DEF 14A 1 d521720ddef14a.htm DEFINITIVE PROXY STATEMENT Definitive Proxy Statement
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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  x                            Filed by a Party other than the Registrant  ¨

Check the appropriate box:

 

¨ Preliminary Proxy Statement

 

¨ Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

 

x Definitive Proxy Statement

 

¨ Definitive Additional Materials

 

¨ Soliciting Material Pursuant to §240.14a-12

Saks Incorporated

(Name of Registrant as Specified In Its Charter)

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

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¨ Fee paid previously with preliminary materials.

 

¨ Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

 

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LOGO

 

 
    Saks Incorporated
 
   

Notice of 2013 Annual Meeting and Proxy Statement

 

 

LOGO


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LOGO

12 East 49th Street

New York, New York 10017

April 26, 2013

Dear Shareholder:

You are cordially invited to attend the Annual Meeting of Shareholders of Saks Incorporated to be held at 11:30 a.m. Eastern Time, on Wednesday, June 5, 2013, at the University Club, located at 1 West 54th Street, New York, New York 10019.

The Notice of Annual Meeting of Shareholders and Proxy Statement accompanying this letter describe the specific business to be acted upon. At this year’s meeting, you will have an opportunity to vote on the election of the nine directors named in the accompanying Proxy Statement, the selection of PricewaterhouseCoopers LLP as Saks Incorporated’s independent registered public accounting firm, and the approval of the Saks Incorporated Amended and Restated 2009 Long-Term Incentive Plan.

Your vote is very important. We ask that you vote over the Internet, by telephone or by mail by returning your proxy card in the postage-paid envelope as soon as possible.

I hope you will be able to join us, and I look forward to seeing you.

Sincerely,

 

LOGO

Stephen I. Sadove

Chairman and Chief Executive Officer


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LOGO

12 East 49th Street

New York, New York 10017

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

To the Shareholders of Saks Incorporated:

Notice is hereby given that the Annual Meeting of Shareholders of Saks Incorporated (“Saks” or the “Company”) will be held at 11:30 a.m. Eastern Time, on Wednesday, June 5, 2013, at the University Club, located at 1 West 54th Street, New York, New York 10019 for the following purposes:

1.            To elect the nine directors named in the Proxy Statement to hold office for one-year terms or until their respective successors have been elected and qualified;

2.            To ratify the appointment of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for the current fiscal year ending February 1, 2014;

3.            To approve the Saks Incorporated Amended and Restated 2009 Long-Term Incentive Plan; and

4.            To transact such other business as may properly come before the meeting or any adjournment or postponement thereof.

Shareholders of record at the close of business on April 5, 2013 are entitled to notice of, and to vote at, the meeting.

 

Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Shareholders to be held on June 5, 2013. The Proxy Statement, the form of Proxy, and 2012 Annual Report on Form 10-K are available free of charge at www.saksincorporated.com at the Investor Relations or Contacts tab.

Shareholders are cordially invited to attend the meeting in person; however, to assure your representation at the annual meeting, you are urged to cast your vote over the Internet, by telephone or by mail as promptly as possible. Any shareholder of record attending the annual meeting also may vote in person, even if she or he has voted over the Internet, by telephone or returned a completed proxy card.

By order of the Board of Directors,

Ann Robertson

Corporate Secretary

April 26, 2013


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PROXY SUMMARY     1  
PROXY STATEMENT     3  
QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING AND VOTING     3  
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT     10  
(PROPOSAL 1) ELECTION OF DIRECTORS     12  
AUDIT COMMITTEE REPORT     22  
FEES PAID TO AUDITORS     24  
(PROPOSAL 2) RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM     25  
CORPORATE GOVERNANCE     26  
EXECUTIVE COMPENSATION     34  

Compensation Discussion and Analysis

    34   

Termination or Change in Control—Rationale for Triggers

    50  

Report of the Human Resources and Compensation Committee

    54  

Human Resources and Compensation Committee Interlocks and Insider Participation

    55  

Summary Compensation Table

    55  

Grants of Plan-Based Awards—2012

    56  

Awards in 2012

    56  

Outstanding Equity Awards at Fiscal Year-End—2012

    58  

Option Exercises and Stock Vested—2012

    59  

Pension Benefits—2012

    60  

Nonqualified Deferred Compensation—2012

    61  

Employment Agreements

    62  

Potential Payments upon Termination or Change in Control

    65  

Director Compensation—2012

    67  
(PROPOSAL 3) APPROVAL OF THE SAKS INCORPORATED AMENDED AND RESTATED 2009 LONG-TERM INCENTIVE PLAN     69  
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS     82  
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE     83  
ANNUAL REPORT ON FORM 10-K     84  
ATTACHMENT A—SAKS INCORPORATED AMENDED AND RESTATED 2009 LONG-TERM INCENTIVE PLAN     85  


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PROXY SUMMARY

This summary highlights information contained elsewhere in this proxy statement. This summary does not contain all of the information that you should consider and you should read the entire proxy statement before voting. For more complete information regarding the Company’s 2012 performance, please review our Annual Report on Form 10-K.

2013 Annual Meeting of Shareholders

 

 

Date and Time:

June 5, 2013, 11:30 Eastern Time

 

 

Place:

University Club

1 West 54th Street

New York, New York 10019

 

 

Record Date:

April 5, 2013

Voting Matters and Board Recommendations

 

          Our Board’s Recommendation  
  Proposal 1:    Election of Directors (page 12)   FOR each Director Nominee  
  Proposal 2:    Ratification of Auditors (page 25)   FOR  
  Proposal 3:    Approval of the Saks Incorporated Amended and  Restated 2009 Long-Term Incentive Plan (page 69)   FOR  

Director Nominees (page 13)

The following table provides summary information about each director nominee. Each director stands for election annually.

 

Name   Age  

Director

Since

  Primary Occupation   Independent    

Committee

Memberships

Fabiola R. Arredondo

  46   2012   Managing Partner, Siempre Holdings   Ö        F, HRCC

Robert B. Carter

  53   2004   Executive Vice President and Chief Information Officer, FedEx Corporation   Ö        CG, HRCC

Michael S. Gross

  51   1994   Chairman and Chief Executive Officer, Solar Capital, Ltd.   Ö        A, F (Chair)

Donald E. Hess

  64   1996   Chief Executive Officer, Southwood Partners   Ö        CG (Chair), HRCC, L

Marguerite W. Kondracke

  67   1996   Senior Advisor and Former President and Chief Executive Officer, America’s Promise Alliance   Ö        A, HRCC

Jerry W. Levin

  69   2007   Chairman and Chief Executive Officer, Wilton Brands, Inc.; Chairman and Chief Executive Officer of JW Levin Partners LLC   Ö        A,F

Nora P. McAniff

  54   2002   Principal, Leading Edge Coaching and Development; Former Chief Operating Officer, Time, Inc.   Ö        CG, HRCC (Chair)

 

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Name   Age  

Director

Since

  Primary Occupation   Independent    

Committee

Memberships

Stephen I. Sadove

  61   1998   Chief Executive Officer and Chairman of the Board of Directors, Saks Incorporated            

Jack L. Stahl

  60   2012   Member, U.S. Board of Advisors for CVC Capital Partners; Former President and Chief Executive Officer, Revlon, Inc.   Ö        A (Chair)

 

A

Audit Committee

CG

Corporate Governance Committee

F

Finance Committee

HRCC

Human Resources and Compensation Committee

L

Lead Director

Corporate Governance Highlights

Our Board of Directors continues to monitor best practices in corporate governance and adopts measures where it determines them to be in the best interests of our shareholders. During 2012:

 

   

The Board approved a new provision to our Securities Transaction Compliance and Blackout Policy prohibiting associates and directors from holding the Company’s securities in a margin account as collateral for a margin loan or pledging or hypothecating our securities as collateral for a loan. Our policy prohibits the purchase or sale by associates and directors at any time, even during an open trading period, of any derivatives in the Company’s securities, including but not limited to, put or call options, warrants, straddles or other hedging transactions relating to the Company’s securities and prohibits short selling in the Company’s securities by associates and directors. The full policy can be accessed at www.saksincorporated.com at the Investor Relations tab;

 

   

The Board reviewed and increased our stock ownership guidelines for our Section 16 officers (other than the Guidelines for our Chief Executive Officer, which fell within the guidelines of our peer group);

 

   

The Board appointed two new directors in 2012, both of whom bring diverse experience to our Board of Directors and have the skills, qualifications, attributes and expertise required by our Corporate Governance Guidelines;

 

   

The Board approved a formal written charter for the Finance Committee of the Board; and

 

   

The overall average percentage for meeting attendance during 2012 of our directors (excluding the director who retired during 2012) at Board and committee meetings was 98%, with each director attending at least 86% of meetings.

Important Dates for 2014 Annual Meeting of Shareholders (page 84)

 

   

Shareholder proposals submitted for inclusion in our 2014 proxy statement pursuant to Securities and Exchange Commission (“SEC”) Rule 14a-8 must be received by us no later than December 27, 2013.

 

   

Notice of shareholder proposals to be raised from the floor of the 2014 Annual Meeting of Shareholders outside of SEC Rule 14a-8 must be received by us not earlier than the close of business on February 5, 2014 and not later than the close of business on March 7, 2014.

 

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LOGO

12 East 49th Street

New York, NY 10017

PROXY STATEMENT

QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING AND VOTING

This proxy statement is being furnished in connection with the solicitation of proxies by the Board of Directors of Saks Incorporated, a Tennessee corporation, to be used at our Annual Meeting of Shareholders (the “Annual Meeting”) to be held at 11:30 a.m. Eastern Time, on Wednesday, June 5, 2013, at the University Club, located at 1 West 54th Street, New York, New York 10019. A proxy card is being furnished with this document.

Why am I receiving a proxy statement?

You are receiving this proxy statement because you were one of our shareholders on April 5, 2013, the record date for our 2013 Annual Meeting. We are sending this proxy statement and the proxy card to you and/or making these documents available to you on the Internet in order to solicit your proxy (i.e., your permission) to vote your shares of Saks common stock upon certain matters at the Annual Meeting. This Notice of Annual Meeting and Proxy Statement and proxy or voting instruction card are being mailed starting on or about April 26, 2013.

Who is soliciting my proxy and will anyone be compensated to solicit my proxy?

The solicitation of proxies is being made on behalf of our Board of Directors. Additionally, our directors, officers and associates may solicit proxies by telephone, Internet, facsimile, mail or personal contact. We will not pay our directors, officers or other associates any additional compensation for their proxy solicitation efforts; however, we may reimburse them for any out-of-pocket expenses in connection with any solicitation. We also have retained D.F. King, Inc., New York, New York, to assist with the solicitation of proxies for a fee estimated not to exceed $26,500, plus reimbursement of out-of-pocket expenses.

Who is paying the costs of the proxy statement and the solicitation of my proxy?

Saks will pay all expenses of this solicitation, including the cost of preparing and mailing this proxy statement, our 2012 annual report to shareholders and our other proxy materials and all costs of any proxy solicitor we employ. We also will reimburse brokers, nominees and fiduciaries for their costs in sending proxies and proxy materials to our shareholders so you can vote your shares.

What information is available on the Internet?

Our proxy statement, form of proxy card and annual report to shareholders are available at the Investor Relations section of our corporate website, www.saksincorporated.com and also at www.proxyvote.com.

 

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You can submit a request for a copy of the proxy statement, proxy card and annual report for any future shareholder meetings, including the shareholder meeting to be held on June 5, 2013, to our Investor Relations Department at 1-865-981-6243, at the Investor Relations or Contacts tab at www.saksincorporated.com, or to our principal executive offices at Saks Incorporated, Attention: Investor Relations, 12 East 49th Street, New York, New York 10017. You may also contact us at the telephone number, website or mailing address set forth above to request directions to the location of the annual meeting of shareholders so that you may attend the meeting and vote in person.

Our proxy statement, Annual Report on Form 10-K and other financial documents are available free of charge at the Securities and Exchange Commission’s (“SEC”) website, www.sec.gov.

What does it mean if I receive more than one set of proxy materials?

If you receive multiple proxy statements or proxy cards, this means that you have more than one account with brokers or our transfer agent. Please vote all of your shares. We also recommend that you contact your broker and our transfer agent to consolidate as many accounts as possible under the same name and address as this helps the environment and reduces printing and expenses for us. Our transfer agent is Computershare, which may be contacted at 1-866-455-3121 (toll free).

Is Saks “householding” for shareholders sharing the same address?

Yes. The SEC’s rules regarding the delivery of proxy materials to shareholders permit us to deliver a single copy of these documents to an address shared by two or more of our shareholders with the same last name. This method of delivery is called “householding,” and it can significantly reduce our printing and mailing costs. It also reduces the volume of mail you receive. This year, we are delivering only one set of proxy materials to multiple shareholders with the same last name sharing an address, unless we receive instructions to the contrary from one or more of the shareholders. We are required, however, to send you and each other Saks shareholder at your address an individual proxy card. If you would like to receive more than one set of proxy materials, we will promptly send you additional copies upon written or oral request directed to our transfer agent at 1-866-455-3121 (toll free), or to our Investor Relations Department or Corporate Secretary at Saks Incorporated, 12 East 49th Street, New York, New York 10017. The same phone number and address may be used to notify us that you wish to receive a separate set of proxy materials in the future or to request delivery of a single copy of our proxy materials if you are receiving multiple copies.

Is there any other information that is available or that I should be receiving?

Yes. You should receive a copy of our 2012 Annual Report to shareholders on Form 10-K, which contains financial and other information about the Company and our most recently completed fiscal year, which ended on February 2, 2013. References in this document to a year (e.g., “2012”), unless the context clearly requires otherwise, mean and will be deemed a reference to our fiscal year that ended on the Saturday closest to January 31.

Who may attend the Annual Meeting?

The Annual Meeting is open to all of our shareholders. To attend the meeting, you will need to register upon arrival. We also may check for your name on our shareholders’ list and ask you to produce valid identification. If your shares are held in street name by your broker or bank, you should bring your most recent brokerage account statement or other evidence of your share ownership. If we cannot verify that you own Saks shares, it is possible that you may not be admitted to the meeting.

 

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May shareholders ask questions at the Annual Meeting?

Yes. Our management will respond to shareholder questions at the end of the meeting. In order to give a greater number of shareholders the opportunity to ask questions, we may impose certain procedural requirements.

What if I have a disability?

If you are disabled and would like to participate in the Annual Meeting, we can provide reasonable assistance. Please send any request for assistance to Saks Incorporated, 12 East 49th Street, New York, New York 10017, Attention: Corporate Secretary, at least two weeks before the meeting.

Where is Saks Incorporated common stock traded?

Our common stock is traded and quoted on the New York Stock Exchange under the symbol “SKS.”

How can I find the voting results of the Annual Meeting?

We will include the voting results from the Annual Meeting in a Current Report on Form 8-K, which we expect to file with the SEC on or about June 11, 2013.

Voting Matters

What am I voting on?

You will be voting on the following:

 

   

the election of the nine directors named in this proxy statement;

 

   

the ratification of the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm for 2013; and

 

   

approval of the Saks Incorporated Amended and Restated 2009 Long-Term Incentive Plan.

Who is entitled to vote?

You may vote if you owned shares of our common stock at the close of business on April 5, 2013. As of April 5, 2013, there were 150,170,815 shares of our common stock outstanding.

How many votes must be present to hold the Annual Meeting?

To constitute a quorum in order to lawfully conduct the Annual Meeting, a majority of our issued and outstanding shares of common stock must be present, either in person or by proxy. Your shares are counted as present at the meeting if you attend the meeting and vote in person or if you properly return a proxy by one of the methods described below under the question “How do I vote before the meeting?” Abstentions and “broker non-votes” (as explained below under the question “What is a ‘broker non-vote’?”) also will be counted for purposes of establishing a quorum.

 

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How many votes do I have, and can I cumulate my votes?

You have one vote for every share of our common stock that you own. Cumulative voting is not allowed.

May I vote my shares in person at the Annual Meeting?

Yes. You may vote your shares at the meeting if you attend in person, even if you previously voted by Internet or telephone or submitted a proxy card. Whether or not you plan to attend the meeting, however, in order to assist us in tabulating votes at the Annual Meeting, we encourage you to vote by voting on the Internet at the website listed both below and on your proxy card, by calling the toll-free number set out both below and on your proxy card, or by returning your proxy card.

How do I vote before the meeting?

Your vote is extremely important. We appreciate you taking the time to vote promptly. After reading the proxy statement, please vote, at your earliest convenience in one of the following three ways:

 

   

by using the Internet by visiting the following website: www.proxyvote.com;

 

   

by calling 1-800-690-6903 (within the United States and Canada); or

 

   

by completing, signing and returning a proxy card in the postage-paid envelope or by scanning the QR code on the proxy card to vote with your mobile device.

Please use only one of the three ways to vote. Please follow the directions on your proxy card carefully. If you hold shares in the name of a broker, your ability to vote those shares by Internet or telephone depends on the voting procedures used by your broker, as explained below under the question, “How do I vote if my broker holds my shares in ‘street name’?

If I cannot attend the Annual Meeting in person, how can I view the live webcast of the Annual Meeting?

To view the live webcast of the Annual Meeting, you can visit our website at www.saksincorporated.com at the Investor Relations Tab. An archived copy of the webcast will be available for thirty days following the meeting.

How do I vote if my broker holds my shares in “street name”?

If your shares are held in a brokerage account in the name of your bank or broker (shares held in “street name”), those shares are not included in the total number of shares listed as owned by you on the enclosed proxy card. Instead, your bank or broker will send you a request for directions for voting those shares. Many (but not all) brokerage firms and banks participate in a program provided through Broadridge Financial Solutions, Inc. that offers Internet and telephone voting options.

Will my shares held in street name be voted if I do not provide my proxy?

If your shares are held in street name, your shares might be voted even if you do not provide the brokerage firm with voting instructions. On certain “routine” matters, brokerage firms have the discretionary authority to vote shares for which their customers do not provide voting instructions. The

 

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proposal to ratify the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm is considered a routine matter for this purpose. The Company proposals to elect directors and approve the Company’s Amended and Restated 2009 Long-Term Incentive Plan are not considered routine matters and, therefore, your shares will not be voted on those matters unless you instruct your brokerage firm to vote in a timely manner.

Can I change my mind and revoke my proxy?

Yes. To revoke a proxy given pursuant to this solicitation, you must:

 

   

sign another proxy card with a later date and return it to our Corporate Secretary at Saks Incorporated, 12 East 49th Street, New York, New York 10017 or re-scanning the QR code on your proxy card at or before the Annual Meeting;

 

   

provide our Corporate Secretary with a written notice of revocation dated later than the date of the proxy at or before the Annual Meeting;

 

   

re-vote by using the telephone and calling 1-800-690-6903;

 

   

re-vote by using the Internet and visiting the following website: www.proxyvote.com; or

 

   

attend the Annual Meeting and vote in person. Note that attendance at the Annual Meeting will not revoke a proxy if you do not actually vote at the Annual Meeting.

How will my proxy be voted?

If you properly vote over the Internet, by telephone or complete and mail your proxy card, your shares will be voted at the Annual Meeting in the manner that you direct.

What if I return my proxy card or vote by Internet or telephone but do not specify my vote?

In the event you complete the Internet or telephone voting procedures or return a signed proxy card but do not specify how you want your shares to be voted, we will vote them as follows:

 

   

FOR the election of the nine director nominees named herein (Proposal 1);

 

   

FOR the ratification of the appointment of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for the 2013 fiscal year (Proposal 2); and

 

   

FOR the approval of the Company’s Amended and Restated 2009 Long-Term Incentive Plan (Proposal 3).

What is a “broker non-vote”?

If you own shares through a broker in street name, you may instruct your broker how to vote your shares. Votes cast by proxy or in person at the Annual Meeting will be tabulated by the inspectors of election appointed for the meeting. A “broker non-vote” occurs when you fail to provide your broker with voting instructions on a particular proposal at least 10 days before the Annual Meeting and the broker does not have discretionary authority to vote your shares on that particular proposal because the proposal is not a “routine” matter under applicable rules. Brokers will not have discretionary voting

 

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power with respect to the Company proposals to elect directors (Proposal 1) or approve the Saks Incorporated Amended and Restated 2009 Long-Term Incentive Plan (Proposal 3). See “How will abstentions and broker non-votes be treated?” and “Will my shares held in street name be voted if I do not provide my proxy?

How will abstentions and broker non-votes be treated?

Abstentions and broker non-votes will be treated as shares that are present and entitled to vote for purposes of determining whether a quorum is present, but will not be counted as votes cast either in favor of or against a particular proposal.

What vote is required to approve each proposal?

 

   

Proposal 1: Elect the nine directors.

You may either vote “FOR” or “WITHHOLD” authority to vote for each nominee for election to the Board of Directors. The number of nominees proposed by the Board of Directors to be elected as directors at the Annual Meeting is the same as the number of directors to be elected, and no shareholder has utilized the procedures provided in the Company’s Amended and Restated Bylaws (the “Bylaws”) to nominate an additional person or persons for election to the Board of Directors at the Annual Meeting (see “May other matters be raised at the Annual Meeting; how will the meeting be conducted?”). As a result, in accordance with the Tennessee Business Corporation Act, each nominee proposed for election at the Annual Meeting who receives an affirmative vote at the Annual Meeting in person or by proxy will be elected. This method of voting is called a plurality. Failing to vote or voting your proxy to withhold authority for all or some of the nominees will have no impact on the election of directors. However, as described below under “Corporate Governance,” our Corporate Governance Guidelines include a majority voting policy pursuant to which each nominee has submitted a conditional resignation letter that will be acted upon and may become effective in the event that nominee fails to receive the affirmative votes of a majority of the votes cast at the Annual Meeting (not including abstentions and broker non-votes).

 

   

Proposal 2: Ratify appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm for the fiscal year 2013.

Shareholder approval for the appointment of our independent registered public accounting firm is not required, but the Board is submitting the selection of PricewaterhouseCoopers LLP for ratification in order to obtain the views of our shareholders. This proposal will be approved if the votes cast “FOR” the proposal exceed the votes cast “AGAINST” the proposal. If you submit a properly executed proxy card or use the Internet or telephone to indicate “ABSTAIN” on this proposal, your vote will not be counted as cast. Broker non-votes likewise will not be treated as cast. Accordingly, neither abstentions nor broker non-votes will have any legal effect on whether this matter is approved. If the appointment of PricewaterhouseCoopers LLP is not ratified, the Audit Committee will reconsider its selection.

 

   

Proposal 3: Approve the Saks Incorporated Amended and Restated 2009 Long-Term Incentive Plan.

Shareholder approval is required with respect to the Saks Incorporated Amended and Restated 2009 Long-Term Incentive Plan. In order to satisfy the rules of the New York Stock Exchange (“NYSE”), this proposal must be approved by a majority of the votes cast on the proposal, and the total votes cast on the proposal must represent over 50% of the shares of

 

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common stock entitled to vote on the proposal (the “NYSE Voting Requirement”). Under the rules of the NYSE, abstentions will count as votes cast with respect to this matter; accordingly, abstentions will be included in determining whether the NYSE Voting Requirement has been achieved, but will have the same effect as votes “against” the proposal. Broker non-votes will not be counted as votes cast on this matter; accordingly, broker non-votes will make it more difficult for the NYSE Voting Requirement to be achieved (as they will not be included), but if the NYSE Voting Requirement is achieved, they will have no effect on the outcome of the vote.

How do you recommend that I vote on these proposals?

The Board of Directors recommends that you vote:

FOR the election of the nine director nominees named in this proxy statement;

FOR the ratification of the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm for our 2013 fiscal year; and

FOR the approval of the Saks Incorporated Amended and Restated 2009 Long-Term Incentive Plan.

Will my vote be confidential?

Yes. We will continue our practice of keeping the votes of all shareholders confidential. Shareholder votes will not be disclosed to our directors, officers, associates or agents, except:

 

   

to allow the independent inspectors of election to certify the results of the Annual Meeting;

 

   

as necessary to meet applicable legal requirements and to assert or defend claims for or against us;

 

   

in the case of a contested proxy solicitation; or

 

   

when a shareholder makes a written comment on the proxy card or otherwise communicates the vote to management.

May other matters be raised at the Annual Meeting; how will the meeting be conducted?

We have not received proper notice of, and are not aware of, any business to be transacted at the Annual Meeting other than as indicated in this proxy statement. Under Tennessee law and our governing documents, no other business aside from procedural matters may be raised by shareholders at the Annual Meeting unless proper notice has been given to us by the shareholders. If any other item or proposal properly comes before the Annual Meeting, the proxies received will be voted on such matter in accordance with the discretion of the proxy holders.

The Chairman has broad authority to conduct the Annual Meeting so that the business of the meeting is carried out in an orderly and timely manner. In doing so, he has discretion to establish reasonable rules for discussion, comments and questions during the meeting.

 

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STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

AND MANAGEMENT

The following table sets forth the number of shares of our common stock owned, as of April 12, 2013, by each of our directors, by our executive officers who are named in the Summary Compensation Table on pages 56-57 of this proxy statement (the “Named Executive Officers”), by all directors and executive officers of the Company, and by those persons who were known by us to beneficially own more than 5% of our common stock.

 

     
Name of Beneficial Owner
(and Address if “Beneficial
Ownership” Exceeds 5%)
   Total Shares
Beneficially
Owned (1)
    

Percentage of

Common Stock
Ownership (9)

 

Fabiola R. Arredondo

     8,049         *   

Robert B. Carter

     63,067         *   

Jennifer de Winter

     191,880         *   

Ronald L. Frasch

     671,511         *   

Michael S. Gross

     73,169         *   

Donald E. Hess

     111,893(2)          *   

Denise Incandela

     206,163         *   

Marguerite W. Kondracke

     70,845         *   

Jerry W. Levin

     39,784         *   

Nora P. McAniff

     51,581(2)          *   

Stephen I. Sadove

     1,749,976         1.16%   

Jack L. Stahl

     12,808         *   

Kevin G. Wills

     430,212         *   
                   

All Directors and Executive Officers as a group
(18 persons)

     4,395,782         2.91%   
                   

5% Owners:

                 

BlackRock, Inc.

     7,820,151(3)(4)          5.21%   

Diego Della Valle & C.S.A.P.A.

     22,650,000(3)(5)          15.08%   

Inmobiliaria Carso, S.A. de C.V.

     23,125,000(3)(6)          15.40%   

Mediobanca Banca Di Credito Finanzario S.P.A.

     7,980,000(3)(7)          5.31%   

Southeastern Asset Management, Inc.

     29,561,837(3)(8)         19.32%   

* Owns less than 1% of the total outstanding shares of common stock.

 

(1) 

Includes (a) shares that the following persons have a right to acquire within 60 days after April 12, 2013 through the exercise of stock options and (b) shares of restricted stock (including performance shares) for which the restrictions have not lapsed: Ms. Arredondo (0; 8,049); Mr. Carter (0; 24,128); Ms. de Winter (20,441; 171,439); Mr. Frasch (215,031; 229,859); Mr. Gross (0; 21,128); Mr. Hess (0; 17,128); Ms. Incandela (20,441; 166,910); Ms. Kondracke (0; 21,128); Mr. Levin (0; 14,128); Ms. McAniff (8,609; 17,328); Mr. Sadove (595,062; 783,291); Mr. Stahl (0; 9,128); Mr. Wills (41,883; 221,591), and all directors and executive officers as a group (1,025,549; 2,269,490).

(2) 

Does not include an amount equivalent to 3,094 shares and 9,962 shares of common stock held in the stock grant accounts under the Saks Incorporated Deferred Compensation Plan for Mr. Hess and Ms. McAniff, respectively.

(3) 

Information in the table and in notes 4 through 8 below relating to the beneficial owners of common stock (and any related entities or persons) is as of the dates indicated and was obtained from the schedules indicated as filed with the SEC as follows: (a) as of December 30, 2012 from the Schedule 13G/A filed on February 11, 2013 for BlackRock, Inc. (“BlackRock”); (b) as of December 30, 2011 from the Schedule 13D/A filed on January 3, 2012 for Diego Della Valle (an individual) and Diego Della Valle & C.S.A.P.A. (an Italian limited partnership of which Mr. Della Valle is sole general partner and beneficial owner) (collectively “DDV”); (c) as of December 31, 2012 from the Schedule 13G/A filed on February 6, 2013 for Inmobiliaria Carso, S.A. de C.V. (“Inmobiliaria”) by Carlos Slim Helu (which includes beneficial ownership of Carlos Slim Helu, Carlos Slim Domit, Marco Antonio Slim Domit, Patrick Slim Domit, Maria Soumaya Slim Domit, Vanessa Paola Slim Domit, and Johanna Monique Slim Domit (collectively “the Slim family”)); (d) as of December 31, 2012 from the Schedule 13G filed on February 14, 2013 for Mediobanca Banca Di Credito Finanzario S.P.A. (“Mediobanca”); and (e) as of December 31, 2012 from the Schedule 13G/A filed on February 14, 2013 for Southeastern Asset Management, Inc. (“Southeastern”).

(4) 

BlackRock beneficially owns 7,820,151 shares of common stock, and its principal business address is 40 East 52nd Street, New York, New York 10022.

(5) 

DDV beneficially owns 22,650,000 shares of common stock, and the principal address of DDV is Strada Sette Camini, 116, 63019 Sant’Elpidio a Mare (FM), Italy.

 

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(6) 

Inmobiliaria beneficially owns 23,125,000 shares of common stock. The Slim family beneficially owns all of the outstanding voting equity securities of Inmobiliaria. As a result, each member of the Slim family may be deemed to have indirect beneficial ownership of the 23,125,000 shares of common stock beneficially owned directly by Inmobiliaria. The principal business address of each member of the Slim family is Paseo de las Palmas 736, Colonia Lomas de Chapultepec, 11000 Mexico D.F., Mexico.

(7) 

Mediobanca owns 7,980,000 shares of common stock, and its principal business address is Piazzetta Enrico Cuccia, I – Milano, Italy.

(8) 

Southeastern is an investment advisor registered under Section 203 of the Investment Advisors Act of 1940. The 29,561,837 shares listed are owned legally by Southeastern’s investment advisory clients, and none are owned directly or indirectly by Southeastern. The total includes 2,831,422 shares underlying convertible bonds of the Company held by Southeastern. Southeastern’s principal business address is 6410 Poplar Avenue, Suite 900, Memphis, TN 38119.

(9) 

Beneficial ownership percentages have been determined in accordance with SEC rules. These rules generally attribute beneficial ownership of securities to persons who possess sole or shared voting power or investment power with respect to those securities. In addition, the rules include shares of common stock issuable pursuant to the exercise of stock options that are either immediately exercisable or exercisable within 60 days of April 12, 2013. Likewise, the rules also include shares of common stock issuable pursuant to the conversion of convertible bonds that are either immediately convertible or convertible within 60 days of April 12, 2013. These shares are deemed to be outstanding and beneficially owned by the person holding the options or convertible notes for the purpose of computing the percentage ownership of that person, but they are not treated as outstanding for the purpose of computing the percentage ownership of any other person.

 

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(Proposal 1)

ELECTION OF DIRECTORS

Structure of Our Board of Directors

Pursuant to our Charter and our Bylaws, our Board of Directors must consist of at least one but no more than 18 directors, but the exact number is set by the Board. Currently, the Board of Directors has fixed the size of the Board at nine; however, the Board of Directors, in accordance with the Company’s Charter and Bylaws, may increase or decrease the size of the Board of Directors in the future. At our 2010 annual meeting of shareholders, shareholders approved amendments to our Charter to provide for the declassification of the Board and the annual election of directors. As such, beginning with the 2013 Annual Meeting, our Board of Directors is no longer classified.

Terms of Directors

At this Annual Meeting, each of our nine directors will stand for election for one-year terms and mayl thereafter stand for election for one-year terms at each successive annual meeting.

Director Nominees

At the Annual Meeting, the Board of Directors proposes the election of Fabiola R. Arredondo, Robert B. Carter, Michael S. Gross, Donald E. Hess, Marguerite W. Kondracke, Jerry W. Levin, Nora P. McAniff, Stephen I. Sadove, and Jack L. Stahl.

The nine directors standing for election will comprise the Board of Directors. Each director will hold office for one-year terms and until the director’s successor is elected and qualified. Unless otherwise instructed by the shareholder, the persons named in the proxy card intend to vote for the election of Messrs. Carter, Gross, Hess, Levin, Sadove, and Stahl, and Ms. Arredondo, Ms. Kondracke and Ms. McAniff. Proxies cannot be voted for a greater number of persons than the number of nominees named and standing for election at the Annual Meeting.

 

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Qualifications, Attributes, Skills and Expertise of Our Director Nominees

The Board believes the Company’s directors should be able to contribute knowledge, experience, and skills in at least one of the following competencies:

 

Management, leadership, and strategy.    We believe that directors with extensive experience in important executive leadership roles, particularly the role of Chief Executive Officer, provide the Company with various valuable perspectives. These individuals generally have superb leadership qualities and the ability to identify and develop those qualities in others. They typically possess an understanding and knowledge of day-to-day operations; processes; long-term strategy development and execution; risk management; and ways to address and respond to changing market conditions, drive change and generate growth. Additionally, through their positions and relationships developed during their careers, these individuals often have access to market intelligence and other information that can benefit the Company.

Industry knowledge.    We seek to have directors with experience in leadership positions in different aspects of the retail industry. These individuals are able to provide valuable historical insight on various matters and share industry best practices with the Company on, among other things, merchandising, omni-channel retailing, store operations, how to attract and retain customers, real estate matters, logistics and technology.

Accounting and finance.    We believe that an understanding of general accounting and financial reporting processes is important for our directors. Accurate financial reporting is critical to Saks’ reputation and success. We seek to have a number of directors who qualify as audit committee financial experts, and we expect each director to be financially knowledgeable.

Marketing.    Creative and impactful marketing is critical to the success of the Company, and directors that possess knowledge of marketing best practices and innovative and new marketing techniques are valuable to the Company.

We have provided information about the nominees below, including key knowledge, experience and skills our director nominees possess that are specifically important to Saks.

 

2013 Director Nominees:    Age     

Director

Since

 

Fabiola R. Arredondo

Since 2001, Ms. Arredondo has served as the managing Partner of Siempre Holdings, a private investment firm she founded. From 1997 to 2001, she was the Managing Director of Yahoo! Europe, the leading internet network in Europe. Prior to that Ms. Arredondo was Director of International Distribution for BBC Worldwide, the for-profit arm of the public service broadcasting corporation. Preceding that, she was with BMG, the music division of Bertelsmann AG, where she was the Regional Vice President of International A&R (Artists and Repertoire) and Marketing for Spain, Portugal and Latin America, and previously the Director of Strategic Planning for the U.S. and Europe. She currently serves on the boards of Experian plc, Rodale Inc. and Sesame Workshop and is the Co-Chair of the National Council of the World Wildlife Fund. Ms. Arredondo also served as a director of Bankinter S.A. and the World Wildlife Fund within the last five years.

     46         2012   

 

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2013 Director Nominees:    Age   

Director

Since

Director Qualifications:

•    Management, leadership and strategy: Ms. Arredondo gained nearly 25 years of strategic, operating, and leadership experience in start-up to large corporations in her executive roles with Yahoo!, the BBC, and BMG. At each of these businesses, she was instrumental in developing and executing complex, multifaceted and multi-country business strategies. At Yahoo! Europe, she built the team and profitable eight-country operation that drove Yahoo! to become the leading internet network in Europe. She has been featured in both Fortune Europe’s “Most Powerful Women” list and the “Most Influential Women in Europe” list for the Wall Street Journal Europe.

•    Finance and Accounting: Throughout her career in various general management roles and as a board director serving on audit, finance and investment committees, Ms. Arredondo has gained extensive knowledge of financial planning, control, and business and investment strategy.

•    Marketing: Ms. Arredondo provided leadership in both marketing and advertising sales operations while at Yahoo!, where she developed the brand to become the top internet portal in Europe; at the BBC, where she was responsible for the international television program licensing business which marketed, sold and co-produced programming across the Americas, Asia Pacific and Europe; and at BMG, where she was accountable for marketing its music labels and artists across Spain, Portugal and Latin America.

     

Robert B. Carter

Executive Vice President and Chief Information Officer of FedEx Corporation, an international provider of transportation, information, international trade support and supply chain services, since 2000. Mr. Carter serves on the board of directors of First Horizon National Corporation and has not held any other public company directorships within the last five years.

 

Director Qualifications:

•    Management, leadership and strategy: Mr. Carter has more than 30 years of systems development and implementation experience. As a member of the five-person executive committee at FedEx, he plays a key role in planning and executing the corporation’s strategic business activities. Mr. Carter is responsible for managing and leading a large group of technology professionals; setting technology direction; and overseeing FedEx’s key applications, technology infrastructure, networks and data centers. He has been honored with numerous professional awards including being named a member of Fortune magazine’s “C-Suite Dream Team Starting Line-up at CIO” (2011); #18 on Fast Company magazine’s “100 Most Creative People in Business” (2010);

   53    2004

 

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2013 Director Nominees:    Age   

Director

Since

Information Week Chief of the Year Award (2000, 2001, 2005); and InfoWorld Chief Technology Officer of the Year (2000). He is a seven-time recipient of CIO magazine’s 100 Award and was a charter inductee into the publication’s CIO Hall of Fame.

•    Industry knowledge: Through his position with FedEx, Mr. Carter has extensive experience in and knowledge of information technology, omni-channel operations, logistics and e-commerce, all of which are critical to the operation of Saks. In addition, as a member of the Saks’ Board, he has developed an even deeper knowledge of the retail industry and luxury retailing.

     

Michael S. Gross

Since March 2007, Mr. Gross has served as the Chairman and Chief Executive Officer of Solar Capital, Ltd., a finance company focusing on debt and equity investments in leveraged companies. Since December 2010, Mr. Gross served as the Chairman of the Board and Chief Executive Officer of Solar Senior Capital Ltd. Mr. Gross was co-chairman of the investment committee of Magnetar Financial LLC, an investment management firm, and a senior partner in Magnetar Capital Partners LP, the holding company for Magnetar Financial LLC, from July 2006 to April 2009. He was the Chairman, Chief Executive Officer and Secretary of Marathon Acquisition Corp. from April 2006 to August 2008. Between February 2004 and February 2006, Mr. Gross was the President and Chief Executive Officer of Apollo Investment Corporation, a publicly traded business development company that he founded and on whose board of directors and investment committee he served as Chairman from February 2004 to July 2006, and was the managing partner of Apollo Investment Corporation. From 1990 to February 2006, he was a senior partner at Apollo Management LP, a private equity firm that he co-founded in 1990. In addition, from 2003 to February 2006, Mr. Gross was the managing partner of Apollo Distressed Investment Fund, an investment fund he founded. He serves on the boards of directors of Jarden Corporation and Global Ship Lease, Inc. Mr. Gross has not held any other public company directorships within the last five years.

 

Director Qualifications:

•    Management, leadership and strategy: Mr. Gross has more than 20 years of leadership experience through the management of various investment funds and companies and through his service on several public company boards. As a founding partner of Apollo Investment Corporation, he was instrumental in setting its strategic direction and attaining its substantial growth. Through his investment company and board affiliations, Mr. Gross has assisted several companies in addressing key financial and operational issues.

   51    1994

 

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2013 Director Nominees:    Age   

Director

Since

•    Industry knowledge: Over his career, Mr. Gross has been involved with several retail and consumer products companies in an investment capacity. In addition, as a long-standing member of the Saks’ Board, he has developed a deep knowledge of the retail industry and luxury retailing.

•    Finance and accounting: Mr. Gross has over 20 years of investment portfolio management experience and has extensive knowledge of financial markets and financing instruments.

     

Donald E. Hess

Lead Director of the Company’s Board of Directors since February 2007. Chief Executive Officer of Southwood Partners, a private investment company, since January 1998. Mr. Hess was previously President and Chief Executive Officer of department store chain Parisian, Inc. Mr. Hess has not held any other public company directorships within the last five years.

 

Director Qualifications:

•    Management, leadership and strategy: Mr. Hess held several positions of increasing responsibility with Parisian over 30 years, including President and Chief Executive Officer. He was instrumental in establishing and executing an expansion strategy for Parisian, elevating its reputation and standing in the retail community, and negotiating its sale to Proffitt’s in 1996.

•    Industry knowledge: Mr. Hess has extensive knowledge of the department store and luxury businesses through his Parisian affiliation, including but not limited to merchandise selection, inventory management, vendor relationships, store design, customer service and store operations. In addition, as a long-standing member of the Saks’ Board, he has developed an even deeper knowledge of luxury retailing.

•    Marketing: During his tenure with Parisian, Mr. Hess oversaw the marketing function and was instrumental in creating and executing numerous successful marketing campaigns for the specialty department store chain.

   64    1996

Marguerite W. Kondracke

Senior Advisor to America’s Promise Alliance, a not-for-profit children’s advocacy organization founded in 1997 by General Colin Powell. From October 2004 until May 2012, Ms. Kondracke served as President and Chief Executive Officer of America’s Promise Alliance. Ms. Kondracke previously served as Staff Director, U.S. Senate Subcommittee on Children and Families and Chief Executive Officer of The Brown Schools, the nation’s largest provider of treatment services for troubled adolescents. Ms. Kondracke is co-founder, former Chief Executive Officer, and current board member of Bright Horizons Family Solutions, a corporate child-care provider. She serves on the boards of directors of LifePoint Hospitals, Inc. and

   67    1996

 

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2013 Director Nominees:    Age   

Director

Since

Rosetta Stone Inc. and is also a Trustee of Duke University. Ms. Kondracke has not held any other public company directorships within the last five years.

 

Director Qualifications:

•    Management, leadership and strategy: During her 40-year career, Ms. Kondracke has been both an entrepreneur and a public servant, addressing issues and challenges in society and devising and implementing creative and effective solutions. Ms. Kondracke was co-founder and CEO of Bright Horizons Family Solutions, the nation’s largest provider of employer-sponsored child care and one of Fortune’s “100 Best Companies to Work For” in numerous years. Throughout her career, Ms. Kondracke has received numerous awards and honors, including being named a Purpose Prize Fellow, awarded by Civic Ventures to those over 60 taking on society’s biggest challenges, and named by The Non-Profit Times as one of the “Top 50 People of Power and Influence in 2008.” She has working relationships with the highest government officials and numerous business and community leaders throughout the country.

•    Industry knowledge: As a long-standing member of the Saks’ Board, she has developed a deep knowledge of the retail industry and luxury retailing.

•    Finance and accounting: In her role as President and Chief Executive Officer of America’s Promise Alliance, as the former Chief Executive Officer of The Brown Schools and Bright Horizons Family Solutions and as an audit committee member of LifePoint Hospitals, Inc., Ms. Kondracke has developed an extensive knowledge of finance and accounting.

     

Jerry W. Levin

Chairman and Chief Executive Officer of Wilton Brands Inc., a consumer products company, since October 2009. Chairman and Chief Executive Officer of JW Levin Partners LLC, a management service firm, since February 2005. Mr. Levin served as Vice Chairman of Clinton Group, an investment firm, from December 2007 through October 2008, and prior to that as Chairman, President, and Chief Executive Officer of American Household, Inc., a global provider of branded consumer products and the holding company for Sunbeam Products and The Coleman Company. Previously, Mr. Levin served as Chairman and interim Chief Executive Officer of The Sharper Image and Chairman and Chief Executive Officer of Revlon, Inc. Mr. Levin serves on the boards of directors of Ecolab, Inc. and U.S. Bancorp. Mr. Levin also served as a director of Wendy’s Inc. within the last five years.

 

Director Qualifications:

•    Management, leadership and strategy: Mr. Levin has more than 40 years of public company operating and leadership experience, particularly as Chairman and/or Chief Executive

   69    2007

 

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2013 Director Nominees:    Age     

Director

Since

 

Officer of Coleman, Revlon and American Household. At each of these companies, he was instrumental in setting and executing business strategies. Under his leadership, the sales and profits of many of those companies grew via internal product development programs, restructurings, cost reduction programs, acquisitions and cultural improvements, and he has assisted several companies in addressing key financial and operational issues. Mr. Levin has also served on numerous public company boards.

•    Industry knowledge: Mr. Levin gained substantial retail and consumer products knowledge through each of his business affiliations outlined above. In addition, as a member of the Saks’ Board, he has developed an even deeper knowledge of luxury retailing.

•    Finance and accounting: Mr. Levin has extensive knowledge of financial markets and has been instrumental in substantially strengthening the balance sheets of several companies in the past.

     

Nora P. McAniff

Principal of Leading Edge Coaching and Development, a leadership coaching and sales strategy development organization, since October 2012. From 2009 until September 2012, Ms. McAniff served as a member of the Executive and Reinvestment Committee of Social Venture Partners of Santa Barbara, a non-profit organization. Ms. McAniff held the position of Chief Operating Officer of Time, Inc., a magazine publisher, from December 2005 until January 2007 and served as Executive Vice President of Time, Inc. between September 2002 and December 2005. Prior to that, she served as Group President of the People Magazine Group of Time, Inc. and President of People Magazine. Ms. McAniff has not held any other public company directorships within the last five years.

 

Director Qualifications:

•    Management, leadership and strategy: Ms. McAniff is a seasoned and proven executive, having held various positions of increasing responsibility with Time, Inc. during her 25 year tenure there. In her role as Chief Operating Officer of Time, she was responsible for setting and executing strategic initiatives for several core magazines and overseeing the operations of each. She managed complex businesses through several economic downturns and created and/or adapted brands to meet the needs of changing environments.

•    Marketing: Ms. McAniff has extensive knowledge of marketing and advertising and received several awards during her Time tenure, including induction into the American Advertising Federation’s Hall of Achievement. As Chief Operating Officer of Time, she had oversight of the sales and marketing function, giving her primary responsibility for the company’s advertising revenue stream.

•    Industry knowledge: As a long-standing member of the Saks’ Board, she has developed a deep knowledge of the retail industry and luxury retailing.

     54         2002   

 

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2013 Director Nominees:    Age     

Director

Since

 

Stephen I. Sadove

Chief Executive Officer of the Company since January 2006 and Chairman of the Board of the Company since May 2007. Mr. Sadove joined the Company in January 2002 as Vice Chairman and served in that capacity until March 2004. He served as Vice Chairman and Chief Operating Officer of the Company from March 2004 until January 2006. Mr. Sadove served as Senior Vice President of Bristol-Myers Squibb, a beauty, nutritional and pharmaceutical company, and President of Bristol-Myers Squibb Worldwide Beauty Care from 1996 to January 2002. Prior to that, he held various positions of increasing responsibility with General Foods USA, including Executive Vice President and General Manager of the Desserts Division. Mr. Sadove serves on the boards of directors of Colgate-Palmolive Company and Ruby Tuesday, Inc.; as Chairman of the Board of the National Retail Federation; and on the Board of Trustees for Hamilton College. Mr. Sadove has not held any other public company directorships within the last five years. Mr. Sadove is also a member of the U.S. Board of Advisors for CVC Capital Partners, a private equity firm.

 

Director Qualifications:

•    Management, leadership and strategy: Prior to joining the Company, Mr. Sadove built a distinguished marketing and consumer products career spanning over 25 years with General Foods USA and Bristol-Myers Squibb Company. During his tenure at Bristol-Myers Squibb, he set and executed strategies that led Clairol to become the number one hair care business in the United States, re-launched the Herbal Essences brand and completed the sale of the beauty care business to Procter & Gamble for approximately $5 billion. He also is particularly skilled in people management and development and in internal and external communication.

•    Industry knowledge: Mr. Sadove has served in roles of increasing responsibility since joining Saks in 2002, becoming a respected leader in the retail industry and luxury retailing. Prior to joining the Company, he served on the Board of Directors of Saks. Through his positions with General Foods and Bristol-Myers Squibb and his other public board affiliations, Mr. Sadove developed an extensive understanding of consumer products and consumer behavior, which is critical in his current role. In his current role of Chairman of the Board of Directors for the National Retail Federation, he is involved in formulating policy and long-term strategies for the retail industry.

•    Finance and accounting: Mr. Sadove has overseen and managed operating budgets for various companies throughout his career and has ultimate responsibility for the execution of the financial plans at Saks.

     61         1998   

 

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2013 Director Nominees:    Age     

Director

Since

 

•    Marketing: Mr. Sadove possesses extensive marketing and advertising capabilities and experience. Mr. Sadove had over 25 years of marketing experience at General Foods and Bristol-Myers Squibb, and he currently is instrumental in shaping the marketing initiatives at Saks Fifth Avenue.

     

Jack L. Stahl

Member of the U.S. Board of Advisors for CVC Capital Partners, a private equity firm, since January 2010. Mr. Stahl served as President and Chief Executive Officer of Revlon, Inc., a cosmetics and personal products business, from February 2002 until September 2006. Between 1979 and 2001, Mr. Stahl served in various capacities of increasing responsibility with The Coca-Cola Company, the world’s largest beverage company, including Senior Vice President and Chief Financial Officer; Executive Vice President and Group President, Americas; and President and Chief Operating Officer. Mr. Stahl serves on the boards of directors of Dr Pepper Snapple Group, Delhaize Group and privately-owned Coty, Inc. and previously served as a director of Schering-Plough Corporation within the last five years. He also currently serves on the Board of Governors for the Boys & Girls Clubs of America.

 

Director Qualifications:

•    Management, leadership and strategy: Mr. Stahl gained nearly 30 years of operating and leadership experience in his executive roles with Revlon and Coca-Cola. At both of these companies, he was instrumental in setting and executing multifaceted business strategies. At Revlon, he led and strengthened the business through a series of strategic revenue, brand and cost reduction initiatives. Mr. Stahl has also served on several public company boards.

•    Industry knowledge: Mr. Stahl gained substantial retail and consumer products knowledge through his executive roles with Revlon and Coca-Cola and through his various public board affiliations.

•    Finance and accounting: Mr. Stahl has an extensive knowledge of finance, accounting, financial instrument and financial markets. He served as Chief Financial Officer of Coca-Cola between 1989 and 1994 and held various other finance and accounting roles there between 1979 and 1988. As President and Chief Executive Officer of Revlon and as President and Chief Operating Officer of Coca-Cola, Mr. Stahl oversaw and managed complex operating budgets and capital structures.

     60         2012   

Other Information

Unwillingness or Inability of Nominee to Serve

If a director nominee becomes unwilling or unable to serve, proxies may be voted for a substitute nominee designated by our Board of Directors.

 

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Family Relationships

There are no family relationships between any of the nominees or executive officers.

 

Our Board of Directors recommends that you vote FOR the election of the above director nominees.

 

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AUDIT COMMITTEE REPORT

Function of Audit Committee

The primary function of the Audit Committee is to assist the Board of Directors in its oversight and monitoring of the Company’s financial reporting and audit processes, the Company’s system of internal control, and the Company’s process for monitoring compliance with laws, regulations and policies. The Audit Committee’s functions are described in greater detail on pages 28-29 of this proxy statement. Among other things, the committee recommends to the Board that our audited financial statements be included in our annual report.

Independence of Audit Committee Members

The committee comprises five directors, all of whom are independent as determined in accordance with the listing standards of the NYSE and our Corporate Governance Guidelines. They also are independent within the meaning of Rule 10A-3 under the Securities Exchange Act of 1934 (the “Exchange Act”).

Audit Committee Financial Expert(s)

The Board has determined that all members of the Audit Committee satisfy the attributes of an audit committee financial expert, as defined by Securities and Exchange (“SEC”) regulations. In reaching this determination, the Board of Directors considered, among other things, their relevant experience as described under “Election of Directors.”

Audited Financial Statements Included in Annual Report

 

   

Management has the primary responsibility for establishing and maintaining adequate internal financial controls, for preparing the financial statements and for the public reporting process. PricewaterhouseCoopers LLP (“PwC”), the Company’s independent registered public accounting firm, is responsible for expressing opinions on the conformity of the Company’s audited financial statements with generally accepted accounting principles and on the effectiveness of the Company’s internal control over financial reporting.

 

   

The Audit Committee has reviewed and discussed with management and PwC the Company’s audited consolidated financial statements for 2012, management’s assessment of the effectiveness of the Company’s internal control over financial reporting, PwC’s evaluation of the Company’s internal control over financial reporting and Management’s Discussion and Analysis of Financial Condition and Results of Operation. The Audit Committee also has discussed with PwC the matters required to be discussed by the Public Company Accounting Oversight Board (“PCAOB”) AU Section 380, “Communication with Audit Committees.”

 

   

The Audit Committee also received the written disclosures and the letter from PwC that are required by PCAOB Rule 3526, “Communication with Audit Committees Concerning Independence,” and has discussed with PwC its independence. The Audit Committee also considered whether PwC’s provision of non-audit services to the Company is compatible with maintaining PwC’s independence. This discussion and disclosure informed the Audit Committee of PwC’s independence and assisted the Audit Committee in evaluating that independence. On the basis of the foregoing, the Audit Committee concluded that PwC is independent from the Company, its affiliates and management.

 

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The Audit Committee also reviewed and discussed the Chief Executive Officer and Chief Financial Officer certifications concerning the Company’s Annual Report on Form 10-K.

 

   

Based upon its review of the Company’s audited financial statements and the discussions noted above, the Audit Committee recommended that the Board of Directors include our audited consolidated financial statements for 2012 in the Company’s Annual Report on Form 10-K for 2012 for filing with the SEC.

Policy for Approval of Audit and Non-Audit Services

The Audit Committee’s policy is to pre-approve all audit and permissible non-audit services provided by PwC. These services may include audit services, audit-related services, tax services and other services. Pre-approval is generally provided for up to one year, and any pre-approval is detailed as to the particular service or category of services and is subject to a specific budget. PwC and management are required to periodically report to the Audit Committee regarding the extent of services provided by PwC in accordance with this pre-approval and the fees for the services performed to date. The Audit Committee may also pre-approve particular services on a case-by-case basis.

This report has been furnished by the members of the Audit Committee:

Jack L. Stahl, Chair

Michael S. Gross

Marguerite W. Kondracke

Jerry W. Levin

 

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FEES PAID TO AUDITORS

Audit Fees and All Other Fees

The following table sets forth certain fees billed to us by PwC in connection with various services provided to us throughout 2012 and 2011:

 

      2012      2011  

  Audit (1)

     $ 1,153,900           $ 998,300       

  Audit-Related (2)

     106,900           129,100       

  Tax (3)

     —           36,000       

  All Other (4)

     1,960           1,960       
  

 

 

    

 

 

 
  Total      $     1,262,760           $  1,165,360       
  

 

 

    

 

 

 

 

(1) 

Consists of fees billed for professional services rendered for the audits of the Company’s consolidated financial statements and internal control over financial reporting, and for the review of the interim condensed consolidated financial statements included in the Company’s Quarterly Reports on Form 10-Q.

(2) 

Consists of fees billed for assurance and related services including employee benefit plan audits and various consultation matters.

(3) 

Consists of tax consulting fees.

(4) 

Consists of a software licensing fee for a technical accounting research application.

 

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(Proposal 2)

RATIFICATION OF APPOINTMENT OF INDEPENDENT

REGISTERED PUBLIC ACCOUNTING FIRM

The Audit Committee has retained PwC as the Company’s independent registered public accounting firm for 2013. PwC (or its predecessor firm Coopers & Lybrand) has audited the financial statements of the Company since 1991.

We are asking shareholders to ratify the Audit Committee’s appointment of PwC in order to obtain the views of our shareholders. If shareholders fail to ratify the appointment of PwC, the Audit Committee will reconsider the appointment but in its discretion may still direct the appointment of PwC. Also, if the appointment of PwC is approved, the Audit Committee in its discretion may still direct the appointment of a different independent registered public accounting firm at any time and without shareholder approval if the Audit Committee believes that such a change would be in our best interests.

Representatives of PwC have been requested to attend the Annual Meeting and will have the opportunity to make a statement, if they so desire, and are expected to be available to respond to appropriate questions.

 

Our Board recommends that you vote FOR the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm for 2013.

 

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CORPORATE GOVERNANCE

General Board Practices

Our Board of Directors has adopted Corporate Governance Guidelines and has also adopted a Code of Business Conduct in compliance with New York Stock Exchange (“NYSE”) and Securities and Exchange Commission (“SEC”) standards. Our Chief Executive Officer, Principal Financial Officer, all associates of the Company and members of the Board must comply with the Code of Business Conduct and are required to confirm annually that they have read and understand the Code of Business Conduct. The Code of Business Conduct and the Corporate Governance Guidelines are posted on the Company’s website at www.saksincorporated.com and are available in print to any person who sends a written request to the Company’s Corporate Secretary at 12 East 49th Street, New York, New York 10017. Waivers and amendments to the policies and procedures set forth in the Code of Business Conduct will be disclosed on www.saksincorporated.com if required by law or the Code of Business Conduct.

The Board and its committees review their own performance annually, and the Board regularly reviews and plans for succession of the Company’s executive team.

Director Independence Standards

The Company’s Corporate Governance Guidelines provide that a significant majority of the Board should be composed of independent directors as required under the NYSE Corporate Governance Standards. The Board of Directors has adopted categorical independence standards that supplement the NYSE Corporate Governance Standards. Under the Board’s standards, which are available at www.saksincorporated.com, (i) no director will qualify as “independent” unless the Board of Directors affirmatively determines that the director does not have a material relationship with the Company (either directly or as a partner, shareholder or officer of an organization that has a relationship with the Company), and (ii) no director will be “independent” if the director has any of the following relationships:

 

   

The director or an immediate family member is, or has been within the last three years, a director or executive officer of another company that is indebted to the Company, or to which the Company is indebted, if the total amount of either company’s indebtedness for borrowed money to the other is or was 2% or more of the other company’s total consolidated assets.

 

   

The director or an immediate family member is, or has been within the last three years, an officer, director or trustee of a charitable organization if the annual charitable contributions to the organization by the Company or any executive officer of the Company exceeds or exceeded the greater of $1 million, or 2% of such charitable organization’s gross revenue.

Director Independence

The Board reviewed all relevant relationships between the Company and each of our non-employee directors. The Board affirmatively determined that none of our non-employee directors has a material relationship with the Company directly or as a partner, shareholder or officer of an organization that has a relationship with the Company. The Board also concluded that none of our non-employee directors has any of the disqualifying relationships identified above. In determining that Mr. Carter is an independent director, the Board considered Mr. Carter’s employment as Executive Vice President and Chief Information Officer of FedEx Corporation. During 2012, FedEx provided the Company overnight package delivery and related services for which we paid fees that we believe were

 

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not greater than the fees we would have paid to comparable firms to obtain similar services. Consequently, the Board has determined that all of the non-employee directors are independent within the meaning of the NYSE Corporate Governance Standards and the Board’s categorical standards.

The Board’s Role in Risk Management Oversight

The Board implements its risk oversight function both as a whole and through Board committees. Throughout the year, the Board and the committees to which it has delegated responsibility dedicate a portion of their meetings to review and discuss specific risk topics. At each regularly scheduled Board meeting, the Board is also provided with legal and compliance updates.

Management communicates routinely with the Board and Board committees on significant risks and how they are being managed, and directors are free to communicate directly with senior management. Management believes the Company has robust internal processes in place and a strong internal control environment to identify and manage risks.

The Audit Committee has primary responsibility for overseeing the Company’s risk assessment. It oversees risks related to the Company’s financial statements, the financial reporting process, accounting, and legal and regulatory matters. The Audit Committee oversees the internal audit function and the Company’s ethics and compliance programs. The Human Resources and Compensation Committee (the “HRCC”) evaluates the risks and rewards associated with the Company’s compensation philosophy and programs. Additional details regarding the risks related to the Company’s compensation policies and practices are set forth on pages 52-53. The Corporate Governance Committee oversees risks associated with its areas of responsibility, including, along with the Audit Committee, the Company’s Code of Business Conduct. The Finance Committee oversees risks associated with the Company’s capital structure and assists the Board in its oversight of the Company’s capital structure and its financial plans, policies, practices and performance. The committee chairs report to the full Board at every regular meeting of the Board on the proceedings of the committees, including matters involving risk oversight. In addition, the Board is routinely informed of developments at the Company that could affect the Company’s risk profile and business in general.

Board Leadership Structure

Our current Board leadership structure comprises a combined position of Chairman of the Board and Chief Executive Officer, an independent director serving as Lead Director and seven other independent directors. Stephen I. Sadove serves as Chairman of the Board and Chief Executive Officer, and Donald E. Hess serves as Lead Director.

The Chairman of the Board presides over meetings of the Board of Directors, presides over annual meetings of shareholders, consults and advises the Board of Directors and its committees on the business and affairs of the Company, and performs other duties and responsibilities as may be assigned by the Board from time to time. The Chief Executive Officer is in charge of both overseeing the Company’s day-to-day operations and establishing and leading the execution of the Company’s long-term strategic objectives, subject to the overall direction and supervision of the Board of Directors and its committees.

The Lead Director is charged with presiding at all meetings of non-employee directors, leading the evaluation of the performance of the Chief Executive Officer and the Board and its committees, encouraging and facilitating active participation of all directors in Board meetings, consulting with the Chief Executive Officer and other members of the Board on meeting topics and agendas, acting as a liaison between shareholders and the Board where appropriate, and performing other duties requested by the other non-employee directors from time to time.

 

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As part of each regularly scheduled Board meeting, the non-employee directors meet without the Chief Executive Officer or any other members of management present. These meetings are led by Mr. Hess and allow non-employee directors to discuss privately issues of importance to the Company, including general business matters or management issues.

Each of the Board committees is chaired by independent directors and comprises only independent directors. At each regularly scheduled committee meeting, the non-employee committee members meet in executive session under the leadership of the committee chair, without the Chief Executive Officer or any other members of management present.

The Board believes that this leadership structure – a combined Chairman of the Board and Chief Executive Officer, an independent Lead Director, independent non-employee directors and committees led by independent directors – is the optimal structure for the Company at this time. Since the Chief Executive Officer has the most extensive knowledge of the various aspects of our business, the Board has concluded that he is in the best position to lead most effectively and to serve in the key position of Chairman of the Board. In addition, since the Chief Executive Officer is directly involved in managing both the day-to-day operations and long-term strategic initiatives of the Company, having a Chairman who also serves as the Chief Executive Officer allows efficient and effective communication with the Board on important business matters in light of the complexity of our industry and our business. In addition, the Board believes that having a single, highly-regarded and capable individual in both roles enables the Company to be represented by a single voice to outside constituencies, especially its vendor community. The Board believes that leadership of both the Board and the Company by Mr. Sadove is the best structure to lead the Company in the achievement of its goals and objectives. The Board also believes there is a very effective balance between strong, capable executive leadership and appropriate oversight by non-employee directors.

Board Committees

The Board of Directors has established Audit, Human Resources and Compensation, Corporate Governance and Finance Committees. The Board determined that all members of the Audit, Human Resources and Compensation, Corporate Governance and Finance Committees are independent within the meaning of the NYSE rules and the Board’s categorical standards.

Each of the Audit, Human Resources and Compensation, Corporate Governance and Finance Committees operates under a written charter that meets the requirements of the NYSE corporate governance listing standards. Each charter is available at www.saksincorporated.com and in print to any person who sends a written request to the Company’s Corporate Secretary, at 12 East 49th Street, New York, New York 10017. Each committee conducts an annual performance self-evaluation.

The Board and each of its committees has access, at the Company’s expense, to outside accounting, legal, corporate governance and other advisors as and when Board or committee members determine advisor retention is advisable.

 

 

Audit Committee

 

The Audit Committee consisted of Messrs. Stahl (Chair), Gross, Levin and Ms. Kondracke in 2012. Dr. Warren C. Neel held the position of Chair of the Audit Committee until his retirement from the Board and the Audit Committee in May 2012. The Audit Committee met nine times during 2012. The primary duties of the Audit Committee are to (i) assist the Board in its oversight of (a) the integrity of our financial statements, (b) legal and regulatory matters, (c) the qualifications and independence of our independent registered public accounting firm, (d) ethics and compliance programs and (e) the performance of our internal auditors and the independent registered public accounting firm; and (ii) prepare the report of the Audit Committee required to be included in our annual proxy statement.

 

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No member of the Audit Committee may serve on more than two other audit committees of public companies.

 

See “Audit Committee Report” on pages 22-23 of this proxy statement for additional information about the Audit Committee.

 

  Human Resources and Compensation Committee

The HRCC consisted of Ms. McAniff (Chair), Messrs. Carter and Hess and Ms. Arredondo and Ms. Kondracke during 2012. Ms. Arredondo was appointed to the HRCC in July 2012. The HRCC met six times during 2012. The primary duties of the HRCC are to (i) assist the Board in its responsibilities relating to compensation of the Company’s directors and executive officers; (ii) review and recommend to the Board human resources plans, policies and programs; (iii) approve individual executive officer compensation intended to attract, motivate, retain and appropriately reward associates in order to motivate their performance in the achievement of the Company’s business objectives and align their interests with the long-term interests of the Company’s shareholders; (iv) review the Compensation Discussion and Analysis and recommend that it be included in our proxy statement and Annual Report on Form 10-K; and (v) prepare the report of the HRCC required to be included in our annual proxy statement.

See “Report of the Human Resources and Compensation Committee” at page 54 of this proxy statement for additional information regarding the HRCC.

 

Corporate Governance

 

The Corporate Governance Committee consisted of Messrs. Hess (Chair) and Carter, Ms. McAniff and Dr. Neel in 2012. Dr. Neel retired from the Board and the Corporate Governance Committee in May 2012. The Lead Director assumes the role of Chair of the Corporate Governance Committee. The committee met four times during 2012. The primary duties of the Corporate Governance Committee are to (i) identify, evaluate and recommend to the Board individuals qualified to be directors of the Company for either appointment to the Board or to stand for election at a meeting of the shareholders, and (ii) develop and recommend to the Board corporate governance guidelines for the Company. The Corporate Governance Committee also makes recommendations to the Board with respect to shareholder proposals.

 

  Finance Committee

The Finance Committee consisted of Messrs. Gross (Chair), Levin and Ms. Arredondo during 2012. Ms. Arredondo was appointed a member of the Finance Committee in July 2012. The committee met three times during 2012. The Finance Committee’s primary responsibility is to assist the Board in its oversight of the Company’s capital structure and its financial plans, policies, practices and performance.

 

 

 

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  Summary of Board Committees and Members During Fiscal Year 2012

 

Director    Audit Committee      HRCC   Corporate
Governance
        Committee         
   Finance
Committee

  Fabiola R. Arredondo(1)            

                    X                                X            

  Robert B. Carter

                    X                           X                 

  Michael S. Gross

               X                                     X (Chair)

  Donald E. Hess

                    X                           X (Chair)     

  Marguerite W. Kondracke

               X                            X                     

  Jerry W. Levin

               X                                     X            

  Nora P. McAniff

                    X (Chair)               X                 

  C. Warren Neel(2)

               X                                X                 

  Jack L. Stahl(3)

               X (Chair)              
  (1)

Appointed July 26, 2012 to the Board, HRCC and Finance Committees

  (2)

Retired May 30, 2012 from the Board, Audit and Corporate Governance Committees

  (3)

Appointed May 30, 2012 to the Chair of the Audit Committee

  Board Meetings in 2012

The Board met nine times during 2012. At each regular Board meeting, the non-employee directors also meet separately with Mr. Sadove and then without him. Our Lead Director, Mr. Hess, presides over non-employee director sessions.

The Board expects that all directors will devote sufficient time to the full performance of their Board duties and responsibilities, including attending all Board meetings and all meetings of committees on which the director serves. Any director who attends less than 75% of Board and committee meetings in a fiscal year is required to provide an explanation of his or her absences to the Chair of the Corporate Governance Committee immediately following the fiscal year end. A candidate accepting nomination to the Board is assumed to understand his or her obligations under the Company’s Corporate Governance Guidelines and acknowledges that adherence to the Guidelines will be taken into consideration when the Corporate Governance Committee nominates candidates for election to the Board. An excessive number of absences, excused or non-excused, may be grounds for not re-nominating an incumbent director.

The overall average percentage for meeting attendance of the Company’s current directors at Board and committee meetings during 2012 was 98%, with each director attending at least 86% of meetings.

  Director Attendance at Annual Shareholder Meetings

Directors are encouraged, but not required, to attend annual meetings of shareholders. All directors currently serving at that time attended the Company’s May 2012 annual meeting.

  Nomination of Directors

The Corporate Governance Committee is responsible for identifying and recommending to the Board persons to be nominated to serve as a director of our Board. Our Board is responsible for nominating the directors for the Annual Meeting, upon the Corporate Governance Committee’s recommendation.

 

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Identification of Director Nominees

The Corporate Governance Committee does not have any single method for identifying director candidates, but will consider candidates suggested by a wide range of sources. Generally, when there has been a vacancy to be filled on the Board of Directors, the Corporate Governance Committee retained a third-party search firm to assist in identifying candidates to fill the vacancy. The search firm reports directly to the Corporate Governance Committee. The main functions served by a search firm include identifying potential candidates who meet the qualification and experience requirements described below, as well as compiling information regarding each candidate’s qualifications, experience and independence and conveying the information to the Corporate Governance Committee.

The Corporate Governance Committee will consider director candidates timely submitted by our shareholders in accordance with the notice provisions as discussed below under “Shareholder Recommendation of Director Nominees. The Corporate Governance Committee applies the same criteria to the evaluation of shareholder-nominated director candidates as it applies to other director candidates.

Evaluation of Director Nominees

The Corporate Governance Committee identifies, recruits and recommends to the Board only those candidates that the committee believes are qualified to become Board members consistent with the criteria for selection of new directors adopted from time to time by the Board. The Corporate Governance Committee recommends candidates, including those submitted by shareholders, only if the committee believes the candidate’s knowledge, experience and expertise would strengthen the Board and that the candidate is committed to representing the long-term interests of all of our shareholders. A majority of the Board must consist of independent directors (as defined by the NYSE’s listing standards and our Corporate Governance Guidelines).

The Corporate Governance Committee assesses a candidate’s independence, background and experience, as well as the skills and diversity of the current Board. With respect to incumbent directors selected for re-election, the committee also assesses each director’s contributions, attendance record at Board and applicable committee meetings and the suitability for continued service.

The Board believes that there are general requirements for service on the Company’s Board of Directors that are applicable to all directors and that there are other skills and experience levels that should be represented on the Board as a whole but not necessarily by each director. The Board and the Corporate Governance Committee consider the qualifications of directors and director candidates individually and in the broader context of the Board’s overall composition and the Company’s current and future needs.

Individual directors and any person nominated to serve as a director should:

 

   

be in a position to devote an adequate amount of time to the effective performance of director duties;

 

   

possess all of the following personal characteristics: personal and business integrity, accountability, informed judgment, business literacy and high performance standards; and

 

   

be able to contribute knowledge, experience and skills in at least one of the following competencies: management, leadership and strategy; industry knowledge; accounting and finance; and marketing.

 

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The Board believes that the combination of the various qualifications, skills and experiences of the 2013 director nominees will contribute to an effective, collaborative and well-run Board. The Board and the Corporate Governance Committee believe that, individually and as a whole, the directors possess the necessary qualifications to provide effective oversight of the business and high-quality interaction with and counsel to Company management.

Board Diversity

The Board’s diversity policy is embodied in the Company’s Corporate Governance Guidelines. The Company’s Corporate Governance Guidelines state that the Board believes in a governing style that emphasizes, among other things, respect for diversity in perspective and includes individuals from diverse backgrounds. The Company’s Corporate Governance Guidelines also note that the size of the Board allows for diversity of contribution while promoting timely action on critical and time-sensitive issues.

Shareholder Recommendation of Director Nominees

The Corporate Governance Committee will consider nominees to the Board recommended by shareholders if shareholders comply with the Company’s advance notice requirements. See “SHAREHOLDERS’ PROPOSALS OR NOMINATIONS FOR 2014 ANNUAL MEETING” on page 84. Our Bylaws provide that a shareholder who wishes to nominate a person for election as a director at a meeting of shareholders must deliver written notice to our Corporate Secretary. This notice must contain, as to each nominee, all of the information relating to such person as would be required to be disclosed in a proxy statement meeting the requirements of Regulation 14A under the Exchange Act, and certain other information, including the name and address of the shareholder delivering the notice as it appears on the stock records of the Company, the number and class of shares held of record by such shareholder, information about derivative securities holdings of such shareholder, any arrangement or understanding pursuant to which such shareholder has a right to vote or has granted a right to vote any shares of the Company’s stock, whether such shareholder has a short interest in any of the Company’s securities, whether such shareholder is entitled to a fee based on the value of the Company’s securities, a representation that such shareholder intends to appear in person or by proxy at the meeting to nominate such nominee, and a certification that such shareholder has complied with all applicable federal, state and other legal requirements in connection with such shareholder’s acquisition of the Company’s securities and such shareholder’s acts or omissions as a shareholder of the Company. The foregoing summary does not include all requirements a shareholder must satisfy in order to nominate a candidate to the Board. Shareholders of the Company who wish to recommend a nominee to the Board should read carefully the Company’s Bylaws, which are available on our website at www.saksincorporated.com.

In order to be eligible to be a nominee for election as a director of the Company by a shareholder, such potential nominee must deliver to our Corporate Secretary a written questionnaire providing the requested information about the background and qualifications of such person and a written representation and agreement that such person is not and will not become a party to any voting agreements, any agreement or understanding with any person with respect to any compensation or indemnification in connection with service on the Board, and would comply with all applicable publicly disclosed corporate governance, conflict of interest, confidentiality and stock ownership and trading policies and guidelines of the Company.

Shareholder nominations must be submitted in accordance with the deadlines set forth under the caption “SHAREHOLDERS’ PROPOSALS OR NOMINATIONS FOR 2014 ANNUAL MEETING” located on page 84 of this proxy statement. Shareholder nominations should be sent to the Corporate Governance Committee, c/o the Corporate Secretary at Saks Incorporated, 12 East 49th Street, New York, New York 10017.

 

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Communication with the Board

Our Board has adopted a policy and process for shareholders and other interested parties to communicate with the Board or an individual director, including our Lead Director Mr. Hess, or with the non-employee directors as a group. Shareholders and other interested parties may communicate with the Board collectively, or with any of its individual members, by writing to them c/o the Corporate Secretary at 12 East 49th Street, New York, New York 10017. The Corporate Secretary, upon the advice of the Company’s General Counsel, has discretion to determine whether shareholder communications are proper for transmission to the intended recipient. Examples of shareholder communications that would be considered presumptively inappropriate include communications regarding the Company’s pricing of products or services; personal grievances; solicitations; communications that do not relate, directly or indirectly, to the Company; and communications that are duplicative of previously submitted communications or are frivolous in nature. Additional information concerning the Company’s process regarding communications with the Board of Directors may be found at www.saksincorporated.com.

 

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EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

This Compensation Discussion and Analysis has been prepared to provide information regarding the compensation programs and practices as they relate to the total compensation for the Company’s Named Executive Officers for 2012. This section includes information regarding, among other things, the overall objectives of the Company’s compensation programs and practices, the rationale for the level and mix of rewards provided and a discussion of the manner in which the various elements of executive compensation support the Company’s business objectives. If we believe it to be material, we also have indicated how our process has changed with respect to how we have established the compensation for our executive officers during 2013. This Compensation Discussion and Analysis focuses on the compensation of our Named Executive Officers for 2012, who were:

 

 

   
Name    Title

Stephen I. Sadove            

   Chief Executive Officer and Chairman of the Board

Kevin G. Wills

   Executive Vice President, Chief Financial Officer

Ronald L. Frasch

   President and Chief Merchandising Officer

Jennifer de Winter

   Executive Vice President of Stores

Denise Incandela

   Executive Vice President, Chief Marketing Officer

Executive Summary

Performance of Company in 2012

While 2012 was a challenging year for the Company, it was also a year of meaningful progress and transformation for Saks. We continued to execute our core merchandising, service and marketing strategies while building critically important omni-channel capabilities to position us for the future. We made headway on several important initiatives:

 

   

We began work on Project Evolution, our substantial multi-year transformation of and investment in foundational information systems, to facilitate an omni-channel shopping environment for our customers.

   

We began expanding the omni-channel experience for our customers by adding iPads to our stores and by successfully testing “buy online, ship from store” and adding select “store only” inventory items to our saks.com offerings.

   

On the marketing front, we began using enhanced consumer analytics and insights to drive marketing effectiveness though targeted and personalized initiatives. In January, we re-launched our SaksFirst loyalty program, expanding the benefits and broadening the reach of the program by eliminating the spending threshold to participate and including purchases made at OFF 5TH.

   

We made meaningful year-over-year improvements in our in-store customer service scores and continued to receive high marks for our online service.

   

We identified several key Saks Fifth Avenue stores with high growth potential and supported their growth initiatives with strategic capital investments, including the expansion of 10022-SHOE in the New York flagship; renovations in Chevy Chase, Maryland, Troy, Michigan, Bal Harbor, Florida, St. Louis, Missouri and Beverly Hills, California; and the addition of over 100 vendor shops throughout the country.

   

At OFF 5TH, we accelerated our growth strategy by opening five new stores and one replacement store, and renovating two locations.

   

We meaningfully grew saks.com by adding to the breadth and depth of our product offerings, further improving our website shopping experience, enhancing our digital marketing initiatives and enriching our mobile experience. We improved the efficiency of our saks.com operations with the mid-year opening of our state-of-the-art robotic fulfillment center in Tennessee.

 

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We continued the rationalization of our Saks Fifth Avenue real estate, closing three additional stores in 2012, bringing the total closed since 2010 to ten. These closings allow us to simplify the business, reduce working capital and capital spending requirements and more effectively focus our resources.

For the year, sales and earnings were below our initial expectations as continued macroeconomic concerns, election and fiscal cliff distractions and Hurricane Sandy weighed on our results, particularly in the second half of the year.

 

   

We posted net income of $62.9 million, or $.41 per diluted share, in 2012, compared to net income of $74.8 million, of $.45 per diluted share, in 2011. Sales gains were offset by a lower gross margin rate and Selling, General and Administrative expense (“SG&A”) deleverage.

   

We posted a 4.4% total sales increase in 2012 and a 3.2% comparable store sales increase for the 52-week period ended January 26, 2013. This comparable store sales gain was on top of a very strong 9.5% comparable store sales increase in 2011.

   

For 2012, the gross margin rate was 40.6% compared to 40.8% last year. This decrease was due in part to our previously disclosed underperformance in certain classic women’s apparel vendors combined with our outsized inventory investments in key high-potential growth areas like women’s shoes. We knew these investments could create some near-term gross margin pressure but believe they were the right long-term strategic decisions for the Company.

   

As a percent of sales, SG&A expenses were 25.8% for the full year compared to 25.5% last year. We experienced deleverage for the year as we incurred incremental expenses to support our omni-channel and Project Evolution initiatives and additional marketing expenses.

We also returned cash to our shareholders by repurchasing 16.5 million shares of common stock for $167.4 million.

Compensation of Executives

The compensation paid to our executives for 2012 was tied to our performance in 2012 and, as a result, the Annual Bonus Program and the Long-Term Incentive Plan both provided less than target awards. The 2012 Annual Bonus Program was designed to reward the Named Executive Officers for achievement of the Company’s earnings before interest, taxes, depreciation and amortization (“EBITDA”) and key corporate objectives including achieving sales growth in certain flagship stores, outsized sales growth of Saks Direct, improved customer service scores, increased customer insight capabilities and re-launching the loyalty program. The 2012 Long-Term Incentive Plan was designed to reward the Named Executive Officers for the achievement of EBITDA and comparable store sales growth. The design of the 2012 executive compensation program was consistent with the 2011 design, as the HRCC believed that EBITDA, along with other strategic measures, were appropriate measures of management’s performance against goals and objectives designed to ensure balance between short- and long-term focus in order to create sustained performance and shareholder value.

In addition to rewarding performance and maintaining competitiveness in the market, our compensation programs provide the opportunity for executive officers to establish and maintain meaningful levels of share ownership, which is intended to align the economic interests of the Company’s shareholders, the Named Executive Officers and the Company’s other executive officers.

2011 Say-on-Pay Vote

We had an overwhelmingly positive Say-on-Pay vote of 92% for fiscal year 2010. In recognition of this positive shareholder feedback, the HRCC did not make material changes to our programs for 2011 and 2012. We believe that our shareholders appreciate and recognize the relationship between compensation and our Company’s performance.

 

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Our shareholders voted in favor of a triennial Say-on-Pay vote at the Annual Meeting of Shareholders held on June 1, 2011; therefore, the next advisory Say-on-Pay vote will occur at the Annual Meeting of Shareholders to be held in 2014.

HRCC’s Responsibilities

The responsibilities of the HRCC include approving the Company’s compensation programs and individual awards to the Named Executive Officers under such programs. A detailed description of the HRCC’s specific responsibilities is contained in the HRCC’s Charter, which can be viewed at www.saksincorporated.com.

The HRCC establishes the salaries and other compensation of the Chairman and Chief Executive Officer, the other executive officers named in the Summary Compensation Table and other select senior executives of the Company. The HRCC also is charged with the responsibility to review and approve our executive compensation and benefits plans and policies, and the administration of all executive compensation programs, incentive compensation plans and equity-based plans currently in place at the Company. As it deems necessary, the HRCC engages independent compensation consultants and counsel to advise the HRCC on all matters related to the Chief Executive Officer and other executive compensation. The HRCC engages an independent consultant to conduct a competitive review of executive compensation, including long-term incentive compensation levels.

The HRCC met six times in 2012. All of the HRCC meetings included an executive session with no Company associates present.

Role of the Compensation Consultant

To assist the HRCC in its consideration of executive compensation, the HRCC retained Frederic W. Cook & Co., Inc. (“Cook”), a nationally recognized executive compensation consulting firm, as the HRCC’s independent compensation consultant. Cook is hired by and reports directly to the HRCC and does not provide advice or services to management. Cook provides the HRCC with analysis and recommendations on the compensation for the Chief Executive Officer and other executive officers as requested by the HRCC and provides services relating to director compensation. Cook also provides the HRCC with compensation trend information, legislative and regulatory updates, annual bonus plans and equity plan design review, and review of plan language. Pursuant to SEC rules, the HRCC has assessed the independence of Cook and concluded that Cook’s work for the HRCC does not raise any conflict of interest. The HRCC also reviews information from The Hay Group, the compensation consultant retained by the Company’s management, to establish compensation for the Company’s executive officers other than the Chief Executive Officer. The Hay Group provides survey information detailing the compensation practices of a select group of retailers, including information on base salary, annual incentives and long-term incentives.

Objectives of Our Compensation Policies

The objectives of the Company’s compensation policies applicable to the executive officers are to:

 

   

provide a compelling financial incentive to the Company’s executive officers to achieve the Company’s short- and long-term business objectives and financial performance goals,

 

   

align the economic interests of the Company’s executive officers with the economic interests of the Company’s shareholders, and

 

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enable the Company to attract, retain and reward talented executive officers who will contribute to the Company’s long-term success.

The HRCC seeks to ensure that a substantial portion of total compensation awarded to the Named Executive Officers is performance-based and comprises both short-term annual bonus and long-term equity and performance unit incentives as outlined in the table below. The mix of compensation is set such that base salary represents a much smaller portion of total target compensation than is represented by performance-based incentives.

 

LOGO    LOGO

The HRCC believes an appropriate balance is achieved through the use of annual cash bonuses and long-term incentives consisting of restricted stock, performance shares and performance units within the limits established by our incentive compensation plans. Performance-based compensation is directly linked to the achievement of clearly defined financial measures, and in some cases, corporate objectives with defined metrics, thresholds and milestones. The majority of the value of the long-term incentive award granted is linked to the price of our common stock. The HRCC believes that the Company’s achievement of the specified financial and operational measures and the Named Executive Officers’ achievement of key corporate objectives should reward the Company’s shareholders through the creation of long-term value. If the Company does not meet the established financial and operational measures or corporate objectives, performance-based awards would be appropriately reduced or not earned in their entirety depending on the extent to which the performance measures are not achieved.

The targeted level of compensation for Mr. Sadove is higher than that of the other Named Executive Officers, reflecting the different scope and nature of his role and the differences in market rates for these positions. The compensation mix reinforces the Company’s philosophy that the portion of “at risk” compensation as a percentage of total compensation opportunity should increase as one moves higher in the organization. The Company does not have a set differential that it establishes between various positions but rather determines the compensation for each role based upon scope of responsibility and market rates of compensation, among other factors.

Elements of Our Compensation Program

The Company uses a mix of compensation elements that recognizes the scope and complexity of job responsibility, reinforces performance, rewards achievement of performance goals and encourages the enhancement of shareholder value. The Company seeks to maintain a competitive level of total target compensation. The specific elements of the compensation package and the corresponding performance measures, however, are specifically tailored to meet the Company’s strategic objectives and culture.

 

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Outlined below is the rationale for each element of the total compensation package provided to executive officers:

 

Base salary: fixed element of compensation designed to recognize the level of job scope and complexity, and the skills, experience, leadership and sustained performance required by the executive.

 

Annual bonus: variable element of compensation designed to reward the achievement of key financial metrics and accomplishment of key corporate objectives that are shorter term in nature but are critical to generating longer term Company success; focus on profitability and strategic initiatives to support current performance while improving the Company’s ability to create shareholder value.

 

Long-term incentives: variable element of compensation comprising (i) performance shares and performance units to reward financial performance, such as the achievement of EBITDA targets and other key financial measures, and (ii) restricted stock to attract and retain top talent and to further reinforce alignment between the interests of management and shareholders. The mix of long-term incentive awards granted for 2012 was more heavily weighted toward performance shares and performance units (65.8%), with restricted stock comprising a smaller portion (34.2%) of total long-term incentive opportunities. On occasion, the HRCC will grant additional time-based restricted stock awards outside of the annual grants in order to motivate, reward and retain key executives. The HRCC granted additional restricted stock awards to executive officers in 2012 to assist in the retention of these key corporate executives. See changes to the 2013 Long-Term Incentive Plan under “—2013 Annual Awards under the Long-Term Incentive Plan” at page 48.

 

The HRCC’s general practice has been to grant long-term incentive and retention awards to executive officers during the Company’s first fiscal quarter. Our “Policy and Procedures for the Granting of Equity Awards,” in general, provides that:
  All awards will be made in accordance with our shareholder approved equity compensation plans.
  All awards will be granted by the HRCC except for awards to be granted to associates (excluding executive officers who are subject to Section 16 of the Exchange Act or are “covered employees” under Section 162(m) of the Internal Revenue Code (the “Code”)) by the Chief Executive Officer pursuant to delegated authority, which may not exceed 320,000 shares per fiscal year, without limitation as to the type of vehicle that can be awarded.
  Awards made by the HRCC must be made at meetings and not by unanimous written consent.
  The grant date for awards granted at HRCC meetings will be the second business day following the release of the Company’s quarterly or year-end earnings, as applicable.
  The grant date for awards made by the Chief Executive Officer will be the second business day following the release of the Company’s quarterly or year-end earnings, as applicable, following: (i) in the case of new hires, the first day of employment, (ii) in the case of promoted associates, the effective date of the promotion, and (iii) in all other cases, the date the Chief Executive Officer approves the award.
 

The exercise price for stock option awards will be the NYSE closing price of the Company’s common stock on the grant date.

 

Medical, disability and life insurance coverage: The Company provides comprehensive benefits coverage to its executive officers intended to be competitive and to provide flexibility in the type and/or

 

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level of coverage available to such executive officers. These benefits are intended to minimize the potential financial exposure to the executive caused by the occurrence of a catastrophic health event to the executive or his or her family. These benefits are the same as those offered to all other full-time eligible associates. In addition to this comprehensive benefits package, certain executives are covered under individual, supplemental long-term disability policies intended to supplement the coverage offered under the base, group long-term disability program offered to all full-time eligible associates of the Company. The Company pays the full cost of this supplemental coverage.

 

Perquisites: Each of the Named Executive Officers is eligible for reimbursement for financial and tax planning and preparation services, subject to specified limits, and in accordance with Employment Agreements. In addition, each of the Named Executive Officers is eligible for reimbursement for certain out-of-pocket expenses associated with an annual physical examination. These perquisites are in line with competitive practices and provide the Named Executive Officer with appropriate support to plan for his or her financial security, enable the executive to devote more of his or her time to business matters, and benefit from Company-sponsored compensation and benefit programs. In addition, Mr. Sadove is provided with a car and driver. While the primary purpose of this benefit is business-related, Mr. Sadove has access to the car and driver for commuting. Mr. Frasch is reimbursed for the cost of a driver to assist with commuting. Subject to the approval of the Chief Executive Officer, the other Named Executive Officers may use the Company-provided aircraft for personal use (the value of which is included in their annual compensation). The rationale for providing perquisites to executive officers is to enhance the attractiveness and competitiveness of the overall compensation program and, in the case of Company-provided transportation, to provide greater security and convenience. For additional information regarding perquisites see “—Summary Compensation Table.”

 

Purpose of Our Compensation Program

Our compensation program contains several elements designed to reward executives for the accomplishment of both financial and non-financial performance objectives. For 2012, the HRCC determined that it was appropriate to use Company EBITDA excluding certain non-recurring items as a key performance measure for the payment of annual cash bonuses and performance awards. The HRCC believed that the use of EBITDA was appropriate as it reflected the operating results of the Company and measured performance against pre-determined goals and objectives. In 2012, in addition to EBITDA, the annual bonus included measurement on the achievement of key corporate objectives. The payout under the key corporate objectives was partially dependent on the Company’s performance against EBITDA and above target payout for this measure could not be reached unless the Company achieved above target performance against EBITDA.

Long-term incentive awards reward sustained financial performance and serve as a vehicle for executives to establish and maintain meaningful levels of share ownership which align the interests of executives to those of the Company’s shareholders. The performance measures, as discussed further below, for the 2012 long-term incentive awards were the Company’s performance against predetermined EBITDA and comparable store sales targets.

Competitive Position of Compensation

The Company has historically relied on two sets of compensation information to assist the HRCC in determining the competitive landscape for executive talent. The HRCC, with the assistance of Cook, reviews the peer groups each year to ensure their continued reasonableness. The two sets of compensation information that the HRCC uses are as follows:

 

   

The Hay Group covers compensation practices for a select group of retailers who appear in the consultant’s proprietary database. The companies used for comparison were, in

 

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general, retailers and/or apparel or fashion vendors and included companies for which we compete for talent. The Company revised its peer group for 2011 to reflect the guidance provided by Institutional Shareholder Services (“ISS”) that peer group companies that should be considered are those whose size generally falls within the range of 0.5x to 2x the subject company’s size. There were no changes to the peer group in 2012.

 

   

Along with data provided from The Hay Group Study, the HRCC also uses a custom peer group for benchmarking the compensation of both our Chief Executive Officer and President. In 2009, the HRCC decided to expand the CEO/President proxy peer group to approximately 25 companies to provide the HRCC with a larger sample size. The HRCC believed that this larger set of comparables would provide greater statistical reliability. Nine companies were deleted from the peer group used by the Company in 2011 to ensure that the size of the companies within the peer group was similar to Saks. There were no changes to the peer group in 2012.

One of the major differences in the above peer sets is that the proxy data contain publicly traded companies while the proprietary survey includes private companies as well as public companies.

The table below outlines the companies used in both peer groups:

 

Peer Company    Used in CEO
Benchmarking
   Used in
Benchmarking
of other NEOs

  Abercrombie & Fitch Co.

   X    X

  Aeropostale, Inc.

   X    X

  American Eagle Outfitters, Inc.

   X    X

  Ann Inc.

   X    X

  Ascena Retail Group

   X     

  Bloomingdale’s

        X

  Brooks Brothers

      X

  The Children’s Place Retail Stores, Inc.

   X     

  Coach, Inc.

   X    X

  Collective Brands Inc.

   X     

  Fifth & Pacific

   X    X

  Guess?, Inc.

   X     

  J. Crew Group, Inc.

      X

  Jones Apparel Group

   X     

  Lord & Taylor

      X

  Neiman Marcus

   X    X

  Nordstrom, Inc.

      X

  Phillips-Van Heusen Corporation

   X    X

  Polo Ralph Lauren Corporation

   X    X

  Tiffany & Co.

   X    X

  Urban Outfitters Inc.

   X     

  Williams-Sonoma Inc.

   X    X

  Total

   17    16

The HRCC does not target a specified level of compensation among the peer sets but rather considers a broad range around median compensation of that group. Importantly, the goal of obtaining

 

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benchmark data is to provide the HRCC with a general litmus test for the market place for executive talent. The HRCC uses this information along with numerous other factors (including the executive’s tenure, individual and Company performance, expected future contributions to the Company, historical compensation levels, “hire-away” risk, etc.) in arriving at what is appropriate compensation for a particular executive at Saks.

Determination of Amount of Each Element of Compensation

We review competitive data provided by The Hay Group to benchmark the total level of compensation paid by our competitors. Once the total market compensation for each position is determined, we target the mix and level of base salary, annual bonus and long-term incentives such that total compensation approximates the median of competitive practices. We provide awards that represent a mix of cash and equity-based awards to provide attractive incentives and facilitate the alignment of the interests of management and shareholders through equity-based compensation and share ownership.

In determining the compensation of the executive officers reporting to the Chief Executive Officer, the HRCC seeks the assessment of our Chief Executive Officer and the Executive Vice President, Human Resources relating to the performance and contributions of these executive officers and the Chief Executive Officer’s recommendations regarding individual compensation actions. These recommendations are supported by market data for executives at other retailers and/or vendors provided by The Hay Group. The HRCC consults independently with Cook regarding competitive compensation practices and appropriate compensation for the Chief Executive Officer. Neither the Chief Executive Officer nor the Executive Vice President, Human Resources, plays a role in determining the Chief Executive Officer’s compensation.

Outlined below is a discussion of each element of total compensation provided to the executive officers.

Key Determinations for Each Element of Compensation

  Base Salary

Base salary reflects the scope of job responsibility and the day-to-day performance of the executive officer relative to his or her duties and responsibilities. The performance and contributions of each executive officer are reviewed annually and, based upon this review, the executive officer may be eligible to receive a “merit increase.” The Company’s annual merit increase guideline for executive officers is based on competitive practices and overall Company performance. These increases reflect the Company’s operating results and individual contributions to overall performance and are consistent with competitive merit increases at the executive-officer level. The HRCC’s current practice is to review the performance of each member of the senior management team annually for a salary increase effective May 1.

 

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Upon the recommendation of management, as part of the Company’s expense reduction initiatives in 2009 and in light of the difficult economic environment, the HRCC reduced base salaries for the Named Executive Officers and all other executives by 3% to 7%. For 2010, upon the recommendation of management, the HRCC did not award any merit increases to the Named Executive Officers. Merit increases for Named Executive Officers resumed in 2011 at 2.5% and in 2012 at 3%. For 2013, the HRCC approved merit increases of 2.5% for the Named Executive Officers effective May 1.

 

Executive    Base Salary  
   2012      2013      % Change
(2012 -
2013)
 

  Stephen I. Sadove

   $ 1,045,000       $ 1,071,125         2.5 %  

  Kevin G. Wills

     $618,000         $633,450         2.5 %  

  Ronald L. Frasch

   $ 1,030,000       $ 1,055,750         2.5 %  

  Jennifer de Winter

     $515,000         $527,875         2.5 %  

  Denise Incandela

     $515,000         $527,875         2.5 %  

  Annual Cash Bonuses

At the start of each fiscal year, the HRCC establishes performance measures and target incentive levels for the Company’s annual bonus program for executive officers. Following the close of the fiscal year and based, in general, on the Company’s consolidated results of operations for the fiscal year, the HRCC assesses the Company’s actual performance against the pre-established performance objectives and determines the amount, if any, of the target bonus earned by the executive officers.

  2012 Annual Bonus Program

For 2012, the annual bonus plan targets for each Named Executive Officer were as follows:

 

Executive    2012 Annual Incentive Plan Target  
   Dollar Value    

As a Percent

of Salary

 

  Stephen I. Sadove

     $1,567,500        150

  Kevin G. Wills

     $494,400        80

  Ronald L. Frasch

     $927,000        90

  Jennifer de Winter

     $334,750        65

  Denise Incandela

     $334,750        65

 

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Under the 2012 annual cash bonus program, the HRCC used the following performance measures to determine bonus payments for the Named Executive Officers: (i) EBITDA (75% weight) and (ii) the accomplishment of key corporate objectives (25% weight). The EBITDA performance measure established by the HRCC for the 2012 annual cash bonus program was based on the achievement of the 2012 operating plan. The HRCC believed that the successful execution of the operating plan likely would result in a significant year-over-year improvement in EBITDA, which the HRCC expected would lead to enhanced shareholder value. When the HRCC established the 2012 EBITDA and key corporate objectives measures, the HRCC believed that these performance measures were challenging yet achievable. The 2012 EBITDA actual performance and payout are as follows based on less than target performance:

 

         
EBITDA   Threshold     Target     Maximum     Actual  

  EBITDA Performance ($MM)

    $250        $300        $355        $268.5   

  EBITDA Achievement (% of Target)

    83%        100%        118%        89.5%   

  Payout Level (as a % of Target)

    30%        100%        150%        55.9%   

The key corporate objectives for the 2012 annual bonus program included:

 

   

Achieve sales growth in certain flagship stores

   

Achieve outsized sales growth of Saks Direct

   

Improve customer service scores

   

Re-launch loyalty program

   

Increase customer insight capabilities

At the beginning of the fiscal year, the HRCC established that the bonus payout opportunity for achievement of the key corporate objectives performance measure (for the portion of target bonus attributable to such measure) should range from 0% for meeting no objectives to 100% for meeting objectives as outlined in the table below.

 

Key Corporate Objectives   Meets No
  Objectives  
  Meets Some
  Objectives  
  Meets Most
  Objectives  
  Meets
  Objectives  

  Key Corporate Objectives Achievement  

  0%   50%   75%   100%

The payout for the achievement of the key corporate objectives was capped at the target opportunity, with no upside earning potential for this performance measure alone. If the Company achieved EBITDA in excess of the target EBITDA level, the bonus opportunity for the achievement of the corporate objectives performance measure could increase up to a maximum payout of 150%.

 

EBITDA Multiplier for

 Key Corporate Objectives 

  Less than Target     Target     Maximum  

  EBITDA Achievement

    100     100     150

Achievement against the key corporate objectives multiplied by the EBITDA achievement determined the total payout opportunity for the key corporate objectives measure. As such, total payout opportunity under the 2012 bonus program ranged from 0% to 150% of target-level performance. For 2012, the HRCC determined that the Company achieved a level of “Meets Objectives” for performance against the key corporate objectives. This rating was determined by the HRCC because the Company met in the aggregate the key corporate objectives measures. This rating coupled with the achievement level of EBITDA equaled a payout of 100% with respect to the key corporate objectives measures.

 

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Based on the Company’s performance against each of the established performance measures for the 2012 annual cash bonus program as discussed above, the Named Executive Officers were paid bonuses as follows:

 

Executive   2012 Annual Bonus Payout  
  Based on
EBITDA
Achievement
    Based on
Corporate
Objectives
Achievement
    Total 2012
Bonus Payout
    Total 2012
Bonus Payout
(as a % of
Salary)
    Total 2012
Bonus
Payout (as a
% of Target)
 

  Stephen I. Sadove

    $657,175        $391,876        $1,049,051        100%        67%   

  Kevin G. Wills

    $207,278        $123,600        $330,878        54%        67%   

  Ronald L. Frasch

    $388,645        $231,751        $620,396        60%        67%   

  Jennifer de Winter

    $140,344        $83,688        $224,032        44%        67%   

  Denise Incandela

    $140,344        $83,688        $224,032        44%        67%   

Under the terms of the 2012 Senior Executive Bonus Plan, the HRCC, in its sole discretion, may reduce or eliminate the amount of any bonus award. From time to time, the HRCC has exercised its discretion to decrease bonus payouts or to provide, when warranted, supplemental bonuses. Any supplemental bonus payout approved by the HRCC would be considered discretionary and the additional amount would not be deductible for U.S. federal income tax purposes if the executive to whom it was paid was covered by Section 162(m) of the Code and the payment exceeded the limits applicable to that Code section. In 2012, the HRCC did not make any negative or positive adjustments to bonus payouts for Named Executive Officers.

  2013 Annual Bonus Program

Similar to 2012, the 2013 annual cash bonus program for executive officers, the HRCC established the following performance measures for all Named Executive Officers: EBITDA, at specified levels (75% weight) and the accomplishment of key corporate objectives (25% weight). The key corporate objectives payout can be adjusted upward to a maximum of 150% based on the Company’s performance against the EBITDA target level.

  EBITDA

The HRCC set the payout for the 2013 annual cash bonus program for the achievement of the EBITDA performance measure (for the portion of target bonus attributable to such performance measure) for each of the Named Executive Officers as follows:

 

EBITDA    Threshold     Target     Maximum  

  Payout Level (as a % of Target)

     30     100     150

  Key Corporate Objectives

For 2013, the HRCC approved the following key corporate objectives for the 2013 annual bonus program to ensure that our executives are focused on the most critical initiatives to our business. Specific measures and milestones are used to evaluate the performance against each of these key objectives:

 

   

Expand OFF 5TH store base

   

Continue to transform the Company’s infrastructure

   

Achieve outsized growth of key customers

   

Drive omni-channel transformation

   

Improve customer service scores

 

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Based on the results of the annual executive compensation reviews by The Hay Group and Cook, no increases in target bonus opportunity were approved by the HRCC. The table below sets forth the bonus targets for our Named Executive Officers for 2012 and 2013.

 

Executive    Bonus Targets (as a % of Salary)   
   2012      2013  

  Stephen I. Sadove

     150%         150%   

  Kevin G. Wills

     80%         80%   

  Ronald L. Frasch

     90%         90%   

  Jennifer de Winter

     65%         65%   

  Denise Incandela

     65%         65%   

No other material changes were made to the bonus program for 2013.

  Long-Term Incentive Awards

The Company provides long-term incentives principally in the form of performance share, performance unit and restricted stock awards. The HRCC believes that a combination of performance share awards, performance unit awards and restricted stock awards as part of the annual grant encourages the Company’s executive officers to focus on achievement of key financial and strategic objectives, facilitates share ownership and reinforces the alignment of management’s interests with that of shareholders, while also rewarding and retaining key executive officers and associates.

2012 Annual Awards under the Long-Term Incentive Program

On February 22, 2012, the Named Executive Officers received a mix of performance shares, performance units and restricted stock awards as part of the annual grants made to executive officers as outlined in the table below. These awards were approved by the HRCC and granted in accordance with our “Policy and Procedures for the Granting of Equity Awards.”

 

Executive   Target Mix of Equity  
  Performance Shares
(34.2%)(1)
    Performance Units
(31.6%)(2)
    Restricted Stock
(34.2%)(1)
    Total 2012
Value Granted(3)
 

 Stephen I. Sadove

            $1,802,760        $1,666,667        $1,802,760        $5,272,187   

 Kevin G. Wills

    $270,420        $250,000        $270,420        $790,840   

 Ronald L. Frasch

    $432,666        $400,000        $432,666        $1,265,332   

 Jennifer de Winter

    $171,265        $158,333        $171,265        $500,863   

 Denise Incandela

    $171,265        $158,333        $171,265        $500,863   
  (1)

Based on a closing price of $11.26 per share of common stock on February 22, 2012.

  (2)

The performance units are valued at $1.00 per unit.

  (3) 

Excludes 2012 special restricted stock grant to Mr. Wills, Ms. de Winter and Ms. Incandela (see page 47).

For the 2012 performance share and performance unit programs for the executive officers, the HRCC established the following performance measures: EBITDA for 2012, at specified levels (75% weight) and comparable store sales for 2012, at specified levels (25% weight). The 2012 EBITDA and comparable store sales actual performance and payout are as follows:

 

EBITDA    Threshold      Target      Maximum      Actual  

 EBITDA Performance ($MM)

     $250         $295         $355         $268.5   

 EBITDA Achievement (% of Target)

     85%         100%         120%         91.0%   

 Payout Level (as a % of Target)

     30%         100%         125%         55.9%   

 

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Comparable Store Sales   Threshold     Target     Maximum     Actual  

  Comparable Stores Sales Increase

    2.5     5.0     7.5     3.2

  Comparable Store Sales Achievement (% of Target)

    50     100     150     64.0

  Payout Level (as a % of Target)

    50     100     125     64.0

The HRCC believes that EBITDA, combined with other financial measures, are appropriate measures of management’s performance against goals and objectives designed to create sustained performance and shareholder value. Each performance share and performance unit award was granted in accordance with the 2009 Long-Term Incentive Plan. In 2012, the payout for performance shares was based on a performance period of one year and a holding period of two years; for performance units, the performance period was one year, with 50% payable in cash six months following the HRCC’s determination that the award had been earned and 50% payable in cash eighteen months after such determination. Accordingly, any earned performance shares for 2012 are fully payable on February 22, 2015, provided the executive remains in the continuous employ of the Company. Any earned performance units will be settled in cash only and will be payable 50% on November 5, 2013 and 50% on November 5, 2014, provided the executive remains in the continuous employ of the Company. See changes to the 2013 Long-Term Incentive Plan under “-- 2013 Annual Awards under the Long-Term Incentive Plan” below at page 48.

Performance Shares

The HRCC awarded the target number of performance shares indicated in the table below to the Named Executive Officers under the 2012 performance share program subject to the achievement of the specified performance measures noted above. Provided that at least a threshold level of performance was achieved, the actual number of performance shares earned by the Named Executive Officers ranged from the threshold number of performance shares to the maximum number of performance shares determined based on the Company’s performance against the specified performance measures during 2012.

The following table sets forth the threshold, target and maximum levels as well as the actual payout based upon the achievement levels discussed above:

 

Executive   Performance Shares     Value of Performance Shares  
  Threshold
Number
of Shares
    Target
Number
of
Shares
    Maximum
Number
of Shares
    Actual
Payout
Number
of
Shares
    Value of
Threshold
Number of
Shares(1)
    Value of
Target
Number of
Shares(1)
    Value of
Maximum
Number of
Shares(1)
    Value of
Actual
Payout
Number of
Shares(1)
 
Stephen I. Sadove     56,037        160,103        200,129        92,740        $630,977        $1,802,760        $2,253,453        $1,044,252   
Kevin G. Wills     8,406        24,016        30,020        13,912        $94,652        $270,420        $338,025        $156,649   
Ronald L. Frasch     13,450        38,425        48,032        22,258        $151,447        $432,666        $540,840        $250,625   
Jennifer de Winter     5,325        15,210        19,013        8,811        $59,960        $171,265        $214,086        $99,212   
Denise Incandela     5,325        15,210        19,013        8,811        $59,960        $171,265        $214,086        $99,212   
    (1)

Based on a closing price of $11.26 per share of common stock on February 22, 2012.

Performance Units

The HRCC also awarded the target number of performance units, valued at $1.00 per unit and to be settled in cash only, subject to the achievement of the established performance measures noted above. Provided that at least a threshold level of performance is achieved, the actual number of performance units earned by the Named Executive Officers ranged from the threshold number of performance units to the maximum number of performance units determined based on the Company’s

 

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performance against the specified performance measures during 2012. The following table sets forth the threshold, target and maximum levels as well as the actual payout based upon the achievement levels discussed above:

 

Executive   Performance Units     Value of Performance Units  
  Threshold
Number
of Units
    Target
Number of
Units
    Maximum
Number of
Units
    Actual
Payout
Number
of Units
    Value of
Threshold
Number
of Units
    Value of
Target
Number of
Units
    Value of
Maximum
Number of
Units
    Value of
Actual
Payout
Number
of Units
 
Stephen I. Sadove     583,334        1,666,667        2,083,333        965,417        $583,334        $1,666,667        $2,083,333        $965,417   
Kevin G. Wills     87,500        250,000        312,500        144,813        $87,500        $250,000        $312,500        $144,813   
Ronald L. Frasch     140,000        400,000        500,000        231,700        $140,000        $400,000        $500,000        $231,700   
Jennifer de Winter     55,417        158,333        197,917        91,715        $55,417        $158,333        $197,917        $91,715   
Denise Incandela     55,417        158,333        197,917        91,715        $55,417        $158,333        $197,917        $91,715   

Restricted Stock

As part of the annual equity grants approved by the HRCC in 2012, the Named Executive Officers were also awarded time-based restricted stock. These restricted stock awards were intended to provide the Named Executive Officers with the opportunity to build additional share ownership and to aid in the retention of those executive officers. The awards vest 100% on the third anniversary of the grant date. These awards were approved by the HRCC and granted in accordance with our “Policy and Procedures for the Granting of Equity Awards.”

 

Executive    Restricted Stock  
   Number of
Restricted
Shares
    Value of
Restricted
Shares(1)
 
Stephen I. Sadove      160,103      $ 1,802,760   
Kevin G. Wills      24,016      $ 270,420   
Ronald L. Frasch      38,425      $ 432,666   
Jennifer de Winter      15,210      $ 171,265   
Denise Incandela      15,210      $ 171,265   

(1)  Based on a closing price of $11.26 per share of common stock on February 22, 2012.

      

In addition to the annual equity grant, three of our Named Executive Officers were granted an additional time-based restricted stock grant for 2012. The intent of these grants is to assist in the retention of these key executives and the grants are subject to extended vesting schedules. Our CEO and our President were not granted any special equity grants for 2012.

 

Executive    Special Restricted Stock  
   Number of
Restricted
Shares Granted
     Value on
Grant Date
(1)
 
Kevin G. Wills      96,062       $ 1,081,658   
Jennifer de Winter      96,062       $ 1,081,658   
Denise Incandela      96,062       $ 1,081,658   

(1)   Based on a closing price of $11.26 per share of common stock on February 22, 2012.

      

Each award was made in accordance with the 2009 Long-Term Incentive Plan. The shares of the special restricted stock will vest one-third on the third anniversary of the grant date, one-third of the fourth anniversary of the grant date and one-third on the fifth anniversary of the grant date. This vesting schedule is longer than the vesting schedule for annual restricted shares granted to the Named Executive Officers in order to reinforce the retentive value of the special grants.

 

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2013 Annual Awards under the Long-Term Incentive Program

On February 27, 2013, the Named Executive Officers received a mix in value (generally consistent with our approach in 2012) of performance shares, performance units and restricted stock awards as part of the annual grants made to executive officers as outlined in the table below. These awards were approved by the HRCC (following review by the entire Board) and were awarded under the 2009 Long-Term Incentive Plan and in accordance with our “Policy and Procedures for the Granting of Equity Awards.”

 

Executive   Target Mix of Equity  
  Performance
Shares
(33.65%)
(1)
    Performance Units
(32.70%)
(2)
    Restricted Stock
(33.65%)
(1)
    Total 2013
Value Granted
 
  Stephen I. Sadove     $1,715,030        $1,666,667        $1,715,030        $5,096,727   
  Kevin G. Wills     $257,259        $250,000        $257,259        $764,518   
  Ronald L. Frasch     $583,118        $566,667        $583,118        $1,732,903   
  Jennifer de Winter     $162,929        $158,333        $162,929        $484,191   
  Denise Incandela     $162,929        $158,333        $162,929        $484,191   

(1)  Based on a closing price of $11.35 per share of common stock on February 27, 2013.

(2)  The performance units are valued at $1.00 per unit.

     

     

In establishing long-term incentive targets for 2013, the HRCC reviewed survey data but also took into consideration emerging design trends.

For the 2013 performance share and performance unit programs for executive officers, the HRCC established the following performance measures:

 

   

Performance Share Plan: 2-year cumulative Operating Income (excluding certain non-recurring items), at specified levels (100% weight), reflecting a departure from the 2012 one-year performance measures.

 

   

Performance Unit Plan: 1-Year Operating Income (excluding certain non-recurring items), at specified levels (100% weight).

 

   

The Performance Share and Performance Unit awards were made in accordance with the 2009 Long-Term Incentive Plan.

 

   

Consistent with the vesting period of prior year’s awards, any earned performance shares are payable 100% on February 27, 2016, provided the executive remains in the continuous employ of the Company. Any earned performance units will be settled in cash only and will be payable 50% on November 5, 2014 and 50% on November 5, 2015, provided the executive remains in the continuous employ of the Company.

The HRCC determined that for 2013, the metrics and design of the performance share plan should be changed to reflect emerging best practice in long-term incentive design. In making this change, the HRCC set out to accomplish the following objectives: (i) more clearly distinguish performance under the short-term and long-term plans and (ii) lengthen the performance period for which performance will be evaluated, in an effort to further link achievement of long-term goals with long-term shareholder value creation.

The new design replaces EBITDA and same store sales measures with one core operating measure – Operating Income. The HRCC believes Operating Income is a critical measure of the Company’s long-term success and determined that focus on a single measure, rather than multiple measures, was appropriate. EBITDA, however, remains a major performance metric of the Company’s annual bonus plan.

 

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As the Company and the retail industry in general continue to recover from the economic recession of 2008-2010, the HRCC determined to establish some goals over a multi-year period for a significant portion of the long-term incentive plan. The new performance share program design is based on cumulative two-year performance (rather than one year) to further motivate executives to act in the long-term interests of shareholders. Any earned performance shares continue to be subject to additional service vesting as discussed above. The HRCC will continue to evaluate this design and make adjustments, as appropriate, to support the Company’s pay-for-performance approach, to reflect best practices and to align with shareholder interests.

The HRCC awarded the target number of performance shares indicated in the table below to the Named Executive Officers under the 2013 performance share program subject to the achievement of the specified performance measures noted above. Provided that at least a threshold level of performance is achieved, the actual number of performance shares earned by the Named Executive Officers will range from the threshold number of performance shares to the maximum number of performance shares to be determined based on the Company’s and the Named Executive Officer’s performance against the specified performance measures during 2013.

 

     Performance Shares     Value of Performance Shares  
Executive   Threshold
Number of
Shares
    Target
Number of
Shares
    Maximum
Number of
Shares
    Value of
Threshold
Number of
Shares
(1)
    Value of
Target
Number of
Shares
(1)
    Value of
Maximum
Number of
Shares
(1)
 
Stephen I. Sadove     45,332        151,104        226,656        $514,518        $1,715,030        $2,572,546   
Kevin G. Wills     6,800        22,666        33,999        $77,180        $257,259        $385,889   
Ronald L. Frasch     15,413        51,376        77,064        $174,938        $583,118        $874,676   
Jennifer de Winter     4,307        14,355        21,533        $48,884        $162,929        $244,400   
Denise Incandela     4,307        14,355        21,533        $48,884        $162,929        $244,400   

(1)     Based on a closing price of $11.35 per share of common stock on February 27, 2013.

        

The HRCC awarded the target number of performance units, valued at $1.00 per unit and to be settled in cash only, indicated in the table below to the Named Executive Officers under the 2013 performance unit program subject to the achievement of the established performance measure noted above. Provided that at least a threshold level of performance is achieved, the actual number of performance units earned by the Named Executive Officers will range from the threshold number of performance units to the maximum number of performance units to be determined based on the Company’s performance against the specified performance measures during 2013.

 

Executive   Performance Units     Value of Performance Units  
  Threshold
Number
of Units
    Target
Number of
Units
    Maximum
Number
of Units
    Value of
Threshold
Number
of Units
    Value of
Target
Number of
Units
     Value of
Maximum
Number of
Units
 
Stephen I. Sadove     500,000        1,666,667        2,500,000        $500,000        $1,666,667         $2,500,000   
Kevin G. Wills     75,000        250,000        375,000        $75,000        $250,000         $375,000   
Ronald L. Frasch     170,000        566,667        850,001        $170,000        $566,667         $850,001   
Jennifer de Winter     47,500        158,333        237,500        $47,500        $158,333         $237,500   
Denise Incandela     47,500        158,333        237,500        $47,500        $158,333         $237,500   

As part of the annual equity grants approved by the HRCC in 2013, the Named Executive Officers were also awarded time-based restricted stock. These restricted stock awards are intended to provide the Named Executive Officers with the opportunity to build additional share ownership and to aid in the retention of such executive officer. These awards were approved by the HRCC and granted on February 27, 2013 in accordance with our “Policy and Procedures for the Granting of Equity Awards.” The restricted stock awards vest 100% in three years from the grant date.

 

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The HRCC granted the following restricted stock awards to the Named Executive Officers:

 

Executive   Restricted Stock  
  Number of
Restricted Shares
Granted
     Value on
Grant Date (1)
 
Stephen I. Sadove     151,104         $1,715,030   
Kevin G. Wills     22,666         $257,259   
Ronald L. Frasch     51,376         $583,118   
Jennifer de Winter     14,355         $162,929   
Denise Incandela     14,355         $162,929   

(1) Based on a closing price of $11.35 per share of common stock on February 27, 2013.

Each award was made in accordance with the 2009 Long-Term Incentive Plan.

The table below sets forth the value of the total annual awards (excluding the special restricted stock grant in 2012 set forth in the table above) granted in 2009, 2010, 2011, 2012 and 2013. The annual grants from 2009 through 2011 during the economic downturn were relatively flat and were below market median. In 2012, the HRCC determined these grants should start to approach the market median, reflecting the improved economy and the Company’s improved performance. The total grant values for all Named Executive Officers were essentially flat for 2013 as compared to 2012 annual grants, except for Mr. Frasch, who was awarded an increased value for the 2013 annual award to assist in the retention of this key executive.

 

           
Name    Total 2009
Value
Granted
     Total 2010
Value
Granted
     Total 2011
Value
Granted
     Total 2012
Value
Granted
     Total 2013
Value
Granted
 

Stephen I. Sadove

     $3,953,250         $3,928,572         $3,825,326         $5,272,186         $5,096,727   

Kevin G. Wills

     $678,827         $654,762         $714,063         $790,840         $764,518   

Ronald L. Frasch

     $1,086,125         $1,047,632         $1,122,107         $1,265,332         $1,732,903   

Jennifer de Winter

     $402,636         $314,286         $382,550         $500,863         $484,191   

Denise Incandela

     $183,283         $275,002         $306,045         $500,863         $484,191   

Termination or Change in Control – Rationale for Triggers

The Company entered into employment agreements with each of the Named Executive Officers in 2007 and with certain other executive officers. These agreements generally provide for payments and other benefits if the officer’s employment terminates for a qualifying event or circumstance, such as being terminated without “cause” or leaving employment for “good reason,” as these terms are defined in the employment agreements. For the Named Executive Officers, upon a “Change in Control” (as defined in the agreements) of the Company, each Named Executive Officer may terminate his or her employment for “good reason.” Additional information regarding the employment agreements is found under the heading “Employment Agreements” below and a quantification of benefits that would have been received by the Named Executive Officers had termination occurred on February 2, 2013 is found under the heading “Potential Payments upon Termination or Change-in-Control” below. See “—Potential Payments upon Termination or Change in Control.”

The HRCC believes that these agreements are an important part of a competitive overall compensation arrangement for the Named Executive Officers. The HRCC also believes that these agreements will help to secure the continued employment and dedication of the Named Executive

 

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Officers and mitigate concern that they might have regarding their continued employment prior to or following a change in control, thereby allowing the executive to focus his or her undivided attention to serving the interests of the Company and our shareholders. The HRCC also believes that these agreements are important as a recruitment and retention device, as many of the companies with which the Company competes for executive talent have similar agreements in place for their senior executives. Finally, the HRCC believes that these agreements are beneficial to the Company because, in consideration for these severance arrangements, the executives agree to confidentiality, non-competition and non-solicitation covenants for a period of time following termination of employment.

The payment of multiples of base salary and bonus and the accelerated vesting of stock options and payments under outstanding long-term awards are consistent with competitive practices for positions at the level of the Named Executive Officers. The potential amount of severance benefits an executive may receive in the event of a change in control did not influence the HRCC’s decisions regarding other compensation elements. The HRCC annually reviews the potential cost of these programs and closely evaluates the termination provisions in its equity awards; however, the potential amount of severance benefits an executive may receive has not influenced the HRCC’s decisions regarding setting compensation levels for a given year.

Stock Ownership Guidelines for Executive Officers

In addition to rewarding performance and maintaining competitiveness in the market for top talent, our compensation programs provide the opportunity for executive officers to establish and maintain meaningful levels of share ownership, which is intended to align the economic interests of the Company’s shareholders, the Named Executive Officers and the Company’s other executive officers. To that end, the Board reviewed and increased our stock ownership guidelines for our Section 16 officers (other than the guidelines for our Chief Executive Officer which fell within the guidelines of our peer group). The following are our revised stock ownership guidelines, which are expressed as a multiple of annual base salary:

 

   
Position    Share Ownership Guidelines

Chairman and Chief Executive Officer

   5x or 500% of base salary

All Other Section 16 Officers

   2x or 200% of base salary

There is no set time frame for achieving the targeted level of share ownership. However, until the ownership guidelines are satisfied, executives are required to hold 75% of the net shares (after satisfying withholding for taxes and the exercise price for stock option exercises) awarded from the Company’s equity-based compensation programs. To monitor compliance with these guidelines, the Corporate Governance Committee annually reviews the share ownership of the Company’s executives.

Our Chairman and Chief Executive Officer and all of our other Section 16 officers are in compliance with the Company’s share ownership guidelines.

Trading Controls and Hedging/Pledging Transactions

The Company’s “Securities Transaction Compliance and Blackout Policy for Directors, Executive Officers, Policy Committee Members and Other Designated Employees” prohibits our directors, executive officers and other employees from hedging the economic risks of share ownership resulting from the Company’s equity compensation programs. During 2012, the Board approved an amendment to our policy to provide that our directors, executive officers and other employees may not hold the Company’s securities in a margin account as collateral for a margin loan or pledge or hypothecate the Company’s securities as collateral for a loan.

 

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Table of Contents

Assessment of Compensation Risks

We regularly assess the Company’s compensation policies and practices to determine whether those policies and practices are reasonably likely to result in a material adverse effect upon the Company. Based upon a review by the HRCC and management of our compensation policies and practices, we have concluded that no such effect would be reasonably anticipated from our current compensation policies and practices.

The HRCC designs compensation policies and practices with features that mitigate risk without diminishing the incentive nature of the compensation. With respect to specific elements of compensation:

 

The Company provides a mix of both long- and short-term elements when delivering compensation;

Both the annual bonus program and the long-term incentive program have maximum payouts or “caps” in place (as set forth on pages 43-46);

Both the annual bonus and long-term incentive programs use a mix of performance measures:

         •  

the annual bonus program measures are determined by function. All programs have between two and five measures. Each program includes corporate, business unit specific and individual performance measures; and

         •  

the long-term incentive program incorporated two measures in 2012;

The Company’s compensation programs use both cash and shares and use a number of vehicles, including performance shares, performance units and restricted shares;

Different metrics are utilized for the annual bonus and long-term programs;

In 2013, different metrics will be utilized for the annual bonus program and performance awards within the long-term incentive plan;

The time horizon for both the annual bonus and long-term incentive programs are considered reasonable within the retail industry:

         •  

the annual bonus program is a one-year plan;

         •   in 2012, the long-term incentive program was based on a one-year performance period with a two-year hold period until vesting;
         •   in 2013, that part of the long-term incentive program that is related to performance shares will be based on a two-year cumulative performance period with a one-year hold period until vesting;

The HRCC has final discretion on payouts under both the annual bonus and long-term incentive programs;

The HRCC awaits the release of the Company’s Form 10-K prior to finalizing annual bonus and long-term incentive programs;

The HRCC uses tally sheets to review the compensation of executive officers;

The HRCC conducts an incentive plan inventory;

The HRCC uses the services of an independent outside compensation consultant;

The Board engages in its own risk oversight including a review of enterprise risk, Company strategy and internal control over financial reporting;

The Board has overlapping memberships on Board committees;

Committee Reports of all Board committees are made to the full Board at each regular Board meeting;

The Company has in place stock ownership guidelines that restrict sales of equity by executive officers (as set forth on page 51);

The Company maintains a securities transaction compliance policy that requires executive officers (Vice President and above), along with other restricted associates, to obtain permission to undertake any transaction in the Company’s common stock, even during an open trading period;

 

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The Company’s securities transaction compliance policy prohibits the purchase or sale by associates and directors at any time, even during an open trading period, of any derivatives in the Company’s securities, including but not limited to, put or call options, warrants, straddles or other hedging transactions relating to the Company’s securities and prohibits associates and directors from holding the Company’s securities in a margin account as collateral for a margin loan or pledge or hypothecate the Company’s securities as collateral for a loan. Associates and directors are also prohibited from selling short any of the Company’s securities; and

The Company intends to implement clawback provisions after the SEC provides guidance and issues final rules.

Forfeiture of Equity-Based Awards

The Company’s equity award agreements provide that if an associate engages in any business or activity that, in the opinion of the HRCC, is in conflict or adverse to the interest of the Company or engages in any business or activity that is competitive with any business or activity conducted by the Company, the associate will forfeit all unearned or unpaid equity awards. The Company’s equity award agreements also provide that if, within six months following an associate’s termination of employment, an associate engages in any business or activity determined by the HRCC to be competitive with any business or activity conducted by the Company, the associate shall pay to the Company an amount in cash equal to the value, determined at the date of vesting, of any award that vested on or after or within six months prior the associate’s termination of employment.

Effect of Accounting and Tax Treatments on Compensation

Although the accounting and tax treatment of executive compensation generally has not been a factor in the HRCC’s decisions regarding the amounts of compensation paid to our executive officers, it has been a factor in the compensation mix as well as the design of compensation programs. As further described below, for example, we have attempted to structure our compensation to maximize the tax benefits to the Company (e.g., deductibility for tax purposes). We also do not expect accounting treatment of differing forms of equity awards to vary significantly, and, therefore, accounting treatment is not expected to have a material effect on the HRCC’s future selection of differing types of equity awards.

Section 162(m) of the Code limits the tax deductibility of compensation in excess of $1 million paid to those Named Executive Officers who are “covered employees,” unless the compensation constitutes “qualified performance-based compensation,” both terms as defined in Section 162(m). It is the HRCC’s intention to utilize performance-based compensation in order to maximize the deductibility of executive compensation. However, the HRCC believes that, to remain competitive, it must maintain a compensation program that will continue to attract, retain and reward the executive talent necessary to maximize shareholder return. As a consequence, the Company has in the past, and will in the future, pay compensation, such as salary and time-vested restricted stock awards, to one or more of the Named Executive Officers, that exceeds $1 million and does not constitute qualified performance-based compensation when the HRCC deems such payments to be in our best interests and those of our shareholders.

As noted above, our Named Executive Officers have entered into agreements with us in 2007 that provide for certain payments and benefits that are triggered upon a change in control of Saks. These agreements also provide for tax protection in the form of a gross-up payment to reimburse the executive for excise tax under Internal Revenue Code Section 4999 above a certain threshold as well as any additional income and employment taxes resulting from such reimbursement. Code Section 4999 imposes a 20% non-deductible excise tax on the recipient of an “excess parachute payment” received upon a change in control and Code Section 280G disallows the tax deduction to the payor of such excess parachute payment. A payment as a result of a change in control must equal or

 

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exceed three times the executive’s base amount in order to be considered a parachute payment. The excise tax is then imposed on the excess of the parachute payments over the executive’s base amount. The agreements provide for a gross-up payment for the excise tax to the extent the parachute payments exceed 330% of the executive’s base amount. The intent of the tax gross-up is to provide a benefit without tax penalty to certain executives who are displaced in the event of a change in control. We believe that the provision of tax protection for certain of our executive officers was consistent with market practice at the time those agreements were entered into, is often a valuable executive talent retention provision and is consistent with the objectives of our overall executive compensation program. See “– Employment Agreements” and “–Potential Payments upon Termination or Change in Control.”

Report of the Human Resources and Compensation Committee

The HRCC has reviewed and discussed the CD&A with management. Based on its review and discussions of the CD&A with management, the HRCC recommended to the Board of Directors that the CD&A be included in this proxy statement and incorporated by reference into our Annual Report on Form 10-K for 2012.

This report has been furnished by the members of the HRCC:

Nora P. McAniff, Chair

Fabiola R. Arredondo

Robert B. Carter

Donald E. Hess

Marguerite W. Kondracke

 

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Human Resources and Compensation Committee Interlocks and Insider Participation

None of the members of the HRCC serves or has ever served as an executive officer of the Company, and no relationships exist requiring disclosure under applicable regulations of the SEC. In addition, none of our executive officers has served on the board of directors or on the compensation committee of any other entity whose executive officers served either on our Board or on our HRCC.

Summary Compensation Table

The following table sets forth for 2012, 2011 and 2010, total compensation for Stephen I. Sadove, Chief Executive Officer (“Principal Executive Officer”); Kevin G. Wills, Executive Vice President of Finance and Chief Financial Officer (“Principal Financial Officer”); and for the three most highly compensated executive officers other than the Principal Executive Officer and the Principal Financial Officer. As used in this proxy statement, the term “executive officer” has the meaning set forth in Rule 3b-7 under the Exchange Act.

 

 Name and Principal

 Position

  Year     Salary
($)
     Bonus 
($)
    Stock
Awards
($) (1)
    Option
 Awards 
($) (2)
  Non-Equity
Incentive

Plan
Compensation
($) (3)
    Change in
Pension

Value and
Nonqualified
Deferred
Compensation
Earnings
($) (4)
    All Other
Compensation
($)
    Total
($)
 

 Stephen I. Sadove

     2012        $ 1,037,500         -       $ 3,605,520       -    $ 2,014,468         -       $ 109,174     (5)(9)(10)     $ 6,766,662    

 Chief Executive Officer

     2011        $ 1,007,700         -       $ 2,575,326       -    $ 3,375,253         -       $ 94,167       $ 7,052,446    
     2010        $ 985,800         -       $ 2,678,572       -    $ 3,468,051         -       $ 124,112       $ 7,256,535    

 Kevin G. Wills

     2012        $ 613,500         -       $ 1,622,498       -    $ 475,691         -       $ 26,178     (6)(10)     $ 2,737,867    

 Executive Vice President,
Chief Financial Officer

     2011        $ 596,063         -       $ 480,730       -    $ 839,061         -       $ 13,714       $ 1,929,568    
     2010        $ 584,250         -       $ 446,428       -    $ 821,797         -       $ 15,450       $ 1,867,925    
                 

 Ronald L. Frasch

     2012       $ 1,022,500        -       $ 865,331       -    $ 852,096         -       $ 74,098     (7)(10)     $ 2,814,025    

 President and Chief
Merchandising Officer

     2011       $ 994,125        -       $ 755,440       -    $ 1,498,615         -       $ 49,414       $ 3,297,594    
     2010       $ 976,500        -       $ 714,298       -    $ 1,505,134         -       $ 42,692       $ 3,238,624    

 Jennifer de Winter

     2012       $ 511,250        -       $ 1,424,187       -    $ 315,747        $ 4,626        $ 18,087     (6)(10)     $ 2,273,897    

 Executive Vice President
of Stores

     2011       $ 481,875        -       $ 257,550       -    $ 523,785        $ 13,959        $ 10,876       $ 1,288,045    
     2010       $ 427,500        -       $ 214,286       -    $ 484,751        $ 5,323        $ 31,380       $ 1,163,240    

 Denise Incandela

     2012       $ 511,250        -       $ 1,424,187       -    $ 315,747        $ 3,865        $ 17,212     (8)     $   2,272,261    

 Executive Vice President,
Chief Marketing Officer

     2011       $ 434,628      $   46,000       $ 206,045       -    $ 448,842        $ 12,200        $ 16,089       $ 1,163,804    

 

(1)

The amounts shown in this column reflect the grant-date fair value of restricted stock and performance share awards granted in 2012, 2011 and 2010. The fair value of restricted stock and performance share awards is based on the market value of the Company’s common stock on the date of grant. Amounts disclosed above for performance share awards granted are based upon the most probable outcome of the performance conditions on the grant date, which include certain operational objectives and financial measurements. Actual amounts earned are based on achieving these operational objectives and financial measurements and are determined by the HRCC at the end of the applicable performance period. For 2012, the maximum payout value for the performance share awards is as follows: Mr. Sadove $2,253,453; Mr. Wills $338,025; Mr. Frasch $540,840; Ms. de Winter $214,086; and Ms. Incandela $214,086. See the Outstanding Equity Awards at Fiscal Year-end section on page 58 for information on performance share awards earned in 2012. For 2011, the maximum payout value for the performance share awards is as follows: Mr. Sadove $1,609,582; Mr. Wills $300,462; Mr. Frasch $472,150; Ms. de Winter $160,978; and Ms. Incandela $128,787. For 2010, the value disclosed represents the maximum payout value for those awards.

(2) 

There were no stock options granted in 2012, 2011 and 2010.

(3) 

The amounts shown for 2012 reflect cash bonuses as well as performance units that will be settled in cash. Cash bonuses are granted to the Named Executive Officers under the Company’s 2007 Senior Executive Bonus Plan for the achievement of specified performance measures, including key financial metrics and corporate objectives. Cash bonuses for 2012 are as follows: Mr. Sadove $1,049,051; Mr. Wills $330,878; Mr. Frasch $620,396; Ms. de Winter $224,032; and Ms. Incandela $224,032. Performance units to be settled in cash are awarded to the Named Executive Officers under the Company’s 2009 Long-Term Incentive Plan and are based on certain financial measurements. The value of the performance units to be settled in cash awarded to each executive is as follows: Mr. Sadove $965,417; Mr. Wills $144,813; Mr. Frasch $231,700; Ms. de Winter $91,715; and Ms. Incandela $91,715. The performance units vest in two equal installments on November 5, 2013 and November 5, 2014.

(4) 

These amounts relate to the change in the pension value for the Saks Fifth Avenue Pension Plan.

(5) 

Includes (i) financial and tax planning services of $31,754; (ii) personal use of the Company aircraft of $29,642; (iii) personal use of a Company-provided car and driver; (iv) reimbursement for an annual physical examination; (v) supplemental long-term disability insurance premiums; (vi) excess life insurance premiums; (vii) Company matching contributions under the 401(k) Plan; and (viii) Company contributions to the Deferred Compensation Plan (“DCP”).

 

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(6) 

Includes (i) financial and tax planning services; (ii) personal use of a Company-provided car and driver; (iii) supplemental long-term disability insurance premiums; (iv) excess life insurance premiums; (v) Company matching contributions under the 401(k) Plan; and (vi) Company contributions to the DCP.

(7) 

Includes (i) personal use of a Company-provided car and driver; (ii) financial and tax planning services; (iii) reimbursement for an annual physical examination; (iv) supplemental long-term disability insurance premiums; (v) excess life insurance premiums; (vi) Company matching contributions under the 401(k) Plan; and (vii) Company contributions to the DCP.

(8) 

Includes (i) financial and tax planning services; (ii) supplemental long-term disability insurance premiums; (iii) excess life insurance premiums; (iv) Company matching contributions under the 401(k) Plan; and (v) Company contributions to the DCP.

(9) 

The amounts shown for the personal use of the Company aircraft are based on the incremental cost to the Company as a result of personal flight activity. The following items are taken into account in determining the variable cost for the number of flight hours used: fuel, maintenance, labor, parts, landing/parking, crew travel, and supplies/catering.

(10) 

The amounts shown for the personal use of Company-provided cars and drivers are based on the incremental cost to the Company. Since the Company-provided car is used for both personal and business purposes, the percentage of personal use is calculated and applied to the lease and driver expenses.

Grants of Plan-Based Awards – 2012

The following table provides information regarding grants of awards and possible payouts under the Company’s annual bonus program and long-term incentive program in 2012.

 

          Estimated Possible Payouts
Under Non-Equity Incentive
Plan Awards
    Estimated Possible Payouts
Under Equity Incentive
Plan Awards
    All Other
Stock
Awards:
Number
 of Shares 
of Stock
or Units
(#)
    All Other
Option
Awards:
Number of
Securities

 Underlying 
Options (#)
     Exercise 
or Base
Price of
Option

Awards
($/Sh)
    Grant
Date Fair
Value of
 Stock and 
Option
Awards
($)(2)
 

 Name

   Grant 
Date
     Threshold 
($)(1)
     Target 
($)(1)
     Maximum 
($)(1)
     Threshold 
(#)
     Target 
(#)
     Maximum 
(#)
         
 Stephen I. Sadove     2/22/2012                      -            56,037        160,103        200,129        -                    -                    -          $ 1,802,760     
    2/22/2012                      -            -            -            -            160,103        -            -          $ 1,802,760     
    $ 936,021       $ 3,234,167       $ 4,434,584                  

 Kevin G. Wills

    2/22/2012                      -            8,406        24,016        30,020        -            -            -          $ 270,420     
    2/22/2012                      -            -            -            -            120,078        -            -          $ 1,352,078     
    $ 198,740       $ 744,400       $ 1,054,100         -            -            -            -            -            -            -         

 Ronald L. Frasch

    2/22/2012                      -            13,450        38,425        48,032        -            -            -          $ 432,666     
    2/22/2012                      -            -            -            -            38,425        -            -          $ 432,666     
    $ 348,575       $ 1,327,000       $ 1,890,500         -            -            -            -            -            -            -         

 Jennifer de Winter

    2/22/2012                      -            5,325        15,210        19,013        -            -            -          $ 171,265     
    2/22/2012                      -            -            -            -            111,272        -            -          $ 1,252,923     
    $ 130,735       $ 493,083       $ 700,041         -            -            -            -            -            -            -         

 Denise Incandela

    2/22/2012                      -            5,325        15,210        19,013        -            -            -          $ 171,265     
    2/22/2012                      -            -            -            -            111,272        -            -          $ 1,252,923     
    $ 130,735       $ 493,083       $ 700,041         -            -            -            -            -            -            -         
(1) 

Includes possible payouts of (i) the annual cash bonus granted under the 2007 Senior Executive Bonus Plan and (ii) performance units granted under the 2009 Long-Term Incentive Plan. The performance units are valued at $1.00 per unit and are to be settled in cash only.

(2) 

The amounts shown in this column reflect the grant-date fair value of restricted stock and performance share awards granted under the 2009 Long-Term Incentive Plan. For awards subject to performance conditions, the grant-date fair value is based upon the probable outcome of the performance conditions on the grant date, which include certain financial measurements.

Awards in 2012

As discussed in “Compensation Discussion and Analysis,” the Company emphasized performance-based awards in 2012.

The “Estimated Possible Payouts Under Non-Equity Incentive Plan Awards” columns of the “Grants of Plan-Based Awards – 2012” table include the threshold, target and maximum-level payments of the 2012 annual cash bonuses associated with the annual bonus plans and performance units that are to be settled in cash. For the 2012 annual cash bonus, the HRCC established the following performance measures for each of the Named Executive Officers: (i) EBITDA, at specified levels (75% weight); and (ii) the achievement of key corporate objectives (25% weight). The payout of the 2012 annual cash bonus is capped at 150% of target. Based on the Company’s performance against the established performance measures for the 2012 annual cash bonus program, each Named Executive Office, received 67% of his or her target bonus award. For additional information regarding the 2012 annual cash bonuses, see “Executive Compensation – Compensation Discussion and

 

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Analysis – Annual Cash Bonuses.” For the 2012 performance units to be settled in cash, the HRCC established the following performance measures for each of the Named Executive Officers: EBITDA, at specified levels (75%); and comparable store sales, at specified levels (25% weight). The payout of the performance unit awards for achievement of each measure is capped at 125% of target. Based on the Company’s performance against the established performance measures, each Named Executive Officer earned 57.9% of the units granted. The performance units vest in two equal installments on November 5, 2013 and November 5, 2014. For additional information regarding the 2012 performance units to be settled in cash, see “Executive Compensation – Compensation Discussion and Analysis – Long-Term Incentive Awards – 2012 Annual Awards under the Long-Term Incentive Program.”

The “Estimated Possible Payouts Under Equity Incentive Plan Awards” columns of the “Grants of Plan-Based Awards – 2012” table show the potential payouts of the performance share awards granted under the 2009 Long-Term Incentive Plan for each of the Named Executive Officers according to the level of performance achieved in 2012. The HRCC approved the same performance measures discussed above for the 2012 performance units to be settled in cash. The payout of these awards for achievement of each measure is capped at 125% of target. Based on the Company’s performance against the established performance measures, each Named Executive Officer earned 57.9% of the performance shares granted for the 2012 performance period. The performance shares earned are subject to an additional two-year restriction period and will vest on February 22, 2015. For additional information regarding the 2012 performance shares, see “Executive Compensation – Compensation Discussion and Analysis – Long-Term Incentive Awards – 2012 Annual Awards under the Long-Term Incentive Program.”

The “All Other Stock Awards: Number of Shares of Stock or Units” column of the “Grants of Plan-Based Awards – 2012” table includes time-based restricted stock granted to the Named Executive Officers under the 2009 Long-Term Incentive Plan as part of the annual equity grant approved by the HRCC. The awards vest 100% on the third anniversary of the grant date. In addition to the annual equity grant, Mr. Wills, Ms. de Winter, and Ms. Incandela were each granted an additional 96,062 shares of restricted stock that will vest in three equal installments on the third, fourth, and fifth anniversaries of the grant date. The intent of these grants is to assist in the retention of these key executives. For additional information, see “Executive Compensation – Compensation Discussion and Analysis – Long-Term Incentive Awards – 2012 Annual Awards under the Long-Term Incentive Program.”

 

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Outstanding Equity Awards at Fiscal Year-End – 2012

The following table provides information regarding stock options, restricted stock and performance shares held by each of the Named Executive Officers as of February 2, 2013. For information regarding performance share awards earned in 2012, see “Executive Compensation—Compensation Discussion and Analysis—Long-Term Incentive Programs.”

 

     Option Awards      Stock Awards  

 Name

   Number of
Securities
Underlying
Unexercised
Options
(#)
     Number of
Securities
Underlying
Unexercised
Options
(#)
     Equity
Incentive
Plan Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options
(#)
     Option
Exercise
Price
($)
     Option
Expiration
Date
     Number of
Shares or
Units of
Stock That
Have Not
Vested
(#)
    Market
Value of
Shares or
Units of
Stock That

Have Not
Vested
($)(1)
     Equity
Incentive
Plan Awards:
Number of
Unearned
Shares, Units
or Other
Rights That
Have Not
Vested
(#)
     Equity
Incentive
Plan Awards:
Market or
Payout Value
of Unearned
Shares, Units
or Other
Rights That
Have Not
Vested
($)(1)
 
   Exercisable      Unexercisable                      
 Stephen I. Sadove      202,500         -                         -           $   19.76         03/09/14         853,107   (2)    $   9,153,838                     -           $             -       
     230,062         -             -           $   13.04         03/06/15              
     -             162,500         -           $ 2.36         02/26/16              
 Kevin G. Wills      13,125         -             -           $ 20.31         05/04/14         257,819   (3)    $   2,766,398         -           $ -       
     28,758         -             -           $ 13.04         03/06/15              
 Ronald Frasch      100,000         -             -           $ 19.76         03/09/14         243,315   (4)    $   2,610,770         -           $ -       
     115,031         -             -           $ 13.04         03/06/15              
 Jennifer de Winter      7,500         -             -           $ 19.76         03/09/14         205,084   (5)    $   2,200,551         -           $ -       
     12,941         -             -           $ 13.04         03/06/15              
 Denise Incandela      7,500         -             -           $ 19.76         03/09/14         196,835   (6)    $   2,112,040         -           $ -       
     12,941         -             -           $ 13.04         03/06/15              
  (1) 

Based on the NYSE closing price on February 1, 2013 of $10.73.

  (2) 

Consists of (i) 1,800 shares of restricted stock granted on October 2, 1998, which have vested but will not be released until retirement from the Board of Directors; (ii) 186,012 performance shares granted on February 25, 2010, which were earned based on the achievement of the 2010 performance criteria established by the HRCC, and were subject to a three-year restriction period that ended on February 25, 2013; (iii) 186,012 shares of restricted stock granted on February 25, 2010 which vested on February 25, 2013; (iv) 121,837 performance shares granted on February 24, 2011 which were earned based on the achievement of the 2011 performance criteria established by the HRCC, and are subject to a three-year restriction period ending on February 24, 2014; (v) 104,603 shares of restricted stock granted on February 24, 2011 which will vest on February 24, 2014; (vi) 92,740 performance shares granted on February 22, 2012, which were earned based on the achievement of the 2012 performance criteria established by the HRCC, and are subject to a three-year restriction period ending on February 22, 2015; and (vii) 160,103 shares of restricted stock granted on February 22, 2012 which will vest on February 22, 2015.

  (3) 

Consists of (i) 19,556 shares of restricted stock granted on March 6, 2008 which vested on March 6, 2013; (ii) 31,002 performance shares granted on February 25, 2010, which were earned based on the achievement of the 2010 performance criteria established by the HRCC, and were subject to a three-year restriction period that ended on February 25, 2013; (iii) 31,002 shares of restricted stock granted on February 25, 2010 which vested on February 25, 2013; (iv) 22,743 performance shares granted on February 24, 2011 which were earned based on the achievement of the 2011 performance criteria established by the HRCC, and are subject to a three-year restriction period ending on February 24, 2014; (v) 19,526 shares of restricted stock granted on February 24, 2011 which will vest on February 24, 2014; (vi) 96,062 shares of restricted stock granted on February 22, 2012 which will vest in three installments on February 22, 2015, February 22, 2016 and February 22, 2017; (vii) 13,912 performance shares granted on February 22, 2012, which were earned based on the achievement of the 2012 performance criteria established by the HRCC, and are subject to a three-year restriction period ending on February 22, 2015; and (viii) 24,016 shares of restricted stock granted on February 22, 2012 which will vest on February 22, 2015.

  (4) 

Consists of (i) 17,000 shares of restricted stock granted on March 6, 2008 which vested on March 6, 2013; (ii) 49,604 performance shares granted on February 25, 2010, which were earned based on the achievement of the 2010 performance criteria established by the HRCC, and were subject to a three-year restriction period that ended on February 25, 2013; (iii) 49,604 shares of restricted stock granted on February 25, 2010 which vested on February 25, 2013; (iv) 35,740 performance shares granted on February 24, 2011 which were earned based on the achievement of the 2011 performance criteria established by the HRCC, and are subject to a three-year restriction period ending on February 24, 2014; (v) 30,684 shares of restricted stock granted on February 24, 2011 which will vest on February 24, 2014; (vi) 22,258 performance shares granted on February 22, 2012, which were earned based on the achievement of the 2012 performance criteria established by the HRCC, and are subject to a three-year restriction period ending on February 25, 2015; and (vii) 38,425 shares of restricted stock granted on February 22, 2012 which will vest on February 22, 2015.

  (5) 

Consists of (i) 32,593 shares of restricted stock granted on March 6, 2008 which vested on March 6, 2013; (ii) 14,881 performance shares granted on February 25, 2010, which were earned based on the achievement of the 2010 performance criteria established by the HRCC, and were subject to a three-year restriction period that ended on February 25, 2013; (iii) 14,881 shares of restricted stock granted on February 25, 2010 which vested on February 25, 2013; (iv) 12,185 performance shares granted on February 24, 2011 which were earned based on the achievement of the 2011 performance criteria established by the HRCC, and are subject to a three-year restriction period ending on February 24, 2014; (v) 10,461 shares of restricted stock granted on February 24, 2011 which will vest on February 24, 2014; (vi) 96,062 shares of restricted stock granted on February 22, 2012 which will vest in three installments on February 22, 2015, February 22, 2016 and February 22, 2017; (vii) 8,811 performance shares granted on February 22, 2012 which were earned based on the achievement of the 2012 performance criteria established by the HRCC, and are subject to a three-year restriction period ending on February 25, 2015; and (viii) 15,210 shares of restricted stock granted on February 22, 2012 which will vest on February 24, 2015.

 

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  (6) 

Consists of (i) 32,593 shares of restricted stock granted on March 6, 2008 which vested on March 6, 2013; (ii) 13,021 performance shares granted on February 25, 2010, which were earned based on the achievement of the 2010 performance criteria established by the HRCC, and were subject to a three-year restriction period that ended on February 25, 2013; (iii) 13,021 shares of restricted stock granted on February 25, 2010 which vested on February 25, 2013; (iv) 9,748 performance shares granted on February 24, 2011 which were earned based on the achievement of the 2011 performance criteria established by the HRCC, and are subject to a three-year restriction period ending on February 24, 2014; (v) 8,369 shares of restricted stock granted on February 24, 2011 which will vest on February 24, 2014; (vi) 96,062 shares of restricted stock granted on February 22, 2012 which will vest in three installments on February 22, 2015, February 22, 2016 and February 22, 2017; (vii) 8,811 performance shares granted on February 22, 2012 which were earned based on the achievement of the 2012 performance criteria established by the HRCC, and are subject to a three-year restriction period ending on February 22, 2015; and (viii) 15,210 shares of restricted stock granted on February 22, 2012 which will vest on February 22, 2015.

Option Exercises and Stock Vested – 2012

The following table provides information regarding the exercise of stock options by the Named Executive Officers during 2012 and the vesting of restricted stock awards held by the Named Executive Officers during 2012.

 

      Option Awards      Stock Awards  

 Name

   Number of Shares
Acquired on Exercise
(#)
     Value Realized
on Exercise
($)
     Number of Shares
Acquired on Vesting
(#)
     Value Realized
on Vesting

($)
 

 Stephen I. Sadove

     162,500           $ 1,275,495           500,000           $ 5,920,000     

 Kevin G. Wills

     -               -               218,342           $ 2,568,657     

 Ronald Frasch

     -               -               360,480           $ 4,211,228     

 Jennifer de Winter

     -               -               115,365           $ 1,338,401     

 Denise Incandela

     -               -               85,461           $ 984,338     

 

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Pension Benefits – 2012

The following table provides information, as of February 2, 2013, with respect to the present value of accumulated benefits payable to the Named Executive Officers under the Saks Fifth Avenue Pension Plan (the “SFA Pension Plan”), which is a qualified retirement plan. The SFA Pension Plan is a defined benefit cash balance plan, which was converted from a traditional defined benefit pension plan in 1998. The calculation of a participant’s pension benefit is determined, in part, by the number of years of credited service and compensation, as defined in the SFA Pension Plan, earned by such Named Executive Officer. The values reflected below represent the greater of the present value of the grandfathered traditional defined benefit annuity or the participant’s cash balance account, determined using interest rate and mortality rate assumptions consistent with those used in the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for 2012. Other assumptions used in the calculation of the amounts under the SFA Pension Plan are included in Note 8 to the Consolidated Financial Statements included in the Company’s Annual Report on Forms 10-K for 2012. Upon termination of employment, the SFA Pension Plan provides for payments in the form of a monthly annuity at age 65 or in a reduced monthly amount if payments commence prior to age 65. In addition, participants who have a cash balance account are eligible to receive payment of their benefit in the form of an immediate lump sum payment upon termination from the Company. The monthly annuity can be paid for the participant’s lifetime or the joint lifetime of the participant and his or her designated beneficiary. During 2006, the Company froze benefit accruals for all participants, except for those who had attained age 55 and completed 10 years of service as of December 31, 2006 and who continued to be “non-highly compensated employees” as defined under the SFA Pension Plan. In January 2009, the Company suspended future benefit accruals for the remaining participants in the SFA Pension Plan effective March 13, 2009.

 

  Name

  

Plan Name

   Number of
Years
Credited
Service
(#)(1)
     Present Value
of
Accumulated
Benefit
($)
     Payments
During
Last Fiscal
Year
($)

Stephen I. Sadove

                     

Kevin G. Wills

                     

Ronald L. Frasch

                     

Jennifer de Winter

   Saks Fifth Avenue Pension Plan      12         78,613      

Denise Incandela

   Saks Fifth Avenue Pension Plan      8         59,707      

 

(1) 

Consists of the number of years of service credited to the Named Executive Officers for the purpose of determining the accumulated benefits under the SFA Pension Plan.

 

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Nonqualified Deferred Compensation – 2012

For the Named Executive Officers participating in the Saks Incorporated Deferred Compensation Plan (“DCP”), the following table provides information regarding executive and Company contributions, plan earnings, withdrawals and distributions during 2012, and aggregate DCP balances at February 2, 2013.

 

Name

   Executive
Contributions
in Last

Fiscal Year
($)
     Registrant
Contributions
in Last Fiscal
Year

($)(1)
     Aggregate
Earnings
in Last  Fiscal
Year
($)(2)
     Aggregate
Withdrawals/
Distributions
in Last

Fiscal Year
($)
    Aggregate
Balance at
Last
Fiscal

Year-End
($)(3)
 
Stephen I. Sadove              $13,305         $304,676         ($2,380,606     $2,021,892   
Kevin G. Wills              $6,121         $2,595                $23,725   
Ronald L. Frasch              $13,075         $5,588                $51,049   
Jennifer de Winter              $4,040         $1,409         ($2,653     $13,035   
Denise Incandela              $167         $16                $183   

 

(1)

These amounts are reported as compensation for 2012 under the “All Other Compensation” column in the Summary Compensation Table.

(2)

Aggregate earnings reflect: (i) appreciation/depreciation in the price of the Company’s common stock to the extent the Named Executive Officer’s DCP balance is credited with gains and losses as if invested in the common stock, and (ii) all other earnings with respect to the Named Executive Officer’s DCP balance. None of these amounts have been reported as compensation for 2012 in the Summary Compensation Table.

(3)

The aggregate balance at last fiscal year-end includes the following amounts that were previously reported in the Summary Compensation Table as compensation for 2011: Mr. Sadove $1,852; Mr. Wills $848; Mr. Frasch $1,829; and Ms. de Winter $456.

In September 2012, the DCP was terminated and all benefits under the DCP will be distributed to participants in accordance with applicable laws and the plan document.

The DCP is a nonqualified deferred compensation plan pursuant to which an employee, who was designated as eligible to participate under the terms of the DCP, could elect to defer, on a pre-tax basis, up to 90% of his or her base salary and up to 90% of his or her annual bonus. Non-employee directors of the Company were also eligible to participate in the DCP and could elect to defer, on a pre-tax basis, up to 100% of their retainers and attendance fees. The HRCC, in its discretion, could also permit a participant to defer compensation payable in the form of a grant of common stock. The Company, at the discretion of the HRCC, could also make matching employer contributions and other employer contributions (including crediting lost company match contributions which were intended to make up for the matching contribution limits imposed under the Company’s 401(k) Plan due to the application of deferral or compensation limits under the Internal Revenue Code) to the DCP on behalf of participants. The DCP allowed participants to defer compensation and/or stock grants into either a retirement class share (payable at retirement) or in-service class share (payable while employed, based on the beginning payout date selected) account. Participants could elect to have payments from either of these accounts made in either a one-time lump sum distribution or annual installments. Participants elected the year in which in-service class share installments were to commence.

Amounts deferred under the DCP are credited with earnings associated with hypothetical investment alternatives elected by the participant from a variety of investment funds. Deferred grants of shares of common stock are credited with gains and losses as if such amounts were invested in shares of common stock. Any dividends that would be credited to shares of common stock are deemed to be reinvested in additional shares. Participants have a one-time election opportunity to transfer amounts that are deemed to be invested in shares of common stock to other investment options available under the plan.

Under the DCP, distributions cannot commence sooner than twelve months from the end of the period in which the income has been deferred. In the event of a financial hardship, a participant can

 

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elect to receive a distribution in advance of the previously elected distribution date. Distributions generally were made as soon as possible after January 31 and were based on the account value as of the last business day in January. Distributions of a participant’s entire account balance will occur in the event of termination of employment, permanent disability, or death.

The DCP is “unfunded” for tax purposes. As a consequence, participant account balances maintained under the DCP are merely bookkeeping entries that measure the Company’s obligation to the plan participants.

Employment Agreements

During 2012, all of the Named Executive Officers were employed pursuant to agreements with the Company. On July 31, 2007, the Company entered into employment agreements with Messrs. Sadove and Frasch. Mr. Sadove’s employment agreement, as amended, continues until terminated in accordance with its terms and provides for a salary of not less than $985,800 per year, an annual bonus having a target value of not less than 150% of salary, an annual long-term equity incentive award having a target value of not less than $3,375,000 and other benefits, including transportation services, reimbursement for financial and tax planning services and annual physical examinations and five weeks of paid vacation per calendar year. Mr. Frasch’s employment agreement, as amended, which continues until terminated in accordance with its terms, provides for a salary of not less than $976,500 per year, an annual bonus having a target value of not less than 75% of salary, an annual long-term equity incentive award having a target value of not less than $1,000,000, other benefits similar to those of Mr. Sadove and two special equity awards. The special equity awards consist of: (i) 75,000 shares of restricted stock that vested in three equal annual installments commencing on the third anniversary of the date of grant and (ii) 75,000 performance shares that vested in three installments commencing on the third anniversary of the date of grant based on the average annual compound growth rate of the price of the common stock (all of the performance shares were forfeited because the performance criteria were not met).

On April 17, 2007, the Company and Mr. Wills entered into an employment agreement. The employment agreement, as amended, which continues until terminated in accordance with its terms, provides for a base salary of not less than $584,250 per year and an annual bonus having a target value of not less than 60% of base salary. Under the agreement the Company awarded Mr. Wills, among other things, 13,125 stock options. The stock options vested in four equal consecutive annual installments of whole shares beginning on May 4, 2008 and are currently fully vested. The Company may terminate Mr. Wills’ employment agreement at any time without cause, and Mr. Wills may terminate the employment agreement for good reason (as those terms as defined in the agreement).

The other two Named Executive Officers entered into employment agreements with the Company in 2007 which, as amended, continue until terminated in accordance with their terms, and set forth the Named Executive Officer’s minimum base salary; annual target bonus potential (expressed as a percentage of base salary); entitlement to participate in the Company’s benefit plans, equity awards, and severance benefits; and change-in-control protections. The minimum base salaries for the other Named Executive Officers specified in their employment agreements are $427,500 for Ms. de Winter and $374,894 for Ms. Incandela. Ms. de Winter’s and Ms. Incandela’s employment agreements provide for an annual bonus opportunity having a target value of not less than 50% of base salary. Ms. de Winter’s and Ms. Incandela’s bonus targets were increased to 65% of base salary in February 2012. The bonus targets for Messrs. Frasch and Wills were increased in February 2012 from 85% to 90% and 75% to 80%, respectively.

In addition to the compensation and benefits described above, each of the Named Executive Officers are entitled to reimbursement (up to specified amounts) for annual financial and tax planning

 

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services and tax preparation services and payment for the cost of annual physical examinations and to participate in each employee benefit plan and receive each benefit that the Company provides to senior executives at the level of each Named Executive Officer’s position. Mr. Sadove is also entitled to transportation or a transportation allowance.

Each of the employment agreements of Messrs. Sadove and Frasch and Ms. de Winter and Ms. Incandela provides that if the executive’s employment is terminated by the Company without “cause” or by the executive for “good reason” (as defined in each of the employment agreements), the executive would be entitled to receive:

 

   

two times salary and one times target bonus (at levels in effect prior to amendments executed in 2009), payable in 24 equal monthly installments;

 

   

the bonus earned for the prior fiscal year if not yet paid;

 

   

a prorated bonus for the fiscal year in which the termination occurs if such termination occurs in the second six months of such fiscal year;

 

   

pro-rata vesting of equity awards, except for earned performance shares, which vest in full;

 

   

reimbursement for the cost of medical coverage for the executive and his or her dependents for 18 months; and

 

   

the Company’s normal associate discount for the executive’s lifetime.

Each of the employment agreements also provides that if the executive’s employment is terminated without cause or for good reason in anticipation of, upon or following a “change in control” (as defined in each of the agreements), the executive would be entitled to receive the payments and benefits described above, except:

 

   

the severance payment would be paid in a lump sum if the change in control met the definition set forth in Code Section 409A; otherwise, the payment would be made in 24 monthly installments. In the case of Mr. Sadove, the severance payment would be equal to two times salary (at levels in effect prior to amendments executed in 2009) and two times target bonus if the termination occurs in the calendar year in which the change in control occurs or in either of the next two calendar years, and two times salary (at levels in effect prior to amendments executed in 2009) and one times target bonus if the termination occurs thereafter, and, in the case of Mr. Frasch and Ms. de Winter and Ms. Incandela, two times base salary (at levels in effect prior to amendments executed in 2009) and one times target bonus;

 

   

the prorated bonus for the fiscal year in which the termination occurs would be paid, irrespective of whether the termination occurs in the first or second six months of such fiscal year; and

 

   

unless equity awards vested in full upon a change in control in which the shareholders of the Company received consideration other than publicly-traded common stock, equity awards would vest in full upon such termination of employment.

Equity awards also would vest in full in the event of termination due to retirement on or after age 65, death or disability, except for Mr. Frasch’s special equity awards which would vest pro rata.

 

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If Mr. Wills’ employment agreement is terminated without cause or he terminates the agreement for “good reason” as defined under the agreement, the Company will pay Mr. Wills an amount equal to two times his base salary and one times his target bonus potential in a lump sum, and all unvested stock options and unvested restricted stock awards will vest on a pro rata basis and all earned but unvested performance share awards will fully vest. If termination without cause occurs in anticipation of, or upon or following, a change in control or Mr. Wills terminates his employment for good reason as a result of a change in control, the Company will pay Mr. Wills an amount equal to two times his base salary and one times his target bonus potential in a lump sum, and all unvested stock options, unvested restricted stock, earned but unvested performance share awards, and the target amount of unearned and unvested performance share awards, will fully vest. If Mr. Wills’ employment is terminated without cause or for good reason, Mr. Wills is also entitled to (i) participate in the Company’s medical plan with family coverage for 18 months from the date of termination and, if he has not obtained equivalent medical coverage at the end of the 18-month period, the Company will pay to him a lump sum amount, not to exceed $250,000, sufficient to enable him to obtain equivalent medical coverage for an additional 18-month period, and (ii) outplacement services for a six-month period. In addition, Mr. Wills would be entitled to receive the normal associate discount in effect from time to time applicable to active associates of the Company or its successors for his lifetime.

For information concerning the benefits to which a Named Executive Officer may become entitled to receive after a change in control, see “Executive Compensation—Potential Payments upon Termination or Change in Control.” The determination of the payment amounts and benefits to the Named Executive Officers upon termination or change in control is based upon an analysis of competitive practices for such payments for positions at the level of the Named Executive Officers.

Each of the employment agreements also provides for specified gross-up payments for excise taxes incurred under Section 4999 of the Code to the extent the parachute payments exceed 330% of the executive’s base amount as determined under Section 280G of the Code. The employment agreements also provide for a confidentiality obligation, non-disparagement, non-solicitation and non-competition obligations for 12 months following termination of employment, the advancement of attorneys’ fees in the event of a dispute under the employment agreement and an obligation to cooperate with the Company following termination of employment in consideration for the payment of $4,000 per day ($375 per hour in the case of Mr. Wills).

 

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Potential Payments upon Termination or Change in Control

The following table quantifies benefits that would have been payable (assuming target payouts) to each Named Executive Officer under the scenarios set forth below as if the Named Executive Officer’s employment had terminated on February 2, 2013.

 

Name   Benefit  

Before Change in
Control
Termination

w/o Cause or for
Good Reason

   

After Change in
Control
Termination

w/o Cause or
or Good Reason

    Retirement     Death     Disability     Termination
without
Good Reason
    Termination
For Cause
 
Stephen I. Sadove   Severance pay (1)   $ 3,710,000      $ 5,300,000      $ -      $ -      $ -      $ -      $ -   
  Bonus pay   $ 1,567,500      $ 1,567,500      $ -      $ -      $ -      $ -      $ -   
  Accelerated options/restricted stock/performance share vesting (2)   $ 9,600,669      $ 11,236,768      $ 11,236,768      $ 11,236,768      $ 11,236,768      $ -      $ -   
  Accelerated cash vesting (3)   $ 2,394,636      $ 2,394,636      $ 2,394,636      $ 2,394,636      $ 2,394,636      $ -      $ -   
  Health care benefits continuation (4)   $ 27,760      $ 27,760      $ -      $ -      $ -      $ -      $ -   
  Outplacement services   $ -      $ -      $ -      $ -      $ -      $ -      $ -   
  Tax gross ups   $ -      $ -      $ -      $ -      $ -      $ -      $ -   
  Total   $ 17,300,565      $ 20,526,664      $ 13,631,404      $ 13,631,404      $ 13,631,404      $ -      $ -   

Kevin G. Wills

  Severance pay (1)   $ 1,730,400      $ 1,730,400      $ -      $ -      $ -      $ -      $ -   
  Bonus pay   $ -      $ -      $ -      $ -      $ -      $ -      $ -   
  Accelerated options/restricted stock/performance share vesting (2)   $ 1,580,347      $ 2,874,814      $ -      $ 2,874,814      $ 2,874,814      $ -      $ -   
  Accelerated cash vesting (3)   $ 135,888      $ 385,888      $ 385,888      $ 385,888      $ 385,888      $ -      $ -   
  Health care benefits continuation (4)   $ 27,760      $ 27,760      $ -      $ -      $ -      $ -      $ -   
  Outplacement services (5)   $ 15,000      $ 15,000      $ -      $ -      $ -      $ -      $ -   
  Tax gross ups   $ -      $ -      $ -      $ -      $ -      $ -      $ -   
  Total   $ 3,489,395      $ 5,033,862      $ 385,888      $ 3,260,702      $ 3,260,702      $ -      $ -   

Ronald Frasch

  Severance pay (1)   $ 3,045,000      $ 3,045,000      $ -      $ -      $ -      $ -      $ -   
  Bonus pay   $ 927,000      $ 927,000      $ -      $ -      $ -      $ -      $ -   
  Accelerated options/restricted stock/performance share vesting (2)   $ 2,371,512        $2,784,242      $ 2,784,242      $ 2,784,242      $ 2,784,242      $ -      $ -   
  Accelerated cash vesting (3)   $ 613,538      $ 2,613,538      $ 613,538      $ 613,538      $ 613,538      $ -      $ -   
  Health care benefits continuation (4)   $ 27,760      $ 27,760      $ -      $ -      $ -      $ -      $ -   
  Outplacement services   $ -      $ -      $ -      $ -      $ -      $ -      $ -   
  Tax gross ups   $ -      $ -      $ -      $ -      $ -      $ -      $ -   
  Total   $ 6,984,810      $ 9,397,540      $ 3,397,780      $ 3,397,780      $ 3,397,780      $ -      $ -   

 

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Jennifer

de Winter

  Severance pay (1)   $ 1,364,750      $ 1,364,750      $ -      $ -      $ -      $ -      $ -   
  Bonus pay   $ 334,750      $ 334,750      $ -      $ -      $ -      $ -      $ -   
 

Accelerated

options/restricted

stock/performance

share vesting (2)

  $ 1,332,612      $ 2,269,213      $ 2,269,213      $ 2,269,213      $ 2,269,213      $ -      $ -   
 

Accelerated cash

vesting (3)

  $ 231,130      $ 231,130      $ 231,130      $ 231,130      $ 231,130      $ -      $ -   
  Health care benefits continuation (4)   $ 27,760      $ 27,760      $ -      $ -      $ -      $ -      $ -   
  Outplacement services   $ -      $ -      $ -      $ -      $ -      $ -      $ -   
  Tax gross ups   $ -      $ -      $ -      $ -      $ -      $ -      $ -   
  Total   $ 3,291,002      $ 4,227,603      $ 2,500,343      $ 2,500,343      $ 2,500,343      $ -      $ -   

Denise Incandela

  Severance pay (1)   $ 1,364,750      $ 1,364,750      $ -      $ -      $ -      $ -      $ -   
  Bonus pay   $ 334,750      $ 334,750      $ -      $ -      $ -      $ -      $ -   
 

Accelerated

options/restricted stock/performance share vesting (2)

  $ 1,252,438      $ 2,180,701      $ 2,180,701      $ 2,180,701      $ 2,180,701      $ -      $ -   
  Accelerated cash vesting (3)   $ 216,570      $ 216,570      $ 216,570      $ 216,570      $ 216,570      $ -      $ -   
  Health care benefits continuation (4)   $ 27,760      $ 27,760      $ -      $ -      $ -      $ -      $ -   
  Outplacement services   $ -      $ -      $ -      $ -      $ -      $ -      $ -   
  Tax gross ups   $ -      $ -      $ -      $ -      $ -      $ -      $ -   
  Total   $     3,196,268      $     4,124,531      $     2,397,271      $     2,397,271      $     2,397,271      $ -      $ -   

 

(1) 

Severance and bonus payments are based on the following criteria prior to change in control: For all Named Executive Officers: two times base salary plus one times bonus target. In anticipation of, upon, or following change in control: (i) Mr. Sadove: two times base salary plus two times target bonus; (ii) Mr. Frasch: two times base salary plus one times target bonus; (iii) Mr. Wills: two times base salary plus one times target bonus; (iv) Ms. de Winter: two times base salary plus one times target bonus; and; (v) Ms. Incandela: two times base salary plus one times target bonus. For all Named Executive Officers no severance is provided for retirement, death or disability. Severance and bonus payments were determined using base salaries pursuant to the amendments to the employment agreements effective June 1, 2009.

(2) 

The total value of accelerated restricted and/or performance shares is based on shares outstanding as of February 2, 2013 as shown in the “Outstanding Equity Awards at Fiscal Year End—2012” table. Value is determined by multiplying the number of shares, the vesting of which has been accelerated, by the closing price of the common stock on February 1, 2013.

(3) 

The total value of accelerated performance units (cash) and special cash awards is based on units outstanding as of February 2, 2013.

(4) 

Health care benefits continuation value is based on 18 months of medical COBRA coverage calculated using the current monthly COBRA rate.

(5) 

Outplacement services for Mr. Wills are contractual and based on a six-month rate with the Company’s current vendor.

See “Executive Compensation – Employment Agreements” for an explanation of the specific circumstances that would trigger payments or the provision of other benefits, including perquisites and health-care benefits, to each of the Named Executive Officers upon termination without cause or for good reason (before and after a change in control), voluntary termination, death, disability, and change in control.

The Company’s equity incentive plans provide that in the event of a change in control, the treatment of awards will be determined by the HRCC and will depend on the nature of the transaction or event and the consideration being received by shareholders. As described below, awards will vest either upon a change in control or upon a termination of employment or termination of service on the Board of Directors within two years following a change in control, depending upon the transaction or event giving rise to the change in control, the type of award and the nature of the termination of employment.

In the case of a merger or similar transaction in which the shareholders do not receive publicly traded common stock, all outstanding awards, other than performance-based awards, will vest in full

 

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and be “cashed-out” by the Company. Performance-based awards will vest based on the portion of the performance period that has elapsed as of the date of the change in control.

In the case of a merger or similar transaction in which the shareholders receive publicly traded common stock of the acquiring company, options, stock appreciation rights, and other awards payable in such common stock will be substituted for options, rights and other awards under the 2009 Long-Term Incentive Plan (or the Amended and Restated 2009 Long-Term Incentive Plan, if it is approved by our shareholders at the Annual Meeting), except for performance-based awards. Performance-based awards will continue as performance-based awards if the acquiring company substitutes comparable performance measures. If the acquiring company does not substitute comparable performance measures, only the time-based restrictions of such awards will continue.

Except as described above, options and stock appreciation rights will not become exercisable in full and other awards will not vest upon a change in control, but if the employment or service of the holder of an award is terminated within two years following the occurrence of such change in control under circumstances, in the case of an employee, in which such employee is entitled to receive a severance payment, and under all circumstances in the case of a director, awards held by such holder will be vested in full (except for performance-based awards) and, in the case of options and stock appreciation rights, the holder will have the earlier of (i) three years, (ii) the latest date upon which the stock option or stock appreciation right could have expired by its original terms, or (iii) the 10th anniversary of the original date of grant in which to exercise such awards. Performance-based awards will vest based on the portion of the performance period that has elapsed as of the date of the termination of employment or service on the Board of Directors.

The employment agreements with each of the Named Executive Officers provide that the Company’s obligation to pay, and otherwise make available to, the executive the severance benefits described in the employment agreement is subject to the Company’s receipt of a written release, executed and delivered by the executive, in which the executive releases the Company and its affiliates from all claims of, and liabilities and obligations to, the executive arising out of his or her employment agreement. Each of the employment agreements with the Named Executive Officers generally provides for the protection of the Company’s proprietary and confidential information and as well as certain non-competition, non-disparagement and non-solicitation provisions on the part of the executives.

Director Compensation – 2012