DEF 14A 1 a2020proxystatement.htm DEF 14A Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

SCHEDULE 14A
 
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Dear Fellow CarMax Shareholders:

I am pleased to invite you to attend the 2020 annual meeting of CarMax, Inc. shareholders, which will be held on Tuesday, June 23, 2020. The attached notice of annual shareholders meeting and proxy statement are your guides to the meeting.

This year, the CarMax board has determined that the annual shareholders meeting will be held virtually. In light of the public health concerns and restrictions resulting from the novel coronavirus (“COVID-19”) the board decided a virtual-only annual meeting would best allow us to hold the annual shareholders meeting while protecting the health, safety, and welfare of our associates, directors, and shareholders.

Shareholders will be able to attend and participate in the virtual meeting online, including voting shares and submitting questions. Instructions and information on how to participate in the meeting can be found on page 72 of the proxy statement.

We also are pleased to furnish proxy materials to shareholders primarily over the internet. On or about May 8, 2020, 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 our virtual 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 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 8, 2020



NOTICE OF 2020 ANNUAL MEETING OF SHAREHOLDERS
 
 
 
 
 
 
When:
 
Tuesday, June 23, 2020, at 1:00 p.m. Eastern Time
Where:
 
This year’s meeting is a virtual annual shareholders meeting held at: www.virtualshareholdermeeting.com/KMX2020
Items of Business:
 
(1)
 
To elect the twelve 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 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 17, 2020.
 
 
 
By order of the Board of Directors,

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Eric M. Margolin
Executive Vice President,
General Counsel and Corporate Secretary
May 8, 2020
 




TABLE OF CONTENTS





Corporate Responsibility and Sustainability


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 29, 2020.

Virtual Annual Meeting Attendance

In light of the public health concerns and restrictions resulting from the COVID-19 pandemic, this year our annual shareholders meeting will be held virtually and there will be no in-person meeting location. Shareholders will be able to attend and participate in the virtual meeting, including voting their shares and asking questions.
 
To attend and participate in our annual meeting:

Visit www.virtualshareholdermeeting.com/KMX2020  
Enter the 16-digit control number listed on your Notice of Internet Availability of Proxy Materials, proxy card, or voting instruction form. 

Our annual meeting will begin promptly at 1:00 p.m., Eastern Time, on June 23, 2020. We encourage you to access the virtual platform prior to the start time to familiarize yourself with the virtual platform and ensure you can hear the streaming audio. You may begin to log into the virtual platform beginning at 12:45 p.m., Eastern Time, on June 23, 2020. Additional instructions and information on how to participate can be found on page 72.

Business Highlights

Following the end of fiscal 2020, we experienced significant disruption to our business and operations as a result of the global outbreak of COVID-19. While the full impact on our revenues, profitability, and financial condition is uncertain due to the unknown severity and duration of the pandemic, our current focus is on successfully navigating these challenging conditions and positioning the company for a strong recovery when this crisis is over. Additional information about the impact of the COVID-19 crisis on CarMax can be found in our Annual Report on Form 10-K for the fiscal year ended February 29, 2020.

We entered the crisis following a strong year. In fiscal 2020, we achieved record vehicle sales and earnings, increased our market share, and achieved our highest ranking ever on Fortune's 100 Best Companies to Work For® list. In addition, we continued rolling out our omni-channel experience, which allows customers to shop on their terms - whether online, in store, or through a seamless combination of both. This personalized experience was available to more than 60% of our customers at the end of fiscal 2020.
Revenues
Net sales and operating revenues increased 11.8% to $20.32 billion.
Earnings
Net earnings rose 5.5% to $888.4 million and net earnings per diluted share increased 11.3% to $5.33.
Strategic Initiatives
Our omni-channel experience was available to more than 60% of customers as of the end of fiscal 2020.
Units
Total used unit sales increased 11.2% and comparable store used unit sales increased 7.7%. Total wholesale unit sales increased 4.2%.
CarMax Auto Finance
CarMax Auto Finance (“CAF”) finished the year with income of $456.0 million, an increase of 4.0% over the prior year.
Share Repurchases
We continued our share repurchase program in fiscal 2020, buying back 7.0 million shares with a market value of $561.6 million.
Sixteenth Year on Fortune
“Best Companies” List
We were named by Fortune magazine as one of its 100 Best Companies to Work For® for the Sixteenth year in a row.

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Corporate Governance Highlights


RESPONSIBILITY REPORT

In December 2019, we published our first Responsibility Report, which addresses our ongoing commitment to our stakeholders – including our associates, customers, communities, and shareholders – while we seek to enhance our long-term and sustainable value.

Our Responsibility Report focuses on four primary pillars that demonstrate our commitment to responsibility and sustainability: Putting People First, Caring for Our Communities, Protecting the Environment and Ensuring Responsible Governance and Ethics.
Putting People First
 
Caring for Our Communities
 
Protecting the Environment
 
Ensuring Responsible Governance & Ethics
 
 
 
 
 
 
 
We are proud to provide an award-winning workplace where we help all associates progress on their career journey and achieve their career goals. Our associates are the key to our success. We provide an exceptional workplace full of opportunities to learn and grow, celebrate accomplishments, and take care of each other and our communities.
 
Just as we are dedicated to driving what’s possible for our customers and associates, we also recognize that when our communities thrive, so do we. Our values make it clear: We “Put People First,” and that means giving back to help improve the communities where our associates live and work.
 
We respect the environment and take a practical approach to conserving energy and minimizing waste from our operations. We actively look for more efficient ways to use resources and reduce our environmental impact.
 
CarMax is committed to sound corporate governance. Our Board of Directors and management have adopted governance standards and practices that seek to properly balance stakeholder interests while providing a framework to guide optimal decision-making.

In preparing the Responsibility Report we considered various standards, frameworks, ratings, and rankings for responsibility and sustainability reporting. Several of the metrics and narrative disclosures in the report align with the guidance provided by the Sustainability Accounting Standards Board (“SASB”) for the Consumer Goods Sector. The full Responsibility Report can be found at socialresponsibility.carmax.com.

KEY GOVERNANCE PRACTICES

 
 
l Annual election of all directors 
l Majority voting for directors
l 10 of 12 director nominees are independent
l Proxy access adopted
l 6 new independent directors since 2017
l Annual “say on pay” vote
l Responsibility Report issued December 2019

l Board oversight of risk management program



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Annual Meeting of Shareholders
 
 
When
Tuesday, June 23, 2020, at 1:00 p.m., Eastern Time
Where
This year’s meeting is a virtual-only annual shareholders meeting. There will be no in person meeting location.


Who May Attend the Virtual Meeting
All shareholders as of the record date may attend the meeting.
Record Date
 
April 17, 2020
Virtual Meeting Website
www.virtualshareholdermeeting.com/KMX2020
 
 
 


Voting Matters and Board Recommendations

Agenda Item

Board Recommendation
Page of Proxy Statement
 
 
 
1.
Election of Twelve Directors
FOR each Director nominee
7
2.
Ratification of Auditors
FOR
23
3.
Advisory Approval of Executive Compensation
FOR
26
4.
Approval of Amended and Restated Stock Incentive Plan

FOR

60

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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

57

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

60

2007

Yes

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

Compensation and Personnel
Sona Chawla

52

2017

Yes

Chief Growth and Innovation Officer at CDW Corporation, a leading technology solutions provider

Compensation and Personnel
Thomas J. Folliard

55

2006

No

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

N/A
Shira Goodman

59

2007

Yes

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

Nominating and Governance
Robert J. Hombach

54

2018

Yes

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

Audit
David W. McCreight

57

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

51

2016

No

President and Chief Executive Officer of CarMax, Inc.

N/A
Mark F. O'Neil
 
61
 
2019
 
Yes
 
Retired Chief Operating Officer of Cox Automotive, Inc., a leading provider of automotive solutions and owner of Manheim, an automobile auction company
 
Audit
Pietro Satriano

57

2018

Yes

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

Nominating and Governance
Marcella Shinder

53

2015

Yes

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

Nominating and Governance
Mitchell D. Steenrod

53

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 over the past several years. Six of our ten independent director nominees have joined the Board since 2017. This year our shareholders will vote on a new director nominee, Mark F. O’Neil. Mr. O’Neil is the retired COO of Cox Automotive and former CEO of Dealertrack. He was also an early CarMax associate who worked on the company’s development and rollout, serving in various roles at CarMax from 1992 to 2000. Mr. O’Neil joined the Board in October 2019 and sits on the Audit Committee. A full description of his background and qualifications can be found on page 12.

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 56 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 2021. The following table summarizes the fees billed by KPMG for fiscal 2019 and 2020.
 
 
Audit Fees
 
Audit-Related Fees
 
Tax Fees
 
Total Fees
Fiscal 2019
 
$2,245,500
 
$558,000
 
$75,772
 
$2,879,272
Fiscal 2020
 
$2,428,374
 
$563,000
 
$107,991
 
$3,099,365
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 approximately 98% and 97% of votes cast in 2019 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 target total direct compensation (i.e., base salary, target annual incentive bonus, and long-term equity grants) paid to our Chief Executive Officer (“CEO”).

Net Earnings and CEO Target Total Direct Compensation
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You will find additional information on our executive compensation program beginning on page 27.


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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 1,500,000 shares, and (b) extend the termination date of the Stock Incentive Plan from June 25, 2029 to June 23, 2030.

You will find additional information regarding the Stock Incentive Plan and the proposed amendments beginning on page 60.


Next Year’s Annual Shareholders Meeting
 

 Expected Date of 2021 Annual Shareholders Meeting


June 29, 2021

 
Deadline for Shareholder Proposals
 

January 8, 2021



6



PROPOSAL ONE: ELECTION OF DIRECTORS

 
We are asking you to vote for the election of the twelve 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 2019 annual meeting, except Mark F. O’Neil, who joined the Board in October 2019.

Mr. Folliard, our Chair of the Board of Directors, first brought Mr. O’Neil to the Nominating and Governance Committee’s attention and the Committee recommended his nomination to the Board. Mr. O’Neil brings a wealth of experience to the Board as a recently retired automotive industry executive with experience working at the intersection of auto retail and technology. He also brings a unique perspective as a former CarMax associate who worked on the development and rollout of the Company before going on to lead other companies in the automotive industry.

Our Board is declassified and elected on an annual basis. Accordingly, each director nominee is standing for election to hold office until our 2021 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.
 
 

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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: 57
 
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: 60
 
Independent
Other Current Directorships

Pfizer Inc.
W. R. Berkley Corporation
Conyers Park II Acquisition Corp.

Other Directorships within Past 5 Years

Urban One, Inc. (2002-2019)

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 has served as the Chief Growth and Innovation Officer at CDW Corporation, a leading technology solutions provider to business, government, education and healthcare customers, since January 2020. Prior to joining CDW, she was President of Kohl's Corporation from May 2018 to October 2019. 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 19 years of experience in digital and retail.


 
Director since: 2017
Age: 52

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: 55

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.

 


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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: 59

Independent

Other Current Directorships

CBRE Group, Inc.
Henry Schein, Inc.

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: 54

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.



10


 
 
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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, Inc. 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: 57

Independent

Other Current Directorships

Wolverine World Wide, Inc.

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: 51

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.


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MARK F. O’NEIL

Mr. O’Neil retired as Chief Operating Officer of Cox Automotive in March 2019 after being named to the position in 2016 following Cox’s acquisition of Dealertrack, a publicly traded provider of software solutions and services for automotive retailers. Mr. O’Neil was Chief Executive Officer of Dealertrack from 2001 until the sale to Cox in 2015 and also served as President from 2001 to 2014. He was a director of Dealertrack from 2001 to 2015 and Chairman of the Board from 2005 to 2015. Mr. O’Neil began his career at Intel Corporation and subsequently worked for McKinsey & Co. before moving to the automotive industry in the late 1980s. His experience in the automotive industry includes serving as President of Ertley MotorWorld, a dealer group based in Pennsylvania. From this traditional retail dealer group, Mr. O’Neil went on to work on the development and rollout of CarMax, serving in various roles at CarMax from 1992 until 2000, including as Vice President from 1997 to 2000. From June 2000 through January 2001, Mr. O’Neil was President and Chief Operating Officer of Greenlight.com, an online automotive sales website.


 
Director since: 2019
Age: 61

Independent

Other Current Directorships

None.

Other Directorships within Past 5 Years

None.

Qualifications

Mr. O’Neil’s extensive experience as a chief executive and a leader at the intersection of auto retail and technology uniquely qualifies him to serve on our Board. During his over 30-year career in auto retail, Mr. O’Neil led several companies through periods of significant retail innovation.



 
 
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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: 57

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.




12


 
 
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MARCELLA SHINDER

Ms. Shinder served as Global Head of Partnerships at WeWork Companies, Inc. a technologically driven global provider of shared working spaces, from April 2019 to November 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, most recently, as General Manager of the American Express OPEN charge card portfolio.


 
Director since: 2015
Age: 53

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: 53

Lead Independent
Director

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.



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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 (10 of 12 director nominees) and appointing a lead independent director to lead meetings of the independent directors and work alongside the chair.

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. Chawla in 2017, Mr. Bensen, Mr. Hombach, Mr. McCreight, and Mr. Satriano in 2018, and Mr. O’Neil in 2019).

Also, in December 2019, we published our first Responsibility Report, which addresses our ongoing commitment to our stakeholders – including our associates, customers, communities, and shareholders - while we seek to enhance our long-term and sustainable value. The Nominating and Governance Committee and the full Board reviewed the Responsibility Report prior to its release.

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.
 
 

Corporate Responsibility and Sustainability

For over 25 years, CarMax has transformed the way people buy and sell cars. When CarMax first opened its doors in 1993, we made a commitment to always conduct business in an ethical, honest, and transparent way. As we have grown from that first store to over 200 locations and 27,000 associates, so too has grown our ability to positively impact and support our associates, our customers, our communities, and our environment. At CarMax, we believe that acting responsibly not only serves our core values but also drives the long-term, sustainable value of CarMax for all of our stakeholders, including our associates, customers, communities, and shareholders.

We organize our approach to responsibility and sustainability around four main pillars: Putting People First, Caring for Our Communities, Protecting the Environment, and Ensuring Responsible Governance and Ethics.

PUTTING PEOPLE FIRST

An Award-Winning Workplace
A FORTUNE “100 Best Companies to Work For®” for sixteen consecutive years, we are committed to providing our associates with competitive compensation and benefits; access to engagement programs, training, and development; and a safe workplace.

A Commitment to Diversity and Inclusion
As a company, we nurture a culture where innovation thrives and aspire for our workforce to reflect the communities where we live, work, and play. Our recently established Diversity and Inclusion Council is responsible for fostering diversity and inclusion in the areas of communication and education, leadership development, and associate experience.

CARING FOR OUR COMMUNITIES
 
The CarMax Foundation
Since 2003, CarMax and The CarMax Foundation have supported our associates’ passions and donated over $65 million to charitable organizations.

Community Engagement and Involvement
Operating under our three community involvement pillars - care, prepare, develop - we work to create vibrant communities, to help our associates and our communities in times of emergencies, and to invest in programs that support a long-term talent pipeline in our communities.


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PROTECTING THE ENVIRONMENT
 
Managing our Environmental Footprint
We actively look for more efficient ways to use resources and reduce our environmental impact by reducing our energy consumption, emissions, and waste.

Energy Management
We are committed to the continuous reduction of our energy consumption and look for opportunities to increase our use of renewable energy.

ENSURING RESPONSIBLE GOVERNANCE AND ETHICS
 
Sound Corporate Governance
Our Board and management have adopted governance standards and practices that seek to further our commitment to integrity while ensuring effective enterprise risk management. Our compliance and ethics program works to ensure full legal and regulatory compliance across all aspects of our business.

Ethics
Our fundamental principle of integrity is reflected in the way we serve our customers, treat each other, and deliver our products. We rely on our fair and responsible business practices, our Code of Conduct training, and constant benchmarking and improvements to our compliance and ethics program to maintain our culture of integrity. This culture is a distinct competitive advantage and allows us to attract and maintain a high-performing workforce.

Data Security
Our comprehensive, risk-based approach to safeguarding information reflects our commitment to do the right thing and protect the sensitive data of those who trust in us.

RESPONSIBILITY REPORTING

In December 2019, we published our first Responsibility Report, which is available at socialresponsibility.carmax.com. While we have shared our responsibility story for several years on our website, the report marked our first time compiling the information into a single document. In preparing the Responsibility Report we considered various standards, frameworks, ratings, and rankings for responsibility and sustainability reporting. Several of the metrics and narrative disclosures in the report align with the guidance provided by the Sustainability Accounting Standards Board (“SASB”) for the Consumer Goods Sector.

The Responsibility Report was reviewed by our Nominating and Governance Committee and our Board.
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 2020. 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
Mark F. O’Neil
 
 
 
Sona Chawla
Pietro Satriano
 
 
 
Shira Goodman
Marcella Shinder
 
 
 
Robert J. Hombach
Mitchell D. Steenrod
 
 
 

The Board also determined that Mr. William Tiefel, who retired from our Board in fiscal 2020, was independent under NYSE listing standards during his period of service in fiscal 2020. 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


16


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:

Ms. Chawla joined CDW Corporation as an executive officer in January 2020. CarMax purchased technology solutions from CDW in the ordinary course of business in fiscal 2020. In addition, CDW acts as a value-added reseller of Microsoft products to CarMax. While CarMax does not make payments to CDW for this service, CDW does receive compensation from Microsoft in connection with products purchased under this arrangement. The payments from CarMax or in connection with sales to CarMax in each of the last three fiscal years did not exceed the greater of $1 million or 2% of the total net sales of CDW in each year.
Through a broker, CarMax chartered an aircraft in which Mr. O’Neil has a one-third ownership interest. Neither CarMax management nor Mr. O’Neil was aware of this relationship prior to his election to the Board. Mr. O’Neil was not personally involved with the charter transactions and he did not set the price or any other terms of the charter. As soon as CarMax learned of this relationship, we ceased all use of this aircraft.

The Board determined that none of the relationships it considered impaired the independence of the non-employee directors.

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.

Mr. Steenrod, a director since 2011, was appointed as the Board’s lead independent director in 2019. As lead independent director, Mr. Steenrod 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

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Secretary at CarMax, Inc., 12800 Tuckahoe Creek Parkway, Richmond, Virginia 23238.

The table below lists the members and summarizes the responsibilities of the three committees.
Committee
Members
Responsibilities
Audit
Peter J. Bensen
(Chair)

Robert J. Hombach
David W. McCreight
Mark F. O’Neil


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 24.
Compensation
and Personnel
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 42.
Nominating
and Governance
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 2020, our Board met five 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 2020 was 97%. We expect our directors to attend the annual meeting of shareholders and all but one of our incumbent directors did so.
 
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.
 


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The table below lists the number of Board and committee meetings in fiscal 2020 and discloses each director’s attendance.
Director
Board
 
Audit
 
Compensation
and Personnel
 
Nominating
and Governance
Peter J. Bensen(a)
5
 
11*
 
 
Ronald E. Blaylock
5
 
 
6*
 
Sona Chawla
5
 
 
6
 
Thomas J. Folliard
4*
 
 
 
Shira Goodman
4
 
 
 
4*
Robert J. Hombach
5
 
12
 
 
David W. McCreight
5
 
12
 
 
William D. Nash
5
 
 
 
Mark F. O'Neil(b)
3

4


Pietro Satriano
4
 
 
 
4
Marcella Shinder
5
 
 
 
4
Mitchell D. Steenrod(c)
5
 
4*
 
3
 
William R. Tiefel(d)
1
 
 
2
 
TOTAL MEETINGS
5
 
12
 
6
 
4
* Chair
(a)
Mr. Bensen was named chair of the Audit Committee on June 25, 2019 replacing Mr. Steenrod.
(b)
Mr. O’Neil was elected to the Board and appointed to the Audit Committee on October 7, 2019.
(c)
Mr. Steenrod is lead independent director of the Board. Mr. Steenrod was appointed to the Compensation and Personnel Committee on June 25, 2019 and concurrently stepped down from the Audit Committee.
(d)
Mr. Tiefel did not stand for re-election at our 2019 annual shareholders meeting.

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 2019 to include an affirmative statement that the Nominating and Governance Committee will consider candidates with diversity of experience 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.
 

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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 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.

Our Board has undergone significant refreshment in the past several years, with six of our ten independent director nominees having joined the Board since 2017. 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 56 years, and their average tenure on our Board will be 5 years.
 

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 executive officer 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,


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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.
 
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 Enrique Mayor-Mora, our Senior Vice President and Chief Financial Officer (“CFO”), and includes as members more than fifteen 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. Mayor-Mora, 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 17, 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.



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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 2020.

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
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 2020.
 
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 2021. 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 2021. 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 2021. 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.
 


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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 2020.

Management represented to the Committee that the Company’s fiscal 2020 consolidated financial statements were prepared in accordance with generally accepted accounting principles, and the Committee reviewed and discussed the fiscal 2020 consolidated financial statements with management and KPMG.
 
The Committee has discussed with KPMG the matters required to be discussed by applicable auditing standards and the SEC, 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 29, 2020, for filing with the SEC.
 
AUDIT COMMITTEE
 
Peter J. Bensen, Chair
Robert J. Hombach
David W. McCreight
Mark F. O’Neil



 



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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 2020.
 
Years Ended February 28 and 29
Type of Fee
2019
 
2020
Audit Fees(a)
$
2,245,500

 
$
2,428,374

Audit-Related Fees(b)
558,000

 
563,000

Tax Fees(c)
75,772

 
107,991

TOTAL FEES
$
2,879,272

 
$
3,099,365

(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 2020 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 27, 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 43 through 56.
 
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 2021.
 
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 2020 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.
 



26



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, our current CFO, our former CFO, and our three other most highly compensated executive officers. We refer to these six 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.
Enrique N. Mayor-Mora
Senior Vice President and Chief Financial Officer. Mr. Mayor-Mora joined CarMax in 2011 and was promoted to his current position in October 2019.
Thomas W. Reedy
Executive Vice President, Finance. Mr. Reedy joined CarMax in 2003 and served as Chief Financial Officer from 2010 until he was named to his current position in October 2019.
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
 
SUMMARY OF FISCAL 2020 COMPENSATION CHANGES FOR OUR NAMED EXECUTIVE OFFICERS

As disclosed in our 2019 proxy statement, the Committee re-instituted the grant of performance stock units, or “PSUs,” to our executive officers for fiscal 2020. The PSUs were granted instead of the restricted stock units, which we call “Market Stock Units” or “MSUs,” that were issued to executive officers in fiscal 2019. The Committee granted MSUs, which are tied directly to growth in our stock price over a three-year term, in fiscal 2019 to ensure shareholder alignment of executive pay in the face of the then-unknown impact of federal tax reform and returned to PSUs for fiscal 2020 with that uncertainty resolved.

Mr. Mayor-Mora became our Senior Vice President and Chief Financial Officer on October 25, 2019. At the time of his promotion, the Committee approved adjustments to Mr. Mayor-Mora’s compensation to provide a compensation opportunity commensurate with his responsibilities, as follows:

Base salary of $500,000
Target annual incentive bonus equal to 60% of his base salary; and
A one-time promotion award of stock options valued at $147,219 and MSUs valued at $49,073.

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The following chart summarizes these and other fiscal 2020 compensation changes for our named executive officers other than Mr. Mayor-Mora.
  
Compensation
Category
Changes We Made
in Fiscal 2020
Why We Made
These Changes
 
 
 
Base Salary
3% increase for the named executive officers other than Mr. Hill and Mr. Lyski.



5% increase for Mr. Hill and Mr. Lyski.
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 pages 31 and 32 for more detail.

The Committee increased Mr. Hill and Mr. Lyski’s base salaries to bring them closer to the benchmarked median. See page 32 for more detail.
  
 
 
 
Annual Incentive Bonus
126.5% payout versus an 100.0% payout in fiscal 2019.

Based on Company performance measured against the pre-determined adjusted EBIT target set at the beginning of fiscal 2020. See pages 32 to 34 for more detail.


 
 
 
Long-Term Equity Award
17% increase in grant date fair value for Mr. Nash and 10% increase for Mr. Reedy and Mr. Hill. No increase for the other named executive officers.





Return to performance stock units (“PSUs”).
Mr. Nash and Mr. Hill’s awards were increased to to help bring their long-term equity compensation closer to the benchmarked median. Mr. Reedy’s awards were increased to provide an opportunity for total direct compensation beyond the 50th percentile with sustained performance. 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 returned to awarding PSUs after one year of awarding MSUs in response to the then unknown impact of federal tax reform.
 
CarMax believes strongly in its pay-for-performance philosophy. In fiscal 2020, 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 37.

LOOKING FORWARD TO FISCAL 2021

On April 8, 2020, in response to the COVID-19 crisis, we announced that Mr. Nash would forgo 50% of his base salary, our executive vice presidents, including Messrs. Reedy, Hill, Margolin, and Lyski, would forgo 30% of their bases salaries, and our senior vice presidents, including Mr. Mayor-Mora, would forgo 20% of their bases salaries, effective immediately and until further notice. 

Additionally, in light of the uncertainty created by the crisis, the Committee decided to grant MSUs to our executive officers instead of PSUs for fiscal 2021.
 

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
 


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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.
 
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 2020. 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 2019 and 2020, 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.

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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 2020 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 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.
 
CONSIDERATION OF THE MOST RECENT ADVISORY “SAY-ON-PAY” VOTE
 
At the 2019 annual shareholders meeting, our shareholders approved our executive compensation program, with approximately 98% 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 followed a similarly strong result at the 2018 meeting when approximately 97% 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, in consultation with the independent compensation consultant, 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 2020 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.


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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 2021.

BENCHMARKING

The Committee considers a blend of peer group data and broader survey data in benchmarking compensation. For fiscal 2020, in addition to the peer group, the Committee considered three national compensation surveys produced by Equilar, Willis Towers Watson and Mercer with a focus on executives within 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 target 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 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 2020.
 
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, and sets the base salary for newly appointed executive officers on their promotion. 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 2020, the Committee approved the following base salary adjustments.

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Name
Prior Base Salary
($)
 
Fiscal 2020 Base Salary
($)
 
Percentage Increase
(%)
William D. Nash
1,063,475


1,095,379


3.00

Thomas W. Reedy
744,433


766,766


3.00

Edwin J. Hill
700,000


735,000


5.00

Eric M. Margolin
611,499


629,844


3.00

James Lyski
515,000


540,750


5.00


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 and Mr. Lyski, whose base salaries were increased by 5% to bring compensation closer to the median of the blended peer group/survey data for comparable positions described above under the heading “Benchmarking.” 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 2019. The increases were consistent with the base salary increases awarded generally to our salaried associates.

On his promotion to CFO, effective October 25, 2019, the Committee increased Mr. Mayor-Mora’s base salary to $500,000.

Name
Fiscal 2020 Base Salary as Treasurer
($)
 
Fiscal 2020 Base Salary as CFO
($)
 
Percentage Increase
(%)
Enrique N. Mayor-Mora
377,933

 
500,000

 
32.3
%

The Committee made this determination in recognition of Mr. Mayor-Mora’s responsibilities as CFO and in consultation with SBCG. Consistent with our focus on performance-based pay, Mr. Mayor-Mora’s new base salary is below the median of the blended peer group/survey data, which the Committee believed was appropriate in his first year as CFO.


ANNUAL INCENTIVE BONUS

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
 
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. 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.
 
The following chart describes how the Committee applied this formula in fiscal 2020.


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Step One: Select
Performance Measure
The Committee determined in April 2019 that the performance goals for fiscal 2020 would be based on our fiscal 2020 earnings before interest and taxes excluding the impact of unrealized gains or losses from equity investments in private companies. We refer to this measure as “adjusted EBIT.” The Committee believes that this performance measure can both be directly affected by management decisions and can drive meaningful shareholder returns; tying performance goals to adjusted EBIT aligns management and shareholder interests.
Step Two: Select
Performance Targets
The Committee then established the following adjusted EBIT targets for fiscal 2020: $1,165.4 million as the threshold goal; $1,190.4 million as the target goal; $1,272.6 million as the premium goal; and $1,324.3 million as the maximum goal.
Step Three: Select
Performance Adjustment
Factors
The Committee then established the following performance adjustment factors for fiscal 2020:
§ 25% if the threshold goal of $1,165.4 million was achieved
§ 100% if the target goal of $1,190.4 million was achieved
§ 150% if the premium goal of $1,272.6 million was achieved
§ 200% if the maximum goal of $1,324.3 million was achieved

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

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 2020, the Company achieved $1,234.0 million in adjusted EBIT, which represents $888.4 million in earnings (i) increased by the $272.6 million income tax provision and $83.0 million in interest expense and (ii) reduced by $10.0 million related to an unrealized gain on an investment. Accordingly, the Committee certified a $1,234.0 million goal achievement in March 2020, yielding a performance adjustment factor of 126.5%.

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 2020 bonus.

Name
Base Salary ($)
 
Incentive Target Percentage (%)
 
Target Incentive Amount ($)
 
Actual Fiscal 2020 Incentive Bonus
 
Maximum Incentive Amount ($)
William D. Nash
1,095,379


150


1,643,069


2,078,482


3,286,137

Enrique N. Mayor-Mora(a)
377,933/500,000


45/60


215,510


272,620


431,020

Thomas W. Reedy
766,766


75


575,075


727,469


1,150,149

Edwin J. Hill
735,000


75


551,250


697,331


1,102,500

Eric M. Margolin
629,844


75


472,383


597,564


944,766

James Lyski
540,750


75


405,563


513,037


811,125

(a)
For the first eight months of fiscal 2020, Mr. Mayor-Mora was eligible to receive a bonus calculated using a base salary of $377,933 and incentive target percentage of 45%. For the portion of his incentive bonus attributable to the remainder of fiscal 2020, he was eligible to receive a bonus using his new base salary of $500,000 and an incentive target percentage of 60%. The remaining amounts in his row are pro-rated accordingly.
 
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 89.2% (126.5%, 100.0%, 109.7%, 42.2%, and 67.8% for fiscal 2020, 2019, 2018, 2017, and 2016, respectively), meaning that, on average for the past five years, we have paid our named executive officers an annual incentive bonus of 89.2% of their respective target incentive amounts for achievement against the targets established by the Committee.

For fiscal 2020, the Committee determined that no change to the incentive target percentages of our continuing named executive officers was required to maintain a competitive and appropriate incentive structure.


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The Committee increased Mr. Mayor-Mora’s incentive target percentage to 60%, generally consistent with the Company’s other senior vice presidents, at the time of his promotion to CFO in recognition of the responsibilities he assumed on his appointment.

The Committee determines all incentive bonuses in accordance with the Annual Performance-Based Bonus Plan (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 2020, the Committee limited the maximum performance adjustment factor to 200%, ensuring that Mr. Nash’s bonus could not exceed $3,286,137.

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 2020, we granted our named executive officers, except for Mr. Mayor-Mora, two forms of long-term equity awards: stock options and PSUs. Options accounted for 75% and PSUs accounted for 25% of the fair value awarded. Mr. Mayor-Mora was awarded stock options and restricted stock units, which we call “MSUs,” for both his annual and his promotion awards. 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 2020 Program Changes

The Committee reinstated PSUs after one year of granting MSUs. As disclosed in our 2019 proxy statement, the Committee granted MSUs for a single year to ensure shareholder alignment of executive pay in the face of the then-unknown impact of federal tax reform. With that uncertainty resolved in fiscal 2020, the Committee returned to awarding PSUs.

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.

Performance Stock Units
 
PSUs are designed to link compensation to the Company’s performance over a three-year period. Each PSU has a three-year term, with the Committee establishing a one-year performance goal at the beginning of each year. Each one-year goal applies to one-third of the total PSUs awarded. Depending on the Company’s achievement of the performance goals, PSUs represent the right to receive between 0% and 200% of a targeted number of shares of our common stock.

The number of shares delivered to each PSU holder will be determined based upon actual performance against the three one-year goals set by the Committee. In year one of the fiscal 2020 PSUs, the Committee set a one-year adjusted diluted earnings per share goal that applies to one-third of the granted PSUs. Each of these PSUs will be multiplied by a percentage that represents the Company’s success in meeting the pre-determined adjusted diluted earnings per share goal. If the threshold adjusted diluted earnings per share 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 adjusted diluted earnings per share performance that falls between the threshold and the target or between the target and the maximum. If the threshold performance goal is not achieved, none of the shares subject to that one-year goal will be paid.



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In year two and three of the three-year PSU term, the Committee will set additional annual goals, each of which apply to one-third of the PSUs awarded. Performance against these goals will be determined in the same manner as in year one of the PSU. Despite the annual performance goals, no shares are paid out until the PSUs vest, which generally occurs on the three-year anniversary of the grant date. 

The Committee considered PSUs to be a key component of our pay-for-performance philosophy in fiscal 2020 because the PSUs directly tie equity payments to a measure of CarMax’s earnings growth that the Committee believes to be an appropriate reflection of the Company’s performance. In addition, similar to our stock options, a PSU’s multi-year vesting schedule operates as a retention tool and ensures that our executives are appropriately focused on CarMax’s long-term strategic and financial goals.

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.

Award Determinations

In determining the value of long-term equity awards to grant, 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 long-term equity awards for the other named executive officers. The Committee reviews this recommendation and makes its own independent determination.

Fiscal 2020 Long-Term Equity Awards

In fiscal 2020, as noted below, the Committee approved stock option and PSU awards to our named executive officers as part of our annual long-term equity award process.
 
Options and MSUs Granted in Fiscal 2019
 
Options, PSUs, and MSUs Granted in Fiscal 2020
Name
Grant Date Fair Value of
Stock Options ($)
(a)(b)
 
Grant Date Fair Value of
MSUs ($)
(b)
 
Total
Grant Date
Fair Value
($)
 
Grant Date Fair Value of
Stock Options ($)
(a)(b)
 
Grant Date Fair Value of
PSUs and MSUs ($)
(b)
 
Total
Grant Date
Fair Value
($)
William D. Nash
4,499,998


1,500,022


6,000,020


5,250,006


1,750,016


7,000,022

Enrique N. Mayor-Mora(c)
440,302


146,793


587,095


600,745


200,273


801,018

Thomas W. Reedy
1,455,919


485,325


1,941,244


1,605,923


535,334


2,141,257

Edwin J. Hill
1,455,919


485,325


1,941,244


1,605,923


535,334


2,141,257

Eric M. Margolin
1,305,921


435,303


1,741,224


1,305,922


435,342


1,741,264

James Lyski
1,084,918


361,620


1,446,538


1,084,923


361,606


1,446,529

(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. 
(b)
Option and MSU amounts represent the fair value at grant calculated using valuation models performed as of the date of grant by an independent third party. PSU amounts are calculated using the volume weighted average price of our common stock on the date of grant.
(c)
Mr. Mayor-Mora’s fiscal 2020 awards include both his annual equity award, made in May 2019, and his award on promotion to CFO in October 2019. In both instances he received options and MSUs.


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The amounts listed in the table above for fiscal year 2020 PSUs will not match the amounts in the Stock Award column in the Summary Compensation Table or the Grants of Plan-Based Awards table. In those tables, in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718 (“ASC Topic 718”), the grant date of a PSU occurs when the objectively determinable performance goals are set. Targets under our fiscal year 2020 PSU awards are established annually and, as a result, the Summary Compensation Table and Grants of Plan-Based Awards table only include the third of the fiscal year 2020 PSUs for which a performance goal has been set. See note (b) to the Summary Compensation Table on page 43 for more detail.

For fiscal 2020, the Committee increased the value of Mr. Nash’s long-term equity award by 17%. This decision was made in recognition of the Company’s and his individual performance in fiscal 2019 and to bring Mr. Nash’s long-term equity compensation up to the median of the CEO blended peer group/survey data described above under the heading “Benchmarking.”

The Committee increased the value of Mr. Reedy and Mr. Hill’s long-term equity compensation by 10%. Mr. Reedy’s award was increased in recognition of his performance in fiscal 2019 and to better align his long-term equity awards with the Committee’s philosophy of providing an opportunity for total direct compensation beyond the 50th percentile of the blended peer/survey data with sustained positive performance. Mr. Hill’s award was also increased in recognition of his performance in fiscal 2019 and to bring his long-term equity compensation closer to the median blended peer group/survey data.

For his annual long-term equity award, Mr. Mayor-Mora received stock options and MSUs with an aggregate grant date fair market value of $604,712, an increase of 3% over his fiscal 2019 award. This increase was in recognition of his fiscal 2019 performance.

At the time of Mr. Mayor-Mora’s promotion to CFO, the Committee approved an additional award of stock options and MSUs with an aggregate grant date fair value of $196,307, bringing the total grant date fair value of Mr. Mayor-Mora’s fiscal 2020 long-term equity to $801,018. In the aggregate, the grant date fair value of his awards increased 36% from fiscal 2019 to fiscal 2020. The Committee approved the promotion awards in recognition of Mr. Mayor-Mora’s new responsibilities as CFO. The Committee kept the total value of Mr. Mayor-Mora’s long-term incentives significantly below median CFO long-term equity according to the blended peer/survey data to reflect his status as a new CFO and his limited time in the role during fiscal 2020.

The grant date fair value of the annual long-term equity awards provided to our other named executive officers remained essentially unchanged in fiscal 2020, meaning that approximately the same target economic value was delivered in fiscal 2020 as was delivered in fiscal 2019. 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.
 
Performance Stock Unit Goal Achievements

Fiscal 2018 PSU Performance Goal Achievement

In April 2020, the Committee certified a 119% performance multiplier for the PSUs granted to our named executive officers for fiscal 2018. The Committee’s determination was based on CarMax’s achievement of diluted earnings per share, adjusted to exclude income tax and unrealized gains on equity investments, of $18.97 for the three-year performance period ended February 29, 2020. Under the terms of the fiscal 2018 PSU awards, on vesting each NEO received a number of shares of common stock equal to the number of PSUs they held multiplied by 119%. As a result, on the vesting of the PSUs, Mr. Nash, Mr. Reedy, Mr. Hill, Mr. Margolin, and Mr. Lyski were entitled to receive 25,479; 9,892; 8,873; 8,873; and 7,372 shares of common stock, respectively. Mr. Mayor-Mora did not receive PSUs for fiscal 2018.

The following table shows the performance metrics for the fiscal 2018 PSU awards.

 
Threshold
Target
Actual
Maximum
FY18-FY20 Diluted Earnings Per Share, as Adjusted(a)
$17.11
$18.66
$18.97
$20.30
Performance Multiplier
25
%
100
%
119
%
200%


36


(a)
Adjusted diluted earnings per share is equal to diluted earnings per share less the per share amount attributable to the provision for income tax expense. For fiscal 2018 through fiscal 2020, in the aggregate, $19.06 in adjusted diluted earnings per share represented $13.72 in diluted earnings per share plus $5.34 per share attributable to income tax expense. The Committee exercised its discretion to exclude $0.09 per share from the adjusted diluted earnings per share calculation, certifying a $18.97 goal achievement in April 2020, which yields a performance multiplier of 119%. The exclusion removed the impact of unrealized gains on equity investments in private companies.


Fiscal 2020 PSU Year 1 Performance Goal Achievement

In April 2020, the Committee certified a 117% performance multiplier for year 1 of the PSUs granted to our named executive officers for fiscal 2020. The Committee’s determination was based on CarMax’s achievement of adjusted diluted earnings per share of $6.90 for the one-year performance period ended February 29, 2020. On the completion of the full three-year term of the fiscal 2020 PSU awards, the 117% performance multiplier will apply to one-third of the number of PSUs held by each NEO. As a result, on payment Mr. Nash, Mr. Reedy, Mr. Hill, Mr. Margolin, and Mr. Lyski will be entitled to receive 8,681; 2,656; 2,656; 2,160; and 1,794 shares of common stock, respectively, attributable to the year 1 performance goal achievement. Mr. Mayor-Mora did not receive PSUs in fiscal 2020.

The following table shows the performance metrics for year 1 of the fiscal 2020 PSU awards.

 
Threshold
Target
Actual
Maximum
FY20 Diluted Earnings Per Share, as Adjusted(a)
$6.61
$6.76
$6.90
$7.57
Performance Multiplier
25
%
100
%
117
%
200%
(a)
Adjusted diluted earnings per share is equal to diluted earnings per share less the per share amounts attributable to the provision for income tax expense and to unrealized gains on equity investments in private companies. For fiscal 2020, $6.90 in adjusted diluted earnings per share represented $5.33 in diluted earnings per share increased by $1.63 per share attributable to income tax and reduced by $0.06 per share attributable to unrealized gains on equity investments in private companies.

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 (i.e., base salary, target annual incentive bonus and long-term equity grants) set by the Committee.
 
chart-0756ce6262b55fbe83ba04.jpgchart-851ba8104e61564d847a04.jpg

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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 2020, 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
89%
 
11%
 
19%
 
81%
Enrique N. Mayor-Mora
71%
 
29%
 
21%
 
79%
Thomas W. Reedy
78%
 
22%
 
21%
 
79%
Edwin J. Hill
79%
 
21%
 
20%
 
80%
Eric M. Margolin
78%
 
22%
 
21%
 
79%
James Lyski
77%
 
23%
 
22%
 
78%

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.

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 2020” table on page 49.
 
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 51 and 52. Details regarding the fiscal 2020 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 51.
 
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 2020” table on page 49.
 
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.


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Tax and Financial Planning Services
 
We provide a tax and financial planning benefit to our named executive officers. This benefit was valued at $14,400 for fiscal 2020. 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 52. 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 Messrs. Mayor-Mora and Lyski, who each became an executive officer after this change, differ from those that would potentially be provided to the other named executive officers.

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 52.

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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 2020, 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 2020 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.
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 29, 2020, all of our current named executive officers satisfied the ownership guidelines set forth above.
 


40


PROHIBITION ON HEDGING AND PLEDGING
 
We have a policy prohibiting all CarMax associates from purchasing any financial instruments that are designed to hedge or offset any change in the market value of CarMax stock. This prohibition applies to our named executive officers, all employees, 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 Tax Cuts and Jobs Act of 2017 (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 2020, 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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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 29, 2020.
 
THE COMPENSATION AND PERSONNEL COMMITTEE
Ronald E. Blaylock, Chair
Sona Chawla
Mitchell D. Steenrod


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COMPENSATION TABLES

 
Summary Compensation Table for Fiscal 2020

The table below shows the compensation paid to or earned by our named executive officers in fiscal 2020, 2019, and 2018.
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
2020

1,095,175


583,286

5,250,006

2,078,482

131,106

262,611

9,400,666
President and Chief Executive Officer
2019

1,063,157


1,500,022

4,499,998

1,595,213

5,075

288,082

8,951,547
2018

1,031,721

96,239

1,249,974

3,750,005

1,472,448

24,797

190,068

7,815,252
Enrique N. Mayor-Mora Senior VP and Chief Financial Officer
2020

420,586


200,273

600,745

272,620


56,490

1,550,714

















Thomas W. Reedy
2020

766,622


178,445

1,605,923

727,469

100,226

143,240

3,521,925
Executive VP, Finance
2019

744,210


485,325

1,455,919

558,325

6,543

147,501

3,397,823
2018

722,205

38,866

485,313

1,455,925

594,643

22,219

132,390

3,451,561
Edwin J. Hill
2020

732,981


178,445

1,605,923

697,331

163,278

149,392

3,527,350
Executive VP and Chief Operating Officer
2019

691,237


485,325

1,455,919

525,000

17,461

124,740

3,299,682
2018

619,033

33,314

435,281

1,305,925

509,694

44,019

98,719

3,045,985
Eric M. Margolin
2020

629,726


145,114

1,305,922

597,564

14,097

104,146

2,796,569
Executive VP, General Counsel and Corporate Secretary
2019

611,316


435,303

1,305,921

458,624

5,014

94,088

2,910,266
2018

590,240

31,926

435,281

1,305,925

488,457

3,511

77,436

2,932,776
James Lyski
2020

539,265


120,509

1,084,923

513,037


85,236

2,342,970
Executive VP, Chief Marketing Officer
2019

514,846


361,620

1,084,918

386,250


68,195

2,415,829
(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 ASC Topic 718. These amounts do not correspond to the actual value that may be realized by each NEO. Because, under ASC Topic 718 the grant date for a PSU occurs when objectively determinable performance goals are approved, and we approved performance goals for only the first one-third of the PSUs issued in fiscal 2020, the amounts disclosed under the Stock Awards column above only include amounts attributable to one-third of the PSUs issued in fiscal 2020. PSU values in the Stock Awards column are based on performance achieved at target levels. The grant date fair value of the NEO’s fiscal 2020 PSUs if earned at maximum levels was $1,166,572, $356,889, $356,889, $290,228 and $241,018 for Messrs. Nash, Reedy, Hill, Margolin, and Lyski, respectively. For Mr. Mayor-Mora, the grant date fair value of his MSUs if earned at maximum levels was $400,546. Additional information regarding outstanding awards, including exercise prices, vesting schedules, and expiration dates, can be found in the “Outstanding Equity Awards at Fiscal 2020 Year End” table on pages 47 and 48. 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 29, 2020.
(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 2020” table and its accompanying narrative on pages 49 and 50 contain additional details with respect to these amounts.
(e)
Further details are included in the “All Other Compensation in Fiscal 2020” table below.

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All Other Compensation in Fiscal 2020
 
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
74,123


19,622

143,973

24,893

262,611
Enrique N. Mayor-Mora


19,182

16,568

20,740

56,490
Thomas W. Reedy
12,160


23,037

82,989

25,054

143,240
Edwin J. Hill
24,935

7,426

24,419

77,431

15,181

149,392
Eric M. Margolin

2,542

18,423

48,127

35,054

104,146
James Lyski

29

18,286

38,285

28,636

85,236
(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 2020 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 ($285,000 in 2020). 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 EDCP.
(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). Additionally, Mr. Lyski received reimbursement for relocation expenses and Mr. Mayor-Mora received reimbursement under our Executive Physicals program. Reimbursement under the Executive Physicals program is not available to our executive officers and was made to Mr. Mayor-Mora when he was vice president and treasurer of the Company, prior to his promotion to CFO.


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Grants of Plan-Based Awards in Fiscal 2020

The following table lists grants of plan-based awards to each of our named executive officers during fiscal 2020.
 
 
 
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
 
 
410,767

1,643,069

3,286,137









3/25/2019
5/1/2019





1,855

7,420

14,840



583,286
 
3/25/2019
5/1/2019










237,772
78.61
78.35
5,250,006
Enrique N. Mayor-Mora
 
 
53,878

215,510

431,020









3/25/2019
5/1/2019






1,536

3,072



151,188
 
3/25/2019
5/1/2019










20,540
78.61
78.35
453,523
 
10/22/2019
12/26/2019






447

894



49,085
 
10/22/2019
12/26/2019










6,178
88.54
89.03
147,222
Thomas W. Reedy
 
 
143,769

575,075

1,150,149









3/25/2019
5/1/2019





568

2,270

4,540



178,445
 
3/25/2019
5/1/2019










72,732
78.61
78.35
1,605,923
Edwin J. Hill
 
 
137,813

551,250

1,102,500









3/25/2019
5/1/2019





568

2,270

4,540



178,445
 
3/25/2019
5/1/2019










72,732
78.61
78.35
1,605,923
Eric M. Margolin
 
 
118,096

472,383

944,766









3/25/2019
5/1/2019




462

1,846

3,692



145,114
 
3/25/2019
5/1/2019










59,145
78.61
78.35
1,305,922
James Lyski
 
 
101,391

405,563

811,125









 
3/25/2019
5/1/2019





383
 
1,533
 
3,066



120,509
 
3/25/2019
5/1/2019










49,136
78.61
78.35
1,084,923
(a)
Represents threshold, target and maximum payout levels under our Bonus Plan for fiscal 2020 performance. The actual amount of each named executive officer’s annual incentive bonus in fiscal 2020 is reported under the “Non-Equity Incentive Plan Compensation” column in the “Summary Compensation Table” on page 43. Additional information regarding the design of our Bonus Plan is included on pages 32 to 34.
(b)
For each of our named executive officers except Mr. Mayor-Mora, represents stock-settled performance stock units, which we refer to as “performance stock units” or “PSUs,” granted under our Stock Incentive Plan. PSUs generally vest on the third anniversary of the grant date. Because, under ASC Topic 718, the grant date for a PSU occurs only when objectively determinable PSU performance goals are approved, the reported number of units is calculated for the one-third portion of the PSUs for which performance goals were set in fiscal 2020. Additional information regarding PSUs, including the formula used to convert PSUs to shares of our common stock upon vesting and settlement, is included on pages 34 and 35. For Mr. Mayor-Mora, 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 35.
(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.

logoa01.jpg
45


(d)
All fiscal 2020 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.


46


Outstanding Equity Awards at Fiscal 2020 Year End

The following table lists outstanding equity awards previously granted to our named executive officers as of February 29, 2020.

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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.
4/12/2016

19,006


39,668


51.63


4/12/2023






Nash
9/26/2016

105,485


35,161


53.62


9/26/2023






 
5/1/2017

116,388


116,387


58.38


5/1/2024






 
5/1/2017












21,411


3,738,789

 
5/1/2018

60,129


180,384


63.04


5/1/2025






 
5/1/2018












18,322


2,215,566

 
5/1/2019



237,772


78.61


5/1/2026






 
5/1/2019












22,262


2,591,535

Enrique N.
4/8/2015

19,203




73.76


4/8/2022






Mayor-Mora
4/12/2016

14,598


7,299


51.63


4/12/2023






 
5/1/2017

13,268


13,267


58.38


5/1/2024






 
5/1/2017












1,937


252,926

 
5/1/2018

5,884


17,649


63.04


5/1/2025






 
5/1/2018












1,793


216,816

 
5/1/2019



20,540


78.61


5/1/2026






 
5/1/2019












1,536


148,950

 
12/26/2019



6,178


88.54


12/26/2026






 
12/26/2019












447


38,485

Thomas W.
4/8/2015

70,641




73.76


4/8/2022






Reedy
4/12/2016

6


25,668


51.63


4/12/2023






 
5/1/2017



45,186


58.38


5/1/2024






 
5/1/2017












8,313


1,451,616

 
5/1/2018

19,454


58,361


63.04


5/1/2025






 
5/1/2018












5,928


716,836

 
5/1/2019



72,732


78.61


5/1/2026






 
5/1/2019












6,810


792,775

Edwin J.
4/8/2015

52,532




73.76


4/8/2022






Hill
4/12/2016

69,072


23,024


51.63


4/12/2023






 
5/1/2017

40,532


40,531


58.38


5/1/2024






 
5/1/2017












7,456


1,301,967

 
5/1/2018

19,454


58,361


63.04


5/1/2025







logoa01.jpg
47


 
5/1/2018









5,928


716,836

 
5/1/2019



72,732


78.61


5/1/2026






 
5/1/2019












6,810


792,775

Eric M.
4/8/2015

52,532




73.76


4/8/2022






Margolin
4/12/2016



19,088


51.63


4/12/2023






 
4/27/2016



4,899


55.19


4/27/2023






 
5/1/2017

40,532


40,531


58.38


5/1/2024






 
5/1/2017












7,456


1,301,967

 
5/1/2018

17,450


52,348


63.04


5/1/2025






 
5/1/2018












5,317


642,952

 
5/1/2019



59,145


78.61


5/1/2026






 
5/1/2019