years older than his actual age starting at age 55, but never older than 65. Mr. Steinhafel voluntarily relinquished his right to this benefit and the Board of Directors approved the elimination of this feature of his supplemental pension plan effective February 3, 2013. The elimination of this feature created a reduction in benefit of $1.52 million for Mr. Steinhafel’s compensation in 2013.
     
  401(k) plan. Available to all team members who work more than 1,000 hours for the company. There is no enhanced benefit for executives.
     
  Deferred compensation plan. For a broad management group (approximately 3,700 eligible team members), we offer a non-qualified, unfunded, individual account deferred compensation plan. The plan has investment options that mirror our 401(k) plan. We also have a legacy officer deferred compensation plan (ODCP) that was frozen to new participants and further compensation deferrals in 1996, as described in more detail on page 56.
     
  Perquisites. We provide certain perquisites to our executive officers, principally to allow them to devote more time to our business and to promote their health and safety. The Compensation Committee reviews these perquisites annually to ensure they are consistent with our philosophy and appropriate in magnitude. Perquisites are described on page 49.

 

Greater detail on these components is provided in the tables that follow the Summary Compensation Table on page 47.

 

Income Continuance

 

We provide an Income Continuance Policy (ICP) to executive officers who are involuntarily terminated without cause to assist in their occupational transitions. The maximum payment under this policy (paid during regular pay cycles over two years) is two times the sum of base salary and the average of the last three years of short-term incentive and personal performance payments. None of our current named executive officers has an employment contract, enhanced change of control benefits or rights to tax gross-ups. In connection with his departure from Target, Mr. Steinhafel is eligible to receive severance benefits under our ICP. See “CEO Departure” on page 57 for more details.

 

2014 Proxy Statement    TARGET CORPORATION     43

 

COMPENSATION GOVERNANCE

 

Process For Determining Executive Compensation (Including NEOs)

 

Compensation Committee

 

The Compensation Committee is responsible for determining the composition and value of our non-CEO executive officer pay packages and for developing a recommendation for our CEO’s pay package that is reviewed and approved by the independent directors of the full Board. The Compensation Committee receives assistance from two sources: (a) an independent compensation consulting firm, Semler Brossy Consulting Group (SBCG); and (b) our internal executive compensation staff, led by our Executive Vice President of Human Resources.

 

All decisions regarding executive compensation and final recommendations to the independent members of the full Board are made solely by the Compensation Committee. The Compensation Committee may not delegate its primary responsibility of overseeing executive officer compensation, but it may delegate to management the administrative aspects of our compensation plans that do not involve the setting of compensation levels for executive officers.

 

Compensation Committee’s Independent Consultant

 

SBCG has been retained by and reports directly to the Compensation Committee and does not have any other consulting engagements with management or Target. The Committee assessed SBCG’s independence in light of the U.S. Securities and Exchange Commission and NYSE listing standards and determined that no conflict of interest or independence concerns exist.

 

With respect to CEO compensation, SBCG provides an independent recommendation to the Compensation Committee, in the form of a range of possible outcomes, for the Compensation Committee’s consideration. In developing its recommendation, SBCG relies on its understanding of Target’s business and compensation programs and SBCG’s independent research and analysis. SBCG does not meet with our CEO with respect to CEO compensation. SBCG also provides an independent assessment of the CEO’s recommendations on NEO compensation to the Compensation Committee.

 

Compensation of Other Executive Officers and Role of Management

 

In developing compensation recommendations for other executive officers, the Executive Vice President of Human Resources provides our CEO with market data on pay levels and compensation design practices provided by management’s external compensation consultants, Towers Watson and Hay Group, covering our retail and general industry peer group companies. Management’s outside consultants do not have any interaction with either the Compensation Committee or our CEO, but do interact with the Executive Vice President of Human Resources and her staff. In addition to providing market data, management’s external compensation consultants perform other services for Target unrelated to the determination of executive compensation.

 

Our Executive Vice President of Human Resources and the CEO work together to develop our CEO’s compensation recommendations to the Compensation Committee for other executive officers. The CEO alone is responsible for providing final compensation recommendations for the other executive officers to the Compensation Committee.

 

Benchmarking Using Compensation Peer Groups

 

Peer group market positioning is another important factor considered in determining each executive officer’s TDC.

 

The TDC levels and elements described in the preceding pages are evaluated annually for each executive officer relative to our retail and general industry peer group companies. The market comparisons are determined by use of compensation data obtained from publicly available proxy statements analyzed by SBCG and proprietary survey data assembled by Towers Watson and Hay Group.

 

Due to imperfect comparability of NEO positions between companies, market position served as a reference point in the TDC determination process rather than a formula-driven outcome. For 2013, our former CEO’s total compensation package was targeted below the combined median compensation level of the retail and general industry peer groups.

 

Our legacy officer deferred compensation plan, the ODCP, includes the accrual of above-market interest. The Compensation Committee considered the annual value of this feature in setting total pay opportunity, so the amount of above-market interest is considered as part of total pay. Our former CEO was the only NEO eligible for this plan because it was frozen to new deferrals in 1996.

 

     
  FISCAL 2013 PEER GROUP CHANGES  
       
  Removed from Target’s Retail peer group  
       
  Supervalu was removed due to its sale of significant assets  
       
  Removed from Target’s General Industry peer group  
     
  Dell was removed because it became a private company  
       
  Wells Fargo was removed in consideration of its CEO having joined our Compensation Committee  
       
  Substitution to Target’s General Industry peer group  
       
  Mondelez International replaced Kraft Foods upon the completion of a spin-off of Kraft Foods Group  
       

 

2014 Proxy Statement    TARGET CORPORATION     44

 

The selected retail peer group represents a cross section of general merchandise, department store, food and specialty retailers and includes companies that are large (generally exceeding $15 billion in revenues) and meaningful competitors. The retail peer group is also used within our LTI plans. Target’s relative performance compared to this peer group on key metrics determines overall payout for our PSU and PBRSU awards.

 

General industry companies are also included as a peer group because they represent companies with whom we compete for talent. Like the selected retailers, the general industry companies are large and among the leaders in their industries.

 

The composition of the peer groups is reviewed annually to ensure it is appropriate in terms of company size and business focus, and any changes made are reviewed with SBCG and approved by the Compensation Committee.

 

The companies included in the 2013 market comparisons are listed below.

 

             
  RETAIL PEER GROUP   GENERAL INDUSTRY PEER GROUP  
  Amazon.com Kroger   3M MetLife  
  Best Buy Lowe’s   Abbott Labs Microsoft  
  Costco Macy’s   Archer Daniels Midland Mondelez  
  CVS Caremark Safeway   Coca-Cola PepsiCo  
  Home Depot Sears   Deere Pfizer  
  J.C. Penney Walgreens   Dow Chemical Procter & Gamble  
  Kohl’s Walmart   FedEx Time Warner  
        General Mills UPS  
        Johnson & Johnson UnitedHealth Group  
        Johnson Controls United Technologies  
        McDonald’s Walt Disney  
           

 

The following table summarizes our scale relative to our retail and general industry peer groups. The financial information reflects fiscal year end data available as of December 2013:

 

                             
     Retail Peer Group   General Industry Peer Group   
      REVENUES
 ($MMs)
   MARKET CAP
 ($MMs)
   EMPLOYEES  REVENUES ($MMs)   MARKET CAP
 ($MMs)
   EMPLOYEES 
  25th Percentile   $  40,942    $    8,908    127,000    $  37,086    $    36,751    72,094   
  Median   55,899    28,476    172,000    51,072    67,182    115,500   
  75th Percentile   91,252    56,866    256,250    66,791    104,899    169,000   
  Target Corporation   73,301    38,746    361,000    73,301    38,746    361,000   
                                   

 

Data Source: Equilar

 

2014 Proxy Statement    TARGET CORPORATION     45

 

Compensation Policies and Risk

 

As part of our regular review of our compensation practices, we conducted an analysis of whether our compensation policies and practices create material risks to the company. The results of this analysis were reviewed by the Compensation Committee’s independent consultant and discussed with the Compensation Committee, which agreed with management’s conclusion that our compensation programs do not create risks that are reasonably likely to have a material adverse effect on the company. More specifically, this conclusion was based on the following considerations:

 

         
  Pay Mix   Compensation mix of base salary, short-term and long-term incentives provides compensation opportunities measured by a variety of time horizons to balance our near-term and long-term strategic goals.  
  Performance Metrics   A variety of distinct performance metrics are used in both the short-term and long-term incentive plans. This “portfolio” approach to performance metrics encourages focus on sustained and holistic overall company performance.  
  Performance Goals   Goals are approved by our independent directors and take into account our historical performance, current strategic initiatives and the expected macroeconomic environment. In addition, short-term and long-term incentive compensation programs are designed with payout curves and leverage that support our pay for performance philosophy.  
  Equity Incentives   Equity incentive programs and stock ownership guidelines are designed to align management and shareholder interests by providing vehicles for executive officers to accumulate and maintain an ownership position in the company.  
  Risk Mitigation Policies  

We incorporate several risk mitigation policies into our officer compensation program, including:

  The Compensation Committee’s ability to use “negative discretion” to determine appropriate payouts under formula based plans;

   A clawback policy to recover incentive compensation that was based on inaccurate financial statements;

   Stock ownership guidelines for executive officers and directors; and

   Anti-hedging and anti-pledging policies.

 
         

 

Clawback Policy

 

Our clawback policy, which covers all officers, allows for recovery of the following compensation elements:

 

  All amounts paid under the Short-Term Incentive Plan (including any discretionary payments) that were paid with respect to any fiscal year that is restated; and
     
  All awards under the Long-Term Incentive Plan whether exercised, vested, unvested, or deferred.

 

All demands for repayment are subject to Compensation Committee discretion. For an officer to be subject to recovery or cancellation under this policy, he or she must have engaged in intentional misconduct that contributed to the need for a restatement of our consolidated financial statements.

 

Anti-Hedging and Anti-Pledging Policy

 

Executive officers and members of the Board of Directors may not directly or indirectly engage in capital transactions intended to hedge or offset the market value of Target common stock owned by them, nor may they pledge Target common stock owned by them as collateral for any loan.

 

Compensation Tax Policy

 

Our short-term and long-term compensation programs, including the compensation paid in fiscal 2013, are intended to qualify as deductible performance based compensation under Section 162(m) of the Internal Revenue Code (IRC). These compensation programs are generally structured such that executive officers are entitled to receive a maximum payout amount upon achievement of consolidated earnings before interest and taxes performance metric determined by the Compensation Committee. The Compensation Committee then uses its negative discretion to determine the actual payout amount. The performance objectives that are communicated to our executive officers, which are described in detail above, guide the Compensation Committee’s exercise of its negative discretion to determine the actual payouts. We may provide non-deductible compensation in situations the Compensation Committee or our Board of Directors believes appropriate.

 

2014 Proxy Statement    TARGET CORPORATION     46

 

EXECUTIVE COMPENSATION TABLES

 

SUMMARY COMPENSATION TABLE

 

The Summary Compensation Table below contains values calculated and disclosed according to SEC reporting requirements. Salary, Bonus, and Non-Equity Incentive Plan compensation amounts are reflective of the compensation earned during each fiscal year. The stock awards and option awards reflect awards with a grant date during each fiscal year. Beginning in January 2014, we aligned our equity grant dates to enhance visibility to the annual grant amount going forward. However, for 2013, it artificially increases the “Stock Awards” amount reported in this proxy statement by including awards from two separate annual grant cycles. As a result, 2013 pay as shown in the Summary Compensation Table includes LTI awards granted for 2013 as well as part of the 2012 LTI grant, as described in more detail in Note 3 to the table.

 

                                             
  NAME AND
PRINCIPAL POSITION
  FISCAL
YEAR
  SALARY BONUS(1) STOCK
AWARDS(2)(3)
  OPTION
AWARDS(2)
  NON-EQUITY
INCENTIVE PLAN
COMPENSATION
  CHANGE IN
PENSION
VALUE AND
NONQUALIFIED
DEFERRED
COMPENSATION
EARNINGS(4)
  ALL OTHER
COMPENSATION(5)
  TOTAL  
  Gregg W. Steinhafel
Former Chairman,
President &
Chief Executive
Officer*
  2013   $   1,500,000   $   0   $   10,224,120     $   0     $   0     $   720,219     $   508,875     $   12,953,214    
    2012   $   1,500,000   $   0   $   5,285,245     $   5,248,573     $   2,880,000     $   665,528     $   5,068,118     $   20,647,464    
    2011   $   1,500,000   $   1,250,000   $   4,857,502     $   3,696,982     $   2,205,000     $   673,635     $   5,523,988     $   19,707,107    
  John J. Mulligan
Interim President &
Chief Executive
Officer, Chief
Financial Officer*
  2013   $   700,000   $   150,000   $   3,505,105     $   0     $   0     $   5,465     $   273,286     $   4,633,856    
    2012   $   602,404   $   371,917   $   1,395,687     $   1,340,064     $   415,250     $   35,381     $   313,505     $   4,474,207    
                                                                   
  Kathryn A. Tesija
Executive Vice
President,
Merchandising &
Supply Chain
  2013   $   950,000   $   0   $   5,841,653     $   0     $   0     $   8,080     $   398,268     $   7,198,001    
    2012   $   900,000   $   371,700   $   2,306,493     $   2,233,443     $   648,000     $   54,159     $   653,424     $   7,167,219    
    2011   $   850,000   $   351,050   $   2,068,055     $   1,663,643     $   442,000     $   81,178     $   578,492     $   6,034,418    
  Tina M. Schiel
Executive Vice
President,
Stores
  2013   $   725,000   $   0   $   3,797,152     $   0     $   0     $   7,595     $   149,975     $   4,679,722    
    2012   $   700,000   $   270,900   $   1,516,896     $   1,451,738     $   504,000     $   30,031     $   166,606     $   4,640,170    
                                                                   
  Jeffrey J. Jones II
Executive Vice
President &
Chief Marketing
Officer
  2013   $   700,000   $   0   $   3,505,105     $   0     $   0     $   0     $   87,169     $   4,292,275    
    2012   $   537,500   $   202,042   $   3,000,088     $   2,072,624     $   390,000     $   0     $   597,017     $   6,799,271    
                                                                   
                                                                     

 

* On May 5, 2014, Mr. Steinhafel stepped down as President & CEO, and resigned as a Director. The Board appointed Mr. Mulligan to serve in the additional capacities of Interim President & CEO. Mr. Steinhafel agreed to remain employed by Target in an advisory capacity to assist with the transition.
   
(1) Amount for Mr. Mulligan includes a payment in the amount of $150,000 in each year under a special retention award he was granted in October 2011 when he was Senior Vice President, Treasury, Accounting and Operations. The special retention award was for a total amount of $300,000, with $150,000 paid in October 2012 and the remaining $150,000 paid in October 2013.
   
(2) Amounts represent the aggregate grant date fair value of awards made each fiscal year, as computed in accordance with FASB ASC Topic 718. See Note 24, Share Based Compensation, to our consolidated financial statements for fiscal 2013 and Note 26, Share Based Compensation, to our consolidated financial statements for fiscal 2012 for a description of our accounting and the assumptions used.
   
(3) Represents the aggregate grant date fair value of PSUs and PBRSUs that were computed based on the probable outcome of the performance conditions as of the grant date. Actual payments will be based on degree of attainment of the performance conditions and our stock price on the settlement date. Beginning January 2014, we changed our grant timing policy to grant both PBRSUs and PSUs in January. Our prior policy of granting RSUs in January and PSUs in March straddled two fiscal years, causing PSU grants to be reported in the proxy statement one year after RSU grants were reported. The new grant timing enhances visibility of the annual grant amount by reporting PBRSUs and PSUs in the same proxy statement. However, the transition artificially increases the Stock Awards amount reported in this proxy statement by including awards from two separate annual grant cycles. For example, the Stock Awards total for this year reflects the 2013 award of PSUs and PBRSUs for our former CEO of $7,474,365, and also includes an additional $2,749,755 from his 2012 PSU award that was granted in March 2013.

 

2014 Proxy Statement    TARGET CORPORATION     47

 

The range of payments for the PSUs granted in fiscal 2013 is set forth below.

 

                    
  NAME  MINIMUM
AMOUNT
  AMOUNT
REPORTED
  MAXIMUM
AMOUNT
 
  Mr. Steinhafel                 
    PSU Granted 3/13/13  $   0   $  2,749,755   $  4,124,632   
    PSU Granted 1/8/14   $   0   $  5,339,881   $  9,344,792   
  Mr. Mulligan                 
  •  PSU Granted 3/13/13   $   0   $  702,125   $  1,053,188   
  •  PSU Granted 1/8/14   $   0   $  2,002,490   $  3,504,358   
  Ms. Tesija                 
    PSU Granted 3/13/13   $   0   $  1,170,146   $  1,755,219   
    PSU Granted 1/8/14   $   0   $  3,337,447   $  5,840,532   
  Ms. Schiel                 
    PSU Granted 3/13/13   $   0   $  760,620   $  1,140,930   
    PSU Granted 1/8/14   $   0   $  2,169,346   $  3,796,355   
  Mr. Jones                 
    PSU Granted 3/13/13   $   0   $  702,125   $  1,053,188   
    PSU Granted 1/8/14   $   0   $  2,002,490   $  3,504,358   
                    

 

(4) For fiscal 2013, the following amounts are related to the change in the qualified pension plan value and above-market earnings on nonqualified deferred compensation:

 

          
  NAME  CHANGE IN PENSION
VALUE
  NONQUALIFIED DEFERRED
COMPENSATION
ABOVE-MARKET EARNINGS
 
  Mr. Steinhafel  $  637   $   719,582   
  Mr. Mulligan  $   5,465   $  0   
  Ms. Tesija  $  8,080   $  0   
  Ms. Schiel  $  7,595   $  0   
  Mr. Jones  $  0   $  0   
               

 

Consistent with applicable law, the accrued benefits under the pension plan cannot be reduced; however, the present value of the benefit is dependent on the discount rate used. The discount rates used in fiscal 2013, 2012 and 2011 were 4.77%, 4.40% and 4.65%, respectively. The Change in Pension Value column reflects the additional pension benefits attributable to additional service, increases in eligible earnings and changes in the discount rate.

 

The above-market earnings on nonqualified deferred compensation consist of an additional 8.18% annual return on our former deferred compensation plan, the Target Corporation Officer Deferred Compensation Plan (ODCP), which was frozen for new participants and further compensation deferrals after 1996. Mr. Steinhafel was the only NEO eligible for the ODCP. See the narrative following the Nonqualified Deferred Compensation for Fiscal 2013 table for additional information.

 

2014 Proxy Statement    TARGET CORPORATION     48

 
(5) The amounts reported for fiscal 2013 include matching credits of up to a maximum of 5% of cash compensation allocated among the Target 401(k) Plan and our current executive deferred compensation plan (EDCP), the dollar value of life insurance premiums paid by Target, credits to the EDCP representing annual changes in supplemental pension plan values and perquisites.

 

                         
  NAME  MATCH CREDITS   LIFE INSURANCE   SPP CREDITS   PERQUISITES   TOTAL   
  Mr. Steinhafel  $   216,404   $   14,885   $   116,348   $   161,239   $   508,875   
  Mr. Mulligan  $  66,796   $  5,085   $  158,916   $  42,489   $  273,286   
  Ms. Tesija  $  98,423   $  7,962   $  259,660   $  32,224   $  398,268   
  Ms. Schiel  $  70,613   $  5,192   $  44,997   $  29,172   $  149,975   
  Mr. Jones  $  47,687   $  4,683   $  0   $  34,798   $  87,169   
                              

 

Supplemental Pension Plan. The SPP Credits for our NEOs represent additional accruals of supplemental pension plan benefits that are credited to their deferred compensation accounts. These benefits are based on our normal pension formula, so they are affected by final average pay, service, age and changes in interest rates. See the narrative following the Pension Benefits for Fiscal 2013 table for more information about our pension plans.

 

Perquisites. The perquisites consist of a company-provided car or car allowance, personal use of company-owned aircraft, reimbursement of financial management expenses, reimbursement of home security expenses, on-site parking, on-site exercise room, spousal travel on business trips, gifts and executive physicals. The only individual perquisite which exceeded $25,000 was Mr. Steinhafel’s personal use of company-owned aircraft for security reasons, which amounted to $113,185. No tax gross-ups are provided on these perquisites.

 

The dollar amount of perquisites represents the incremental cost of providing the perquisite. We generally measure incremental cost by the additional variable costs attributable to personal use, and we disregard fixed costs that do not change based on usage. Incremental cost for personal use of company-owned aircraft was determined by including fuel cost, landing fees, on-board catering and variable maintenance costs attributable to personal flights and related unoccupied positioning, or “deadhead,” flights.

 

In addition to the perquisites included in the table above, the NEOs receive certain other personal benefits for which we have no incremental cost, as follows:

 

  Mr. Steinhafel has a membership in a downtown business club as the result of a grandfathered perquisite that is no longer available. The club is used almost exclusively for business functions; however, he may occasionally use the club for personal purposes provided that he pays for any meal or other incremental costs;
     
  Occasional use of support staff time for personal matters, principally to allow them to devote more time to our business;
     
  Occasional personal use of empty seats on business flights of company-owned aircraft; and
     
  Occasional personal use of event tickets when such tickets are not being used for business purposes.

 

2014 Proxy Statement    TARGET CORPORATION     49

 

GRANTS OF PLAN-BASED AWARDS IN FISCAL 2013

 

                           
  NAME   GRANT
DATE
  ESTIMATED POSSIBLE PAYOUTS
UNDER NON-EQUITY INCENTIVE
PLAN AWARDS(1)
ESTIMATED FUTURE PAYOUTS
UNDER EQUITY INCENTIVE
PLAN AWARDS(2)(3)
  GRANT DATE
FAIR VALUE
OF STOCK
AWARDS(4)
 
          THRESHOLD   TARGET   MAXIMUM   THRESHOLD
(#)
  TARGET
(#)
MAXIMUM
(#)
         
  Gregg W. Steinhafel   3/13/13   $  562,500   $  2,250,000     $  6,000,000                              
      3/13/13                             0     43,765   65,648     $  2,749,755    
      1/08/14                             23,955     31,939   39,924     $ 2,134,483    
      1/08/14                             0     95,817   167,680     $ 5,339,881    
  John J. Mulligan   3/13/13   $ 70,000     $ 373,800     $ 2,730,000                              
      3/13/13                             0     11,175   16,763     $ 702,125    
      1/08/14                             8,984     11,978   14,973     $ 800,490    
      1/08/14                             0     35,932   62,881     $ 2,002,490    
  Kathryn A. Tesija   3/13/13   $ 95,000     $ 507,300     $ 3,705,000                              
      3/13/13                             0     18,624   27,936     $ 1,170,146    
      1/08/14                             14,972     19,962   24,953     $ 1,334,060    
      1/08/14                             0     59,886   104,801     $ 3,337,447    
  Tina M. Schiel   3/13/13   $ 72,500     $ 387,150     $ 2,827,500                              
      3/13/13                             0     12,106   18,159     $ 760,620    
      1/08/14                             9,732     12,976   16,220     $ 867,186    
      1/08/14                             0     38,926   68,121     $ 2,169,346    
  Jeffrey J. Jones II   3/13/13   $ 70,000     $ 373,800     $ 2,730,000                              
      3/13/13                             0     11,175   16,763     $ 702,125    
      1/08/14                             8,984     11,978   14,973     $ 800,490    
      1/08/14                             0     35,932   62,881     $ 2,002,490    
                                                           

 

(1) Awards represent potential payments under the current Target Corporation Officer Short-Term Incentive Plan (STIP). Payments are based on specified target levels of Incentive EBIT and Incentive EVA, as described in the Compensation Discussion and Analysis.
   
  No amounts were earned under this plan for fiscal 2013. Executive officers must be employed on the date the payments are made (typically in March of each year with respect to the preceding fiscal year) to be eligible for a payment, except in the event of death, disability or retirement eligibility (termination other than for cause after age 55 with at least five years of service). The maximum payment is the annual plan maximum, which is generally four times salary less, for executive officers other than our former CEO, the minimum personal performance bonus payable as a condition to receiving a financial performance payout under the STIP.
   
(2) Awards represent potential payments under PSUs and PBRSUs granted under our 2011 Long-Term Incentive Plan in fiscal 2013. Payments are based on our performance relative to a retail peer group over a three-year measurement period. The PSUs granted on March 13, 2013 have two relative performance measures: domestic market share change and earnings per share growth. The PSUs granted on January 8, 2014 have three relative performance measures: domestic market share change, earnings per share growth, and return on invested capital. The PBRSUs granted on January 8, 2014 are based on our total shareholder return relative to our retail peer group. See the Compensation Discussion and Analysis for a more detailed description of these performance measures. The other terms of the PSUs and PBRSUs are described in Note 3 to the Outstanding Equity Awards at 2013 Fiscal Year-End table.
   
(3) Beginning January 2014, we changed our grant timing policy to grant both PBRSUs and PSUs in January. Our prior policy of granting RSUs in January and PSUs in March straddled two fiscal years, causing PSU grants to be reported in the proxy statement one year after RSU grants were reported. The new grant timing enhances visibility of the annual grant amount by reporting PBRSUs and PSUs in the same proxy statement. However, the transition causes two different PSU grants to reported in this proxy statement—PSUs granted on March 13, 2013 and PSUs granted on January 8, 2014.
   
(4) Grant date fair value for PSUs and PBRSUs was determined pursuant to FASB ASC Topic 718.

 

2014 Proxy Statement    TARGET CORPORATION     50

 

OUTSTANDING EQUITY AWARDS AT 2013 FISCAL YEAR-END

 

         
     OPTION AWARDS  STOCK AWARDS 
                                EQUITY 
                                INCENTIVE 
                                PLAN 
                                AWARDS: 
                            EQUITY  MARKET OR 
                            INCENTIVE  PAYOUT 
                            PLAN AWARDS:  VALUE OF 
                        MARKET  NUMBER OF