DEF 14A 1 ltgt2018_def14a.htm TARGET CORPORATION - DEF 14A TARGET CORPORATION - DEF 14A

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

SCHEDULE 14A

 

Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. __)

 

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

 

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TARGET CORPORATION

 

(Name of Registrant as Specified In Its Charter)

 

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

 

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Notice of 2018 annual meeting of shareholders

Wednesday, June 13, 2018

9:00 a.m. Mountain Daylight Time

Le Meridien Denver located at 1475 California Street,
Denver, Colorado 80202

To our shareholders,

You are invited to attend Target Corporation’s 2018 annual meeting of shareholders (Annual Meeting) to be held at Le Meridien Denver located at 1475 California Street, Denver, Colorado 80202 on Wednesday, June 13, 2018 at 9:00 a.m. Mountain Daylight Time.

Purpose

Shareholders will vote on the following items of business:

1.

Election of all 12 directors named in our proxy statement to our Board of Directors for the coming year;

2.

Ratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm;

3.

Approval, on an advisory basis, of our executive compensation (“Say on Pay”);

4.

The shareholder proposal contained in this proxy statement, if properly presented at the meeting; and

5.

Transaction of any other business properly brought before the Annual Meeting or any adjournment.

You may vote if you were a shareholder of record at the close of business on April 16, 2018. Whether or not you plan to attend the Annual Meeting, we urge you to read the proxy statement carefully and to vote in accordance with the Board of Directors’ recommendations. You should vote by the deadlines specified in this proxy statement, and may do so by telephone or Internet, or by signing, dating, and returning the enclosed proxy card in the postage-paid envelope provided.

If you plan to attend the Annual Meeting, please follow the instructions provided in Question 12 “How can I attend the Annual Meeting?” on page 71 of the proxy statement.

Following the formal business of the Annual Meeting, our Chairman & Chief Executive Officer will provide prepared remarks, followed by a question and answer session.

Thank you for your continued support.

Sincerely,

Don H. Liu

Corporate Secretary

Approximate Date of Mailing of Proxy Materials or

Notice of Internet Availability:

 

May 4, 2018

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Proxy

summary

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

The Board of Directors of Target Corporation solicits the enclosed proxy for the 2018 Annual Meeting of Shareholders and for any adjournment thereof.

Target 2018 annual meeting of shareholders

 

 

Items of business

Item

Board’s

Recommendation

Election of 12 directors (page 17)

FOR each Director Nominee

Ratification of independent registered public accounting firm (page 64)

FOR

Advisory approval of executive compensation (“Say on Pay”) (page 66)

FOR

Shareholder proposal, if properly presented (page 67)

AGAINST

Questions and answers about our Annual Meeting and voting

We encourage you to review the “Questions and answers about our Annual Meeting and voting” beginning on page 69 for answers to common questions on the rules and procedures surrounding the proxy and Annual Meeting process as well as the business to be conducted at our Annual Meeting.

Admission at the Annual Meeting

If you plan to attend the Annual Meeting in person, please see the information in Question 12 “How can I attend the Annual Meeting?” on page 71. We strongly encourage you to pre-register. If you plan to bring a guest or are attending as an authorized representative of a shareholder you must pre-register by June 8, 2018. Any person who does not present identification and establish proof of ownership will not be admitted to the Annual Meeting.

Voting

If you held shares of Target common stock as of the record date (April 16, 2018), you are entitled to vote at the Annual Meeting.

Your vote is important. Thank you for voting.

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Advance voting methods and deadlines

 

Method

Instruction

Go to the website identified on proxy card, voter instruction form or Notice of Internet Availability of Proxy Materials

Enter Control Number on proxy card, voter instruction form or Notice of Internet Availability of Proxy Materials

Follow instructions on the screen

Call the toll-free number identified on the enclosed proxy card or voter instruction form or, after viewing the proxy materials on the website provided in your Notice of Internet Availability of Proxy Materials, call the toll-free number for telephone voting identified on the website

Enter Control Number on the proxy card, voter instruction form or Notice of Internet Availability of Proxy Materials

Follow the recorded instructions

Mark your selections on the enclosed proxy card or voter instruction form

Date and sign your name exactly as it appears on the proxy card or voter instruction form

Promptly mail the proxy card or voter instruction form in the enclosed postage-paid envelope

Deadline

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

Registered Shareholders or Beneficial Owners — 11:59 p.m. Eastern Daylight Time on June 12, 2018

Participants in the Target 401(k) Plan — 6:00 a.m. Eastern Daylight Time on June 11, 2018

Return promptly to ensure proxy card or voter instruction form is received before the date of the Annual Meeting or, for participants in the Target 401(k) Plan, by 6:00 a.m. Eastern Daylight Time on June 11, 2018

 

If you received a Notice of Internet Availability of Proxy Materials and would like to vote by mail, you must follow the instructions on the Notice to request a written copy of the proxy materials, which will include a proxy card or voter instruction form.

Any proxy may be revoked at any time prior to its exercise at the Annual Meeting. Please see the information in Question 3 “What is a proxy and what is a proxy statement?” on page 69.

Voting at the Annual Meeting

All registered shareholders may vote in person at the Annual Meeting. Beneficial owners may vote in person at the Annual Meeting if they have a legal proxy. Please see the information in Question 6 “How do I vote?” on page 69. In either case, shareholders wishing to attend the Annual Meeting must follow the procedures in Question 12 “How can I attend the Annual Meeting?” on page 71.

Notice of internet availability of proxy materials

Important Notice Regarding the Availability of Proxy Materials for the Shareholders Meeting to be held on June 13, 2018.
The proxy statement and annual report are available at www.proxyvote.com.

TARGET CORPORATION    Target Corporation 2018 Proxy Statement    6


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General information about corporate governance and the Board of Directors

Corporate governance highlights

Practice

Description

More

information

Board composition and accountability

 

Independence

A majority of our directors must be independent. Currently, all of our directors other than our CEO are independent, and all of our Committees consist exclusively of independent directors.

15

Diversity

The composition of our Board represents broad perspectives, experiences and knowledge relevant to our business while maintaining a balanced approach to gender and ethnic diversity.

17-18

Lead Independent
Director

Our Corporate Governance Guidelines require a Lead Independent Director position with specific responsibilities to ensure independent oversight of management whenever our CEO is also the Chair of the Board. The Lead Independent Director and the Chair of the Board are elected annually by the independent directors.

8

Management Succession Planning Review

Our Board regularly reviews management development and succession planning, with more in-depth reviews regularly conducted by the Human Resources & Compensation Committee.

14

Director Tenure Policies

Our director tenure policies include mandatory retirement at age 72 and a maximum term limit of 20 years in order to ensure the Board regularly benefits from a balanced mix of perspectives and experiences. In addition, a director is required to submit an offer of resignation for consideration by the Board upon any change in the director’s principal employment.

18

Director Overboarding Policy

Any director who is not serving as CEO of a public company is expected to serve on no more than five public company boards (including our Board), and any director serving as a CEO of a public company is expected to serve on no more than two outside public company boards (including our Board).

 

Committee Membership and Leadership Rotations

The Board appoints members of its Committees annually, with the Nominating & Governance Committee reviewing and recommending Committee membership, and assignments rotate periodically. The guideline for rotating Committee Chair assignments and the Lead Independent Director position is four to six years.

8,11

Board Evaluations and Board Refreshment

The Board regularly evaluates its performance through self-evaluations, corporate governance reviews and periodic charter reviews. Those evaluations, along with assessments of changes in our business strategy or operating environment and the future needs of the Board in light of anticipated director retirements, are used to identify desired backgrounds and skill sets for future Board members.

18

Risk Oversight

We disclose how risk oversight is exercised at the Board and Committee levels and how risk oversight responsibilities are allocated among the Committees.

12

Capital Allocation
Policies and Priorities

We disclose our capital allocation policies and priorities and how they are overseen by the Board and its Committees.

13

Shareholder rights

 

 

Annual Election of Directors

All directors are elected annually, which reinforces our Board’s accountability to shareholders.

17

Majority Voting Standard for Director Elections

Our Articles of Incorporation mandate that directors be elected under a “majority voting” standard in uncontested elections—each director must receive more votes “For” his or her election than votes “Against” in order to be elected.

17

Director Resignation
Policy

An incumbent director who does not receive a majority vote in an uncontested election must promptly offer to resign. The Nominating & Governance Committee will make a recommendation on the offer, and the Board must accept or reject the offer within 90 days and publicly disclose its decision and rationale.

17

Proxy Access

We allow each shareholder, or a group of up to 20 shareholders, owning 3% or more of Target common stock continuously for at least three years, to nominate and include in our proxy materials director nominees constituting up to the greater of 20% of the Board of Directors or at least two directors.

74

Single Voting Class

Target common stock is the only class of voting shares outstanding.

69

10% Threshold for Special Meetings

Shareholders holding 10% or more of Target’s outstanding stock have the right to call a special meeting of shareholders.

 

No Poison Pill

We do not have a poison pill.

 

Compensation

 

 

Follow Leading Practices

See “Target’s Executive Compensation Practices.”

36

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Our directors

Name

Age

 

Director

since

Most recent employer

Title

Independent

Other current

public company

boards

Roxanne S. Austin

57

2002

Austin Investment Advisors

President

Yes

3

Douglas M. Baker, Jr.

59

2013

Ecolab Inc.

Chairman & CEO

Yes

1

Brian C. Cornell

59

2014

Target Corporation

Chairman & CEO

No

1

Calvin Darden

68

2003

Darden Putnam Energy & Logistics, LLC

Chairman

Yes

2

Henrique De Castro

52

2013

Yahoo! Inc.

Former COO

Yes

1

Robert L. Edwards

62

2015

AB Acquisition LLC (Albertsons/Safeway)

Former President & CEO

Yes

1

Melanie L. Healey

57

2015

The Procter & Gamble Company

Former Group President, North America

Yes

3

Donald R. Knauss

67

2015

The Clorox Company

Former Executive Chairman

Yes

2

Monica C. Lozano

61

2016

The College Futures Foundation

President & CEO

Yes

1

Mary E. Minnick

58

2005

Lion Capital LLP

Partner

Yes

0

Kenneth L. Salazar

63

2013

WilmerHale

Partner

Yes

0

Dmitri L. Stockton

54

2018

General Electric Company

Former Senior Vice President & Special Advisor to the Chairman

Yes

2

 

Board leadership structure

We do not have an express policy on whether the roles of Chair of the Board and Chief Executive Officer (CEO) should be combined or separated. Instead, the Board prefers to maintain the flexibility to determine which leadership structure best serves the interests of Target and our shareholders based on the evolving needs of the company. We currently have a combined Chair/CEO leadership structure. The Board regularly reevaluates our Board leadership structure as part of the Board evaluation process described under “Board evaluations and refreshment” on page 18 and also considers shareholder feedback on the topic. As a result of its most recent evaluation, the Board decided to continue having Mr. Cornell serve as both Chairman and CEO to allow him to coordinate the development, articulation and execution of a unified strategy at the Board and management levels. Where the Chair/CEO roles are combined as they are currently, our Corporate Governance Guidelines require that we have a Lead Independent Director position to complement the Chair’s role, and to serve as the principal liaison between the non-employee directors and the Chair. Mr. Baker currently serves as our Lead Independent Director, providing effective, independent leadership of our Board through his clearly defined and robust set of roles and responsibilities.

Our Corporate Governance Guidelines require that both the Chairman and Lead Independent Director be elected annually by the independent, non-employee directors, which ensures that the leadership structure is reviewed at least annually. The Board is committed to continuing to seek shareholder feedback on its approach as part of its ongoing shareholder outreach efforts, and will continue to reassess its Board leadership structure on a regular basis.

 

Regular duties:

   

Has the authority to convene meetings of the Board and executive sessions consisting solely of independent directors at every meeting;

Presides at all meetings of the Board of Directors at which the Chair is not present, including executive sessions of independent directors;

Conducts the annual performance reviews of the CEO, with input from the other independent directors, and serves as the primary liaison between the CEO and the independent directors;

Provides insights to the Human Resources & Compensation Committee as it annually approves the CEO’s compensation;

Approves meeting schedules, agendas and the information furnished to the Board to ensure that the Board has adequate time and information for discussion;

Is expected to engage in consultation and direct communication with major shareholders, as appropriate;

Coordinates with the CEO to establish minimum expectations for non-employee directors to consistently monitor Target’s operations and those of our competitors; and

Consults with the Nominating & Governance Committee regarding Board and Committee composition, Committee Chair selection, the annual performance review of the Board and its Committees, and director succession planning.

Annual election:

Elected annually by the independent, non-employee directors.

 

Service:

As a guideline, the Lead Independent Director should serve in that capacity for no more than four to six years.

Douglas

M. Baker, Jr.

Lead independent

director

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Committees

The Board has the following Committees and Committee composition as of the date of this proxy statement. All members of each Committee are independent directors. Each Committee operates under a written charter, a current copy of which is available on our company website, as described in Question 14 on page 73.

 

Responsibilities

Committee

members

Mr. Edwards

(Chair)

Mr. De Castro

Ms. Lozano

Ms. Minnick

Mr. Stockton

 

Number of

meetings during

fiscal 2017

 

7

Assists the Board in overseeing our financial reporting process, including the integrity of our financial statements and internal controls, the independent auditor’s qualifications and independence, performance of our internal audit function and approval of transactions with related persons

Prepares the “Report of the Audit & Finance Committee” on page 65 and performs the duties and activities described in that report

Discusses with management our positions with respect to income and other tax obligations

Reviews with management our risk assessment and management policies and our major financial, accounting and compliance risk exposures; conducts a joint meeting annually with the Risk & Compliance Committee to review legal and regulatory risk and compliance matters

Assists the Board in overseeing our financial policies, financial condition, including our liquidity position, funding requirements, ability to access the capital markets, interest rate exposures and policies regarding return of cash to shareholders

Audit &
Finance
Committee(1)

 

(1)

The Board of Directors has determined that all members of the Audit & Finance Committee satisfy the applicable audit committee independence requirements of the New York Stock Exchange (NYSE) and the Securities and Exchange Commission (SEC). The Board has also determined that all members have acquired the attributes necessary to qualify them as “audit committee financial experts” as defined by applicable SEC rules. The determination for each of Mr. Edwards and Ms. Lozano was based on experience as a principal financial officer, principal accounting officer, controller, public accountant or auditor, or actively supervising a person holding one of those positions. For Mr. De Castro, the determination was based on his experience serving as the Chief Operating Officer of Yahoo! Inc. and analyzing financial statements and financial performance of companies for Cantor Fitzgerald’s corporate venture capital arm. For Ms. Minnick, the determination was based on her experience with analyzing the financial statements and financial performance of portfolio companies of Lion Capital. For Mr. Stockton, the determination was based on his financial oversight experiences with General Electric Company.

 

 

Responsibilities

Committee

members

Ms. Austin (Chair)

Mr. Darden

Ms. Healey

Mr. Knauss

 

Number of

meetings during

fiscal 2017

 

6

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

In consultation with the Lead Independent Director, reviews and approves goals and objectives for the CEO

Reviews and approves the composition and value of all executive officer compensation

Reviews and approves the compensation provided to non-employee members of the Board

Prepares the “Human Resources & Compensation Committee Report” on page 31

Oversees risks associated with our compensation policies and practices, and annually reviews with its compensation consultant whether those policies and practices create material risks to Target

Oversees management development, evaluation and succession planning

Human Resources
& Compensation Committee(2)

 

(2)

The Board of Directors has determined that all members of the Human Resources & Compensation Committee satisfy the applicable compensation committee independence requirements of the NYSE and the SEC.

 

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Responsibilities

Committee

members

Mr. Baker (Chair)

Mr. Darden

Ms. Healey

Ms. Lozano

 

Number of

meetings during

fiscal 2017

 

5

Oversees our corporate governance practices

Leads director succession planning and identifies individuals qualified to become Board members

Makes recommendations, in consultation with the Lead Independent Director, on overall composition of the Board, its Committees, and the selection of the Committee Chairs and the Lead Independent Director

Leads the annual self-evaluation performance review of the Board and its Committees in consultation with the Lead Independent Director

Oversees policies and practices regarding public advocacy and political activities

Periodically reviews our Committee charters and Corporate Governance Guidelines

Nominating &
Governance
Committee

 

 

 

Responsibilities

 

Committee

members

Mr. Salazar

(Chair)

Ms. Austin

Mr. Baker

Mr. Edwards

 

Number of

meetings during

fiscal 2017

 

4

Assists the Board in overseeing management’s identification and evaluation of our principal operational, business and compliance risks, including our risk management framework and the policies, procedures and practices employed to manage risks

Oversees and monitors the effectiveness of our business ethics and compliance program

Supports the Audit & Finance Committee in oversight of compliance with legal and regulatory requirements

Risk &

Compliance

Committee

 

 

 

Responsibilities

 

Committee

members

Ms. Minnick

(Chair)

Mr. De Castro

Mr. Knauss

Mr. Salazar

Mr. Stockton

 

Number of

meetings during

fiscal 2017

 

4

Assists the Board in overseeing our investment activity, including alignment of investments with our strategy and evaluating the effectiveness of investment decisions

Oversees management’s resource allocation plans regarding infrastructure requirements

Reviews management’s plans for business development, business acquisitions and other significant business relationships, including alignment of opportunities with our strategic objectives, expected return on investment and post-acquisition integration and performance of acquired businesses

Infrastructure

& Investment Committee

 

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Committee composition and leadership

The Board appoints members of its Committees annually, with the Nominating & Governance Committee reviewing and recommending Committee membership, and assignments rotate periodically. The following considerations provide the framework for determining Committee composition and leadership:

The guideline for rotating Committee Chair assignments is four to six years, and six to twelve months before the date of a director’s anticipated retirement from the Board;

The Board seeks to have each director serve on two to three Committees;

The Board considers a number of factors in deciding Committee composition, including individual director experience and qualifications, prior Committee experience and increased time commitments for directors serving as a Committee Chair or Lead Independent Director;

By virtue of the position, the Lead Independent Director is a member of the Nominating & Governance Committee; and

To enhance risk oversight coordination, the Risk & Compliance Committee must include at least one member from each of the other Committees.

In connection with Mr. Rice's departure from the Board in January 2018, Mr. Edwards was added to the Audit & Finance Committee and became its new chair, and Ms. Minnick became the new chair of the Infrastructure & Investment Committee.

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Risk oversight

A summary of the allocation of general risk oversight functions among management, the Board and its Committees is as follows:

 

 

The primary responsibility for the identification, assessment and management of the various risks that we face belongs with management. At the management level, risks are prioritized and assigned to senior leaders based on the risk’s relationship to the leader’s business area and focus. Those senior leaders develop plans to address the risks and measure the progress of risk management efforts. Our Chief Legal & Risk Officer provides centralized oversight of Target’s enterprise risk management program. Our Chairman & CEO and his direct reports meet regularly with the Chief Legal & Risk Officer to identify, assess and manage risks facing the business. In addition, the Chief Legal & Risk Officer and other enterprise risk management team members regularly meet with leaders of business areas to inform, coordinate and manage the enterprise risk management program.

The Risk & Compliance Committee coordinates the oversight of different risks by the Board and each Committee, and is structured to support that coordination by having at least one director from each Committee included in its membership. The Board’s oversight of the risks occurs as an integral and continuous part of the Board’s oversight of our business and seeks to ensure that management has in place processes to deal appropriately with risk. For example, our principal strategic risks are reviewed as part of the Board’s regular discussion and consideration of our strategy, and the alignment of specific initiatives with that strategy. Similarly, at every meeting the Board reviews the principal factors influencing our operating results, including the competitive environment, and discusses with our senior executive officers the major events, activities and challenges affecting the company. The Board’s ongoing oversight of risk also occurs at the Board Committee level on a more focused basis as detailed above. The Chief Legal & Risk Officer annually presents an overview of the enterprise risk management program to the Board’s Risk & Compliance Committee and provides it with regular updates on the program and status of key risks facing the business. In addition, the Risk & Compliance Committee and Audit & Finance Committee annually conduct a joint meeting to review legal and regulatory risk and compliance matters.

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Our capital allocation policy and priorities

Three capital allocation priorities

Development and execution of our capital allocation policy are primarily the responsibility of our management and are overseen by the Board and its Committees. Our management follows a disciplined and balanced approach to capital allocation based on the following priorities, ranked in order of importance:

Priorities

Description

1. Investing in our Business

Fully invest in opportunities to profitably grow our business, create sustainable long-term value, and maintain our current operations and assets

2. Annual Dividend

Maintain a competitive quarterly dividend and seek to grow it annually

3. Share Repurchase

Return excess cash to shareholders by repurchasing shares within the limits of our credit rating goals

Dividend and share repurchase philosophy

Our business generates more cash than we currently need to fully invest in the growth and long-term health of our business, so we return excess cash to shareholders through an appropriate balance between dividends and share repurchase. We believe that both dividends and share repurchases serve important purposes. We believe that our dividend should be competitive, reliable and sustainable. We also believe that share repurchase is the most effective way to return any excess cash to shareholders after we have met our other priorities of fully investing in our business and maintaining a competitive dividend, because it allows shareholders to redeploy the cash as they choose, while providing us with appropriate flexibility to respond to changes in our operating performance and investment opportunities. For example, we suspended all share repurchase activity for a period from the middle of 2013 through early 2015 in response to changes in our operating performance, but we continued to invest in our business and grew our annual dividend during that period.

Capital allocation oversight

The Board of Directors and its Committees share responsibility for overseeing capital allocation among our three capital allocation priorities:

Responsible party

General oversight area

Description of responsibilities

Board of Directors

All Capital Allocation Priorities

Balance three main priorities appropriately for the growth and long-term health of our business

Review annual and long-term capital and operating plans, including planned share repurchase activities

Authorize dividends and share repurchase programs

Infrastructure & Investment Committee

Investing in Our Business

Monitor the overall level of investments

Review alignment of investments with our strategies

Evaluate effectiveness of investments in achieving appropriate returns

Audit & Finance Committee 

Annual Dividend and Share Repurchase Priorities 

Oversee liquidity to support operations and investments

Evaluate capacity for and competitiveness of annual dividends

Monitor execution of share repurchase activity

Review management’s credit rating goals

Provide recommendations to full Board on amount of dividends and share repurchase authorization levels

Human Resources & Compensation Committee

Compensation Effects of All Capital Allocation Priorities

Consider effects of our capital allocation strategy during compensation plan design and goal-setting process

Receive regular performance updates

Retain ability to use discretion to adjust payouts where extraordinary circumstances occur

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Board’s role in management evaluations and management succession planning

One of the primary responsibilities of the Board is to ensure that Target has a high-performing management team. The Board regularly reviews management development and succession planning to maximize the pool of internal candidates who can assume top management positions without undue interruption. In addition, the Human Resources & Compensation Committee conducts regular reviews of talent development and succession planning with a deeper focus than the full Board review, emphasizing career development of promising management talent.

Corporate responsibility and reputation

Target recognizes that environmental, social and governance issues are of increasing importance to many investors. We have a longstanding dedication to improving the communities where we operate, and since 1946 we have donated 5 percent of our profit to those communities. We know that working together with our team members, guests, suppliers and communities creates better outcomes on issues that matter to us all. Corporate responsibility is an enterprise-wide commitment informed by and integrated into our business strategy.

Our Board of Directors monitors and supports corporate responsibility efforts, and we publish an annual Corporate Responsibility Report, in accordance with the Global Reporting Initiative Guidelines as a framework to report on environmental, social and governance performance issues most important to our business stakeholders.

Our most recent report, published in June 2017, covers a variety of environmental, social and governance issues, including responsible sourcing practices, diversity and inclusion, sustainable products, environmental management and policies, stakeholder engagement, and community investment. Through our annual Corporate Responsibility Reports, we set goals and targets and report our progress. A copy of our most recent Corporate Responsibility Report is available on our company website, as described in Question 14 on page 73.

Board and shareholder meeting attendance

The Board of Directors met seven times during fiscal 2017. All directors attended at least 75% of the aggregate total of meetings of the Board and Board Committees on which the director served during the last fiscal year.

Twelve of our thirteen then-serving directors attended our June 2017 Annual Meeting of Shareholders. The Board has a policy requiring all directors to attend all annual meetings of shareholders, absent extraordinary circumstances. The only director who did not attend the June 2017 Annual Meeting of Shareholders was Anne M. Mulcahy, who retired on June 14, 2017, effective as of the conclusion of the meeting.

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Director independence

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

The Board also specifically considered each director’s length of service on the Board in making its annual independence determination. Specifically, the Board determined that Ms. Austin, Mr. Darden and Ms. Minnick, each of whom are up for re-election and have served on the Board for more than 12 years, continue to demonstrate the independence of judgment expected of independent directors.

The Board affirmatively determined that all non-employee directors are independent. Mr. Cornell is the only employee director and is not independent. The Board specifically considered the following transactions and concluded that none of the transactions impaired any director’s independence. In addition, none of the transactions are related-party transactions because none of the directors have a direct or indirect material interest in the listed transactions.

Director

Entity and relationship

Transactions

% of entity’s annual

revenues in each of

last 3 years

Douglas M. Baker, Jr.

Ecolab Inc.

Chairman & CEO

We purchase supplies, servicing, repairs and merchandise from Ecolab.

Less than 0.01%

Mary E. Minnick

Each portfolio company of Lion Capital(1)
Partner in Lion Capital

We purchase merchandise for resale from portfolio companies of Lion Capital.

Less than 2% of each portfolio company

Kenneth L. Salazar

WilmerHale

Partner

In fiscal 2017, WilmerHale was engaged to provide legal services.(2)

Less than 1%

(1)

Ms. Minnick does not have any direct ownership in any of these portfolio companies and her indirect ownership in each of these portfolio companies is less than 5%.

(2)

WilmerHale represented to us that: (a) Mr. Salazar’s compensation was not affected by the amount of legal services performed by WilmerHale for Target, (b) Mr. Salazar did not receive any of the fees from the Target relationship during each of the last three years and (c) Mr. Salazar will not receive any of the fees from the Target relationship in the future. Mr. Salazar does not personally provide any of the legal services to Target.

Policy on transactions with related persons

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

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

We ratified three related party transactions in accordance with this policy during fiscal 2017. Two of the transactions dealt with compensation of immediate family members of one of our former executive officers, Casey Carl. Mr. Carl’s brother joined Target in 2005, has been a team member in merchandising since that time and earned annual compensation of $173,080 in 2017. Mr. Carl’s sister-in-law joined Target in 2009, has been a team member in merchandising since that time and earned annual compensation of $296,863 in 2017. For each of these immediate family members, the compensation is commensurate with the immediate family member’s peers. In addition, the son of Mr. Knauss, a non-employee director, is employed by a company from which we purchase merchandise for resale. Mr. Knauss's son is a sales representative and represents the supplier in its relationship with Target Corporation. Our relationship with this supplier pre-dated Mr. Knauss's son's employment with the supplier. In fiscal 2017, we purchased approximately $60.5 million of merchandise from the supplier, which represented less than 0.1% of our annual revenues. Target's decisions regarding purchases of merchandise from its suppliers are made by team members in the merchandising departments and no member of the Board of Directors has any input or involvement in such decisions. As described above under “Director independence,” the Board affirmatively determined that Mr. Knauss is independent, and the transaction involving Mr. Knauss's son did not affect Mr. Knauss's independence.

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Business ethics and conduct

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

We disclose any amendments to, or waivers from, any provision of our Business Conduct Guide involving our directors, our principal executive officer, principal financial officer, principal accounting officer, controller or other persons performing similar functions on our website.

Communications with directors and shareholder outreach

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

We regularly engage in outreach efforts with our shareholders, both large and small, relating to our business, compensation practices, and environmental, social and governance issues. We involve one or more independent directors in these conversations, as appropriate. While we benefit from an ongoing dialogue with many of our shareholders, we recognize that we have not communicated directly with all of our shareholders. If you would like to engage with us, please send correspondence to Target Corporation, Attn: Investor Relations, 1000 Nicollet Mall, TPN-0841, Minneapolis, Minnesota 55403 or email investorrelations@target.com.

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Election and nomination process

Our election process is backed by sound corporate governance principles:

All directors are elected annually;

Directors are elected under a “majority voting” standard — each director in an uncontested election must receive more votes “For” his or her election than votes “Against” in order to be elected; and

An incumbent director who is not re-elected must promptly offer to resign. The Nominating & Governance Committee will make a recommendation on the offer to the full Board, and the Board must accept or reject the offer within 90 days and publicly disclose its decision and rationale.

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

Input from the Board, management and our shareholders to identify the backgrounds or skill sets that are desired; and

Changes in our business strategy or operating environment and the future needs of the Board in light of anticipated director retirements under our Board tenure policies.

The Nominating & Governance Committee has retained a third-party search firm to assist in identifying director candidates and will also consider recommendations from shareholders. Any shareholder who wishes the Committee to consider a candidate should submit a written request and related information to our Corporate Secretary no later than December 31 of the calendar year preceding the next annual meeting of shareholders. Shareholders may also nominate director candidates directly if they comply with our bylaws, which are described in more detail in Question 18 “How do I submit a proposal or nominate a director candidate for the 2019 annual meeting of shareholders?” on page 74 of the proxy statement.

Determining board composition

The criteria the Board follows in determining the composition of the Board is simple: directors are to have broad perspective, experience, knowledge and independence of judgment. The Board as a whole should consist predominantly of persons with strong business backgrounds that span multiple industries. The Board does not have a specific policy regarding consideration of gender, ethnic or other diversity criteria in identifying director candidates. However, the Board has had a longstanding commitment to, and practice of, maintaining diverse representation on the Board. At least annually the Board seeks input from each of its members with respect to the current composition of the Board in light of changes in our current and future business strategies, as well as our operating environment, as a means to identify any backgrounds or skill sets that may be helpful in maintaining or improving alignment between Board composition and our business. In addition, we seek feedback from our shareholders regarding the backgrounds and skill sets that they would like to see represented on our Board. This input is then used by our Nominating & Governance Committee in its director search process.

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Board evaluations and refreshment

Self-evaluation

 

The Nominating & Governance Committee, in consultation with the Lead Independent Director, annually leads the performance review of the Board and its Committees. In 2017, the Board self-evaluation involved a survey completed by each director about the Board and the Committees on which the director served, followed by individual interviews. Following completion of the interviews, the results were discussed by the full Board and each Committee. In 2017, the Board self-evaluation was administered by the Corporate Secretary’s office. The annual self-evaluation has periodically been conducted by a third-party consultant, as appropriate.

 

The self-evaluation process seeks to obtain each director’s assessment of the effectiveness of the Board, the Committees and their leadership, Board and Committee composition and Board/management dynamics.

 

 

 

Corporate governance review

 

Our Nominating & Governance Committee regularly reviews Target's core corporate governance practices and prevailing best practices, emerging practices and evolving topics as indicated by shareholder outreach, current literature, and corporate governance organizations.

The Board maintains tenure policies (contained in our Corporate Governance Guidelines) as a means of ensuring that the Board regularly benefits from a balanced mix of perspectives and experiences.

 

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

 

 

(1)

Includes those directors who indicate they are ethnically or racially diverse. Our ethnically or racially diverse directors are Mr. Darden, Mr. De Castro, Ms. Healey, Ms. Lozano, Mr. Salazar and Mr. Stockton.

 

On March 5, 2018, the Board elected Dmitri L. Stockton to fill a vacancy on the Board. Mr. Stockton was identified as a candidate by an independent director and evaluated by an independent search firm that was retained directly by the Nominating & Governance Committee to assist with identifying, screening and evaluating candidates for the Board. Mr. Stockton brings substantial experience in managing worldwide financial operations, financial oversight, risk management, consumer banking, asset management, employee benefits, governance, regulatory compliance and alignment of financial and strategic initiatives to the Board. You can view biographical information about Mr. Stockton on page 26.

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2018 nominees for director

After considering the recommendations of the Nominating & Governance Committee, the Board has set the number of directors at 12 and nominated all current directors to stand for re-election. The Board believes that each of these nominees is qualified to serve as a director of Target and the specific qualifications of each nominee that were considered by the Board follow each nominee’s biographical description. In addition, the Board believes that the combination of backgrounds, skills and experiences has produced a Board that is well-equipped to exercise oversight responsibilities on behalf of Target’s shareholders and other stakeholders.

 

The following table describes key characteristics of our business and the skills our Board collectively possesses.

Target’s business characteristics

Skills our board collectively possesses

Target is a large retailer that offers everyday essentials and fashionable, differentiated merchandise at discounted prices in stores and through digital channels.

Retail Industry Experience

Large retail or consumer products
company experience.

Target’s scale and complexity requires aligning many areas of our operations, including marketing, merchandising, supply chain, technology, human resources, property development, credit card servicing and our community and charitable activities.

Senior Leadership

Experience as executive officer level business leader or senior government
leader.

Our brand is the cornerstone of our strategy to provide a relevant and affordable differentiated shopping experience for our guests.

Marketing or Brand Management

Marketing or managing well-known brands or the types of consumer products and services we sell.

We operate a large network of stores and distribution centers.

Real Estate

Real estate acquisitions and dispositions
or property management experience.

We have a large and global workforce, which represents one of our key resources, as well as one of our largest operating expenses.

Workforce Management

Managing a large or global workforce.

Our business has become increasingly complex as we have expanded our offerings as well as the channels in which we deliver our shopping experience. This increased complexity requires sophisticated technology infrastructure.

Technology

Leadership and understanding of technology, digital platforms and new media, data security, and data analytics.

Our business involves sourcing merchandise domestically and internationally from numerous vendors and distributing it through our network of distribution centers.

Multi-National Operations or Supply Chain Logistics

Executive officer roles at multi-national organizations or in global supply chain operations.

We are a large public company committed to disciplined financial and risk management, legal and regulatory compliance and accurate disclosure.

Finance
or Risk Management

Public company management, financial stewardship or enterprise risk management experience.

To be successful, we must preserve, grow and leverage the value of our reputation with our guests, team members, the communities in which we operate and our shareholders.

Public Affairs
or Corporate Governance

Public sector experience, community relations or corporate governance
expertise.

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The following table summarizes the skills that each member of our Board possesses that are relevant to Target’s business characteristics:

 

 

Ms.

Austin

Mr.

Baker

Mr.

Darden

Mr. De

Castro

Mr.

Edwards

Ms.

Healey

Mr.

Knauss

Ms.

Lozano

Ms.

Minnick

Mr.

Salazar

Mr.

Stockton

 

Retail Industry

Experience

 

 

 

 

 

 

Senior

Leadership

 

 

Marketing or Brand Management

 

 

 

 

Real

Estate

 

 

 

 

 

 

 

 

Workforce

Management

 

 

Technology

 

 

 

 

 

 

 

 

Multi-National Operations or Supply Chain Logistics

 

 

 

 

 

Finance or

Risk Management

 

 

 

Public Affairs or

Corporate Governance

 

 

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We believe that all nominees will be able and willing to serve if elected. However, if any nominee should become unable or unwilling to serve for any reason, proxies may be voted for another person nominated as a substitute by the Board, or the Board may reduce the number of directors.

 

Background

Current and past five years

Roxanne S. Austin is President of Austin Investment Advisors, a private investment and consulting firm, a position she has held since 2004, and chairs the U.S. Mid-Market Investment Advisory Committee of EQT Partners.

Other experience

Ms. Austin also previously served as President & Chief Executive Officer of Move Networks, Inc., President & Chief Operating Officer of DIRECTV, Inc., Executive Vice President & Chief Financial Officer of Hughes Electronics Corporation and as a partner of Deloitte & Touche LLP.

 

Qualifications

Through her extensive management and operating roles, including her financial roles, Ms. Austin provides the Board with financial, operational and risk management expertise, and substantial knowledge of new media technologies.

 

Other public company boards

Roxanne
S. Austin

Age 57

Director since 2002

Independent

Committees

Human Resources & Compensation (Chair)

  Risk & Compliance

Current

Abbott Laboratories

AbbVie Inc.

Teledyne Technologies Incorporated

Within past five years

LM Ericsson Telephone Company

 

Background

Current and past five years

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

Other experience

Mr. Baker held various leadership positions within Ecolab, including President and Chief Operating Officer.

 

Qualifications

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

 

Other public company boards

Douglas M.
Baker, Jr.

Age 59

Director since 2013

Lead Independent Director

Committees

Nominating & Governance (Chair)

  Risk & Compliance

Current

Ecolab Inc.

Within past five years

U.S. Bancorp

 

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Background

Current and past five years

Brian C. Cornell has served as Chairman of the Board & Chief Executive Officer of Target Corporation since August 2014. Mr. Cornell served as Chief Executive Officer of PepsiCo Americas Foods, a division of PepsiCo, Inc., a multinational food and beverage corporation, from March 2012 to July 2014.

Other experience

Mr. Cornell previously served as Chief Executive Officer & President of Sam’s Club, a division of Wal-Mart Stores, Inc., and as an Executive Vice President of Wal-Mart Stores, Inc.

 

Qualifications

Through his more than 30 years in escalating leadership positions at leading retail and global consumer product companies, including three CEO roles and more than two decades doing business in North America, Asia, Europe and Latin America, Mr. Cornell provides meaningful leadership experience and retail knowledge. His experience includes time as both a vendor partner and a competitor to Target, and he brings insights from those roles to the company today.

 

Other public company boards

Brian C.
Cornell

Age 59

Director since 2014

Committees

None

Current

Yum! Brands, Inc.

Within past five years

Polaris Industries Inc.

 

Background

Current and past five years

Calvin Darden is Chairman of Darden Putnam Energy & Logistics, LLC, a company that sells fuel products, a position he has held on a full-time basis since February 2015. From November 2009 to February 2015, he was Chairman of Darden Development Group, LLC, a real estate development company.

Other experience

Mr. Darden had a 33-year career with the United Parcel Service of America, Inc., an express carrier and package delivery company, and served in a variety of senior management positions, ending as Senior Vice President of U.S. Operations.

 

Qualifications

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

 

Other public company boards

Calvin Darden

Age 68

Director since 2003

Independent

Committees

Human Resources & Compensation

  Nominating & Governance

Current

Aramark

Cardinal Health, Inc.

Within past five years

Coca-Cola Enterprises, Inc.

 

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Background

Current and past five years

Henrique De Castro has served as an Advisor at Cantor Fitzgerald since January 2017, where he leads the corporate venture capital arm of the firm, Cantor Ventures. He previously served as the Chief Operating Officer of Yahoo! Inc., a digital media company that delivers personalized digital content and experiences worldwide by offering online properties and services to users, from November 2012 to January 2014.

Other experience

Mr. De Castro held senior positions at Google Inc., a company that builds technology products and provides services to organize information, including President of Partner Business Worldwide, where he was responsible for approximately one third of Google's revenues, and President of Media, Mobile & Platforms Worldwide, where he built and scaled the business globally to over 50 countries. Before Google, Mr. De Castro held senior executive roles at Dell Technologies and McKinsey & Company.

 

Qualifications

Mr. De Castro provides the Board with valuable insight into media, technology, internet and start-up businesses across the globe along with global perspectives on leading strategy, revenue generation, operations and partnerships in the technology, internet, media and retail industries.

 

Other public company boards

Henrique
De Castro

Age 52

Director since 2013

Independent

Committees

Audit & Finance

Infrastructure & Investment

Current

First Data Corporation

Within past five years

None

 

Background

Current and past five years

Robert L. Edwards is the former President & Chief Executive Officer of AB Acquisition LLC, a North American food and drug retail company, a position he held from January 2015 to April 2015 due to Albertsons’ acquisition of Safeway Inc. Mr. Edwards previously held several executive level positions with Safeway Inc., a United States food and drug retail company, including President & Chief Executive Officer from May 2013 to April 2015, and President & Chief Financial Officer from April 2012 to May 2013.

Other experience

Mr. Edwards previously served as Executive Vice President & Chief Financial Officer of Safeway. He also held executive positions at Maxtor Corporation and Imation Corporation.

 

Qualifications

Mr. Edwards provides the Board with substantial food and drug retail expertise and perspectives. In addition, his prior experiences as a CEO of a large publicly-held company and as CFO of multiple public companies provide the Board with extensive public company accounting and financial reporting expertise and a top-level perspective in organizational management.

 

Other public company boards

Robert L.
Edwards

Age 62

Director since 2015

Independent

Committees

Audit & Finance (Chair)

  Risk & Compliance

Current

Blackhawk Network Holdings, Inc.

Within past five years

KKR Financial Holdings LLC

Safeway Inc.

 

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Background

Current and past five years

Melanie L. Healey is the former Group President, North America, of The Procter & Gamble Company, one of the world’s leading providers of branded consumer packaged goods, a position she held from January 2009 to December 2014. Ms. Healey also served as Group President & Advisor to the Chairman & Chief Executive Officer of The Procter & Gamble Company from January 2015 to July 2015.

Other experience

Ms. Healey held a number of leadership roles at Procter & Gamble, including Group President, Global Health, Feminine and Adult Care Sector. Prior to working at Procter & Gamble, Ms. Healey served in a variety of marketing leadership roles for Johnson & Johnson and S.C. Johnson & Sons.

 

Qualifications

Ms. Healey provides the Board with valuable strategic, branding, distribution and operating experience on a global scale obtained over her more than 30-year career in the consumer goods industry at three multinational companies. Her deep experience in marketing, including her 18 years outside the United States, provides the Board with strategic and operational leadership and critical insights into brand building and consumer marketing trends globally.

 

Other public company boards

Melanie L.

Healey

Age 57

Director since 2015

Independent

Committees

Human Resources & Compensation

  Nominating & Governance

Current

Hilton Worldwide Holdings Inc.

PPG Industries, Inc.

Verizon Communications Inc.

Within past five years

None

 

Background

Current and past five years

Donald R. Knauss is the former Executive Chairman of The Clorox Company, a leading multinational manufacturer and marketer of consumer and professional products, a position he held from November 2014 to June 2015. Mr. Knauss previously served as Chairman & Chief Executive Officer of The Clorox Company from October 2006 until November 2014.

Other experience

Mr. Knauss previously served as Executive Vice President and Chief Operating Officer of Coca-Cola North America and in various other senior management roles for its subsidiary businesses, and held various marketing and sales positions with PepsiCo, Inc. and The Procter & Gamble Company. Mr. Knauss also served as an Officer in the United States Marine Corps.

 

Qualifications

Mr. Knauss possesses substantial senior management level experience in a variety of areas, including branded consumer products and consumer dynamics, manufacturing and supply chain, the retail environment, and sales and distribution, which strengthens the Board’s collective knowledge, capabilities and experience.

 

Other public company boards

Donald R.

Knauss

Age 67

Director since 2015

Independent

Committees

Infrastructure & Investment

  Human Resources & Compensation

Current

Kellogg Company

McKesson Corporation

Within past five years

The Clorox Company

URS Corporation

 

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Background

Current and past five years

Monica C. Lozano is President and Chief Executive Officer of The College Futures Foundation, a position she has held since December 2017. She also serves as the co-founder and Chair of The Aspen Institute Latinos and Society program, a position she has held since January 2015. Ms. Lozano previously served as Chairman of U.S. Hispanic Media, Inc., a leading Hispanic news and information company, from June 2014 to January 2016. Ms. Lozano also served as Chair of ImpreMedia, LLC, a wholly owned subsidiary of U.S. Hispanic Media, Inc., from July 2012 to May 2014, and as Chief Executive Officer from May 2010 to May 2014.

Other experience

Ms. Lozano served as Chief Executive Officer and Publisher of La Opinion, a subsidiary of ImpreMedia, LLC, and in several management-level roles with the company.

 

Qualifications

Ms. Lozano possesses substantial senior management experience in areas such as operations, strategic planning and marketing, including multi-media content. She also has a deep understanding of issues that are important to Hispanics, a growing U.S. demographic. Ms. Lozano has board-level experience overseeing large organizations with diversified operations on matters such as governance, risk management and financial reporting.

 

Other public company boards

Monica C.

Lozano

Age 61

Director since 2016

Independent

Committees

Audit & Finance

Nominating & Governance

Current

Bank of America Corporation

Within past five years

The Walt Disney Company

 

Background

Current and past five years

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

Other experience

Ms. Minnick had a 23-year career with The Coca-Cola Company, a manufacturer, marketer and distributor of nonalcoholic beverage concentrates and syrups, and served in a variety of senior management positions, including Chief Operating Officer of the Asian region, Division President roles in the Japan, South Pacific and Asian regions, and ending as the company’s Chief Marketing Officer and Global President of Strategy and Innovation.

 

Qualifications

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

 

Other public company boards

Mary E.

Minnick

Age 58

Director since 2005

Independent

Committees

Infrastructure & Investment (Chair)

  Audit & Finance

Current

None

Within past five years

Heineken NV

The WhiteWave Foods Company

 

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Background

Current and past five years

Kenneth L. Salazar is a Partner at WilmerHale, a full service business law firm, a position he has held since June 2013. Mr. Salazar served as the U.S. Secretary of the Interior from 2009 to 2013.

Other experience

Mr. Salazar previously served as U.S. Senator from Colorado and as Attorney General of Colorado. Mr. Salazar also serves on the Mayo Clinic Board of Trustees and is a member of its Audit & Compliance Committee and Information Management and Technology Oversight Committee. Mr. Salazar and his family are farmers and ranchers in Colorado.

 

Qualifications

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

 

Other public company boards

Kenneth L. Salazar

Age 63

Director since 2013

Independent

Committees

Risk & Compliance (Chair)

  Infrastructure & Investment

Current

None

Within past five years

None

 

Background

Current and past five years

Dmitri L. Stockton is the former Senior Vice President & Special Advisor to the Chairman of General Electric Company, a global infrastructure and technology conglomerate. He held that position from July 2016 to March 2017. He served as Chairman, President, & Chief Executive Officer of GE Asset Management Incorporated, a global asset management company, and Senior Vice President of General Electric Company from May 2011 to December 2016.

Other experience

Mr. Stockton previously served as President & Chief Executive Officer of GE Capital Global Banking and Senior Vice President of General Electric Company based in London, President & Chief Executive Officer of GE Consumer Finance, Central & Eastern Europe, and Vice President of General Electric Company.

 

Qualifications

Mr. Stockton’s 30 year career with General Electric Company has provided him with substantial experience in managing worldwide financial operations. His expertise gives the Board additional skills in the areas of leadership, financial oversight, risk management, consumer banking, asset management, employee benefits, governance, regulatory compliance and the alignment of financial and strategic initiatives.

 

Other public company boards

Dmitri L.

Stockton

Age 54

Director since 2018

Independent

Committees

Audit & Finance

Infrastructure & Investment

Current

Deere & Company

Ryder System, Inc.

Within past five years

Synchrony Financial

 

 

The Board of Directors recommends that shareholders vote For each of the nominees named above for election to our Board of Directors.

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Stock ownership information

Stock ownership guidelines

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

 

 

Ownership guidelines
by position

 

Directors

 

Fixed value of $500,000

 

CEO

 

7x base salary

 

Other NEOs

 

3x base salary

 

Equity
used to
meet
stock
ownership
guidelines

 

Yes

Outstanding shares that the person beneficially owns or is deemed to beneficially own, directly or indirectly, under the federal securities laws

RSUs and PBRSUs (at their minimum share payout, which is 75% of the at-goal payout level), whether vested or unvested

Deferred compensation amounts that are indexed to Target common stock, but ultimately paid in cash

 

No

Options, regardless of when they are exercisable


 

Performance Share Units (PSUs) because their minimum share payout is 0% of the at-goal payout level

 

All directors and executive officers are expected to achieve the required levels of ownership under our stock ownership guidelines within five years of their election or appointment. If a director or executive officer has not satisfied the ownership guideline amounts within those first five years or goes below the required amounts after that time period, he or she must retain all shares acquired on the vesting of equity awards or the exercise of stock options (in all cases net of exercise costs and taxes) until compliance is achieved. In addition, if an executive officer is below the ownership guideline amounts during the first five years after becoming an executive officer, he or she must retain at least 50% of all shares acquired on the vesting of equity awards or the exercise of stock options (in all cases net of exercise costs and taxes) until compliance is achieved.

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The following table shows the holdings of our current directors and NEOs recognized for purposes of our stock ownership guidelines as of April 9, 2018 and the respective ownership guidelines calculations.

 

 

Shares

directly or

indirectly

owned

 

 RSUs &

PBRSUs

 

Share 

equivalents

Total stock

ownership for

guidelines

(# of shares)(1)

Stock

ownership

guidelines

calculation

Directors

 

 

 

 

 

 

 

 

Total value(2)

Roxanne S. Austin

 

10,000

 

28,951

 

0

 

38,951

$

2,784,217

Douglas M. Baker, Jr.

 

0

 

17,544

 

0

 

17,544

$

1,254,045

Calvin Darden

 

0

 

28,951

 

836

 

29,787

$

2,129,151

Henrique De Castro

 

0

 

18,509

 

0

 

18,509

$

1,323,023

Robert L. Edwards

 

10,000

 

9,314

 

0

 

19,314

$

1,380,565

Melanie L. Healey(3)

 

0

 

8,752

 

0

 

8,752

$

625,593

Donald R. Knauss

 

10,412

 

9,314

 

0

 

19,726

$

1,410,043

Monica C. Lozano(3)

 

0

 

7,595

 

0

 

7,595

$

542,891

Mary E. Minnick

 

886

 

65,854

 

478

 

67,218

$

4,804,738

Kenneth L. Salazar

 

0

 

14,902

 

0

 

14,902

$

1,065,195

Dmitri L. Stockton(3)

 

0

 

3,031

 

0

 

3,031

$

216,656

Current named executive officers

 

 

 

 

 

 

 

 

Multiple of base

salary(2)

Brian C. Cornell

 

235,852

 

94,155

 

8,838

 

338,844

 

17.3

Cathy R. Smith

 

30,690

 

31,854

 

0

 

62,544

 

5.6

John J. Mulligan

 

99,294

 

49,003

 

0

 

148,297

 

10.6

Michael E. McNamara

 

37,463

 

31,854

 

0

 

69,317

 

6.8

Janna A. Potts

 

10,970

 

16,803

 

9,829

 

37,602

 

3.8

(1)

The “Total stock ownership for guidelines” calculation, like the required disclosure of “Total shares beneficially owned” on page 29, starts with “Shares directly or indirectly owned” but differs by (a) excluding all options, regardless of whether they can be converted into common stock on or before June 8, 2018 and (b) including (i) share equivalents that are held under deferred compensation arrangements and (ii) RSUs and PBRSUs (at their minimum share payout, which is 75% of the at-goal payout level), whether vested or unvested, even if they will be converted into common stock more than 60 days from April 9, 2018.

(2)

Based on closing stock price of $71.48 as of April 9, 2018.

(3)

Mr. Stockton joined the Board on March 5, 2018. He currently complies with our stock ownership guidelines because he has five years from that date to meet the required $500,000 stock ownership level.

TARGET CORPORATION    Target Corporation 2018 Proxy Statement    28


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Beneficial ownership of directors and officers

The following table includes information about the shares of Target common stock (our only outstanding class of equity securities) which are beneficially owned on April 9, 2018 or which the person has the right to acquire within 60 days of April 9, 2018 for each director, named executive officer in the “Summary compensation table” on page 49, and all current Target directors and executive officers as a group.

Directors

 

Shares

directly or

indirectly

owned

 

Shares

issuable

within

60 days(1)

 

Stock options

exercisable

within

60 days

 

Total shares

beneficially

owned(2)

Roxanne S. Austin

 

10,000

 

27,048

 

15,687

 

52,735

Douglas M. Baker, Jr.

 

0

 

14,108

 

5,570

 

19,678

Calvin Darden

 

0

 

27,048

 

0

 

27,048

Henrique De Castro

 

0

 

16,606

 

5,570

 

22,176

Robert L. Edwards

 

10,000

 

7,411

 

0

 

17,411

Melanie L. Healey

 

0

 

6,849

 

0

 

6,849

Donald R. Knauss

 

10,412

 

7,411

 

0

 

17,823

Monica C. Lozano

 

0

 

5,692

 

0

 

5,692

Mary E. Minnick

 

886

 

63,951

 

0

 

64,837

Kenneth L. Salazar

 

0

 

12,999

 

3,601

 

16,600

Dmitri L. Stockton

 

0

 

759

 

0

 

759

Named executive officers

 

 

 

 

 

 

 

 

Brian C. Cornell

 

235,852

 

0

 

0

 

235,852

Cathy R. Smith

 

30,690

 

0

 

0

 

30,690

John J. Mulligan

 

99,294

 

0

 

139,018

 

238,312

Michael E. McNamara

 

37,463

 

0

 

0

 

37,463

Janna A. Potts

 

10,970

 

0

 

14,405

 

25,375

All current directors and executive officers

 

 

 

 

 

 

 

 

As a group (22 persons)

 

517,892

(3)

189,882

 

349,870

 

1,057,644

(1)

Includes shares of common stock that the named individuals may acquire on or before June 8, 2018 pursuant to the conversion of vested RSUs into common stock.

(2)

All directors and executive officers as a group own less than 1% of Target’s outstanding common stock. The persons listed have sole voting and investment power with respect to the shares listed.

(3)

Includes shares of common stock owned by executive officers in the Target 401(k) Plan as of April 9, 2018.

TARGET CORPORATION    Target Corporation 2018 Proxy Statement    29


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Beneficial ownership of Target’s largest shareholders

The following table includes certain information about each person or entity known to us to be the beneficial owner of more than five percent of our common stock:

Name and address of >5% beneficial owner

Number of

common shares

beneficially owned

Percent of

class(1)

State Street Corporation
One Lincoln Street
Boston, Massachusetts 02111

49,308,674(2)

9.2%

BlackRock, Inc.
55 East 52nd Street
New York, New York 10055

44,370,579(3)

8.3%

The Vanguard Group
100 Vanguard Boulevard
Malvern, Pennsylvania 19355

37,823,852(4)

7.1%

(1)

Based on shares outstanding on April 9, 2018.

(2)

State Street Corporation (State Street) reported its direct and indirect beneficial ownership in various fiduciary capacities (including as trustee under Target’s 401(k) Plan) on a Schedule 13G filed with the SEC on February 14, 2018. The filing indicates that as of December 31, 2017, State Street had sole voting power for 0 shares, shared voting power for 49,308,674 shares, sole dispositive power for 0 shares and shared dispositive power for 49,308,674 shares.

(3)

BlackRock, Inc. (BlackRock) reported its direct and indirect beneficial ownership on a Schedule 13G/A filed with the SEC on February 8, 2018. The filing indicates that as of December 31, 2017, BlackRock had sole voting power for 37,786,439 shares, shared voting power for 0 shares, sole dispositive power for 44,370,579 shares and shared dispositive power for 0 shares.

(4)

The Vanguard Group (Vanguard) reported its direct and indirect beneficial ownership on a Schedule 13G/A filed with the SEC on February 9, 2018. The filing indicates that as of December 31, 2017, Vanguard had sole voting power for 757,599 shares, shared voting power for 132,657 shares, sole dispositive power for 36,950,417 shares and shared dispositive power for 873,435 shares.

Section 16(a) beneficial ownership reporting compliance

SEC rules require disclosure of those directors, officers and beneficial owners of more than 10% of our common stock who fail to timely file reports required by Section 16(a) of the Securities Exchange Act of 1934 (the Exchange Act) during the most recent fiscal year. Based solely on review of reports furnished to us and written representations that no other reports were required during the fiscal year ended February 3, 2018, all Section 16(a) filing requirements were met.

TARGET CORPORATION    Target Corporation 2018 Proxy Statement    30


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Human Resources & Compensation Committee Report

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

Human Resources & Compensation Committee

Roxanne S. Austin, Chair
Calvin Darden
Melanie L. Healey
Donald R. Knauss

TARGET CORPORATION    Target Corporation 2018 Proxy Statement    31


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Compensation Discussion and Analysis

Introduction

This Compensation Discussion and Analysis (CD&A) focuses on how our Named Executive Officers (NEOs) were compensated for fiscal 2017 (January 29, 2017 through February 3, 2018) and how their fiscal 2017 compensation aligns with our pay for performance philosophy.

For fiscal 2017, our NEOs were:

 

Name and
principal position

 

Brian C. Cornell

Chairman & Chief Executive Officer

 

 

 

Cathy R. Smith

Executive Vice President & Chief Financial Officer

 

 

 

John J. Mulligan

Executive Vice President & Chief Operating Officer

 

 

 

Michael E. McNamara

Executive Vice President, Chief Information & Digital Officer

 

 

 

Janna A. Potts

Executive Vice President & Chief Stores Officer

 

 

Our CD&A is divided into the following sections:

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Executive Summary

To provide context for the compensation decisions made in 2017, it is important to recognize that we, and the retail industry in general, were experiencing deteriorating traffic and sales in 2016, particularly in the fourth quarter. This performance reflected a rapid change in consumer behavior, including soft spending in many of the categories we sell, combined with a rapid shift in consumer preferences toward online retail.

In light of those challenges, several of our competitors were announcing store closures and scaling back their operations to protect profitability. In contrast, in late February 2017 we announced a multi-year plan in which we would aggressively invest in our business in support of our goal to position Target for sustained, profitable market share gains over the long-term. These investments included:

capital expenditures of more than $2 billion in 2017, and more than $7 billion over a three-year period, to remodel more than 600 stores, open 100 small-format stores, enhance Target’s digital capabilities and modernize our supply chain; and

direct spending investments that would lower operating margin by $1 billion in 2017, specifically in hours and wages in our stores, lower prices to reinforce Target’s value perception, and accelerated depreciation driven by the advancement of our store remodel program.

Much of our compensation program consists of long-term incentives that measure our performance relative to our competitors. Given our decision to aggressively invest in our long-term growth during a period of significant industry stress, the independent members of the full Board considered the near-term headwinds that our investments would present when approving our fiscal 2017 short-term incentive goals in March 2017 and the price-vested stock options (Price-Vested Options) in April 2017. See page 44 for more information, respectively.

The pace of our investments either met or exceeded the goals we announced at the beginning of the year. Guests responded faster than expected to our investments, which contributed to financial performance that exceeded expectations.

Comparable sales in 2017 increased 1.3%, compared with an expectation for a low single-digit decrease going into the year. Comparable sales grew 3.6% in the fourth quarter, bringing fiscal 2017 Total Adjusted Sales to the highest level in our history.

Both traffic and comparable sales trends improved throughout 2017. We saw acceleration across the business as we gained market share across our five core merchandise categories.

Given stronger-than-expected sales, our business generated better-than-expected profitability, which partially offset the near-term headwinds created by the investments in our business.

The independent members of the Human Resources & Compensation Committee considered financial and strategic achievements against business goals and plans, as well as the challenging competitive retail landscape in determining short-term incentive payouts for fiscal 2017. See page 39-40 for more information.

 

Shareholder support for our 2017 advisory vote on executive compensation and shareholder outreach program

At our June 2017 annual meeting of shareholders, shareholders approved our Say on Pay proposal in support of our executive compensation program by 93.9%, consistent with the fiscal 2016 vote of 96.4% and fiscal 2015 vote of 96.6%. We believe open dialogue with our shareholders and incorporation of their feedback into our executive compensation program has been instrumental in obtaining shareholder support for our compensation program’s design and direction.

We regularly engage in outreach efforts with our shareholders relating to a variety of topics and involve one or more independent directors in these conversations as appropriate. We use the information gathered through these outreach efforts to help inform our compensation decisions. We look forward to continued dialogue on compensation matters and other issues relevant to our business.

 

Summary of key compensation decisions for fiscal 2017

Topic

Description

More

information

Total Compensation Decisions Timing Shift

During fiscal 2017, the Board approved a shift in the timing of the total compensation decisions for executive officers and the board of directors from the last month of fiscal 2017 to March 2018. This transition allows for consideration of full year financial results prior to annual grant and pay level decisions and aligns timing of executive officers and the board of directors with the broader Target team. This transition also impacts the “Summary compensation table,” as described on page 49.

41

Price-Vested Options

As described in last year’s CD&A, Price-Vested Options were approved in April 2017 to serve as an incentive to successfully execute our turnaround efforts and as a supplemental compensation element based exclusively on stock price performance to align with shareholder value.

44

Human Resources & Compensation Committee Use of Negative Discretion

The Human Resources & Compensation Committee applied negative discretion to reduce the payout for the financial component of our Short-Term Incentive Plan (STIP), as follows:

The CEO payout was reduced by 28 percentage points of base salary.

The other NEO payout was reduced by 10 percentage points of base salary.

40

TARGET CORPORATION    Target Corporation 2018 Proxy Statement    33


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Pay for performance

We have a long-standing belief that our executive compensation should be directly linked to performance and the creation of long-term value for our shareholders. We do that by providing our NEOs a mix of base salary, short-term and long-term incentives with compensation opportunities measured by a variety of time horizons to balance our near-term and long-term strategic goals. The Human Resources & Compensation Committee uses the at-goal amounts of those key elements to determine the annual at-goal total direct compensation (Annual TDC) of our NEOs, which is a useful measure of pay because it reflects the intended aggregate value of those key elements of pay at the time the pay decision is made. The calculation of our Annual TDC is described on page 41.

For our NEOs, our short-term incentives are based on annual absolute financial goals and progress made toward key strategic priorities. Our fiscal 2017 goals were approved at the beginning of the year, taking into consideration our business strategies and the challenges facing the retail industry. Our financial performance exceeded our strategic plans, despite expected headwinds presented by our substantial investment in our strategic initiatives, resulting in payouts well above goal. For further discussion of our fiscal 2017 goals and performance, refer to pages 39-40.

100% of our Long-Term Incentive (LTI) program features performance-based metrics and is tied to relative performance versus our retail peers over a three-year time period.

Our pay for performance philosphy is evidenced by our payouts over the past five years for our STIP and PSU awards, which are shown in the charts below, as a percentage of goal. Our CEO did not receive a STIP payout three out of the last five years. In addition, our NEOs did not receive a PSU payout three out of the last five years. STIP and PSU awards make up more than 60% of Annual TDC for our CEO and more than 55% of Annual TDC for our other NEOs.

 

 

 

As disclosed in prior proxy statements, PSUs spanning the 2012-2014, 2013-2015 and 2014-2016 performance periods and 2014 STIP payouts were forfeited for active executive officers (including current NEOs Mr. Cornell and Mr. Mulligan) when we did not meet the minimum performance condition under 162(m) for fiscal 2014, due to the discontinuation of Canadian operations. If the awards were not forfeited due to the minimum performance condition, the financial results versus our peers would have yielded payouts below goal.

TARGET CORPORATION    Target Corporation 2018 Proxy Statement    34


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Performance highlights

The following highlights show our historical performance on key metrics we use in our executive compensation programs over each of the last four years, which includes the base year and the three years of the performance period for our long-term incentive program. Our performance on these metrics drives our compensation outcomes and provides context to our decisions in setting our goal levels under those metrics. These metrics, including the goal levels and actual results for fiscal 2017, are described in more detail in the narratives for each compensation element.

 

 

(1)

Total Adjusted Sales, which is one of the metrics used in our STIP and our PSUs, is calculated by excluding pharmacy and clinic sales of $4,148 million and $3,815 million from fiscal 2014 and 2015 GAAP consolidated sales, respectively. This adjustment is made for comparison purposes due to the sale of the pharmacy and clinic business to CVS at the end of fiscal 2015. Total Adjusted Sales does not include any adjustments to fiscal 2016 and 2017 GAAP consolidated sales. Additionally, for our PSU compensation element, we use Total Adjusted Sales, except that because 2017 was a 53-week accounting year, we adjusted it to reflect a 52-week accounting year to ensure consistent comparison with the fiscal 2014 base year, which lowered the 2017 amount by $1,167 million to $70,713 million.

(2)

The computation of segment earnings before interest expense and income taxes (Segment EBIT) under GAAP is found in Note 30, Segment Reporting, to our consolidated financial statements in our annual report on Form 10-K for fiscal 2017 (2017 Annual Report) and Note 30, Segment Reporting, to our consolidated financial statements in our annual report on Form 10-K for fiscal 2016 (2016 Annual Report). Incentive EBIT, which is one of the metrics we use in our STIP, represents Segment EBIT on a pre-incentive compensation basis and is calculated by excluding incentive expense from our Segment EBIT.

(3)

Earnings Per Share (EPS) from Continuing Operations is as reported on page 17 of our 2017 Annual Report and on page 17 of our 2016 Annual Report. For PSUs, we use EPS from Continuing Operations as reported above, except that for fiscal 2014 we excluded the impact of the sale of the U.S. consumer credit card portfolio, which increased the amount by $0.05 per share to $3.88.

(4)

After-Tax Return on Invested Capital (ROIC) from Continuing Operations, which is one of the metrics used in our PSUs, is a ratio based on GAAP information, except for adjustments made to capitalize operating leases. For 2015, the After-Tax ROIC from Continuing Operations for the trailing twelve months ended January 30, 2016 was 16.0%, but was 13.9% excluding the net gain on the sale of our pharmacy and clinic businesses. For 2017, the After-Tax ROIC from Continuing Operations for the trailing twelve months ended February 3, 2018 was 15.9%, but was 14.0% excluding the impact of discrete tax benefits of the Tax Act. The calculation of After-Tax ROIC is found on page 24 of our 2017 Annual Report, page 22 of our 2016 Annual Report and page 24 of our annual report on Form 10-K for fiscal 2015.

 

Our performance has allowed us to fully invest in opportunities to profitably grow our business, create sustainable long-term value, maintain our current operations and assets, and return excess capital to shareholders.

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Guiding principles of our compensation program

We believe executive compensation should be directly linked to performance and the creation of long-term value for our shareholders. With that in mind, the three guiding principles of our compensation program are to:

Attract, retain and motivate a premier management team to sustain our distinctive brand and its competitive advantage in the marketplace

Provide a framework that encourages outstanding financial results and shareholder returns over the long-term

Deliver on our pay for performance philosophy in support of our strategy

A significant portion of our executive compensation is at risk and therefore may vary from targeted compensation based upon the level of achievement of specified performance objectives and stock price performance.

Target’s executive compensation practices

The following practices and policies ensure alignment of interests between shareholders and executives, and effective ongoing compensation governance.

Compensation

practice

Target policy

More

information

Pay for Performance

Yes

A significant percentage of the total direct compensation package features performance-based metrics, including 100% of our annual LTI.

37

Robust Stock Ownership Guidelines

Yes

We have stock ownership guidelines for executive officers of 7x base salary for CEO, 3x base salary for non-CEO executive officers and $500,000 for directors.

27

Annual Shareholder “Say on Pay”

Yes

We value our shareholders’ input on our executive compensation programs. Our Board of Directors seek an annual non-binding advisory vote from shareholders to approve the executive compensation disclosed in our CD&A, tabular disclosures and related narrative of this proxy statement.

66

Double Trigger Change-in-Control

Yes

We grant equity awards that require both a change-in-control and an involuntary termination or voluntary termination with good reason before vesting.

60

Annual Compensation Risk Assessment

Yes

A risk assessment of our compensation programs is performed on an annual basis to ensure that our compensation programs and policies do not incentivize excessive risk-taking behavior.

47

Clawback Policy

Yes

Our policy allows recovery of incentive cash, equity compensation and severance payments where a senior executive's intentional misconduct results in a financial restatement. In early 2018, our policy was expanded to also apply to intentional misconduct that results in material financial or material reputational harm.

47

Independent Compensation Consultant

Yes

The Human Resources & Compensation Committee retains an independent compensation consultant to advise on the executive compensation program and practices.

45

Hedging of Company Stock

No

Executive officers and members of the Board of Directors may not directly or indirectly engage in transactions intended to hedge or offset the market value of Target common stock owned by them.

47

Pledging of Company Stock

No

Executive officers and members of the Board of Directors may not directly or indirectly pledge Target common stock as collateral for any obligation.

47

Tax Gross-Ups

No

We do not provide tax gross-ups to our executive officers.

44

Dividends on Unearned Performance Awards

No

We do not pay dividends on unearned performance awards.

52, 53

Repricing or Exchange of Underwater Stock Options

No

Our equity incentive plan does not permit repricing or exchange of underwater stock options without shareholder approval.

 

Employment Contracts

No

None of our current NEOs has an employment contract.

44

TARGET CORPORATION    Target Corporation 2018 Proxy Statement    36


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Our performance framework for executive compensation

Our compensation programs are structured to align the interests of our executive officers with the interests of our shareholders and support our strategy based on the guiding principles previously discussed. To align executive officer pay outcomes with long-term performance, 100% of our annual LTI grants feature relative performance-based metrics. See the following page for more details on the elements of our compensation program. Given the shift in timing for total compensation decisions, which shifted the timing of our grants, annual LTI awards represent grant date fair value of awards granted in March 2018.

 

(1)

As described on page 41, Annual TDC differs from the “Total” in the “Summary compensation table” on page 49 because it (a) includes STIP opportunity at-goal, rather than actual payout, and the aggregate grant date fair value of PBRSUs and PSUs granted in March 2018, and (b) excludes the value of the Price-Vested Options and the items shown under the “Change in pension value and nonqualified deferred compensation earnings” and “All other compensation” columns. The March 2018 PBRSU and PSU awards are used in Annual TDC this year because there were no annual LTI awards granted in fiscal 2017 due to the grant-timing shift described on page 41. The Human Resources & Compensation Committee views Annual TDC as a useful measure of pay because it reflects the intended aggregate value of key elements of pay at the time the pay decision is made.

 

 

How annual CEO
pay is tied to
performance

 

The following pay elements are performance-based and represent a significant percentage of the total direct compensation package. The payout ranges below are based on awards outstanding as of the end of fiscal 2017.

STIP — Payouts range from 0% to 222% of goal when Incentive EBIT and Total Adjusted Sales performance levels are below threshold and at or above maximum, respectively.

PSUs — Payouts range from 0% to 175% of goal depending on our performance relative to our retail peer group.

PBRSUs — Payouts range from 75% to 125% of goal depending on TSR performance relative to our retail peer group.

TARGET CORPORATION    Target Corporation 2018 Proxy Statement    37


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Elements of annual executive total direct compensation

 

Element

Key

characteristics

Link to

shareholder

value

How we

determine

amount

Key

decisions

Fixed

Base Salary

Fixed compensation component payable in cash, representing less than 20% of Annual TDC for our NEOs. Reviewed annually and adjusted when appropriate.

A means to attract and retain talented executives capable of driving superior performance.

Consider individual contributions to business outcomes, the scope and complexity of each role, future potential, market data, and internal pay equity.

For fiscal 2017, the Human Resources & Compensation Committee approved a base salary increase for Ms. Potts.

 

 

 

 

 

 

Performance-Based

Short-Term Incentives

Variable compensation component payable in cash based on performance against annually established financial goals and assessment of team performance (excluding CEO).

Incentive targets are tied to achievement of key annual financial measures.

 

NEOs other than the CEO are also evaluated against identified strategic initiatives important to driving profitable sales growth.

 

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

Financial component of award based on:

- Incentive EBIT

- Total Adjusted Sales

 

For NEO STIP (excluding CEO), there is a team scorecard component based on the Human Resources & Compensation Committee’s assessment of management’s progress toward strategic priorities.

For fiscal 2017, the financial component of our STIP achieved maximum performance. At the March 2018 meeting, the Human Resources & Compensation Committee exercised negative discretion to reduce the payout. See pages 39-40 for further detail on the 2017 STIP payout.

Performance Share Unit Awards

PSUs cliff vest at the end of the three-year performance period and payouts are based on relative three-year performance versus our retail peer group.

PSUs recognize our executive officers for achieving superior long-term relative performance on three key metrics:

- Market Share

- EPS growth

- After-tax ROIC

 

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

 

Actual award payout based on performance versus retail peer group over the three-year performance period.

During fiscal 2017, the Board approved a shift in the timing of the total compensation decisions for executive officers from the last month of fiscal 2017 to March 2018. See page 41 for more information.

 

 

Performance-Based Restricted Stock Unit Awards

PBRSUs cliff vest at the end of the three-year performance period with the number of shares based on relative three-year TSR performance versus our retail peer group.

Fosters a culture of ownership, aligns the long-term interests of Target’s executive officers with our shareholders and rewards or penalizes based on relative TSR performance.

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

During fiscal 2017, the Board approved a shift in the timing of the total compensation decisions for executive officers from the last month of fiscal 2017 to March 2018. See page 41 for more information.

 

 

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Base salary

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

In January 2017, the Human Resources & Compensation Committee approved a fiscal 2017 base salary increase of $50,000 for Ms. Potts in consideration of her performance, as well as market positioning relative to our retail and general industry peers.

Short-term incentives

All NEOs are eligible to earn cash awards under our STIP program, which is designed to motivate and reward executives for performance on key annual measures. The financial component of our STIP program is based on two financial metrics to align our annual incentives with our strategy of driving growth, with an emphasis on profitability: Incentive EBIT (75%) and Total Adjusted Sales (25%). The CEO STIP design is exclusively based on the financial component. See the “Performance highlights” tables and footnotes on page 35 for a description of how Incentive EBIT and Total Adjusted Sales are calculated from our financial statements.

Beginning in fiscal 2017, for our non-CEO NEOs, 67% of their STIP is based on the financial component, which had previously been 80%. The remaining 33% of their STIP is based on a team scorecard, designed to strongly align pay opportunity to Target’s strategic agenda. This change places greater emphasis on the team scorecard during a multi-year investment phase and focuses the team on key strategic priorities critical to reposition us to sustainable long-term top-line growth.

The following table shows financial and scorecard goals expressed as a percentage of salary.

 

 

 

Fiscal 2017 (payout as a % of salary)

 

 

Component

Weight

Threshold

Goal

Maximum

CEO

 

Financial (Incentive EBIT 75%,
Total Adjusted Sales 25%)

100%

75%

190%

400%*

 

 

 

 

 

 

 

Other NEOs

 

Financial (Incentive EBIT 75%,
Total Adjusted Sales 25%)

67%

13%

60%

134%

 

Scorecard

33%

7%

30%

66%

 

Total

 

20%

90%

200%

*

CEO’s maximum: lesser of $7 million and 400% of base salary

Fiscal 2017 financial STIP performance goals and how we performed in comparison to these goals

Our Incentive EBIT and Total Adjusted Sales goal amounts were approved by the independent members of the full Board at the beginning of the year, taking into account our business strategies and the challenges facing the retail industry. For context, our fiscal 2017 goals were established shortly after our decision to make substantial investments in our long-term growth, which were communicated to our investors in conjunction with the release of our financial guidance for fiscal 2017. These investments included:

capital expenditures of more than $2 billion in 2017, and more than $7 billion over a three-year period, to remodel more than 600 stores, open 100 small-format stores, enhance Target’s digital capabilities and modernize our supply chain; and

direct spending investments that would lower operating margin by $1 billion in 2017, specifically in hours and wages in our stores, lower prices to reinforce Target’s value perception, and accelerated depreciation driven by the acceleration of our store remodel program.

At the time the goals were set, these investments were expected to present headwinds to both our Incentive EBIT and Total Adjusted Sales performance in comparison to prior periods. The intent in setting the fiscal 2017 STIP goals was that performance in-line with our strategic plan and external financial guidance would result in payouts around goal. In order to achieve the maximum payout, our performance would have to exceed our strategic plans to a significant degree. Historically, our STIP goals have proven rigorous, with financial component payouts only two of the last five years.

TARGET CORPORATION    Target Corporation 2018 Proxy Statement    39


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Metric

 

Goal(1)

 

 

Actual(1)(2)

Incentive EBIT

$

4,248

 

$

4,795

Total Adjusted Sales

$

68,848

 

$

71,879

(1)

In millions.

(2)

Actual amounts represent a 53-week accounting year.

 

Our actual Incentive EBIT and Total Adjusted Sales results exceeded our financial plans, despite the expected headwinds presented by the substantial investments in our strategic initiatives. Specifically:

Comparable sales in 2017 increased 1.3%, compared with an expectation for a low single-digit decrease going into the year. Comparable sales grew 3.6% in the fourth quarter, bringing fiscal 2017 Total Adjusted Sales to the highest level in our history.

Both traffic and comparable sales trends improved throughout 2017. We saw acceleration across the business as we gained market share across our five core merchandise categories.

Given stronger-than-expected sales, our business generated better-than-expected profitability, which partially offset the near-term headwinds created by the investments in our business.

Use of negative discretion

Despite strong financial performance that exceeded the maximum goals of the financial component of the STIP, the Human Resources & Compensation Committee recognized that we are still in the early stages of a multi-year transformative strategy and a maximum payout felt premature.

As such, the Human Resources & Compensation Committee applied negative discretion to reduce the payout, as follows:

The CEO payout was reduced by 28 percentage points of base salary.

The other NEO payout was reduced by 10 percentage points of base salary.

Fiscal 2017 team scorecard assessment

The team scorecard portion of the STIP for our non-CEO NEOs in 2017 was focused on the goal to test, build and scale foundational capabilities as a next-generation retailer; grow market share by reinvigorating our assortment; and reimagine and reposition our assets to deliver even greater competitive advantage. The team scorecard provides a general structure for discussing and measuring performance of the management team as a group, excluding our CEO. Throughout the year, our CEO provided the Human Resources & Compensation Committee interim assessments of team scorecard performance.

For fiscal 2017, primary team scorecard progress indicators identified at the beginning of the year included: digital channel sales growth that outpaces the industry, owned brand launches and redesigned store experiences, supply chain optimization, new small format stores, and a significant number of store remodels.

Our management team drove meaningful progress against these key indicators:

Achieved digital channel sales growth of 27%, which significantly outpaced the industry average.

Launched 8 new brands in Apparel and Home, supported by 485 Apparel and 500 Home redesigned store experiences.

Reached Supply Chain Optimization goals by reducing cycle time significantly, with greater than 60% of orders fulfilled from a store.

Added 28 new small format stores, which have a much higher per foot sales productivity than a typical store.

Remodeled 110 stores that are seeing 2 — 4% sales lift per store on average.

Taking into consideration the outcomes described above, the CEO recommended, and the Human Resources & Compensation Committee approved, a team scorecard payout of 54% of base salary, out of a total opportunity of 66% of base salary, for our non-CEO NEOs.

Fiscal 2017 STIP payout

Given actual financial performance and progress made on the primary team scorecard indicators previously mentioned, the total fiscal 2017 STIP payout for our CEO and other NEOs is detailed below as a percentage of goal:

 

 

 

Components

Fiscal 2017 actual payout as

a % of goal

 

 

CEO

 

Financial

196%

 

 

 

 

 

 

 

 

Other NEOs

 

Financial + Scorecard

198%

 

TARGET CORPORATION    Target Corporation 2018 Proxy Statement    40


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Long-term incentives

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

Value of LTI awarded at grant and grant timing shift

In determining the amount of individual LTI awards, the Human Resources & Compensation Committee considered each NEO’s individual contributions to business outcomes during the fiscal year, potential future contributions, historical annual grant amounts and retention considerations, as well as market data for comparable executives from our retail and general industry peer groups.

During fiscal 2017, we shifted the timing of total compensation decisions for executive officers, which shifted the timing of our annual equity grants to March of each year, instead of our previous practice of granting equity to executive officers in January, which is the last month of our fiscal year. This grant timing shift was made to align the grant timing of executive officers with the grant timing for all other team members who receive equity grants and to ensure that the full-year financial results for the most recently completed fiscal year may be considered prior to making the grants. Due to this grant timing shift, the equity grant that would have traditionally been made in January 2018 during fiscal 2017 was instead made in March 2018 during fiscal 2018. As a result, the executive officers’ compensation as reported in the “Summary compensation table” for fiscal 2017 was significantly lower than prior years because it did not include any annual equity grants. The only grants included in the “Summary compensation table” for this year were the Price-Vested Options. For more detail, see page 49.

If the executive officers’ annual TDC for fiscal 2017 had included the annual equity grant made in March 2018, it would have been as follows:

 

Annual TDC(1) for NEOs

 

 

Cornell

 

Mulligan

 

Smith

 

McNamara

 

Potts

Base salary

$

1,300,000

$

1,000,000

$

800,000

$

725,000

$

675,000

At-goal STIP

$

2,470,000

$

900,000

$

720,000

$

652,500

$

607,500

Fiscal 2017 components of Annual TDC

$

3,770,000

$

1,900,000

$

1,520,000

$

1,377,500

$

1,283,000

LTI component of Annual TDC (March 2018 grant)

$

9,750,000

$

5,000,000

$

3,250,000

$

3,250,000

$

1,600,000

Total Annual TDC

$

13,520,000

$

6,900,000

$

4,770,000

$

4,627,500

$

2,883,000

(1)

Annual TDC differs from the “Total” in the “Summary compensation table” on page 49 because it (a) includes STIP opportunity at-goal, rather than actual payout, and the aggregate grant date fair value of PBRSUs and PSUs granted in March 2018, and (b) excludes the value of the Price-Vested Options and the items shown under the “Change in pension value and nonqualified deferred compensation earnings” and “All other compensation” columns. The March 2018 PBRSU and PSU awards are used in Annual TDC this year because there were no annual LTI awards granted in fiscal 2017 due to the grant-timing shift described above. The Human Resources & Compensation Committee views Annual TDC as a useful measure of pay because it reflects the intended aggregate value of key elements of pay at the time the pay decision is made.

 

The Human Resources & Compensation Committee made no changes to the NEOs’ annual LTI grants versus the prior year.

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PSUs

Our PSUs have a three-year performance period and are settled in stock. The plan payout is intended to reflect the same key metrics we use to manage our business and drive shareholder returns over time. Each metric is compared relative to our retail peer group and is intended to incent management to outperform the peer group over the long term. The three relative metrics used in our PSU plan are:

Change in Market Share. A company’s change in market share is calculated by determining the difference between (b) and (a), each as defined below, and dividing that difference by (a), as defined below. The “market” is the sum of domestic net sales for us and our retail peer group.

(a)

The company’s domestic net sales in the baseline year is divided by the market’s domestic net sales for the baseline year.

(b)

The company’s domestic net sales in the final year of the performance period is divided by the market’s domestic net sales for the final year.

EPS Growth. The compound annual growth rate of our EPS from continuing operations versus the reported EPS from continuing operations of our retail peer group.

After-Tax ROIC. Three-year average net operating profit after-tax divided by average invested capital for both our results and our retail peer group, excluding discontinued operations.

With these three independent metrics, our PSU program supports the critical drivers of our success: to grow the top-line relative to the retail sector, to grow it profitably, and to ensure prudent deployment of capital to drive the business. The following example illustrates PSU payouts at various levels of performance:

 

 

For more information about our peer groups, see pages 45-46.

TARGET CORPORATION    Target Corporation 2018 Proxy Statement    42


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PSU adjustments

The intent of our PSU program is to measure performance relative to our peer group on the previously described metrics. To achieve this measurement objectively, we base the initial rankings on annual reported financial results of each member of the retail peer group and Target (unless determined otherwise at the time of grant). The Human Resources & Compensation Committee has reserved discretion to adjust the reported financial results for Target or any member of the retail peer group if it believes such adjustments necessary to properly gauge Target’s relative performance. Adjustments to Target and peer results, if any, are disclosed in the proxy in the year of payout.

Historically, adjustments to Target’s results have included items that did not reflect our core operations and typically decreased participants’ resulting payouts. Consistent with past practice, the Human Resources & Compensation Committee approved adjustments to the 2015 PSU payout to exclude the following:

The 53rd week from our fiscal 2017 sales and those of our peers to ensure a consistent time frame comparison with fiscal 2014 base year sales;

The impact of the one-time gain in 2015 due to the CVS Health transaction from ROIC to prevent Target’s operational performance from being overstated due to the transaction; and

Target’s pharmacy and clinic business from fiscal 2014 base year sales to determine change in market share over the respective performance period. Consistent with not allowing the benefit from the sale of those businesses, we reset the sales base to exclude the business lines we sold.

Other than as described above, no adjustments were made to our annual reported results or those of our peers in determining the 2015 PSU payout.

2015-2017 PSU payout

In April 2018, the NEOs received payouts with respect to the PSU awards that were granted in January 2015 for the three-year performance period ended February 3, 2018. These awards were paid at 97.7% of the goal number of shares. The following table summarizes the rankings and payout results for awards granted in fiscal 2015. The market share and EPS metrics utilize a base year of fiscal 2014 and a final performance year of fiscal 2017, while for ROIC we use an average of 2015, 2016 and 2017.

 

Metric

Performance Rank

Relative to Peers

Payout %

Total Projected Payout

Market Share

16 of 18

0%

97.7%

EPS CAGR

6 of 18

121%

ROIC

5 of 18

172%

PBRSUs

Our PBRSUs have a three-year performance period with the number of shares based on relative three-year TSR performance versus our retail peer group. The PBRSU amount will be adjusted up or down by 25 percentage points if Target’s TSR is in the top one-third or bottom one-third for the retail peer group, respectively, over the three-year vesting period. These stock-settled awards cliff vest at the end of the performance period.

 

PBRSU payout schedule

 

 

TSR performance ranking(1)

Percent of goal

 

 

1-6

125%

 

 

7-11

100%

 

 

12-17

75%

 

 

(1)

The retail peers for PBRSUs exclude Publix. The value of Publix’s stock price is established on an annual basis, making them an inappropriate comparator for the purpose of assessing our relative TSR performance.

 

2015-2017 PBRSU payout

In March 2018, the NEOs received payouts with respect to the PBRSU awards that were granted in January 2015 for the three-year performance period ended February 3, 2018. With a total shareholder return (TSR) ranking of 11 out of 17 relative to our retail peers, these awards were paid at 100% of the goal number of shares. This is the first PBRSU payout since the introduction of PBRSUs in 2014.

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Price-Vested Options

As disclosed in last year’s proxy statement, in April 2017 the Board approved Price-Vested Options to help maintain continuity of the executive team throughout this investment period, galvanize them around the key initiatives and reward success in this transformational effort. The Price-Vested Options serve as a supplemental compensation element based exclusively on stock price performance, to complement outstanding LTI awards through the investment period announced in February 2017. The Price-Vested Options exercise price is equal to the fair market value on May 22, 2017, the grant date. The key design features of the Price-Vested Options align management’s interests with shareholders:

Vesting is Based on Both Time and Stock Price Criteria — The Price-Vested Options are not exercisable during the first three years and will become exercisable only if Target’s stock price exceeds a hurdle of $75 per share for 20 consecutive trading days within the seven-year term of the options.

The Stock Price Criteria are Challenging — The performance hurdle of $75 per share maintained for a period of 20 consecutive days is challenging, both in terms of historic stock price levels and in relation to our share price on the dates of approval and grant. The $75 price hurdle was well above our average price for the period between the February 2017 announcement and April 17, 2017 approval date, which was $54.62. The $75 price hurdle also represents a 35% premium over our closing price of $55.60 on May 22, 2017, the grant date. The 20-consecutive day requirement helps to mitigate temporary stock price fluctuations from influencing potential gains. As of the date of this proxy statement, the stock price criteria have not yet been achieved.

Mandatory Post-Exercise Holding Period — The shares received upon exercise, net of exercise costs and taxes, are subject to a one-year post-exercise holding period, even if this period extends beyond termination of employment. During the post-exercise holding period, the shares received upon exercise may not be used by the executive in satisfying our stock ownership guidelines.

Strict Forfeiture Provisions — For voluntary terminations, Price-Vested Options are completely forfeited if the executive leaves within the first three years of the grant date.

No Retirement-Based Extensions — Notably, and in contrast to the terms of our annual LTI awards, there are no retirement-based extensions of vesting or exercisability for these Price-Vested Options.

Relationship to Other Compensation Elements — 100% of our annual LTI grant features performance-based metrics that measure our performance relative to our peers. The Committee believes the Price-Vested Options provide a market-based complement to the relative performance measures of the other outstanding compensation elements through the investment period announced in February 2017.

We proactively disclosed detailed information about these awards in last year’s CD&A; however, the grant date fair values appear in the “Compensation tables” of this proxy statement since they were granted in fiscal 2017. Therefore, the grant date fair values of the Price-Vested Options are included in the “Option awards” column of the “Summary compensation table” on page 49.

Mr. Cornell and each of the other NEOs received Price-Vested Options with grant date fair values of $2 million and $1 million, respectively.

Other benefit elements

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

Pension plan. No pension plan is available to any employee hired after January 2009. We maintain a pension plan for team members hired prior to January 2009 who meet certain eligibility criteria. We also maintain supplemental pension plans for those team members who are subject to IRS limits on the basic pension plan or whose pensions are adversely impacted by participating in our deferred compensation plan. Our pension formula under these plans is the same for all participants—there are no enhanced benefits provided to executive officers beyond extending the pension formula to earnings above the qualified plan limits or contributed to our deferred compensation plan.

401(k) plan. Available to all team members who work more than 1,000 hours for the company. There is no enhanced benefit for executives.

Deferred compensation plan. For a broad management group (approximately 3,500 eligible team members), we offer a non-qualified, unfunded, individual account deferred compensation plan. The plan has investment options that mirror our 401(k) Plan.

Perquisites. We provide certain perquisites to our executive officers, principally to allow them to devote more time to our business and to promote their health and safety. The Human Resources & Compensation Committee reviews these perquisites annually to ensure they are consistent with our philosophy and appropriate in magnitude. Mr. Cornell is only eligible for perquisites that support his safety, health and well-being—home security, parking, executive physical and personal use of company-owned aircraft for security reasons.

Greater detail on these components is provided in the footnotes and tables that follow the “Summary compensation table” on page 49.

Income continuance

None of our NEOs has an employment contract, enhanced change-of-control benefits or rights to tax gross-ups. We provide an Income Continuance Policy (ICP) to executive officers who are involuntarily terminated without cause to assist in their occupational transitions. The maximum payment under this policy (paid during regular pay cycles over two years) is two times the sum of base salary and the average of the last three years of short-term incentive and personal performance payments. In addition, any NEO who receives severance payments under our ICP also receives a $30,000 allowance for outplacement services.

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Compensation governance

Process for determining executive compensation (including NEOs)

Human Resources & Compensation Committee

The Human Resources & Compensation Committee is responsible for determining the composition and value of the pay packages for all of our executive officers, including the CEO. The Human Resources & Compensation Committee receives assistance from two sources: (a) an independent compensation consulting firm, Semler Brossy Consulting Group (SBCG); and (b) our internal executive compensation staff, led by our Executive Vice President & Chief Human Resources Officer. All decisions regarding executive compensation are made solely by the Human Resources & Compensation Committee. The Human Resources & Compensation Committee may not delegate its primary responsibility of overseeing executive officer compensation, but it may delegate to management the administrative aspects of our compensation plans that do not involve the setting of compensation levels for executive officers. In addition, the Human Resources & Compensation Committee has established an Equity Subcommittee comprised of Ms. Austin, Mr. Darden, and Ms. Healey for the purposes of granting equity awards to members of the Board of Directors and any officers who are subject to Section 16 of the Exchange Act and to take any action required to be performed by a committee or subcommittee of “non-employee directors” to preserve the exemption available under Rule 16b-3 of the Exchange Act.

Human Resources & Compensation Committee’s independent consultant

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

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

Compensation of other executive officers and role of management

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

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

Benchmarking using compensation peer groups

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

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

Due to a range of factors, including the scope of NEO positions, tenure in role and company-specific concerns, there is an imperfect comparability of NEO positions between companies. As such, market position served as a reference point in the Annual TDC determination process rather than a formula-driven outcome.

The retail peer group was formulated based on an initial screen of companies in the Global Industry Classification Standard retailing index with revenue from core retail operations greater than $15 billion. The retail peer group is also used within our LTI plans. Target’s relative performance compared to this peer group on key metrics determines overall payout for our PSU and PBRSU awards.

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

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The composition of the peer groups is reviewed annually to ensure it is appropriate in terms of company size and business focus, and any changes made are reviewed with SBCG and approved by the Human Resources & Compensation Committee. The following changes were made to our peer groups in fiscal 2017. Retail peer group changes were to maintain our established revenue threshold of $15 billion. We replaced the three companies within our general industry peer group to maintain diverse industry representation while capturing new companies that we are more likely to compete with for talent.

 

Peer group changes

 

Retail

Added

Dollar Tree, Inc.

 

 

 

General industry

Added

NIKE, Inc.

Starbucks Corporation

Marriott International, Inc.

Removed

Staples, Inc.

 

 

Removed

Pfizer Inc.

The Dow Chemical Company

Deere & Company

               

2017 peer groups

 

Retail

Amazon.com, Inc.

The Kroger Co.

 

 

General industry

3M Company

McDonald’s Corporation

Best Buy Co., Inc.

Lowe’s Companies, Inc.

 

Abbott Laboratories

MetLife, Inc.

Costco

Wholesale Corporation

Macy’s, Inc.

 

Anthem, Inc.

Mondelez International, Inc.

CVS Health Corporation

Publix Super Markets, Inc.

 

Archer-Daniels-Midland Company

NIKE, Inc.

Dollar General Corporation

Rite Aid Corporation

 

The Coca-Cola Company

PepsiCo, Inc.

Dollar Tree, Inc.

Sears Holdings Corporation

 

Express Scripts Holding Company

The Procter & Gamble Company

The Gap, Inc.

The TJX Companies, Inc.

 

FedEx Corporation

Starbucks Corporation

The Home Depot, Inc.

Walgreens Boots Alliance, Inc.

 

General Mills, Inc.

Time Warner Inc.

 

 

Kohl’s Corporation

Walmart Inc.

 

 

Johnson & Johnson

United Parcel Service, Inc.

 

 

 

 

 

 

Johnson Controls International plc

United Technologies Corporation

 

 

 

 

 

 

Marriott International, Inc.

UnitedHealth Group Incorporated

 

The following table summarizes our scale relative to our retail and general industry peer groups. The financial information reflects fiscal year-end data available as of February 3, 2018:

 

2017 peer group comparison(1)(2)

Retail

General industry

 

Revenues

 

Market cap

Employees

 

Revenues

 

Market cap

Employees

25th Percentile

$

23,048

$

13,951

127,000

$

25,923

$

59,201

58,000

Median

$

36,839

$

26,248

153,150

$

57,244

 $

97,944

95,000

75th Percentile

$

117,495

$

77,644

235,000

$

63,476

 $

150,308

230,000

Target Corporation

$

71,879

$

40,224

345,000

$

71,879

$

40,224

345,000

(1)

All amounts in millions, except employees.

(2)

Data Source: Equilar

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Compensation policies and risk

As part of our regular review of our compensation practices, we conduct an analysis of whether our compensation policies and practices for our employees create material risks to the company. Our risk assessment is two pronged. First, we take a “top-down” approach by evaluating whether our compensation programs and policies exacerbate top enterprise-wide risks. Next, we take a “bottom-up” approach to assess the following key compensation risk areas: performance measures, pay mix, goal setting and performance curve, leverage, magnitude of pay, calculation of performance, participant communication, severance and corporate governance.

The results of this analysis, which concluded that our policies and practices do not create risks that are reasonably likely to have a material adverse effect on the company, were reviewed by the Human Resources & Compensation Committee’s independent consultant and discussed with the Human Resources & Compensation Committee. More specifically, this conclusion was based on the following considerations:

Compensation risk considerations

Pay Mix

Compensation mix of base salary and short-term and long-term incentives provides compensation opportunities measured by a variety of time horizons to balance our near-term and long-term strategic goals.

Performance Metrics

A variety of distinct performance metrics are used in both the short-term and long-term incentive plans. This “portfolio” approach to performance metrics encourages focus on sustained and holistic overall company performance.

Performance Goals

Goals are approved by our independent directors and take into account our historical performance, current strategic initiatives and the expected macroeconomic environment. In addition, short-term and long-term incentive compensation programs are designed with payout curves and leverage that support our pay for performance philosophy.

Equity Incentives

Equity incentive programs and stock ownership guidelines are designed to align management and shareholder interests by providing vehicles for executive officers to accumulate and maintain an ownership position in the company.

Risk Mitigation Policies

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

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

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

Stock ownership guidelines for executive officers and directors; and

Anti-hedging and anti-pledging policies.

Clawback policy

Our clawback policy, which covers all senior executives, was expanded in early 2018 to cover material financial or material reputational harm. Previously, the policy was only triggered if there was intentional misconduct that resulted in a restatement of our consolidated financial statements. The expanded policy allows for recovery of compensation if a senior executive’s intentional misconduct:

violates the law, our code of conduct, or any significant ethics or compliance policy; and

results in material financial harm or material reputational harm, or results in a need for a restatement of our consolidated financial statements.

The compensation elements that are subject to recovery under this policy include:

All amounts paid under the STIP (including any discretionary payments);

All awards under the Long-Term Incentive Plan whether exercised, vested, unvested, or deferred; and

All amounts paid under the ICP.

All recoveries are determined in the discretion of the Human Resources & Compensation Committee.

Anti-hedging and anti-pledging policy

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

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Grant timing practices

During fiscal 2017, the Human Resources & Compensation Committee approved a shift in the timing of our annual equity grants for executive officers and the Board of Directors so that those grants occur in March of each year, instead of our previous practice of granting equity in January, which is the last month of our fiscal year. This grant timing shift was made to ensure that the full-year financial results for the most recently completed fiscal year may be considered prior to making the grants and to align the grant timing of executive officers and members of the Board of Directors with the grant timing for all other team members who receive equity grants. In addition to the annual equity grants mentioned above, the following practices have not been formalized in a written policy, but have been regularly followed:

We have no practice or policy of coordinating or timing the release of company information around our grant dates.

We occasionally grant equity compensation to executive officers outside of our annual LTI grant cycle for new hires, promotions, recognition, retention or other purposes. If the grant date is after the approval date, it must be on a date specified at the time of approval.

Compensation tax policy

Our short-term and long-term compensation programs paid in fiscal 2017 were intended to qualify as deductible performance-based compensation under Section 162(m) of the Internal Revenue Code (IRC). The performance-based compensation exception under IRC Section 162(m) will apply to a significantly less portion of the compensation paid in fiscal 2018 and later years because of the changes made by the Tax Cuts and Jobs Act of 2017. Our focus on pay for performance goes well beyond the steps we took to comply with IRC Section 162(m), and we will maintain that focus despite our inability to deduct performance-based compensation going forward.

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Compensation tables

Summary compensation table

The following “Summary compensation table” contains values calculated and disclosed according to SEC reporting requirements. Salary, Bonus, and Non-Equity Incentive Plan compensation amounts reflect the compensation earned during each fiscal year. Stock Awards reflect awards with a grant date during each fiscal year.

During fiscal 2017 we shifted the timing of our annual equity grants for executive officers so that those grants occur in March of each year, instead of our previous practice of granting equity to executive officers in January, which is the last month of our fiscal year. This grant timing shift was made to ensure that the full-year financial results for the most recently completed fiscal year may be considered prior to making the grants and to align the grant timing of executive officers and members of our Board of Directors with the grant timing for all other team members who receive annual equity grants. Due to this grant timing shift, the equity grant that would have traditionally been made in January 2018 during fiscal 2017 was instead made in March 2018 during fiscal 2018. As a result, the executive officers’ compensation for fiscal 2017 was significantly lower than prior years because it did not include any annual equity grants, which would have been found in the “Stock awards” column below.

Name and

principal position

Fiscal

year

Salary

Bonus(1)

Stock

awards(2)(3)

Option

awards(4)

Non-equity

incentive plan

compensation(5)

Change

in pension

value and

nonqualified

deferred

compensation

earnings(6)

All other

compensation(7)

Total

Brian C. Cornell
Chairman & Chief
Executive Officer

2017

$

1,300,000

$

0

$

0

$

2,000,001

$

4,836,000

$

0

$

263,208

$

8,399,210

2016

$

1,300,000

$

0

$

9,650,837

$

0

$

0

$

0

$

330,532

$

11,281,369

2015

$

1,300,000

$

0

$

13,422,958

$

0

$

1,950,000

$

0

$

273,379

$

16,946,337

Cathy R. Smith
Executive Vice
President & Chief
Financial Officer

2017

$

800,000

$

432,000

$

0

$

1,000,004

$

993,067

$

0

$

87,266

$

3,312,337

2016

$

798,558

$

240,000

$

3,301,662

$

0

$

0

$

0

$

99,123

$

4,439,343

2015

$

290,000

$

608,750

$

5,683,978

$

0

$

161,313

$

0

$

788,775

$

7,532,815

John J. Mulligan
Executive Vice
President & Chief
Operating Officer

2017

$

1,000,000

$

540,000

$

0

$

1,000,004

$

1,241,333

$

82,067

$

545,102

$

4,408,506

2016

$

1,000,000

$

300,000

$

5,079,385

$

0

$

0

$

55,765

$

595,493

$

7,030,643

2015

$

1,000,000

$

387,000

$

8,091,035

$

0

$

534,000

$

4,063

$

377,385

$

10,393,482

Michael E. McNamara

Executive Vice
President, Chief
Information &
Digital Officer

2017

$

725,000

$

391,500

$

0

$

1,000,004

$

899,967

$

0

$

56,596

$

3,073,067

2016

$

725,000

$

217,500

$

3,301,662

$

0

$

0

$

0

$

61,423

$

4,305,585

2015

$

468,462

$

924,000

$

8,015,929

$

0

$

258,100

$

0

$

293,636

$

9,960,127

Janna A. Potts
Executive Vice
President &
Chief Stores
Officer

2017

$

675,000

$

364,500

$

0

$

1,000,004

$

837,900

$

38,243

$

103,520

$

3,019,167

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

For NEOs other than our CEO, the “Bonus” amount shows actual payouts earned under our STIP for the team scorecard component in 2017 and 2016 and the personal component for 2015. The CEO has no team scorecard or personal component to his STIP payout.

(2)

Amounts represent the aggregate grant date fair value of awards made each fiscal year, as computed in accordance with FASB ASC Topic 718. See Note 26, Share-Based Compensation, to our consolidated financial statements in our 2017 Annual Report and our 2016 Annual Report, respectively, for a description of our accounting and the assumptions used.

 

TARGET CORPORATION    Target Corporation 2018 Proxy Statement    49


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(3)

Due to the shift in the timing of our annual equity grants for executive officers from January to March, which is described in the introduction to the “Summary compensation table” on page 49 and the CD&A on page 41, there were no Stock Awards granted in fiscal 2017.

(4)

Represents the grant date fair value of Price-Vested Options described in the CD&A on page 44. The Price-Vested Options are not exercisable during the first three years and will become exercisable only if Target’s stock price exceeds a hurdle of $75 per share for 20 consecutive trading days within the seven-year term of the options.

(5)

The “Non-Equity Incentive Plan Compensation” amount shows actual payouts earned under the financial component of our STIP.

(6)

For fiscal 2017, the following amounts are related to the change in qualified pension plan value:

 

Name

Change in Pension Value

 

Mr. Mulligan

 

$

82,067

 

Ms. Potts

 

 $

38,243

Mr. Cornell, Ms. Smith and Mr. McNamara are not eligible for the Target Corporation Pension Plan or any supplemental pension plans because they were hired after January 2009. Consistent with applicable law, the accrued benefits under the pension plan cannot be reduced; however, the present value of the benefit is dependent on the discount rate used. The discount rates used in fiscal 2017, 2016 and 2015 were 3.94%, 4.42% and 4.71%, respectively. The “Change in pension value” column reflects the additional pension benefits attributable to additional service, increases in eligible earnings and changes in the discount rate.

(7)

The amounts reported for fiscal 2017 include matching credits of up to a maximum of 5% of cash compensation allocated between the Target 401(k) Plan and our current executive deferred compensation plan (EDCP), the dollar value of life insurance premiums paid by Target, credits to the EDCP representing annual changes in supplemental pension plan values, relocation benefits and perquisites.

 

Name

Match credits

Life insurance

SPP credits

Perquisites

Total

 

Mr. Cornell

$

64,350

$

15,568

$

0

$

183,290

$

263,208

 

Ms. Smith

$

52,000

$

9,127

$

0

$

26,139

$

87,266

 

Mr. Mulligan

$

65,000

$

8,327

$

447,831

$

23,944

$

545,102

 

Mr. McNamara

$

47,125

$

8,011

$

0

$

1,460

$

56,596

 

Ms. Potts

$

26,817

$

7,485

$

35,665

$

33,553

$

103,520

Supplemental Pension Plans. The SPP Credits for our NEOs represent additional accruals of supplemental pension plan benefits that are credited to their deferred compensation accounts. These benefits are based on our normal pension formulas. As applicable, they are affected by final average pay, service, age and changes in interest rates. See the narrative following the “Pension benefits for fiscal 2017” table for more information about our pension plans.

Perquisites. The perquisites for our NEOs other than Mr. Cornell consist of reimbursement of financial management expenses, reimbursement of home security expenses, on-site parking, spousal travel on business trips, limited personal use of company-owned aircraft and executive physicals. Mr. Cornell is eligible only for perquisites that support his safety, health and well-being, namely: reimbursement of home security expenses, on-site parking, executive physical, and personal use of company-owned aircraft for security reasons. The only individual perquisite that exceeded $25,000 was Mr. Cornell’s personal use of company-owned aircraft for security reasons, which amounted to $173,427. No tax gross-up is provided on this perquisite.

The dollar amount of perquisites represents the incremental cost of providing the perquisite. We generally measure incremental cost by the additional variable costs attributable to personal use, and we disregard fixed costs that do not change based on usage. Incremental cost for personal use of company-owned aircraft was determined by including fuel cost, landing fees, on-board catering and variable maintenance costs attributable to personal flights and related unoccupied positioning, or “deadhead,” flights. In addition to the perquisites included in the table in this footnote, the NEOs occasionally use support staff time for personal matters, principally to allow them to devote more time to our business, and receive personal use of empty seats on business flights of company-owned aircraft and personal use of event tickets when such tickets are not being used for business purposes, each of which are benefits for which we have no incremental cost.

TARGET CORPORATION    Target Corporation 2018 Proxy Statement    50


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Grants of plan-based awards in fiscal 2017

As described in the CD&A on page 41 and in the introduction to the “Summary compensation table” on page 49, during fiscal 2017 we shifted the timing of our annual equity grants for executive officers so that those grants occur in March of each year, instead of our previous practice of granting equity to executive officers in January, which is the last month of our fiscal year. Due to this grant timing shift, the equity grant that would have traditionally been made in January 2018 during fiscal 2017 was instead made in March 2018 during fiscal 2018. The only plan-based equity awards granted in fiscal 2017 were the Price-Vested Options described on page 44 of the CD&A.

Name

Grant date

 

 

 

 

Estimated possible payouts

under non-equity incentive

plan awards(1)

 

All other

option

awards:

Number of

securities

underlying

options (#)(2)

 

Grant date

fair value of

option

awards(3)

 

Threshold

 

Target

 

Maximum

Brian C. Cornell

3/8/17

 

$

975,000

$

2,470,000

$

5,200,000

 

 

 

 

 

5/22/17

 

 

 

 

 

 

 

 

294,551

$

2,000,001

Cathy R. Smith

3/8/17

 

$

104,000

$

720,000

$

1,600,000

 

 

 

 

 

5/22/17

 

 

 

 

 

 

 

 

147,276

$

1,000,004

John J. Mulligan

3/8/17

 

$

130,000

$

900,000

$

2,000,000

 

 

 

 

 

5/22/17

 

 

 

 

 

 

 

 

147,276

$

1,000,004

Michael E. McNamara

3/8/17

 

$

94,250

$

652,500

$

1,450,000

 

 

 

 

 

5/22/17

 

 

 

 

 

 

 

 

147,276

$

1,000,004

Janna A. Potts

3/8/17

 

$

87,750

$

607,500

$

1,350,000