DEF 14A 1 a2019proxystatement.htm DEF 14A Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

SCHEDULE 14A
 
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CarMax, Inc.
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Dear Fellow CarMax Shareholders:
 
I am pleased to invite you to attend the 2019 annual meeting of CarMax, Inc. shareholders, which will be held on Tuesday, June 25, 2019, in Richmond, Virginia. The attached notice of annual shareholders meeting and proxy statement are your guides to the meeting.

We are committed to maintaining an independent, thoughtful, and strategically focused Board of Directors. This year, William Tiefel, our lead independent director, is retiring from the Board. Mr. Tiefel is our longest serving director and has made innumerable contributions to CarMax. The Board is deeply appreciative for his service and leadership. Mitchell D. Steenrod is replacing Mr. Tiefel as lead independent director. Mr. Steenrod brings his significant experience on the Board and knowledge of CarMax to the lead independent director role, having served on our Board since 2011 and as the chair of our Audit Committee since 2015.

We are once again providing live audio coverage of the annual shareholders meeting from the CarMax investor relations website at investors.carmax.com. A replay of the annual shareholders meeting will be available on this website after the meeting. We also are pleased to furnish proxy materials to shareholders primarily over the internet. On or about May 6, 2019, we mailed our shareholders a Notice of Internet Availability of Proxy Materials containing instructions on how to access our proxy statement and annual report and to vote online. Internet distribution of our proxy materials expedites receipt by shareholders, lowers the cost of the annual shareholders meeting, and conserves natural resources. However, if you would prefer to receive paper copies of our proxy materials, please follow the instructions included in the Notice of Internet Availability of Proxy Materials.
 
Whether or not you will be attending the annual shareholders meeting, your vote is very important to us. I encourage you to cast your ballot by internet, by telephone, by mail (if you request a paper copy), or in person at the annual shareholders meeting.
 
On behalf of the Board of Directors, I would like to thank you for your continued trust in CarMax.
 
Sincerely,

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Thomas J. Folliard
Chair of the Board of Directors
May 6, 2019



NOTICE OF 2019 ANNUAL MEETING OF SHAREHOLDERS
 
 
 
 
 
 
When:
 
Tuesday, June 25, 2019, at 1:00 p.m. Eastern Time
Where:
 
CarMax Home Office
12800 Tuckahoe Creek Parkway
Richmond, VA 23238
Items of Business:
 
(1)
 
To elect the eleven directors named in the proxy statement to our Board of Directors.
 
 
(2)
 
To ratify the appointment of KPMG LLP as our independent registered public accounting firm.
 
 
(3)
 
To vote on an advisory resolution to approve the compensation of our named executive officers.
 
 
(4)
 
To approve the CarMax, Inc. 2002 Stock Incentive Plan, as amended and restated.
 
 
(5)
 
To vote on the shareholder proposal regarding a report on political contributions, if properly presented at the meeting.
 
 
(6)
 
To transact any other business that may properly come before the annual shareholders meeting or any postponements or adjournments thereof.
Who May Vote:
 
You may vote if you owned CarMax common stock at the close of business on April 18, 2019.
 
 
 
By order of the Board of Directors,

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Eric M. Margolin
Executive Vice President,
General Counsel and Corporate Secretary
May 6, 2019
 




TABLE OF CONTENTS






15




19



































PROXY SUMMARY

 
This summary highlights information contained elsewhere in this proxy statement. For more complete information, please review this entire proxy statement and CarMax’s Annual Report on Form 10-K for the fiscal year ended February 28, 2019.

Fiscal 2019 Highlights

Revenues
Net sales and operating revenues increased 6.1% to $18.17 billion.
Earnings
Net earnings rose 26.8% to $842.4 million and net earnings per diluted share increased 33.1% to $4.79.
Strategic Initiatives and Store Growth
We opened 15 stores in fiscal 2019 and launched our omni-channel customer experience in Atlanta. We plan to open 13 stores in fiscal 2020 and are on track to have the omni-channel experience available to a majority of our customers by the end of fiscal 2020.
Units
Total used unit sales increased 3.8% and comparable store used unit sales increased 0.3%. Total wholesale unit sales increased 9.5%.
CarMax Auto Finance
CarMax Auto Finance (“CAF”) finished the year with income of $438.7 million, an increase of 4.2% over the prior year.
Share Repurchases
We continued our share repurchase program in fiscal 2019, buying back 13.6 million shares with a market value of $902.9 million. The Board approved a $2.0 billion expansion of the program, with no expiration date.
Fifteenth Year on Fortune
“Best Companies” List
We were named by Fortune magazine as one of its “100 Best Companies to Work For” for the fifteenth year in a row.


Corporate Governance Highlights


BOARD LEADERSHIP

Following the annual meeting, and if elected to another term, Mitchell D. Steenrod will serve as the Board’s new lead independent director. Mr. Steenrod brings his significant experience on the Board and knowledge of CarMax to the lead independent director role, having served on our Board since 2011 and as the chair of our Audit Committee since 2015. Peter J. Bensen, who joined the Board in 2018 and is the former Chief Financial Officer of McDonald’s Corporation, will replace Mr. Steenrod as chair of the Audit Committee.

Mr. Steenrod is replacing William Tiefel as lead independent director. Mr. Tiefel is the longest serving director on CarMax’s board and has made innumerable contributions to CarMax. A director since 2002, Mr. Tiefel served as independent chair of the Board from 2007 until 2016, when he was appointed lead independent director. He was not re-nominated to the Board this year consistent with our director retirement policy. Additional information about our Board leadership structure can be found on page 15.


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KEY GOVERNANCE PRACTICES

 
 
l Annual election of all directors 
l Majority voting for directors
l 9 of 11 director nominees are independent
l Proxy access adopted
l 6 new independent directors since 2015
l Annual “say on pay” vote
l Shareholder rights plan expired in 2012 and was not renewed

l Board oversight of risk management program


Annual Meeting of Shareholders
 
 
When
Tuesday, June 25, 2019, at 1:00 p.m., Eastern Time
Where
CarMax Home Office
12800 Tuckahoe Creek Parkway
Richmond, VA 23238
Who May Attend
All shareholders as of the record date may attend the meeting.
Record Date
 
April 18, 2019
Live Audio Webcast
Available at investors.carmax.com
 
 
 


Voting Matters and Board Recommendations

Agenda Item

Board Recommendation
Page of Proxy Statement
 
 
 
1.
Election of Eleven Directors
FOR each Director nominee
6
2.
Ratification of Auditors
FOR
22
3.
Advisory Approval of Executive Compensation
FOR
25
4.
Approval of Amended and Restated Stock Incentive Plan
FOR
58
5.
Shareholder Proposal regarding a Report on Political Contributions
 
AGAINST
68


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Proposal One:
Election of Directors

We are asking you to vote “FOR” the following candidates for election to our Board of Directors.
Nominee
 
Age
 
Director
Since
 
Independent
 
Principal Occupation
 
Expected Committee Membership
Peter J. Bensen

56

2018

Yes

Retired Chief Administrative Officer and Corporate Executive Vice President and Chief Financial Officer of McDonald's Corporation, a global restaurateur and franchisor

Audit
Ronald E. Blaylock

59

2007

Yes

Founder and Managing Partner of GenNx360 Capital Partners, a private-equity buyout fund

Compensation and Personnel
Sona Chawla

51

2017

Yes

President of Kohl's Corporation, an omni-channel retailer

Compensation and Personnel
Thomas J. Folliard

54

2006

No

Non-Executive Chair of the Board, CarMax, Inc. and Retired President and Chief Executive Officer of CarMax, Inc.

N/A
Shira Goodman

58

2007

Yes

Retired Chief Executive Officer of Staples, Inc., an office supply retailer

Nominating and Governance
Robert J. Hombach

53

2018

Yes

Retired Executive Vice President, Chief Financial Officer and Chief Operations Officer of Baxalta Incorporated, a biopharmaceutical company

Audit
David W. McCreight

56

2018

Yes

Retired President of Urban Outfitters, Inc., an international consumer products retailer and wholesaler, and Chief Executive Officer of its Anthropologie Group

Audit
William D. Nash

50

2016

No

President and Chief Executive Officer of CarMax, Inc.

N/A
Pietro Satriano

56

2018

Yes

Chief Executive Officer of US Foods Holdings Corp., a publicly held foodservice distributor

Nominating and Governance
Marcella Shinder

52

2015

Yes

Global Head of Partnerships at WeWork Companies Inc., a technologically driven global provider of shared working spaces

Nominating and Governance
Mitchell D. Steenrod

52

2011

Yes

Retired Senior Vice President and Chief Financial Officer of Pilot Travel Centers LLC, the nation’s largest operator of travel centers and truck stops

Compensation and Personnel
 

Our Board has undergone significant refreshment in the past several years. Six of our nine independent director nominees have joined the Board since 2015. This year our shareholders will vote on a new director nominee, Pietro Satriano. Mr. Satriano is a current CEO with extensive leadership experience who joined the Board in October 2018 and sits on the Nominating and Governance Committee. A full description of his background and qualifications can be found on page 11.

Following the annual meeting, assuming all our director nominees are elected, the average tenure on our Board will be 5 years, and the average age of our directors will be 54 years.
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Proposal Two:
Ratification of Auditors
 
We are asking you to ratify the appointment by the Audit Committee of KPMG LLP (“KPMG”) as our independent auditors for fiscal 2020. The following table summarizes the fees billed by KPMG for fiscal 2019 and 2018.


Audit Fees

Audit-Related Fees

Tax Fees

Total Fees
Fiscal 2018

$1,969,125

$547,000

$130,002

$2,646,127
Fiscal 2019

$2,245,500

$558,000

$75,772

$2,879,272
Proposal Three:
Executive Compensation
 
We are asking you to approve, on an advisory basis, the compensation of our named executive officers as disclosed in this proxy statement. At our last two annual shareholders meetings, a significant majority of our shareholders supported our executive compensation program, with more than 87% and 97% of votes cast in 2017 and 2018, respectively, voting in favor of our program.
 
We design our compensation plans to tie pay to performance. The following chart illustrates the relationship over the last three fiscal years between our net earnings and the total direct compensation (base salary, annual incentive bonus, and long-term equity grants) paid to our Chief Executive Officer (“CEO”). For purposes of this comparison, the fiscal 2017 compensation below represents the annual base salary and target annual incentive bonus approved for Mr. Nash on his promotion to CEO in September 2016, as well as all long-term equity grants to Mr. Nash during fiscal 2017. Mr. Nash’s actual total direct compensation for fiscal 2017 equaled $6,344,501. The fiscal 2018 and 2019 compensation amounts are equal to the total direct compensation disclosed in the Summary Compensation Table on page 41.

Net Earnings and CEO Total Direct Compensation
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You will find additional information on our executive compensation program beginning on page 26.


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Proposal Four:
Approval of Amended and Restated Stock Incentive Plan

We are asking that you approve amendments to the CarMax, Inc. 2002 Stock Incentive Plan, as amended and restated (the “Stock Incentive Plan”) to (a) increase the number of shares of the Company’s common stock reserved for issuance under the Stock Incentive Plan by 4,150,000 shares, (b) extend the termination date of the Stock Incentive Plan from June 28, 2026 to June 25, 2029, and (c) address changes in the federal tax laws.

You will find additional information regarding the Stock Incentive Plan and the proposed amendments beginning on page 58.
Proposal Five:
Shareholder Proposal for a Report on Political Contributions
 
The Board recommends a vote against this proposal, which would require that CarMax make certain political contribution disclosures. CarMax’s political contributions, while purposeful, are limited in amount; subject to the CarMax Corporate Political Contribution Policy and Board oversight; and already disclosed as required under state contribution disclosure laws. Shareholders did not approve almost identical proposals at the 2016, 2017, and 2018 annual shareholders meetings. The Board continues to believe that adoption of the shareholder proposal is both unnecessary and not in the best interest of shareholders.
Next Year’s Annual Shareholders Meeting
 
 Expected Date of 2020 Annual Shareholders Meeting
June 23, 2020
 
Deadline for Shareholder Proposals
 
January 7, 2020

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PROPOSAL ONE: ELECTION OF DIRECTORS

 
We are asking you to vote for the election of the eleven director nominees listed on the following pages. Our Board has nominated these individuals at the recommendation of our independent Nominating and Governance Committee. The Committee based its recommendation on, among other things, the results of an annual Board and peer evaluation process, as well as the integrity, experience, and skills of each nominee. All of the nominees are current directors who were elected by shareholders at our 2018 annual meeting, except Pietro Satriano, who joined the Board in October 2018. William Tiefel, a director since 2002, is retiring from the Board at the 2019 annual meeting.

We appointed Mr. Satriano to the Board after conducting an extensive search for a director with, among other qualities, executive experience. The search was led by our Nominating and Governance Committee with the assistance of an outside search firm, which first brought Mr. Satriano to the Committee’s attention.

Our Board is declassified. Accordingly, each director nominee is standing for election to hold office until our 2020 annual meeting of shareholders.
Each nominee must receive a majority of the votes cast.
CarMax uses a majority vote standard for the election of directors. This means that to be elected in uncontested elections, each nominee must be approved by the affirmative vote of a majority of the votes cast.
 
Each nominee has consented to being named in this proxy statement and to serve if elected. If any nominee is not available to serve—for reasons such as death or disability—your proxy will be voted for a substitute nominee if the Board nominates one.
 
The following pages include information about the nominees. This information includes a summary of the specific experience, qualifications, attributes or skills that led to the conclusion that each person should serve as a CarMax director.
 
The Board recommends a vote FOR each of the nominees.
 
 


6



 
 
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PETER J. BENSEN

Mr. Bensen retired from McDonald’s Corporation, following a 20-year career, in 2016. He served as Chief Administrative Officer of McDonald’s from 2015 to 2016. Before that he served as Corporate Executive Vice President and Chief Financial Officer of McDonald’s from 2008 to 2014, when he was promoted to Corporate Senior Executive Vice President and Chief Financial Officer, a position he held until 2015. Before joining McDonald’s in 1996, Mr. Bensen was a senior manager at Ernst & Young LLP.
Director since: 2018
Age: 56
 
Independent
Other Current Directorships

Lamb Weston Holdings, Inc.

Other Directorships within Past 5 Years

Catamaran Corporation (2011-2015)
Qualifications

Mr. Bensen’s long-standing service as the chief financial officer, and in other administrative, financial, and accounting roles, at a global, iconic company qualify him to serve on our Board. He brings to our Board extensive management experience and financial expertise, as well as his background as a key executive helping to shape McDonald’s strategic response to a changing market environment.



 
 
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RONALD E. BLAYLOCK

Mr. Blaylock is the founder and Managing Partner of GenNx360 Capital Partners, a private-equity buyout fund focused on industrial business-to-business companies. Prior to founding GenNx360 in 2006, Mr. Blaylock was Chief Executive Officer of Blaylock & Company, a full-service investment banking firm that he founded in 1993. Previously, Mr. Blaylock held senior management positions with PaineWebber and Citigroup.

 
Director since: 2007
Age: 59
 
Independent
Other Current Directorships

Pfizer Inc., Urban One, Inc., and W. R. Berkley Corporation.
Other Directorships within Past 5 Years

None.
Qualifications

Mr. Blaylock’s experience managing two successful investment enterprises, as well as his considerable finance experience, qualify him to serve on our Board. Mr. Blaylock’s years of relevant experience growing companies and serving on other public company boards enable him to provide additional insight to our Board.




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SONA CHAWLA

Ms. Chawla is the President of Kohl's Corporation, a position she has held since May 2018. Ms. Chawla joined Kohl’s in November 2015, serving as Chief Operating Officer until September 2017 and as President-Elect from September 2017 to May 2018. Before joining Kohl’s, Ms. Chawla served at Walgreens as its President of Digital and Chief Marketing Officer from February 2014 to November 2015 and as its President, E-commerce from January 2011 to February 2014. Ms. Chawla has 18 years of experience in digital and retail.

 
Director since: 2017
Age: 51

Independent

Other Current Directorships

None.
Other Directorships within Past 5 Years

Express, Inc. (2012-2015)
Qualifications

Ms. Chawla’s executive, strategic, operational, and digital expertise qualify her to serve on our Board. Her background and operating experience in retail, including e-commerce, omni-channel strategy, store operations, logistics, and information and digital technology strengthen the business and strategic insight of our Board.



 
 
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THOMAS J. FOLLIARD

Mr. Folliard has been the Non-Executive Chair of the Board of CarMax since August 2016. He joined CarMax in 1993 as senior buyer and became Director of Purchasing in 1994. He was promoted to Vice President of Merchandising in 1996, Senior Vice President of Store Operations in 2000 and Executive Vice President of Store Operations in 2001. Mr. Folliard served as President and Chief Executive Officer of CarMax from 2006 to February 2016 and retired as Chief Executive Officer in August 2016.
 
Director since: 2006
Age: 54

Non-Executive Chair of
the Board

Other Current Directorships

PulteGroup, Inc.
Other Directorships within Past 5 Years

DAVIDsTEA, Inc. (2014-2017)
Qualifications

During his ten years as CEO, Mr. Folliard successfully led CarMax through the company’s establishment as a national brand and a time of significant growth, during which its store base and total revenues more than doubled and its net income quadrupled. With his long tenure at CarMax, Mr. Folliard brings to the board significant executive experience and in-depth knowledge of our company and the auto retail industry.

 



8


 
 
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SHIRA GOODMAN

Ms. Goodman was the Chief Executive Officer of Staples, Inc. Ms. Goodman joined Staples in 1992 and held a variety of positions of increasing responsibility in general management, marketing and human resources, including serving as Executive Vice President, Marketing from 2001 to 2009, Executive Vice President, Human Resources from 2009 to 2012, Executive Vice President, Global Growth from 2012 to 2014, President, North American Commercial from 2014 to 2016, President, North American Operations from February to June 2016, Interim Chief Executive Officer from June to September 2016, and Chief Executive Officer from September 2016 to January 2018. From 1986 to 1992, Ms. Goodman worked at Bain & Company in project design, client relationships, and case team management and helped develop the initial business plan for the Staples B2B delivery service. Ms. Goodman joined Charlesbank Capital Partners, a mid-market private equity firm, in 2019 as an Advisory Director.

 
Director since: 2007
Age: 58

Independent

Other Current Directorships

Henry Schein, Inc.
Nominated to serve as a director of CBRE Group, Inc. if approved by shareholders at their annual meeting on May 17, 2019.
Other Directorships within Past 5 Years

Staples, Inc. (2016-2017)
Qualifications

Ms. Goodman has proven business acumen, having served as the chief executive and in various other leadership positions at an internationally renowned retailer. Ms. Goodman’s experiences in operations, retail marketing, workforce management, human resources, and business growth at Staples all qualify her to serve on our Board.

 
 
 
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ROBERT J. HOMBACH

Mr. Hombach is the retired Executive Vice President, Chief Financial Officer and Chief Operations Officer of Baxalta, a biopharmaceutical company, a position he held from 2015 until the acquisition of Baxalta by Shire PLC in 2016. Baxalta was spun off from its parent, Baxter, in 2015, where Mr. Hombach served as Vice President and Chief Financial Officer from 2010 until the Baxalta spin off. Mr. Hombach began his career at Baxter, a global healthcare company, in 1989 and served in a number of roles there, including as Vice President of Finance EMEA from 2004 to 2007 and Treasurer from 2007 to 2010.
 
Director since: 2018
Age: 53

Independent

Other Current Directorships

BioMarin Pharmaceutical Inc.
Aptinyx Inc.
Other Directorships within Past 5 Years

None.
Qualifications

Mr. Hombach’s considerable executive and financial experience qualify him to serve on our Board. His background as an executive at large, multi-national corporations undertaking complex strategic and transactional transitions, in addition to his operational and financial expertise, strengthen the business and strategic insight of our Board.


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DAVID W. MCCREIGHT

Mr. McCreight is the retired President of Urban Outfitters, Inc., an international consumer products retailer and wholesaler, and Chief Executive Officer of its Anthropologie Group. Mr. McCreight served as Chief Executive Officer of Anthropologie from 2011 to 2018 and as President of Urban Outfitters from 2016 to 2018. Previously, Mr. McCreight served as President of Under Armour from 2008 until 2010; and he was President, from 2005 to 2008, and Senior Vice President, from 2003 to 2005, of Lands’ End.
 
Director since: 2018
Age: 56

Independent

Other Current Directorships

None.
Other Directorships within Past 5 Years

DAVIDsTEA, Inc. (2014-2018)
Qualifications

Mr. McCreight’s extensive experience as a retail executive qualifies him to serve on our Board. His background as a leader at high profile retail brands executing omni-channel strategies in a fast-evolving market environment will enable him to contribute key strategic insights to our Board.


 
 
 
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WILLIAM D. NASH

Mr. Nash has been the President and Chief Executive Officer of CarMax since September 2016. He was promoted to President in February 2016. In 2012, he assumed the role of Executive Vice President, Human Resources and Administrative Services, where he oversaw human resources, information technology, procurement, loss prevention, employee health & safety, and construction & facilities. In 2011, Mr. Nash was promoted to Senior Vice President, Human Resources and Administrative Services. Previously, he served as Vice President and Senior Vice President of Merchandising, after serving as Vice President of Auction Services. Mr. Nash joined CarMax in 1997 as auction manager.
 
Director since: 2016
Age: 50

President and Chief
Executive Officer

Other Current Directorships

None.
Other Directorships within Past 5 Years

None.
Qualifications

As the chief executive officer of CarMax, Mr. Nash leads the Company’s day-to-day operations and is responsible for establishing and executing the Company’s strategic plans. His significant experience in the auto retail industry, his tenure with CarMax and his motivational leadership of more than 25,000 CarMax associates qualify him to serve on our Board.




10


 
 
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PIETRO SATRIANO

Mr. Satriano has been the Chief Executive Officer and a director of US Foods Holding Corp., a publicly held foodservice distributor, since July 2015 and Chairman of the US Foods board since December 2017. Prior to that, Mr. Satriano served as Chief Merchandising Officer of US Foods from February 2011 until July 2015. Before joining US Foods, Mr. Satriano was President of LoyaltyOne Co. from 2009 to 2011 and served in a number of leadership positions at Loblaw Companies Limited, including Executive Vice President, Loblaw Brands, and Executive Vice President, Food Segment, from 2002 to 2008. Mr. Satriano began his career in strategy consulting, first in Toronto, Canada with The Boston Consulting Group, and then in Milan, Italy with the Monitor Company.

 
Director since: 2018
Age: 56

Independent

Other Current Directorships

US Foods Holding Corp.
Other Directorships within Past 5 Years

None.
Qualifications

Mr. Satriano’s chief executive experience at US Foods, as well as his extensive executive experience at consumer-facing companies, qualify him to serve on our Board. He is able to provide our Board with important strategic perspectives due to his current executive role and his history of leadership at companies operating in highly competitive and quickly evolving markets.


 
 
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MARCELLA SHINDER

Ms. Shinder serves as the Global Head of Partnerships at WeWork Companies Inc., a technologically driven global provider of shared working spaces, a position she has held since April 2019. Ms. Shinder joined WeWork in March 2018, serving as Global Head of Marketing until April 2019. Prior to joining WeWork, Ms. Shinder was Chief Marketing Officer at WorkMarket, a leading provider of advanced labor automation technology, from May 2016 until March 2018. Before that, Ms. Shinder was Chief Marketing Officer of Nielsen Holdings plc, the world’s leading consumer data and information company from 2011 to 2016. Prior to joining Nielsen, Ms. Shinder was with American Express, serving in a variety of executive roles spanning general management and marketing including as General Manager of the American Express OPEN charge card portfolio.

 
Director since: 2015
Age: 52

Independent

Other Current Directorships

None.
Other Directorships within Past 5 Years

None.
Qualifications

Ms. Shinder’s experiences as the lead marketing officer of innovative venture capital backed technology companies, as a senior executive at a leading information management company, and at a large consumer financial services organization focused on consumer lending, qualify her to serve on our Board. Further, Ms. Shinder’s deep experience with big data and analytics, machine learning and advanced technologies, cybersecurity, social media, digital marketing, and branding enable her to provide additional insight to our Board and its committees.




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MITCHELL D. STEENROD

Mr. Steenrod is the retired Senior Vice President and Chief Financial Officer of Pilot Travel Centers LLC, the nation’s largest operator of travel centers and truck stops. Mr. Steenrod joined Pilot Travel Centers in 2001 as controller and treasurer. In 2004, he was promoted to Senior Vice President and Chief Financial Officer and held this position until his retirement in 2018. Previously, he spent 12 years with Marathon Oil Company and Marathon Ashland Petroleum LLC in a variety of positions of increasing responsibility in accounting, general management and marketing.
 
Director since: 2011
Age: 52

Independent

Other Current Directorships

None.
Other Directorships within Past 5 Years

None.
Qualifications

Mr. Steenrod’s extensive retail industry and operational experience as well as his experience implementing successful growth strategies, including growing Pilot Travel Centers from more than 200 travel centers to over 650 branded locations over a span of 17 years, qualify him to serve on our Board. Additionally, Mr. Steenrod’s extensive financial and accounting experience, including his years of experience as a chief financial officer, strengthens our Board through his understanding of accounting principles, financial reporting rules and regulations, and internal controls.






12



CORPORATE GOVERNANCE

 
CarMax is committed to good corporate governance. In this section of the proxy statement we describe our governance policies and practices and the role our Board plays in shaping them.
 
Overview
 
Our business and affairs are managed under the direction of the Board in accordance with the Virginia Stock Corporation Act, our articles of incorporation and our bylaws. The standing committees of the Board are the Audit Committee, the Compensation and Personnel Committee, and the Nominating and Governance Committee.
 
The Board and its committees direct our governance practices. The Board has made significant changes to those practices in recent years in response to shareholder feedback and based on evolving practices and the Board’s independent judgment. Demonstrating its continued interest in adopting meaningful shareholder focused changes, since 2011 the Board has:
approved a majority vote standard for the election of directors,
allowed CarMax’s shareholder rights plan to expire without renewal,
established annual elections for all directors,
adopted a mandatory director retirement policy providing that directors, with limited exceptions, may not stand for reelection after reaching age 76, and
adopted a proxy access right for eligible CarMax shareholders.

These changes supplement longstanding good governance practices, such as maintaining a largely independent Board (9 of 11 director nominees) and appointing a lead independent director to lead meetings of the independent directors and work alongside the chair.
Six of our 9 independent director nominees have joined the Board since 2015.
As part of its commitment to board refreshment and seeking diverse perspectives and skills in new directors, in recent years the Board has added six independent directors (Ms. Shinder in 2015, Ms. Chawla in 2017, and Mr. Bensen, Mr. Hombach, Mr. McCreight, and Mr. Satriano in 2018). In addition to the skills and experiences our new directors bring to the Board, they have allowed us to reduce the average age (from 62 to 54) and average tenure (from 8 years to 5 years) of our director nominees since 2014, while preserving continuity with our continuing directors.

Additional information concerning the Board’s director selection process and refreshment can be found beginning on page 17.

The Board has approved documents that memorialize our governance standards and practices. These documents include our bylaws, our corporate governance guidelines and a code of business conduct. These documents, each of which is described below, are available under the “Corporate Governance” link at investors.carmax.com. We will send you a printed copy of any of these documents, without charge, upon written request to our Corporate Secretary at CarMax, Inc., 12800 Tuckahoe Creek Parkway, Richmond, Virginia 23238.

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Bylaws
Our bylaws regulate the corporate affairs of CarMax. They include provisions relating to shareholder meetings, voting, the nomination of directors and the proxy access right.
Corporate Governance Guidelines
Our corporate governance guidelines set forth the Board’s practices with respect to its responsibilities, qualifications, performance, access to management and independent advisors, compensation, continuing education, and management evaluation and succession. The guidelines also include director stock ownership requirements.
Code of Business Conduct
Our code of business conduct is the cornerstone of our compliance and ethics program. It applies to all CarMax associates and Board members. It includes provisions relating to honest and ethical conduct, compliance with laws, the handling of confidential information and diversity. It explains how to use our associate help line and related website, both of which allow associates to report misconduct anonymously. It also describes our zero-tolerance policy on retaliation for making such reports.
 
Any amendment to, or waiver from, a provision of this code for our directors or executive officers will be promptly disclosed under the “Corporate Governance” link at investors.carmax.com.
 
 
Independence
 
Our Board, in consultation with the Nominating and Governance Committee, evaluates the independence of our directors and director nominees at least annually. The most recent evaluation took place in April 2019. During this evaluation, the Board considered transactions between the directors (and their immediate family members) and the Company and its affiliates. The Board determined that the following directors are independent under the listing standards of the New York Stock Exchange (“NYSE”):
Peter J. Bensen
David W. McCreight
 
 
 
Ronald E. Blaylock
Pietro Satriano
 
 
 
Sona Chawla
Marcella Shinder
 
 
 
Shira Goodman
Mitchell D. Steenrod
 
 
 
Robert J. Hombach
William R. Tiefel
 
 
 

The Board had determined that Messrs. Colberg, Garten, Grafton, and Grubb, each of whom retired from our Board in fiscal 2019, were independent under NYSE listing standards while they served during fiscal 2019. Mr. Folliard is not independent because he was an executive officer of CarMax until 2016, and Mr. Nash is not independent because he is currently an executive officer of CarMax. In assessing independence, the Board considered transactions not just between CarMax and the individual directors themselves (and their immediate family members), but also between CarMax and entities associated with the directors or their immediate family members. The Board’s review included the following transaction:

Mr. Blaylock is a non-employee director of Urban One, Inc., a company that did business with CarMax in fiscal 2019. This business relationship involved the supply of services in the ordinary course of business.

The Board determined that this relationship did not impair the independence of Mr. Blaylock.



14


Board Leadership Structure
 
CarMax has historically split the roles of CEO and Board chair. Mr. Folliard was our CEO from 2006 until his retirement in 2016, at which time the Board appointed Mr. Nash as CEO and Mr. Folliard as non-executive chair. The Board determined that Mr. Folliard’s long history of leading the Company uniquely positions him to serve as non-executive chair.

As non-executive chair of our Board, Mr. Folliard is responsible for chairing Board and shareholder meetings, attending meetings of the Board’s committees with the approval of the respective committee, and assisting management in representing CarMax to external groups as needed and as determined by the Board. The Board elects its chair annually.

Mr. Nash oversees the day-to-day affairs of CarMax and directs the formulation and implementation of our strategic plans. We believe that this leadership structure is currently the most appropriate for CarMax because it allows our CEO to focus primarily on our business strategy and operations while leveraging the experience of our chair to direct the business of the Board.

Following the annual meeting, Mr. Steenrod will serve as the Board’s new lead independent director. Mr. Steenrod brings his significant experience on the Board and knowledge of CarMax to the lead independent director role. Mr. Steenrod is replacing Mr. Tiefel as lead independent director, who is retiring from the Board consistent with our director retirement policy. The lead independent director serves as the principal liaison between the independent, non-management directors and the CEO, and is responsible for setting the agendas for Board meetings, presiding over executive sessions of the independent directors, coordinating feedback from directors in connection with the evaluations of the CEO and each director, and acting as chair of any Board meeting when the non-executive chair is not present. The Board elects its lead independent director annually.

Our Board periodically reviews this structure and recognizes that, depending on the circumstances, a different leadership model might be appropriate. The Board has no fixed policy on whether the roles of chair and CEO should be separate or combined, which maintains flexibility based on CarMax’s needs and the Board’s assessment of the Company’s leadership. Our corporate governance guidelines do provide that the Board appoint a lead independent director in the event the CEO is elected chair or the chair otherwise does not qualify as independent.

Board Committees
 
The Board has three standing committees: Audit, Compensation and Personnel, and Nominating and Governance. Each committee is composed solely of independent directors as that term is defined in applicable rules of the U.S. Securities and Exchange Commission (“SEC”) and the NYSE.
Each committee is composed solely of independent directors.
In addition, all members of the Compensation and Personnel Committee qualify as “outside directors” within the meaning of Section 162(m) of the Internal Revenue Code and “non-employee directors” as defined by Rule 16b-3 under the Securities Exchange Act of 1934. Each committee has a charter that describes the committee’s responsibilities. These charters are available under the “Corporate Governance” link at investors.carmax.com or upon written request to our Corporate
Secretary at CarMax, Inc., 12800 Tuckahoe Creek Parkway, Richmond, Virginia 23238.



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The table below lists the members and summarizes the responsibilities of the three committees. Membership of the committees is expected to change as shown below following the annual shareholders meeting due to the changes in the composition and leadership of the Board discussed on page 15.
Committee
Current Members
Expected Members After the Annual Shareholders Meeting
Responsibilities
Audit
Mitchell D. Steenrod
(Chair)

Peter J. Bensen
Robert J. Hombach
David W. McCreight

Peter J. Bensen
(Chair)


Robert J. Hombach
David W. McCreight


The Audit Committee assists in the Board’s oversight of:
 
§     the integrity of our financial statements;
§     our compliance with legal and regulatory requirements;
§     the independent auditors’ qualifications, performance and independence; and
§     the performance of our internal audit function.
 
The Audit Committee retains and approves all fees paid to the independent auditors, who report directly to the Committee. Each member of the Audit Committee is financially literate, with Mr. Bensen and Mr. Hombach considered audit committee financial experts under the standards of the NYSE and the SEC.
 
The Audit Committee’s report to shareholders can be found on page 23.
Compensation
and Personnel
Ronald E. Blaylock
(Chair)

Sona Chawla
William R. Tiefel
 
Ronald E. Blaylock
(Chair)

Sona Chawla
Mitchell D. Steenrod
 
The Compensation and Personnel Committee assists in the Board’s oversight of:
 
§     our executive compensation philosophy;
§     our executive and director compensation programs, including related risks;
§     salaries, short- and long-term incentives and other benefits and perquisites for our CEO and other executive officers, including any severance agreements;
§     the administration of our incentive compensation plans and all equity-based plans; and
§     management succession planning, including for our CEO.
 
The Compensation and Personnel Committee has sole authority to retain and terminate its independent compensation consultant, as well as to approve the consultant’s fees.
 
The Compensation and Personnel Committee’s report to shareholders can be found on page 40.
Nominating
and Governance
Shira Goodman
(Chair)

Pietro Satriano
Marcella Shinder
Shira Goodman
(Chair)

Pietro Satriano
Marcella Shinder
The Nominating and Governance Committee assists in the Board’s oversight of:
 
§     Board organization and membership, including by identifying individuals qualified to become members of the Board, considering director nominees submitted by shareholders, and recommending director nominees to the Board; and
§     our corporate governance guidelines.
 
 
Board and Committee Meetings
 
During fiscal 2019, our Board met four times and our Board committees met a combined 22 times. Each incumbent director attended 80% or more of the total number of meetings of the Board and the committees on which he or she served. The average attendance of all of our incumbent directors in fiscal 2019 was 98%. We expect our directors to attend the annual meeting of shareholders and all but one of our incumbent directors did so.
 


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Our independent directors meet in executive session, without management present, at least once during each regularly scheduled Board meeting. Our lead independent director presides over these executive sessions. In addition, our non-management directors meet in executive session, also without management present, at least once during each regularly scheduled Board meeting. As chair, Mr. Folliard presides over these executive sessions.
 
The table below lists the number of Board and committee meetings in fiscal 2019 and discloses each director’s attendance.
Director
Board
 
Audit
 
Compensation
and Personnel
 
Nominating
and Governance
Peter J. Bensen(a)
4
 
9
 
 
Ronald E. Blaylock
4
 
 
6*
 
Sona Chawla(b)
4
 
4
 
4
 
Alan B. Colberg(c)
1
 
 
 
1
Thomas J. Folliard
4*
 
 
 
Jeffrey E. Garten(c)
1
 
 
 
1
Shira Goodman(d)
4
 
 
2
 
3*
W. Robert Grafton(c)
1
 
 
2
 
Edgar H. Grubb(c)
1
 
 
 
1
Robert J. Hombach(a)
4
 
10
 
 
David W. McCreight(e)
3
 
8
 
 
William D. Nash
4
 
 
 
Pietro Satriano(f)
2
 
 
 
2
Marcella Shinder(g)
4
 
4
 
 
3
Mitchell D. Steenrod
4
 
12*
 
 
William R. Tiefel(h)
3
 
 
5
 
TOTAL MEETINGS
4
 
12
 
6
 
4
* Chair
(a)
Messrs. Bensen and Hombach were elected to the Board on April 1, 2018 and appointed to the Audit Committee on April 23, 2018.
(b)
Ms. Chawla was appointed to the Compensation and Personnel Committee on June 26, 2018 and concurrently stepped down from the Audit Committee.
(c)
Messrs. Colberg, Garten, Grafton and Grubb did not stand for re-election at our 2018 annual shareholders meeting.
(d)
Ms. Goodman was named chair of the Nominating and Governance Committee on June 26, 2018 and concurrently stepped down from the Compensation and Personnel Committee.
(e)
Mr. McCreight was elected to the Board and appointed to the Audit Committee on June 26, 2018.
(f)
Mr. Satriano was elected to the Board and appointed to the Nominating and Governance Committee on October 1, 2018.
(g)
Ms. Shinder was appointed to the Nominating and Governance Committee on June 26, 2018 and concurrently stepped down from the Audit Committee.
(h)
Mr. Tiefel is lead independent director of the Board.

Selection of Directors
 
CRITERIA
 
The Board and the Nominating and Governance Committee believe that the Board should include directors with diverse backgrounds and that directors should have, at a minimum, high integrity, sound judgment and significant experience or skills that will benefit the Company. In addition, the Board amended our corporate governance guidelines in January 2019 to include an affirmative statement that the Nominating and Governance Committee will consider candidates with diversity of experience

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and background, including ethnic and gender diversity, when searching for new directors.
We believe our Board should include directors with diverse backgrounds, including ethnic and gender diversity. 
The Committee takes into account a number of additional factors in assessing director nominees, including the current size of the Board, the particular challenges facing CarMax, the Board’s need for specific skills or perspectives, and the nominee’s character, reputation, experience, independence from management and ability to devote the requisite time.
We believe that the diverse backgrounds and experiences of our current directors demonstrate the Committee’s success.
 
PROCESS
 
The Nominating and Governance Committee screens and recommends candidates for nomination by the Board. The Committee may consider input from several sources, including Board members, shareholders, outside search firms, and management. The Committee evaluates candidates in the same manner regardless of the source of the recommendation, using the criteria summarized above. Shareholders may send their recommendations for director candidates to the attention of our Corporate Secretary at CarMax, Inc., 12800 Tuckahoe Creek Parkway, Richmond, Virginia 23238.
 
Our bylaws include proxy access provisions, which enable eligible CarMax shareholders to have their own director nominee included in the Company’s proxy materials along with candidates nominated by our Board. Our proxy access right permits an eligible shareholder, or a group of up to 20 shareholders, to nominate and include in CarMax’s proxy materials directors constituting up to 20% of the Board of Directors. To be eligible, the shareholder or shareholder group must have owned 3% or more of our outstanding capital stock continuously for at least three years and satisfy certain notice and other requirements set forth in our bylaws. Shareholders who wish to include director nominations in our proxy statement or nominate directors directly at an annual shareholders meeting must follow the instructions under “Shareholder Proposal Information” on page 76.

EVALUATION AND REFRESHMENT
 
In connection with the annual election of directors and at other times throughout the year, the Nominating and Governance Committee considers whether our Board has the right mix of skills and experience to meet the challenges facing CarMax. In addition, as reflected in the January 2019 amendments to our corporate governance guidelines, the Nominating and Governance Committee strives to ensure that the Board reflects a diversity of experience and background, including ethnic and gender diversity.

One of the processes that assists the Committee in its consideration is our Board’s annual evaluation process. The Board and each of its committees conducts a self-evaluation. In addition, the chair, lead independent director and Committee preside over a peer evaluation process in which each individual director evaluates each other director. The results of these evaluations assist the Committee in determining both whether to nominate incumbent directors for reelection and whether to search for additional directors.
 
As part of its consideration, the Committee reviews both the age and tenure of incumbent directors. Our Board has adopted a mandatory director retirement policy providing that directors may not stand for re-election after reaching age 76. The Board may waive this limitation in appropriate circumstances, as it did for Mr. Tiefel for one year. The waiver is described in our 2018 proxy statement.

Our Board has undergone significant refreshment in the past several years, with six of our nine independent director nominees having joined the Board since 2015. The fresh perspectives and diversity of skills of the directors recently added to the Board, coupled with the institutional knowledge of the tenured independent directors, provides the Board with ample experience and leadership.

Following the annual meeting, assuming all our director nominees are elected, the average age of our directors will be 54 years, and their average tenure on our Board will be 5 years.


 



18


Board’s Role in Succession Planning
 
The Board oversees the recruitment, development and retention of executive talent. As part of its oversight, the Board regularly reviews short- and long-term succession plans for the Chief Executive Officer and other senior management positions. In assessing possible CEO candidates, the independent directors identify the skills, experience and other attributes they believe are required to be an effective CEO in light of CarMax’s business strategies, opportunities and challenges.
 
The Board also considers its own succession. In doing so, the Nominating and Governance Committee and the Board take into account, among other things, the needs of the Board and the Company in light of the overall composition of the Board with a view to achieving a balance of skills, experience and attributes that would be beneficial to the Board’s oversight role. 

Board’s Role in Strategic Planning
 
While the formulation and implementation of CarMax’s strategic plan is primarily the responsibility of management, the Board plays an active role with respect to the Company’s strategy. This includes not only monitoring progress made in executing the strategic plan, but also regularly evaluating the strategy in light of evolving operating and economic conditions. The Board carries out its role primarily through regular reviews of the Company’s strategic plan and discussions with management, which include both broad-based presentations and more in-depth analyses and discussions of specific areas of focus. In addition, regular Board meetings throughout the year include presentations and discussions with management on significant initiatives implementing the strategic plan; developments affecting an area of the Company’s business; and on trends, competition, and emerging challenges and opportunities. The Board also reviews the strategic plan, including actions taken and planned to implement the strategy, as part of its review and approval of the annual budget.

The Board’s oversight of risk management enhances the directors’ understanding of the risks associated with the Company’s strategic plan and its ability to provide guidance to and oversight of senior management in executing the Company’s strategy.

Board’s Role in Risk Oversight
 
Our Board undertakes its responsibility to oversee risks to CarMax through a risk governance framework designed to:
identify critical risks;
allocate responsibilities for overseeing those risks to the Board and its committees; and
evaluate the Company’s risk management processes.
 
The Board does not view risk in isolation. Rather, it considers risks in its business decisions and as part of CarMax’s business strategy. This consideration occurs in the ordinary course of the Board’s business and is not tied to any of the formal processes described below, although it is enhanced by those processes.
 

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The following table describes the components of CarMax’s risk governance framework.
Assignment of Risk Categories
to Board and its Committees
The Board has assigned oversight of certain key risk categories to either the full Board or one of its committees. For each category, management reports regularly to the Board or the assigned committee, as appropriate, describing CarMax’s strategies for monitoring, managing and mitigating risks that fall within that category.
 
Examples of the risk categories assigned to each committee and the full Board are described below. This list is not comprehensive and is subject to change:
 
§
Audit Committee: oversees risks related to financial reporting, compliance and ethics, information technology and cybersecurity, and legal and regulatory issues.
 
§
Compensation and Personnel Committee: oversees risks related to human resources and compensation practices.
 
§
Nominating and Governance Committee: oversees risks related to government affairs and CarMax’s reputation.
 
§
Board: oversees risks related to the economy, competition, finance and strategy. 
Enterprise Risk Management
Risk Committee: We have a management-level Risk Committee, which is chaired by Thomas W. Reedy, our Executive Vice President and Chief Financial Officer (“CFO”), and includes as members more than ten other associates from across CarMax. The Risk Committee meets periodically to identify and discuss the risks facing CarMax.
 
Board Reporting: The Risk Committee delivers biannual reports to the Board identifying the most significant risks facing the Company.
 
Board Oversight: On an annual basis, Mr. Reedy, on behalf of the Risk Committee, discusses our procedures for identifying significant risks with the Audit Committee.
Other Processes that Support
Risk Oversight and Management 
The Board oversees other processes that are not intended primarily to support enterprise risk management, but that assist the Company in identifying and controlling risk. These processes include our compliance and ethics program, our internal audit function, pre-filing review of SEC filings by our management-level disclosure committee, and the work of our independent auditors.
 
We believe that our Board leadership structure, discussed in detail beginning on page 15, supports the Board’s risk oversight function. Our chair, lead independent director and committee chairs set agendas and lead meetings to ensure strong risk oversight, while our CEO and his management team are charged with managing risk.

Related Person Transactions
 
Our Board has adopted a written Related Person Transactions Policy that applies to any transaction in which:
CarMax or one of its affiliates is a participant;
the amount involved exceeds $120,000; and
the related person involved in the transaction (whether a director, executive officer, owner of more than 5% of our common stock, or an immediate family member of any such person) has a direct or indirect material interest.
We did not have any related person transactions in fiscal 2019.
A copy of our policy is available under the “Corporate Governance” link at investors.carmax.com. The Audit Committee is responsible for overseeing the Company’s policy and reviewing any related person transaction that is required to be disclosed pursuant to SEC rules.
In reviewing related person transactions, the Audit Committee considers, among other things:
the related person’s relationship to CarMax;
the facts and circumstances of the proposed transaction;
the aggregate dollar amount involved in the transaction;
the related person’s interest in the transaction, including his or her position or relationship with, or ownership in, an entity that is a party to, or has an interest in, the transaction; and


20


the benefits to CarMax of the proposed transaction and, if applicable, the terms and availability of comparable products and services from unrelated third parties.
 
The Audit Committee will approve or ratify a related person transaction only if it determines that: (i) the transaction serves the best interests of CarMax and its shareholders; or (ii) the transaction is on terms reasonably comparable to those that could be obtained in arm’s length dealings with an unrelated third party.
 
We did not have any related person transactions in fiscal 2019.
 
Shareholder Communication with Directors
 
Shareholders or other interested parties wishing to contact the Board or any individual director may send correspondence to CarMax, Inc., c/o Corporate Secretary, 12800 Tuckahoe Creek Parkway, Richmond, Virginia 23238, or may send an e-mail to chair@carmax.com, which is monitored by Eric M. Margolin, our Corporate Secretary. Mr. Margolin will forward to the Board or appropriate Board member any correspondence that deals with the functions of the Board or its committees or any other matter that would be of interest to the Board. If the correspondence is unrelated to Board or shareholder matters, it will be forwarded to the appropriate department within the Company for further handling.
 


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PROPOSAL TWO: RATIFICATION OF THE APPOINTMENT OF
THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 
We are asking you to ratify the Audit Committee’s appointment of KPMG LLP (“KPMG”) as CarMax’s independent registered public accounting firm for fiscal 2020. KPMG has served as our independent registered public accounting firm continuously since our separation from Circuit City Stores, Inc. (“Circuit City”) in fiscal 2003, and also served as Circuit City’s independent registered public accounting firm from the incorporation of CarMax, Inc. in 1996 through the separation. KPMG has been appointed by the Audit Committee to continue as CarMax’s independent registered public accounting firm for fiscal 2020. The members of the Audit Committee and the Board believe that the continued retention of KPMG to serve as CarMax’s independent registered public accounting firm is in the best interests of CarMax and its shareholders.

The Audit Committee is directly responsible for the appointment, compensation, retention, evaluation, and oversight of the independent registered public accounting firm retained to audit CarMax’s financial statements. The Audit Committee is also responsible for the audit fee negotiations associated with CarMax’s retention of KPMG. In accordance with the SEC-mandated rotation of the audit firm’s lead engagement partner, the Audit Committee and its chairperson are directly involved in the selection of KPMG’s lead engagement partner and were directly involved in the selection of KPMG’s current lead engagement partner, whose period of service began in fiscal 2016. Furthermore, in order to ensure continuing auditor independence, the Audit Committee periodically considers whether there should be a regular rotation of the independent registered public accounting firm.

Although we are not required to seek shareholder ratification, we are doing so as a matter of good corporate governance. If the shareholders do not ratify the appointment of KPMG, the Audit Committee will reconsider its decision. Even if the appointment is ratified, the Audit Committee, in its discretion, may change the appointment at any time during the year if it determines that a change would be in the best interests of CarMax and its shareholders.
 
We expect that representatives of KPMG will attend the annual shareholders meeting. They will be given the opportunity to make a statement if they desire to do so and to respond to appropriate questions.
 
The Board recommends a vote FOR Proposal Two.
 



22



AUDIT COMMITTEE REPORT

 
The Audit Committee reports to and acts on behalf of CarMax’s Board of Directors by providing oversight of the integrity of the Company’s financial statements, the Company’s independent and internal auditors, and the Company’s compliance with legal and regulatory requirements. The Audit Committee operates under a written charter adopted by the Board, which is reviewed annually and is available under the “Corporate Governance” link at investors.carmax.com. The members of the Audit Committee meet the independence and financial literacy requirements of the NYSE and the SEC.
 
Management is responsible for the preparation, presentation and integrity of the Company’s financial statements and the establishment of effective internal control over financial reporting. KPMG, the Company’s independent registered public accounting firm, is responsible for auditing those financial statements in accordance with the standards of the Public Company Accounting Oversight Board (“PCAOB”) and expressing an opinion on the conformity of CarMax’s audited financial statements with generally accepted accounting principles and on the effectiveness of CarMax’s internal controls over financial reporting. In this context, the Audit Committee has met and held discussions with management, KPMG and the Company’s internal auditors, meeting 12 times in fiscal 2019.

Management represented to the Committee that the Company’s fiscal 2019 consolidated financial statements were prepared in accordance with generally accepted accounting principles, and the Committee reviewed and discussed the fiscal 2019 consolidated financial statements with management and KPMG.
 
The Committee has discussed with KPMG the matters required to be discussed by applicable auditing standards, including significant accounting policies and the quality, not just the acceptability, of the accounting principles utilized. The Committee has also received from KPMG the written disclosures and the letter required by applicable requirements of the PCAOB regarding the independent auditor’s communications with the Audit Committee regarding independence, and the Audit Committee has discussed with KPMG the firm’s independence. The Audit Committee concluded that KPMG is independent from the Company and management.
 
In reliance on these reviews and discussions, the Committee recommended to the Board of Directors that the audited consolidated financial statements be included in the Company’s Annual Report on Form 10-K for the fiscal year ended February 28, 2019, for filing with the SEC.
 
AUDIT COMMITTEE
 
Mitchell D. Steenrod, Chair
Peter J. Bensen
Robert J. Hombach
David W. McCreight



 


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AUDITOR FEES
AND PRE-APPROVAL POLICY

 
Auditor Fees and Services
 
The following table sets forth fees billed by KPMG for fiscal 2019 and 2018.

Years Ended February 28
Type of Fee
2019

2018
Audit Fees(a)
$
2,245,500


$
1,969,125

Audit-Related Fees(b)
558,000


547,000

Tax Fees(c)
75,772


130,002

TOTAL FEES
$
2,879,272


$
2,646,127

(a)
This category includes fees associated with the annual audit of CarMax’s consolidated financial statements and the audit of CarMax’s internal control over financial reporting. It also includes fees associated with quarterly reviews of CarMax’s unaudited consolidated financial statements.
(b)
This category includes fees associated with agreed-upon procedures and attestation services related to our financing and securitization program.
(c)
This category includes fees associated with tax compliance, consultation and planning services.


Approval of Auditor Fees and Services
 
The Audit Committee’s charter provides for pre-approval of audit and non-audit services to be performed by the independent auditors. The Committee typically pre-approves specific types of audit, audit-related and tax services, together with related fee estimates, on an annual basis. The Committee pre-approves all other services on an individual basis throughout the year as the need arises. The Committee has delegated to its chair the authority to pre-approve independent auditor engagements in an amount not to exceed $50,000 per engagement. Any such pre-approvals are reported to and ratified by the entire Committee at its next regular meeting.
 
All audit, audit-related and tax services in fiscal 2019 were pre-approved by the Audit Committee or pre-approved by the chair pursuant to his delegated authority and subsequently ratified by the Audit Committee. In all cases, the Audit Committee concluded that the provision of such services by KPMG was compatible with the maintenance of KPMG’s independence.




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PROPOSAL THREE: ADVISORY RESOLUTION TO
APPROVE EXECUTIVE COMPENSATION

 
We are asking you to approve an advisory resolution approving the compensation of our named executive officers as disclosed in this proxy statement. This vote is commonly referred to as a “Say on Pay” vote and is required by Section 14A of the Securities Exchange Act of 1934. Although this resolution is not binding, we value your opinion and our Compensation and Personnel Committee will consider the outcome of this vote when making future decisions.
 
We believe our executive compensation program promotes the achievement of positive results for our shareholders, aligns pay and performance, and allows us to attract and retain the talented executives that drive our long-term financial success. We urge you to read the “Compensation Discussion and Analysis” section of this proxy statement beginning on page 26, which describes in more detail how our executive compensation program operates and how it is designed to achieve our compensation objectives. We also encourage you to review the “Summary Compensation Table” and other compensation tables and narratives, found on pages 41 through 53.
 
We have adopted a policy providing for an annual “Say on Pay” vote. Accordingly, the next advisory vote on the compensation of our named executive officers will occur in 2020.
 
Our Board recommends that, on an advisory basis, shareholders vote in favor of the following resolution:
 
RESOLVED, that the compensation of the named executive officers of CarMax, Inc. (the “Company”), as disclosed in the Company’s 2019 Proxy Statement pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including the Compensation Discussion and Analysis, compensation tables and the narrative discussion that accompanies the compensation tables, is hereby APPROVED.
 
The Board recommends a vote FOR Proposal Three.
 


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COMPENSATION DISCUSSION AND ANALYSIS

 
Overview
 
The Compensation and Personnel Committee (the “Committee”) oversees an executive compensation program that is intended to drive the creation of long-term shareholder value. This section describes that program and details the compensation earned by our CEO, CFO, and our three other most highly compensated executive officers. We refer to these five individuals, listed below, as our “named executive officers” or “NEOs”:
William D. Nash
President and Chief Executive Officer. Mr. Nash joined CarMax in 1997 and was promoted to his current position in 2016. Mr. Nash is also a member of our Board.
Thomas W. Reedy
Executive Vice President and Chief Financial Officer. Mr. Reedy joined CarMax in 2003 and was promoted to his current position in 2012.
Edwin J. Hill
Executive Vice President and Chief Operating Officer. Mr. Hill joined CarMax in 1995 and was promoted to his current position in August 2018.
Eric M. Margolin
Executive Vice President, General Counsel and Corporate Secretary. Mr. Margolin joined CarMax in 2007 and was promoted to his current position in 2016.
James Lyski
Executive Vice President and Chief Marketing Officer. Mr. Lyski joined CarMax in 2014 and was promoted to his current position in 2017.
 

Executive Summary
 
FISCAL 2019 HIGHLIGHTS

Revenues
Net sales and operating revenues increased 6.1% to $18.17 billion.
Earnings
Net earnings rose 26.8% to $842.4 million and net earnings per diluted share increased 33.1% to $4.79.
Strategic Initiatives and Store Growth
We opened 15 stores in fiscal 2019 and launched our omni-channel customer experience in Atlanta. We plan to open 13 stores in fiscal 2020 and are on track to have the omni-channel experience available to a majority of our customers by the end of fiscal 2020.
Units
Total used unit sales increased 3.8% and comparable store used unit sales increased 0.3%. Total wholesale unit sales increased 9.5%.
CarMax Auto Finance
CarMax Auto Finance (“CAF”) finished the year with income of $438.7 million, an increase of 4.2% over the prior year.
Share Repurchases
We continued our share repurchase program in fiscal 2019, buying back 13.6 million shares with a market value of $902.9 million. The Board approved a $2.0 billion expansion of the program, with no expiration date.
Fifteenth Year on Fortune
“Best Companies” List
We were named by Fortune magazine as one of its “100 Best Companies to Work For” for the fifteenth year in a row.


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SUMMARY OF FISCAL 2019 COMPENSATION CHANGES FOR OUR NAMED EXECUTIVE OFFICERS

In recognition of the business environment at the start of fiscal 2019, as well as anticipated investments into our strategic initiatives, the Committee set the “target” performance goal under the annual inventive bonus plan slightly above fiscal 2018 performance. Given the relatively small target increase, the Committee determined that bonus payments would only exceed the target payout if the Company’s results significantly exceeded the target performance goal. As a result of this change, although the Company exceeded its target performance goal, annual incentive bonuses were paid at 100% of target for fiscal year 2019. See pages 31 and 32 for additional explanation.

Additionally, the Committee adopted a limited change to the long-term equity award program, transitioning from performance stock units, or “PSUs,” to restricted stock units, which we call “MSUs,” solely for fiscal 2019. This change was made to ensure shareholder alignment of executive pay in the face of the then-unknown impact of federal tax reform. See page 33 for additional explanation.

The Committee also approved changes to Mr. Nash’s compensation designed to bring his total direct compensation closer to, though still below, median pay of the Chief Executive Officer blended peer group and survey data described below under the heading “Benchmarking.” Mr. Hill’s compensation was increased in connection with his promotion to Executive Vice President and Chief Operating Officer.
 
The following chart summarizes these and other fiscal 2019 compensation changes.
  
Compensation
Category
Changes We Made
in Fiscal 2019
Why We Made
These Changes
 
 
 
Base Salary
3% increase for the named executive officers other than Mr. Hill.



12.99% increase for Mr. Hill.
Same as the increase given to salaried associates throughout the Company in recognition of successful performance. The Committee determined that the performance of our named executive officers warranted this increase. See page 31 for more detail.

The Committee increased Mr. Hill’s base salary in connection with his promotion.
 
 
 
Annual Incentive Bonus
100.0% payout versus an 109.7% payout in fiscal 2018.





Increased target percentage for Mr. Nash from 130% to 150%.
Based on Company performance measured against the pre-determined adjusted pre-tax income target set at the beginning of fiscal 2019. Payout limited to 100.0% despite performance exceeding pre-determined target bonus goal by $57.6 million. See pages 31 to 33 for more detail.

The Committee increased Mr. Nash’s bonus target percentage to bring his target total direct compensation closer to the benchmarked median. See page 33 for more detail.
 
 
 
Long-Term Equity Award
20% increase in grant date fair value for Mr. Nash and 11.5% increase for Mr. Hill. No increase for the other named executive officers.



One-year replacement of performance stock units (“PSUs”) with stock-settled restricted stock units (“MSUs”).
Mr. Nash’s awards were increased to to help bring his target total direct compensation closer to the benchmarked median. The increase to Mr. Hill’s awards reflected his promotion. The annual awards to our other named executive officers were maintained at prior year levels, which the Committee believed continued to provide competitive pay opportunities for them.

The Committee temporarily replaced PSUs with MSUs for our executive officers in light of the then unknown impact of federal tax reform. See page 33 for more detail.
 

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CarMax believes strongly in its pay-for-performance philosophy. In fiscal 2019, an average of 82% of the target total direct compensation of our CEO and other named executive officers was attributable to annual incentive bonus and long-term equity award compensation and therefore directly tied to CarMax performance. Compensation mix is discussed in more detail on page 36.

LOOKING FORWARD TO FISCAL 2020

The Committee has approved the reintroduction of PSUs for fiscal 2020. The PSUs will have a three-year term and the Committee intends to set annual pre-tax diluted earnings per share targets in each year of the term. At the end of the three-year term, shares will be awarded to each recipient based upon the Company’s performance as measured against those previously determined annual goals.

Our CEO and executive and senior vice presidents received PSUs from fiscal 2016 to fiscal 2018. The return to PSUs for fiscal 2020 will replace in our executive compensation program the MSUs that we granted to these executives in fiscal 2019.

How We Make Compensation Decisions
 
The Committee oversees our executive and director compensation programs and determines all executive officer and director compensation.
 
COMPENSATION PHILOSOPHY AND OBJECTIVES
 
CarMax has a pay-for-performance philosophy. The Committee believes that the best way to implement this philosophy is by tying a significant portion of our executives’ total direct compensation to the attainment of our financial goals and multi-year stock price appreciation.
 
The Committee has established the following objectives for our executive compensation program:
Align the interests of executive officers with the financial interests of our shareholders.
Encourage the achievement of our key strategic, operational and financial goals.
Link incentive compensation to Company and stock price performance, which the Committee believes promotes a unified vision for senior management and creates common motivation among our executives.
Attract, retain and motivate executives with the talent necessary to drive our long-term success.
Provide the Committee the flexibility to respond to the continually changing environment in which we operate.
 
The key elements of our executive compensation program are base salaries, annual incentive bonuses and long-term equity awards. The Committee generally makes determinations regarding long-term equity awards, base salaries and annual incentive bonuses at its March and April meetings. The Committee makes decisions regarding each element of pay to further the objectives described above. The specific ways in which each element of compensation supports these objectives are described beginning on page 31.
 
The Committee recognizes the impact that an adjustment to one element of compensation may have on other elements. For example, an increase in an officer’s base salary will result in a larger target annual incentive amount since that amount is determined as a percentage of base salary. Although the Committee considers these relationships between the various elements of compensation - and also considers each executive officer’s total compensation - decisions regarding any one element of compensation are not determinative of decisions regarding other elements.
 
The Committee generally considers the value of stock-based compensation as an element of our executive compensation program at the time of grant of an equity award, not at the time of exercise or vesting. Accordingly, the Committee does not consider the realized value of long-term equity compensation when designing and evaluating our executive compensation program.
 


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COMPENSATION CONSULTANT
  
The Committee engages a compensation consultant, which it uses to obtain access to independent compensation data, analysis and advice. The Committee retained Semler Brossy Consulting Group, LLC (“SBCG”) to assist it while making decisions regarding the compensation of our executive officers for fiscal 2019. Under its charter, the Committee has the sole authority to hire, oversee and terminate compensation consultants, as well as to approve compensation consultant fees and any other terms of the engagement.
The Committee has retained an independent compensation consultant.
Committee members have direct access to the compensation consultant without going through management. SBCG did not provide any services to CarMax other than those it provided to the Committee.

The Committee assesses its compensation consultant’s independence annually. It assessed SBCG’s independence in April 2018 and 2019, under SEC and NYSE standards and concluded that SBCG was independent.

The Committee considers, among other factors:
whether the consultant provided other services to CarMax;
the amount of fees paid by CarMax to the consultant as a percentage of the consultant’s total revenue;
the consultant’s policies and procedures designed to prevent conflicts of interest;
any business or personal relationship between the individuals advising the Committee and any Committee member;
any CarMax stock owned by the individuals advising the Committee; and
any business or personal relationship between the individuals advising the Committee, or the consultant itself, and an executive officer of CarMax.
 
The Committee’s compensation consultant frequently attends Committee meetings and provides analysis and recommendations that inform the Committee’s decisions. SBCG assisted the Committee in fiscal 2019 by analyzing and providing recommendations with regard to total direct compensation for the Company’s CEO and executive and senior vice presidents, including the other named executive officers. SBCG also assisted the Committee in setting appropriate performance criteria for the Company’s bonus programs and by providing general compensation advice, including analysis related to the composition of our peer group and non-employee director pay.
 
MANAGEMENT’S ROLE
 
Although management does not have any decision-making authority regarding compensation of executive officers, management assists the Committee by recommending base salary levels, annual incentive bonus objectives and targets, and individual long-term equity awards for executives other than the CEO. Management also assists the Committee with the preparation of meeting agendas and prepares materials for those meetings as directed by the Committee.
 
The Committee has not delegated any authority with respect to the compensation of our executive officers and directors. The Committee, however, has delegated limited authority to our CEO and CFO to grant long-term equity awards to our non-executive officer employees between regularly scheduled Committee meetings in an amount not to exceed 75,000 shares or units. These awards are subject to our Employee Equity Grant Policy, which is available under the “Corporate Governance” link at investors.carmax.com. The Committee’s practice is to review and ratify any such grant at its next regularly scheduled meeting.
 
Notwithstanding the Committee’s use of outside advisers and management’s participation in the executive compensation process, the Committee makes all executive compensation decisions using its own independent judgment.
 

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CONSIDERATION OF THE MOST RECENT ADVISORY “SAY-ON-PAY” VOTE
 
At the 2018 annual shareholders meeting, our shareholders approved our executive compensation program, with more than 97% of the votes cast in favor of the program. This represented a significant majority of our shareholders and the Committee was pleased with the response, which improved on the results from the 2017 meeting when 87% of the votes were cast in favor of the program. The Committee actively monitors shareholder feedback and support of the Company’s pay practices, which it takes into consideration when making executive compensation decisions.

PEER GROUP

Each year, the Committee reviews market compensation data provided by its independent consultant to determine whether the compensation opportunities of the named executive officers are appropriate and competitive.
 
The Committee used the following peer group of companies to assess the market competitiveness of the fiscal 2019 compensation disclosed in this proxy statement. The Committee selected this peer group in October 2017 based on an analysis by SBCG and the Committee’s independent judgment. The Committee has not made any adjustments to the peer group since October 2017.

All of the peer group companies fell within a reasonable range (both above and below CarMax) of comparative factors such as revenue, market capitalization, net income, revenue growth, assets and one- and three-year total shareholder return. These peers are generally comparable retailers or direct competitors.
Advance Auto Parts, Inc.
Kohl’s Corporation
AutoNation, Inc.
L Brands, Inc.
AutoZone, Inc.
Lowe’s Companies, Inc.
Best Buy Co., Inc.
Macy’s, Inc.
Dick’s Sporting Goods, Inc.
Ross Stores, Inc.
Dollar General Corporation
The Sherwin-Williams Company
Dollar Tree, Inc.
Southwest Airlines Co.
eBay Inc.
The TJX Companies, Inc.
The Gap, Inc.
Tractor Supply Company
Genuine Parts Company
 
 
The Committee will continue to use this peer group to benchmark compensation practices for fiscal 2020.

BENCHMARKING

The Committee considers a blend of peer group data and broader survey data in benchmarking compensation. In fiscal 2019, in addition to the peer group, the Committee considered three national surveys produced by Equilar, Towers Watson and Mercer with a focus on executives within the retail/wholesale and automotive industries.
 
The Committee believes that this mix of data provides the most comprehensive view of executive compensation practices at companies against whom we compete for talent and allows the Committee to ensure that CarMax continues to provide appropriate and competitive compensation. This mix of data also allows the Committee to obtain broader market context with regard to certain positions that may not exist in a comparable form at every company in our peer group or that may not be classified as a named executive officer at every company in our peer group.

The Committee uses peer group and broader survey data as one of many factors in making compensation decisions and does not benchmark named executive officers’ total direct compensation, or any specific element of compensation, at a specific percentile of the blended peer group/survey data. Other factors include individual performance, CarMax performance, tenure, internal pay equity and succession planning.
 
The Committee generally uses the 50th percentile of the blended peer/survey data as a reference in setting the base salaries and target annual incentive bonus opportunities of our named executive officers. The Committee uses long-term equity awards that are tied to objective performance metrics to further reward executive officers when CarMax performs well. If the Company


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delivers sustained performance gains, these long-term equity awards are targeted to provide an opportunity for total direct compensation beyond the 50th percentile of the blended peer/survey data.
 
What We Pay and Why: Elements of Compensation
 
The key elements of compensation for our named executive officers are base salary, an annual incentive bonus and long-term equity awards. Together, these elements make up total direct compensation.
Base Salary
+
Annual Incentive
Bonus
+
Long-Term Equity Awards
=
Total Direct Compensation
 
This section describes these elements and details the amounts of each earned by our named executive officers in fiscal 2019.
 
BASE SALARY
 
We pay competitive base salaries to retain key officers and attract the new talent necessary for our long-term success. An executive officer’s base salary generally reflects the officer’s responsibilities, tenure and job performance, as well as the market for the officer’s services. The Committee reviews officer base salaries every year, generally in March. When the Committee reviews base salaries, it considers the reports and advice provided by its independent compensation consultant and the peer group and survey data described above, as well as the recommendations provided by our CEO (except when setting the CEO’s base salary).
 
At the beginning of fiscal 2019, the Committee approved the following base salary adjustments.
Name
Prior Base Salary
($)
 
Fiscal 2019 Base Salary
($)
 
Percentage Increase
(%)
William D. Nash
1,032,500


1,063,475


3.00

Thomas W. Reedy
722,750


744,433


3.00

Edwin J. Hill
619,500


700,000


12.99

Eric M. Margolin
593,688


611,499


3.00

James Lyski
500,000


515,000


3.00


The Committee increased Mr. Nash’s salary by 3.0% and approved Mr. Nash’s recommendation to increase the base salaries for each named executive officer by 3.0%, with the exception of Mr. Hill, whose base salary was increased by 12.99% in connection with his promotion to Chief Operating Officer. The Committee approved the increases for our other named executive officers based on the individual contributions that each named executive officer made to CarMax’s performance in fiscal 2018. The increases were consistent with the base salary increases awarded generally to our salaried associates.

ANNUAL INCENTIVE BONUS

In light of the passage of the Tax Cuts and Jobs Act of 2017 (“2017 Tax Act”) and the enhanced flexibility it provided in the administration of incentive pay, the Board adopted a new Annual Performance-Based Bonus Plan (“Bonus Plan”) in April 2018. The operation of the new plan largely mirrors its predecessor plan; however, the Committee now has more latitude to design performance-based pay consistent with the revised tax laws.

We pay annual incentive bonuses to drive the achievement of CarMax’s financial goals. The amount of the annual incentive bonus depends on our performance as measured against objective performance goals established by the Committee at the beginning of each fiscal year. Bonuses are not guaranteed.
 
We calculate bonuses using the following formula:
Base Salary
x
Target Percentage of
Base Salary
x
Performance Adjustment
Factor
=
Annual Incentive Bonus
 

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Base salaries, which are the first component of this formula, are discussed above. The “target percentage of base salary” is an individual’s incentive bonus target expressed as a percentage of base salary. This percentage differs among our named executive officers depending on their level of responsibility and is set forth in a written agreement between each officer and the Company. Each named executive officer’s target percentage is listed in the table on page 33.
 
The last component of the bonus formula – the “performance adjustment factor” – is a percentage representing the Company’s success in meeting the performance goals set by the Committee at the beginning of each fiscal year.

For fiscal 2019, in recognition of the business environment and anticipated investments into our strategic initiatives, the Committee set a “target” performance goal that was less than 2% above final performance for fiscal 2018. Generally, when actual performance falls between performance goals set by the Committee, the final performance adjustment factor is determined by straight-line interpolation. However, given the relatively small target performance goal increase for fiscal 2019, the Committee determined that results above target would not increase the performance adjustment factor until actual results exceeded target performance by 5%, or $57.6 million. The Committee instituted this adjustment to ensure our named executive officers would receive above target bonus payments only if CarMax’s performance significantly exceeded the performance target goal.
 
The following chart describes how the Committee applied this formula in fiscal 2019.
Step One: Select
Performance Measure
The Committee determined in April 2018 that the performance goals for fiscal 2019 would be based on our fiscal 2019 adjusted pre-tax income (i.e. earnings before the provision for income tax and interest expense). The Committee believes that this adjusted pre-tax income is a measure of performance that can be directly affected by management decisions and therefore tying performance goals to this adjusted pre-tax income expense aligns management and shareholder interests.
Step Two: Select
Performance Targets
The Committee then established the following adjusted pre-tax income targets for fiscal 2019: $1,142.4 million as the threshold goal; $1,152.0 million as the target goal; $1,244.2 million as the premium goal; and $1,290.3 million as the maximum goal.
Step Three: Select
Performance Adjustment
Factors
The Committee then established the following performance adjustment factors for fiscal 2019:
§ 25% if the threshold goal of $1,142.4 million was achieved
§ 100% if the target goal of $1,152.0 million was achieved
§ 100% for amounts achieved in excess of the target goal up to $1,209.6 million
§ 150% if the premium goal of $1,244.2 million was achieved
§ 200% if the maximum goal of $1,290.3 million was achieved

If the threshold performance goal was not achieved, no incentive bonus would be paid.

For amounts that do not fall between the target goal and $1,209.6 million, the performance adjustment factor is determined using straight-line interpolation when our actual performance falls between two performance goals.
Step Four: Assess
Performance Against Targets and Determine Payouts
 
For fiscal 2019, the Company achieved $1,188.6 million in adjusted pre-tax income, which represents $842.4 million in net earnings less the effect of the $270.4 million income tax provision and $75.8 million in interest expense. The Committee exercised its discretion to exclude $4.4 million from the adjusted pre-tax income amount, certifying a $1,184.2 goal achievement in April 2019, which yields a performance adjustment factor of 100.0%. The $4.4 million exclusion removed the impact of an unrealized gain on an investment. The Committee multiplied each named executive officer’s target incentive amount by the 100.0% adjustment factor to determine each executive officer’s fiscal 2019 bonus payout.

The following table shows each named executive officer’s base salary, incentive target percentage of base salary, and target and maximum bonus amounts. The table also shows each officer’s actual fiscal 2019 bonus.


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Name
Base Salary ($)
 
Incentive Target Percentage (%)
 
Target Incentive Amount ($)
 
Actual Fiscal 2019 Incentive Bonus
 
Maximum Incentive Amount ($)
William D. Nash
1,063,475


150


1,595,213


1,595,213


3,190,425

Thomas W. Reedy
744,433


75


558,325


558,325


1,116,650

Edwin J. Hill
700,000


75


525,000


525,000


1,050,000

Eric M. Margolin
611,499


75


458,624


458,624


917,249

James Lyski
515,000


75


386,250


386,250


772,500

 
The Committee sets robust performance targets for our annual incentive plan to drive achievement of CarMax’s financial goals. For the last five fiscal years, our average performance adjustment factor has been 99.8% (100.0%, 109.7%, 42.2%, 67.8%, and 179.4% for fiscal 2019, 2018, 2017, 2016, and 2015, respectively), meaning that, on average for the past five years, we have paid our named executive officers an annual incentive bonus of 99.8% of their respective target incentive amounts for achievement against the targets established by the Committee.

For fiscal 2019, the Committee increased Mr. Nash’s incentive target percentage from 130% to 150%. This increase was approved to better align Mr. Nash’s total cash compensation, at the target incentive amount, with the median of the CEO blended peer/survey data described above under the heading “Benchmarking.” The Committee addressed Mr. Nash’s total cash compensation through an increase to his incentive target percentage, rather than through a larger base salary increase, because it is performance-based and not fixed compensation. However, even with the approved increase, Mr. Nash’s total target cash compensation remains below the median benchmark.

The Committee determined that no change to the incentive target percentages of our other named executive officers was required to maintain a competitive and appropriate incentive structure.

The Committee determines all incentive bonuses in accordance with the Bonus Plan. The plan provides that the maximum amount payable to any one individual in any one fiscal year is $10 million. However, in fiscal 2019, the Committee limited the maximum performance adjustment factor to 200%, ensuring that Mr. Nash’s bonus could not exceed $3,190,425.

LONG-TERM EQUITY AWARDS
 
We grant long-term equity awards to tie our executives’ long-term compensation directly to CarMax’s stock price and to drive the achievement of our strategic goals. We also believe that long-term equity awards are an important retention tool.
 
In fiscal 2019, we granted our named executive officers two kinds of long-term equity awards: stock options and MSUs. Options accounted for 75% and MSUs accounted for 25% of the fair value awarded. All of our long-term equity grants were made pursuant to the CarMax, Inc. 2002 Stock Incentive Plan, as amended and restated (“Stock Incentive Plan”).

Fiscal 2019 and 2020 Program Changes

The fiscal 2019 MSUs are identical in structure to the MSUs we granted our named executive officers prior to fiscal 2016 and replace, for fiscal 2019 only, the performance stock units (“PSUs”) that we granted in the intervening years.

The 2017 Tax Act, adopted shortly before the Committee’s consideration and approval of the fiscal 2019 executive officer long-term equity awards, was a key driver of the Committee’s decision to temporarily replace PSUs with MSUs. At the time of the Committee’s deliberations, the full impact of the 2017 Tax Act on our financial results and our executive compensation instruments was unclear. The structure of our PSUs potentially compounded this uncertainty because PSU achievement was gauged using cumulative three-year financial performance goals. The Committee decided to avoid any potential unintentional pay and performance misalignment by reintroducing MSUs for a one-year period.

The Committee has reinstated PSUs for fiscal 2020.
 

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Stock Options
 
Each option represents the right to purchase one share of our common stock at the exercise, or “strike,” price. The strike price is equal to the volume-weighted average price of our common stock on the grant date. The Committee believes that the use of the volume-weighted average price, as opposed to the closing price, is more representative of the value of the common stock on the grant date because it incorporates all trades made on the grant date.
 
Our option awards generally vest in 25% increments over four years; that is, one quarter of the options granted vests on the first anniversary of the grant, another quarter vests on the second anniversary, and so forth. The awards expire on the seventh anniversary of the grant date.
 
We believe that granting stock options supports our pay-for-performance philosophy by aligning management and shareholder interests. If our stock price does not rise, the options have no value. In addition to promoting alignment of management and shareholder interests, the four-year vesting schedule and seven-year exercise term of our options ensures that our executives are appropriately focused on CarMax’s long-term strategic goals. This vesting schedule also serves as a retention tool.

Market Stock Units
 
Depending on the Company’s stock appreciation over a three-year period, the MSUs represent the right to receive between 0% and 200% of a targeted number of shares of our common stock. The number of shares awarded depends on how much the price of our common stock appreciates between the date the MSU is granted and the date the MSU is settled. Specifically, the conversion ratio of each MSU is calculated by dividing the average closing price of our common stock during the final 40 trading days of the vesting period by our stock price on the grant date. The resulting quotient is capped at two. The quotient is multiplied by the number of MSUs granted to yield the number of shares of stock awarded.
 
MSUs generally vest on the three-year anniversary of the grant date. Limited circumstances may trigger early vesting.
 
The Committee considered MSUs to be a key component of our pay-for-performance philosophy in fiscal 2019 because the number of units earned and the value of each unit is tied to the value of a share of our common stock. The conversion formula, however, ensures that if our stock price falls below the grant date price, the MSUs, unlike stock options, retain some of their value, albeit less value than would shares of time-based restricted stock, which we do not grant to our executives. Similar to our stock options, an MSU’s multi-year vesting schedule operates as a retention tool and ensures that our executives are appropriately focused on CarMax’s long-term strategic goals.

Award Determinations

In determining the number of options and MSUs to award, the Committee considered the named executive officer’s role at CarMax; benchmarking data; our recent financial performance; the performance of our common stock; the fair market value, expense and dilutive effect of any potential award; succession planning; and the importance of retaining the officer’s services. The Committee solicits the advice of its independent compensation consultant and, except with respect to the awards to the CEO, the opinion of the Company’s CEO. The CEO generally gives the Committee an initial recommendation for annual long-term equity awards for the other named executive officers. The Committee reviews this recommendation and makes its own independent determination.

Fiscal 2019 Long-Term Equity Awards

In fiscal 2019, as noted below, the Committee approved stock option and MSU awards to our named executive officers as part of our annual long-term equity award process.


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Options and PSUs Granted in Fiscal 2018
 
Options and MSUs Granted in Fiscal 2019
Name
Grant Date Fair Value of
Stock Options ($)
(a)
 
Grant Date Fair Value of
PSUs ($)
 
Total
Grant Date
Fair Value
($)
 
Grant Date Fair Value of
Stock Options ($)
(a)
 
Grant Date Fair Value of
MSUs ($)
 
Total
Grant Date
Fair Value
($)
William D. Nash
3,750,005


1,249,974


4,999,979


4,499,998


1,500,022


6,000,020

Thomas W. Reedy
1,455,925


485,313


1,941,238


1,455,919


485,325


1,941,244

Edwin J. Hill
1,305,925


435,281


1,741,206


1,455,919


485,325


1,941,244

Eric M. Margolin
1,305,925


435,281


1,741,206


1,305,921


435,303


1,741,224

James Lyski
1,084,928


361,664


1,446,592


1,084,918


361,620


1,446,538

(a)
We grant limited stock appreciation rights (“SARs”) in tandem with each option. The SARs may be exercised only in the event of a change-in-control of the Company. Upon the exercise of the SAR and the surrender of the related option, the officer is entitled to receive an amount equal to the difference between the value of our common stock on the date of exercise and the exercise price of the underlying stock option. No free-standing SARs have been granted. 

For fiscal 2019, the Committee increased the value of Mr. Nash’s long-term equity award by 20% to bring Mr. Nash’s long-term equity compensation closer to the median of the CEO blended peer group/survey data described above under the heading “Benchmarking.” Mr. Nash’s long-term equity compensation remains below the Committee’s median benchmark. The Committee increased the value of Mr. Hill’s long-term equity compensation by 11.5% in connection with his promotion to Chief Operating Officer.

The grant date fair value of the annual long-term equity awards provided to our other named executive officers remained essentially unchanged in fiscal 2019, meaning that approximately the same target economic value was delivered in fiscal 2019 as was delivered in fiscal 2018. The Committee determined based on the blended peer/survey data and its own independent judgment that maintaining equity awards at prior year levels continued to provide competitive pay for these named executive officers.
 
2016 Performance Stock Unit Goal Achievement

In April 2019, the Committee certified a 37% performance multiplier for the PSUs granted to our named executive officers in 2016. The Committee’s determination was based on CarMax’s achievement of adjusted pre-tax income equal to $3.39 billion for the three-year performance period ended February 28, 2019. Under the terms of the 2016 PSU awards, on vesting each NEO received a number of shares of common stock equal to the number of PSUs they held multiplied by 37%. As a result, on the vesting of the PSUs, Mr. Nash, Mr. Reedy, Mr. Hill, Mr. Margolin, and Mr. Lyski were entitled to receive, 5,375, 3,478, 3,119, 2,586, and 2,138 shares of common stock, respectively.

The following table shows the performance metrics for the 2016 PSU awards.

 
Threshold
Actual
Target
Maximum
FY17-FY19 Adjusted Pre-Tax Income (in thousands)(a)
$3,331.0
$3,381.3
$3,633.7
$3,954.3
Performance Multiplier
25
%
37
%
100
%
200%
(a)
Adjusted pre-tax income is equal to net earnings less the provision for income tax and interest expense. For fiscal 2017 through fiscal 2019, in the aggregate, $3,385.8 million in adjusted pre-tax income represented $2,133.5 million in net earnings less an income tax provision of $1,049.3 million and $203.0 million in interest expense. The Committee exercised its discretion to exclude $4.4 million from the adjusted pre-tax income amount, certifying a $3,381.3 goal achievement in April 2019, which yields a performance multiplier of 37%. The $4.4 million exclusion removed the impact of an unrealized gain on an investment.


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COMPENSATION MIX
 
As our executives assume more responsibility, we generally increase the percentage of their compensation that is performance-based. We do not have a pre-established policy or target for allocation between specific compensation components. The following charts, however, show that the majority of target annual total direct compensation for both our CEO and our other named executive officers as a group is determined by our performance. The following charts and tables reflect the target total direct compensation (base salary, target annual incentive bonus and long-term equity grants) set by the Committee.

 
chart-e560604634c0555e9cfa11.jpgchart-4045f0f5ebce5d3296fa11.jpg
The table below illustrates how the target total direct compensation set by the Committee for each of our named executive officers was allocated between performance-based and fixed compensation for fiscal 2019, as well as the breakdown of performance-based compensation that was based on annual and long-term Company performance.
 
Percentage of Target Total Direct
Compensation
 
Percentage of Target Performance-Based Compensation
 
Performance-
Based

Fixed

Annual

Long-
Term
William D. Nash
88%

12%

21%

79%
Thomas W. Reedy
77%

23%

22%

78%
Edwin J. Hill
78%

22%

21%

79%
Eric M. Margolin
78%

22%

21%

79%
James Lyski
78%

22%

21%

79%

ADDITIONAL ELEMENTS OF COMPENSATION
 
We provide our executive officers the benefits available to CarMax associates generally. We also provide the limited perquisites described below. These benefits and perquisites are intended to be part of a competitive compensation package.
 
Benefits Available to CarMax Associates Generally
 
Our executives and our full-time associates generally are eligible for health insurance coverage, life insurance, short- and long-term disability insurance, matching gifts to qualified charitable organizations, and a defined contribution, or 401(k), plan that we refer to as our Retirement Savings Plan.



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In addition, executives and CarMax associates who satisfied certain criteria as of December 31, 2008, may be eligible for benefits under our frozen Pension Plan. Additional details regarding these frozen benefits can be found in the “Pension Benefits in Fiscal 2019” table on page 46.
 
Non-Qualified Retirement Plans
 
Our executives and other highly-compensated associates are eligible to participate in two non-qualified retirement plans: the Retirement Restoration Plan (“RRP”) and the Executive Deferred Compensation Plan (“EDCP”). A description of these plans can be found in the narrative discussion following the “Nonqualified Deferred Compensation” table on pages 48 and 49. Details regarding the fiscal 2019 contributions to each named executive officer’s RRP and EDCP accounts, as well as the earnings and aggregate balances for those accounts, can be found in the “Nonqualified Deferred Compensation” table on page 48.
 
In addition to the RRP and the EDCP, executives and other highly compensated CarMax associates who satisfied certain criteria as of December 31, 2008, may be eligible for benefits under our frozen Benefit Restoration Plan. Additional details regarding these frozen benefits can be found in the “Pension Benefits in Fiscal 2019” table on page 47.
 
Company Transportation
 
We provide the use of a CarMax-owned vehicle to each of our named executive officers and to certain other eligible associates. For associates using CarMax-owned vehicles, we bear certain maintenance and insurance costs. We treat the personal use of a Company-owned vehicle as income to the associate. The associate pays the related income taxes.
 
We encourage our executive officers to use our plane for business travel. Our plane is also available for personal use by Messrs. Nash, Reedy and Hill. Mr. Nash is required to reimburse CarMax for the incremental costs associated with his personal use to the extent that those costs exceed $175,000 in any fiscal year. Messrs. Reedy and Hill are required to reimburse CarMax for the incremental costs associated with their respective personal uses of the plane to the extent that those costs exceed $100,000 in any fiscal year. Our executives bear all income taxes associated with their personal use of the plane.
 
We do not provide tax gross-ups on any of these transportation benefits.
 
Tax and Financial Planning Services
 
We provide a tax and financial planning benefit to our named executive officers. This benefit was valued at $14,000 for fiscal 2019. Officers who forego this benefit may engage their own tax professional at the Company’s expense in an amount up to $10,000 per year. The Committee approved this benefit to reduce the amount of time and attention that our executive officers must spend on personal tax and financial planning, which permits them to focus on their responsibilities to CarMax, and to maximize the financial reward of the compensation that CarMax provides. Officers bear all income taxes associated with these tax and financial planning benefits. We do not provide tax gross-ups on these benefits.
 
Additional Information
 
SEVERANCE AGREEMENTS
 
We have severance agreements with each of our named executive officers. The Committee has determined that these agreements are beneficial to us because they contain restrictive covenants relating to confidential information, non-competition and non-solicitation of our associates. The Committee also believes that these agreements serve as a recruiting tool and better enable our current executives to focus on CarMax’s strategic and operating goals.

Our severance agreements do not provide for a guaranteed term of employment or tax gross-ups.

The agreements provide for severance payments under certain circumstances, which are discussed in more detail under “Potential Payments Upon Termination or Change-in-Control” beginning on page 49. In 2014, the Committee reduced the scope of the potential payments and benefits for any newly named executive officers. Accordingly, the potential payments and benefits provided to Mr. Lyski, who became an executive officer after this change, differ from those that would potentially be provided to the other named executive officers.


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37


None of the severance agreements provide a guaranteed term of employment, nor do they provide tax gross-ups on any compensation or perquisite. 
 
Clawback and Forfeiture Provisions
 
The severance agreements contain a clawback provision. If any named executive officer engages in conduct for which he could be terminated for cause, with certain limitations, and the conduct directly results in the filing of a restatement of any financial statement that was previously filed with the SEC, the named executive officer shall, upon demand by the Company, repay with interest all compensation that was expressly conditioned on the achievement of certain financial results if the restated financial statements would have resulted in a lesser amount being paid.
 
In addition, at our 2012 annual shareholders meeting, we asked our shareholders to approve amendments to add clawback provisions to both our Bonus Plan and Stock Incentive Plan. Our shareholders approved these provisions, which provide that any award that is subject to recovery under any law, including the Dodd-Frank Wall Street Reform and Consumer Protection Act, will be subject to a clawback as required by such law or any CarMax policy adopted pursuant to such law.
 
In addition to the clawback provisions discussed above, our equity award agreements contain a forfeiture provision. If a named executive officer is terminated for cause, the officer’s unexercised vested and unvested options, unvested MSUs and unvested PSUs will be forfeited.
 
Change-in-Control and Severance Benefits
 
Each severance agreement provides for payments and other benefits in certain circumstances involving a termination of employment, including a termination of employment in connection with a change-in-control. Payments in connection with a change-in-control are subject to a double trigger; that is, the executive is not entitled to payment unless there is both a change-in-control and the executive is subsequently terminated without cause (or resigns for good reason) within a two-year period following the change-in-control. Our executives are not entitled to any severance payments as a result of voluntary termination (outside of the retirement context) or if they are terminated for cause. Detailed information with respect to these payments and benefits can be found under the heading “Potential Payments Upon Termination or Change-in-Control” beginning on page 49.
 
The Committee believes that these severance benefits encourage the commitment of our named executive officers and ensure that they will be able to devote their full attention and energy to our affairs in the face of potentially disruptive and distracting circumstances. In the event of a potential change-in-control, our named executive officers will be able to analyze and evaluate proposals objectively with a view to the best interests of CarMax and its shareholders and to act as the Board may direct without fear of retribution if a change-in-control occurs. The Committee recognizes that the severance benefits may have the effect of discouraging takeovers and protecting our officers from removal because the severance benefits increase the cost that would be incurred by an acquiring company seeking to replace current management. The Committee believes that the benefit to CarMax and its shareholders outweighs this concern.
 
RISK AND COMPENSATION POLICIES AND PRACTICES
 
The Committee assesses CarMax’s compensation policies and practices each year to ensure that they do not create risks that are reasonably likely to have a material adverse effect on the Company. In fiscal 2019, management reviewed the compensation policies and practices for all CarMax associates (including store associates, store management, regional leadership teams, home office and CarMax Auto Finance associates, and executive officers). Management then presented a summary of its review at the Committee’s January 2019 meeting. The summary listed each compensation policy or practice applicable to the various groups of CarMax associates, including base salaries, annual incentive bonuses, long-term equity awards, sales bonuses, sales commissions and hourly pay. The summary also listed the potential risks associated with those policies or practices and the tools we employ to mitigate those risks, including the following:
Annual Incentive Bonuses: payments made to senior management are: (i) subject to a clawback provision; (ii) capped at 200% of the target incentive bonus amount or at the $10 million plan maximum, whichever is lower; and (iii) only paid when CarMax satisfies the objective metrics determined at the beginning of the year by an independent committee of non-employee directors.
Long-Term Equity Awards: equity awards: (i) are approved by an independent committee of non-employee directors; (ii) contain three and four-year vesting provisions; and (iii) for senior management, must be held in compliance with CarMax’s executive stock ownership guidelines.


38


Sales Bonuses: sales bonuses are monitored to ensure that associates are not overpaid based on inflated sales figures. Monitoring tools include: (i) centralized assignment of sales targets; (ii) centralized and non-negotiable vehicle pricing; (iii) electronic reporting of sales from each store to the home office; and (iv) performance of a daily vehicle inventory at each store.
Hourly Pay: hourly pay is tracked and managed through a centralized time management and reporting system.

Following discussion and a review of the summary noted above, the Committee determined that none of our compensation policies and practices create risks that are reasonably likely to have a material adverse effect on the Company.
 
STOCK OWNERSHIP GUIDELINES
 
To further align the long-term financial interests of our executives and our shareholders, the Committee has established the following stock ownership guidelines:
Subject Officers
Required to Own the Lesser of:
Chief Executive Officer
6 x Base Salary or 300,000 shares
Executive Vice President
3 x Base Salary or 100,000 shares
Senior Vice President
2 x Base Salary or 50,000 shares
 
Executives have five years from the date they first become subject to a particular level of stock ownership to meet the corresponding requirement. The Committee measures compliance on an annual basis at the end of each fiscal year. Acceptable forms of ownership include shares owned outright (by the executive or an immediate family member), vested stock options, PSUs and MSUs. Our stock ownership guidelines are available under the “Corporate Governance” link at investors.carmax.com.
 
As of February 28, 2019, all of our current named executive officers satisfied the ownership guidelines set forth above.
 
PROHIBITION ON HEDGING AND PLEDGING
 
We have a policy prohibiting all CarMax associates from engaging in any hedging or pledging transactions involving CarMax stock. This prohibition applies to both our named executive officers and our non-employee directors.
 
TAX AND ACCOUNTING CONSIDERATIONS
 
Historically, Section 162(m) of the Internal Revenue Code generally disallowed a tax deduction for compensation over $1 million paid in any fiscal year to the CEO or any of the three other highest paid executive officers (other than the CFO) unless that compensation was performance-based. As a result of the passage of the 2017 Tax Act, which went into effect on December 22, 2017, Section 162(m) was amended to cover chief financial officers and the exception for performance-based compensation was no longer available for taxable years beginning after December 31, 2017, including our fiscal 2019, unless such compensation qualified for certain transition relief.

The Committee and the Company have taken appropriate actions, to the extent feasible, in an effort to preserve the deductibility of awards previously granted to our executive officers that were designed and intended to be covered by Section 162(m). Despite these actions, certain compensation originally designed to qualify as performance-based under Section 162(m) may not be deductible. In addition, the Committee adopted a new Bonus Plan, beginning in fiscal 2019, to maximize the enhanced flexibility in the administration of incentive pay.
 
Section 409A of the Internal Revenue Code imposes certain requirements on non-qualified deferred compensation, which can include long-term equity awards and severance. CarMax’s executive compensation programs generally are designed to comply with, or be exempt from, the requirements of Section 409A so as to avoid potential adverse tax consequences that may result from non-compliance.
 
In developing CarMax’s executive compensation programs, the Committee also considers the accounting treatment of, and the expenses associated with, the Company’s long-term equity compensation practices.

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39



COMPENSATION AND PERSONNEL COMMITTEE REPORT

 
The Compensation and Personnel Committee has reviewed and discussed the foregoing Compensation Discussion and Analysis with management. Based on this review and discussion, the Committee recommended to the CarMax, Inc. Board of Directors that the Compensation Discussion and Analysis be included in this proxy statement and incorporated by reference into CarMax’s Annual Report on Form 10-K for the fiscal year ended February 28, 2019.
 
THE COMPENSATION AND PERSONNEL COMMITTEE
Ronald E. Blaylock, Chair
Sona Chawla
William R. Tiefel


40



COMPENSATION TABLES

 
Summary Compensation Table for Fiscal 2019

The table below shows the compensation paid to or earned by our named executive officers in fiscal 2019, 2018 and 2017.
Name and Principal
Position
Fiscal
Year
 
Salary
($)
 
Bonus(a)
($)
 
Stock
Awards
(b)
($)
 
Option
Awards
(b)
($)
 
Non-Equity
Incentive
Plan Comp-
ensation
(c)
($)
 
Change in
Pension
Value and
Nonqualified
Deferred
Comp-
ensation
Earnings
(d)
($)
 
All Other
Compen-
sation
(e)
($)
 
Total
($)
William D. Nash
2019

1,063,157


1,500,022

4,499,998

1,595,213

5,075

288,082

8,951,547
President and Chief Executive Officer
2018

1,031,721

96,239

1,249,974

3,750,005

1,472,448

24,797

190,068

7,815,252
2017

902,308


749,977

4,249,983

442,233

30,536

163,355

6,538,392
Thomas W. Reedy
2019

744,210


485,325

1,455,919

558,325

6,543

147,501

3,397,823
Executive VP and Chief Financial Officer
2018

722,205

38,866

485,313

1,455,925

594,643

22,219

132,390

3,451,561
2017

699,039


485,322

1,455,917

221,550

26,964

123,664

3,012,456
Edwin J. Hill
2019

691,237


485,325

1,455,919

525,000

17,461

124,740

3,299,682
Executive VP and Chief Operating Officer
2018

619,033

33,314

435,281

1,305,925

509,694

44,019

98,719

3,045,985
2017

597,209


435,293

1,305,921

189,900

52,405

75,237

2,655,965
Eric M. Margolin
2019

611,316


435,303

1,305,921

458,624

5,014

94,088

2,910,266
Executive VP, General Counsel and Corporate Secretary
2018

590,240

31,926

435,281

1,305,925

488,457

3,511

77,436

2,932,776
2017

572,801


360,894

1,380,365

181,988

4,026

67,958

2,568,032
James Lyski
2019

514,846


361,620

1,084,918

386,250


68,195

2,415,829
Executive VP, Chief Marketing Officer
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(a)
Discretionary bonus paid for fiscal 2018 to all employees in the CarMax annual bonus program.
(b)
Represents the aggregate grant date fair value of the awards made in each fiscal year as computed in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718 (“ASC Topic 718”). These amounts do not correspond to the actual value that may be realized by each NEO. Additional information regarding outstanding awards, including exercise prices, vesting schedules, and expiration dates, can be found in the “Outstanding Equity Awards at Fiscal 2019 Year End” table on pages 44 and 45. The assumptions used in determining the grant date fair values of the awards are disclosed in Note 12 to our consolidated financial statements, which are included in our Annual Report on Form 10-K for the fiscal year ended February 28, 2019. The amounts disclosed under the Stock Awards column above are based on performance achieved at target levels. The grant date fair value of the NEO’s MSUs if earned at maximum levels was $3,000,044, $970,650, $970,650, $870,606 and $723,240 for Messrs. Nash, Reedy, Hill, Margolin, and Lyski, respectively.
(c)
Represents the annual incentive bonus earned under our Bonus Plan.
(d)
Represents the aggregate increase in the actuarial value of accumulated benefits under our frozen Pension Plan and frozen Benefit Restoration Plan accrued during the relevant fiscal year. The “Pension Benefits in Fiscal 2019” table and its accompanying narrative on pages 46 and 47 contain additional details with respect to these amounts.
(e)
Further details are included in the “All Other Compensation in Fiscal 2019” table below.

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All Other Compensation in Fiscal 2019
 
Name
Personal Use
of Company
Plane
(a)
($)
 
Personal Use
of Company
Automobile
(b)
($)
 
Retirement
Savings Plan
Contribution
(c)
($)
 
Deferred
Compensation
Account
Contributions
(d)
($)
 
Other(e)
($)
 
Total
($)
William D. Nash
104,905


16,786

140,786

25,605

288,082
Thomas W. Reedy
14,400


20,711

87,635

24,755

147,501
Edwin J. Hill
4,207

8,038

22,743

75,211

14,541

124,740
Eric M. Margolin

1,191

16,664

51,043

25,190

94,088
James Lyski

172

16,639

40,384

11,000

68,195
(a)
The compensation associated with the personal use of the Company plane is based on the aggregate incremental cost to CarMax of operating the plane. The cost is calculated based on the average variable costs of operating the plane, which include fuel, maintenance, travel expenses for the flight crews and other miscellaneous expenses. We divided the total annual variable costs by the total number of miles our plane flew in fiscal 2019 to determine an average variable cost per mile. The average variable cost per mile is multiplied by the miles flown for personal use to derive the incremental cost. This methodology excludes fixed costs that do not change based on usage, such as salaries and benefits for the flight crews, monthly service contracts, hangar rental fees, taxes, rent, depreciation and insurance. The costs associated with deadhead flights (i.e., flights that travel to a destination with no passengers as a result of an executive’s personal use) and incremental plane charters (i.e., plane charters, if any, that we pay for because our plane was not available for business use due to an executive’s personal use) are included in the incremental cost calculations for each executive. The personal use of the Company plane is treated as income to the executive. The related income taxes are calculated using Standard Industry Fare Level rates and are paid by the executive.
(b)
The value of the personal use of a Company automobile is determined based on the annual lease value method and excludes any expenses such as maintenance and insurance.
(c)
Includes the Company matching portion of each executive’s Retirement Savings Plan (“RSP”) contributions. Also includes a Company-funded contribution to those executives who met certain age and service requirements as of December 31, 2008, the date that our Pension Plan was frozen. These RSP benefits are offered on the same terms to all CarMax associates.
(d)
Includes the Company matching portion of each executive’s Retirement Restoration Plan (“RRP”) and Executive Deferred Compensation Plan (“EDCP”) contributions. Also includes a Company-funded contribution to those executives who met certain age and service requirements as of December 31, 2008, the date that our Pension Plan was frozen. These RRP benefits are offered on the same terms to all CarMax associates whose salary exceeds the compensation limits imposed by Section 401(a)(17) of the Internal Revenue Code ($280,000 in 2019). Also includes a restorative contribution designed to compensate executives for any loss of Company contributions under the RSP and RRP due to a reduction in the executive’s eligible compensation under the RSP and RRP resulting from deferrals into the Executive Deferred Compensation Plan.
(e)
Represents the total amount of other personal benefits provided. None of the benefits individually exceeded the greater of $25,000 or 10% of the total amount of these personal benefits for the named executive officer. These other benefits include tax and financial planning services, which are described on page 39, and matching charitable gifts made by The CarMax Foundation as part of its matching gifts program (which is available to all CarMax associates).


42


Grants of Plan-Based Awards in Fiscal 2019

The following table lists grants of plan-based awards to each of our named executive officers during fiscal 2019.
 
 
 
Estimated Possible Payouts Under Non-Equity Incentive Plan Awards (a)
Estimated Future Payouts Under Equity Incentive Plan Awards (b)
All Other Option Awards: Number of Securities Underlying
Options
(c) 
(#)
Exercise or Base Price of Option
Awards
(d)($/Sh)
Grant Date Closing
Price
($/Sh)
Grant Date Fair Value of Stock and Option
Awards
(e)
($)
Name
Approval
Date
Grant
Date
Threshold
($)
 
Target
($)
 
Maximum
($)
Threshold
(#)
 
Target
(#)
 
Maximum
(#)
William D. Nash


398,803

1,595,213

3,190,425









 
3/27/2018
5/1/2018





0

18,322

36,644



1,500,022
 
3/27/2018
5/1/2018










240,513
63.04
63.54
4,499,998
Thomas W. Reedy


139,581

558,325

1,116,650









 
3/27/2018
5/1/2018





0

5,928

11,856



485,325
 
3/27/2018
5/1/2018










77,815
63.04
63.54
1,455,919
Edwin J. Hill


131,250

525,000

1,050,000









 
3/27/2018
5/1/2018





0

5,928

11,856



485,325
 
3/27/2018
5/1/2018










77,815
63.04
63.54
1,455,919
Eric M. Margolin


114,656

458,624

917,248









 
3/27/2018
5/1/2018




 
0

5,317

10,634



435,303
 
3/27/2018
5/1/2018










69,798
63.04
63.54
1,305,921
James Lyski


96,563

386,250

772,500









 
3/27/2018
5/1/2018





0

4,417

8,834



361,620
 
3/27/2018
5/1/2018










57,986
63.04
63.54
1,084,918

(a)
Represents threshold, target and maximum payout levels under our Bonus Plan for fiscal 2019 performance. The actual amount of each named executive officer’s annual incentive bonus in fiscal 2019 is reported under the “Non-Equity Incentive Plan Compensation” column in the “Summary Compensation Table” on page 41. Additional information regarding the design of our Bonus Plan is included on pages 31 to 33.
(b)
Represents stock-settled restricted stock units, which we refer to as “market stock units” or “MSUs.” MSUs generally vest on the third anniversary of the grant date. Additional information regarding MSUs, including the formula used to convert MSUs to shares of our common stock upon vesting and settlement, is included on page 34.
(c)
Option awards generally vest in 25% increments annually over a four-year period. Additional information regarding stock options is included on page 34. We granted limited stock appreciation rights, or “SARs,” in tandem with each option award. The SARs may be exercised only in the event of a change-in-control. To the extent a SAR is exercised, the related option must be surrendered. Upon the exercise of the SAR and the surrender of the related option, the officer is entitled to receive an amount equal to the difference between the value of our common stock on the date of exercise and the exercise price of the underlying stock option, multiplied by the number of shares of common stock underlying such SAR.
(d)
All fiscal 2019 stock options were issued with an exercise price equal to the volume-weighted average price of our common stock on the grant date. Additional information regarding our use of the volume-weighted average price is included on page 34.
(e)
Represents the grant date fair value of the award as determined in accordance with ASC Topic 718.

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Outstanding Equity Awards at Fiscal 2019 Year End
 
The following table lists outstanding equity awards previously granted to our named executive officers as of February 28, 2019.

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Option Awards (a)
 
Stock Awards (b)(c)
Name
Grant
Date
 
Number of
Securities
Underlying
Unexercised
Options
(#)
Exercisable
 
Number of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable
 
Option
Exercise
Price
($/Sh)
 
Option
Expiration
Date
 
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
($)
William D.
4/9/2014

98,858




44.96


4/9/2021

 


 

Nash
4/8/2015

52,981


17,660


73.76


4/8/2022






 
4/12/2016

79,338


79,336


51.63


4/12/2023






 
4/12/2016












14,526


902,065

 
9/26/2016

70,324


70,322


53.62


9/26/2023






 
5/1/2017

58,194


174,581


58.38


5/1/2024






 
5/1/2017












21,411


2,659,246

 
5/1/2018



240,513


63.04


5/1/2025






 
5/1/2018












18,322


1,120,830

Thomas W.
4/8/2015

52,981


17,660


73.76


4/8/2022






Reedy
4/12/2016

51,338


51,336


51.63


4/12/2023






 
4/12/2016












9,400


583,740

 
5/1/2017

22,594


67,780


58.38


5/1/2024






 
5/1/2017












8,313


1,032,475

 
5/1/2018



77,815


63.04


5/1/2025






 
5/1/2018












5,928


362,640

Edwin J.
4/9/2014

81,959




44.96


4/9/2021

 


 

Hill
4/8/2015

39,399


13,133


73.76


4/8/2022






 
4/12/2016

46,048


46,048


51.63


4/12/2023






 
4/12/2016












8,431


523,565

 
5/1/2017

20,266


60,797


58.38


5/1/2024






 
5/1/2017












7,456


926,035

 
5/1/2018



77,815


63.04


5/1/2025






 
5/1/2018












5,928


362,640

Eric M.
4/8/2015

39,399


13,133


73.76


4/8/2022






Margolin
4/12/2016

38,176


38,176


51.63


4/12/2023






 
4/27/2016

9,800


9,798


55.19


4/27/2023






 
4/12/2016












6,990


434,079

 
5/1/2017

20,266


60,797


58.38


5/1/2024






 
5/1/2017












7,456


926,035

 
5/1/2018



69,798


63.04


5/1/2025








44


 
5/1/2018












5,317


325,262

James
9/26/2014

29,801




47.47


9/26/2021






Lyski
4/8/2015

32,576


10,858


73.76


4/8/2022






 
4/12/2016

31,565


31,564


51.63


4/12/2023






 
4/12/2016












5,779


358,876

 
5/1/2017

16,837


50,508


58.38


5/1/2024






 
5/1/2017












6,195


769,419

 
5/1/2018



57,986


63.04


5/1/2025






 
5/1/2018












4,417


270,206


(a)
Option awards vest in 25% increments annually over a four-year period. Additional information regarding stock options is included on page 34. We granted limited stock appreciation rights, or “SARs,” in tandem with each option award. Additional information regarding SARs is included on page 35 and under the chart titled “Grants of Plan-Based Awards in Fiscal 2019” on page 43.
(b)
The fiscal 2019 stock awards were stock-settled restricted stock units, which we refer to as “market stock units” or “MSUs.” MSUs vest on the third anniversary of the grant date. The number of shares awarded for each MSU award is calculated by dividing the average closing price of our common stock during the final 40 trading days of the vesting period by the volume weighted average of our stock price on the date of grant. The resulting quotient is capped at two. The quotient is multiplied by the number of MSUs granted to yield the number of shares of stock awarded. To calculate the market value of the unvested MSUs in the table above, we assumed that the average closing price of our stock during the final 40 trading days of the three-year period was equal to the closing price of our stock on February 28, 2019, the last trading day of our fiscal year (which was $62.10).
(c)
Before fiscal 2019, stock awards were stock-settled performance stock units, which we refer to as “performance stock units” or “PSUs.” If earned, PSUs vest on the third anniversary of the grant date, which was April 12, 2019 for fiscal 2017 awards and will be May 1, 2020 for fiscal 2018 awards, respectively. To calculate the number of shares awarded at vesting, each PSU is multiplied by a percentage that represents the Company’s success in meeting the performance goals set by the Committee. If the threshold performance goal is met, each PSU is multiplied by 25%. The target multiplier is 100% and the maximum multiplier is 200%. The multiplier is determined using straight-line interpolation for performance that falls between the threshold and the target or between the target and the maximum. If the threshold performance goal is not achieved, no shares will be paid. To calculate the market value of the unvested PSUs in the table above, based on performance to target at February 28, 2019, we assumed that the multiplier was 100% for the fiscal 2017 award and, because performance exceeded the target, 200% for the fiscal 2018 award. The value of each resulting share was equal to the closing price of our stock on February 28, 2019, the last trading day of our fiscal year (which was $62.10).

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45


Option Exercises and Stock Vested in Fiscal 2019
 
The following table includes information with respect to the options exercised by, and the PSUs vested in, our named executive officers during fiscal 2019.
 
 
 
 
 
 
 
 
 
Option Awards
 
Stock Awards
Name
Number of Shares
Acquired on Exercise
(a)
(#)
 
Value Realized on
Exercise
(b)
($)
 
Number of Shares
Acquired on Vesting
(c)
(#)
 
Value Realized
on Vesting(d)
($)
William D. Nash
84,258

2,912,799

3,076

188,620
Thomas W. Reedy
98,858

2,869,908

3,076

188,620
Edwin J. Hill
44,815

1,520,125

2,287

140,239
Eric M. Margolin
47,765

1,232,388

2,287

140,239
James Lyski


1,891

115,956
(a)
Represents the number of shares of common stock underlying stock options exercised during fiscal 2019.
(b)
Amounts were calculated based on difference between (i) the closing price of the Company’s common stock on the exercise date and (ii) the exercise price of the stock options.
(c)
Represents the number of shares of common stock acquired on vesting of the underlying PSUs during fiscal 2019.
(d)
Amounts were calculated by multiplying the closing price of the Company’s common stock on the vesting date by the number of shares acquired on vesting.

Pension Benefits in Fiscal 2019
 
The following table lists the accumulated benefits, credited service and benefit payments for each named executive officer under our Pension Plan and Benefit Restoration Plan in fiscal 2019.
Name
Plan Name
 
Number of
Years
Credited Service
(a)
(#)
 
Present Value of
Accumulated
Benefit
(b)
($)
 
Payments
During Last
Fiscal Year
($)
William D. Nash
Pension Plan

15

276,831

 
Benefit Restoration Plan

15

51,244

Thomas W. Reedy
Pension Plan

6

144,036

 
Benefit Restoration Plan

6

180,235

Edwin J. Hill
Pension Plan

14

409,283

 
Benefit Restoration Plan

14

301,523

Eric M. Margolin
Pension Plan

1

42,976

 
Benefit Restoration Plan

1

26,316

James Lyski
Pension Plan



 
Benefit Restoration Plan



(a)
We have not granted any of our named executive officers extra years of service under either the Pension Plan or the Benefit Restoration Plan.
(b)
Determined assuming retirement at age 65. The discount rate (4.20%) and mortality assumptions used in calculating the present value of the accumulated benefit shown above were consistent with those used for our financial reporting purposes. Additional information regarding our assumptions including the pension plan measurement date is set forth in Note 10 to our consolidated financial statements, which are included in our Annual Report on Form 10-K for the fiscal year ended February 28, 2019.



46


PENSION PLAN

We froze our Pension Plan, a tax-qualified defined benefit plan, effective December 31, 2008. Prior to that date, this plan was generally available to all full-time associates upon completion of one year of service.
 
No additional benefits have accrued under the Pension Plan since it was frozen. Previously accrued benefits are determined under a formula that defines an annual annuity amount payable at termination or retirement. The benefit formula is the sum of (1) 0.85% times highest average earnings times years of service up to 35 years and (2) 0.65% times the excess of highest average earnings over Social Security covered compensation times years of service up to 35 years. Earnings are defined as total earnings including base pay, bonuses, overtime pay and commissions, but may not exceed the compensation limit imposed by the Internal Revenue Code. In the final year of benefit accruals, that compensation limit was $230,000. Highest average earnings are based on the highest five consecutive calendar years of earnings during the ten consecutive years before termination or December 31, 2008, if earlier. All participants are vested after five years of service. Benefits are payable at age 65 as a lifetime annuity or actuarially equivalent optional annuity. Actuarially reduced benefits are available to participants retiring after age 55 with at least ten years of service, or after age 62 with at least seven years of service.
 
BENEFIT RESTORATION PLAN
 
We froze our Benefit Restoration Plan, a non-qualified defined benefit plan, effective December 31, 2008. Prior to that date, this plan provided an alternate means of paying benefits to participants in the Pension Plan, including our named executive officers, who were prohibited from receiving additional benefits under the Pension Plan because of the Internal Revenue Code’s compensation limit.
 
No additional benefits have accrued under the Benefit Restoration Plan since it was frozen. Previously accrued benefits are generally determined and payable under the same terms and conditions as the Pension Plan without regard to Internal Revenue Code limitations on amounts of includable earnings and maximum benefits. Benefits paid are reduced by benefits payable under the Pension Plan. Participants must have 15 years of service to be eligible to receive benefits under the Benefit Restoration Plan, or upon termination meet the early retirement or normal retirement requirements of our Pension Plan.
 
RETIREMENT BENEFITS
 
As of February 28, 2019, Mr. Margolin was eligible to retire with full benefits from the Pension Plan and the Benefit Restoration Plan because he met the retirement requirements under our Pension Plan. Mr. Hill was eligible to retire with actuarially reduced benefits from the Pension Plan and the Benefit Restoration Plan because he met the requirements for early retirement under our Pension Plan.

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Nonqualified Deferred Compensation in Fiscal 2019
 
The following table lists fiscal 2019 contributions to each named executive officer’s Retirement Restoration Plan (“RRP”) and Executive Deferred Compensation Plan (“EDCP”) accounts. The table also lists the aggregate earnings, withdrawals and distributions, and balances for each account.
Name
Plan
Name
 
Executive
Contributions
in Last Fiscal
Year
(a)($)
 
Registrant
Contributions
in Last Fiscal
Year
(b)($)
 
Aggregate
Earnings
in Last
Fiscal
Year
(c)($)
 
Aggregate
Withdrawals/
Distributions
($)
 
Aggregate
Balance
at Last
Fiscal
Year
End
 (d) 
($)
William D. Nash
RRP
 
140,787

140,786

(70)


868,410
 
EDCP
 


11,981


732,908
Thomas W. Reedy
RRP
 
65,726

87,635

12,464


938,456
 
EDCP
 


6,677

(143,562)

241,240
Edwin J. Hill
RRP
 
43,376

57,835

12,800