DEF 14A 1 gap3200151-def14a.htm DEFINITIVE PROXY STATEMENT Gap_2017_proxy_statement

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

SCHEDULE 14A

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

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

CHECK THE APPROPRIATE BOX:
  Preliminary Proxy Statement
Confidential, For Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
Definitive Proxy Statement
  Definitive Additional Materials
Soliciting Material Under Rule 14a-12

The Gap, Inc.

(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)

PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):
  No fee required.
Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
Fee paid previously with preliminary materials:
Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the form or schedule and the date of its filing.
1) Amount previously paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:


 

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Notice of Annual Meeting
of Gap Inc. Shareholders

 

Proxy Statement

 

May 17, 2017
San Francisco, California

 


 

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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

 

 

DATE AND TIME

Wednesday, May 17, 2017
10:00 a.m., San Francisco Time

PLACE

Gap Inc. Headquarters
Two Folsom Street
San Francisco, California 94105

ITEMS OF BUSINESS

Elect to the Board of Directors the ten nominees named in the attached Proxy Statement;

 

Ratify the selection of Deloitte & Touche LLP as our independent registered public accounting firm for the fiscal year ending on February 3, 2018;

 

Hold an advisory vote on whether an advisory vote on executive compensation should be held every one, two or three years;

 

Hold an advisory vote to approve the overall compensation of the named executive officers;

 

Approve the Amendment and Restatement of The Gap, Inc. Employee Stock Purchase Plan;

 

Hold a vote on the shareholder proposal contained in the attached proxy statement, if properly presented at the meeting; and

 

Transact such other business as may properly come before the meeting.

 

RECORD DATE

You must have been a shareholder of record at the close of business on March 20, 2017 to vote at the Annual Meeting.

INTERNET AVAILABILITY

In accordance with U.S. Securities and Exchange Commission rules, we are using the Internet as our primary means of furnishing our proxy materials to most of our shareholders. Rather than sending those shareholders a paper copy of our proxy materials, we are sending them a notice with instructions for accessing the materials and voting via the Internet. We believe this method of distribution makes the proxy distribution process more efficient, less costly and limits our impact on the environment. This Proxy Statement and our 2016 Annual Report to Shareholders

are available at: www.gapinc.com (follow the Investors, Financial Information, Annual Reports & Proxy links).

PROXY VOTING

Whether or not you plan to attend the Annual Meeting, please vote as soon as possible. As an alternative to voting in person at the Annual Meeting, you may vote via the Internet, by telephone or, if you receive a paper proxy card in the mail, by mailing the completed proxy card.

ADMISSION TO THE
ANNUAL MEETING

You are entitled to attend the Annual Meeting only if you were a Gap Inc. shareholder as of the close of business on March 20, 2017 or you hold a valid proxy for the Annual Meeting. Photo identification is required for admittance. In addition, if you are not a shareholder of record but hold shares through a broker, bank, trustee or nominee (i.e., in street name), you will be required to provide proof of beneficial ownership as of the Record Date. Proof of beneficial ownership can take the form of your most recent account statement prior to the Record Date, a copy of the voting instruction card provided by your broker, bank, trustee or nominee, a copy of the Notice of Internet Availability of Proxy Materials if one was mailed to you, or similar evidence of ownership.

WEBCAST

You may listen to our Annual Meeting by webcast at www.gapinc.com (follow the Investors, Financial News and Events, Webcasts links). The webcast will be

recorded and available for replay on www.gapinc.com for at least 30 days following the Annual Meeting.

 

By Order of the Board of Directors,

Julie Gruber
Corporate Secretary
April 4, 2017


 

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PROXY SUMMARY

References in this Proxy Statement to “Gap Inc.,” “the Company,” “we,” “us,” and “our” refer to The Gap, Inc.

These proxy materials are being delivered in connection with the solicitation of proxies by the Board of Directors of The Gap, Inc. for use at our Annual Meeting of Shareholders to be held on May 17, 2017, at 10:00 a.m., San Francisco Time, at Gap Inc. Headquarters, Two Folsom Street, San Francisco, California 94105 and at any adjournment or postponement thereof (the “Annual Meeting”).

On or about April 4, 2017, we commenced distribution of this Proxy Statement and the form of proxy to our shareholders entitled to vote at the Annual Meeting.

Agenda

Items of Business

Management Recommendation

Page No.

Elect to the Board of Directors the ten nominees named in the attached Proxy Statement.

The Board recommends you vote “FOR” each of the ten nominees.

Page 1

Ratify the selection of Deloitte & Touche LLP as our independent registered public accounting firm for the fiscal year ending on February 3, 2018.

The Board recommends you vote “FOR” the selection of the independent registered public accounting firm.

Page 16

Hold an advisory vote on whether an advisory vote on executive compensation should be held every one, two or three years.

The Board recommends you vote to hold an advisory vote on the overall compensation of the Company’s named executive officers every “one year.”

Page 18

Hold an advisory vote to approve the overall compensation of the named executive officers.

The Board recommends you vote “FOR” the approval of the overall compensation of the Company’s named executive officers.

Page 19

Approve the Amendment and Restatement of The Gap, Inc. Employee Stock Purchase Plan.

The Board recommends you vote “FOR” the approval of the Amendment and Restatement of The Gap, Inc. Employee Stock Purchase Plan.

Page 51

Hold a vote on the shareholder proposal contained in the attached proxy statement, if properly presented at the meeting.

The Board recommends you vote “AGAINST” the shareholder proposal.

Page 56

 

Voting Shares

The holders of common stock at the close of business on March 20, 2017 (the “Record Date”) are entitled to one vote per share on each matter voted upon at the Annual Meeting or any adjournment or postponement thereof. As of the Record Date, there were 400,220,798 shares of common stock outstanding.

You may vote your shares by:

By Internet

By Mail

By Phone

In person

Sign and return a proxy card (for shareholders of record) or voting instruction card (for beneficial owners of shares)

1-800-690-6903

At the meeting:
May 17, 2017,
10:00 a.m. San Francisco Time
Gap Inc. Headquarters
Two Folsom Street
San Francisco, California 94105

If you vote by Internet or by phone, you do not need to return a proxy card or voting instruction card, but you will need to have it, or the Notice of Internet Availability, in hand when you access the voting website or call to vote by phone. Specific voting instructions are found on the proxy card, voting instruction card, or the Notice of Internet Availability of Proxy Materials.


 

TABLE OF CONTENTS

         

PROPOSALS REQUIRING YOUR VOTE

 

 

 

 

PROPOSAL NO. 1 — Election of Directors
 

 

  

 

Nominees for Election as Directors
 

 

  

 

Corporate Governance
 

 

  

 

Policies and Procedures with Respect to Related Party Transactions
 

 

  

 

Compensation of Directors
 

 

  

 

PROPOSAL NO. 2 — Ratification of Selection of Independent Registered Public Accounting Firm
 

 

  

 

Principal Accounting Firm Fees
 

 

  

 

Report of the Audit and Finance Committee
 

 

  

 

PROPOSAL NO. 3 — Advisory Vote on the Frequency of the Advisory Vote on the Overall Compensation of The Gap, Inc.’s Named Executive Officers
 

 

  

 

PROPOSAL NO. 4 — Advisory Vote on the Overall Compensation of The Gap, Inc.’s Named Executive Officers
 

 

  

EXECUTIVE COMPENSATION AND RELATED INFORMATION

 

 

 

 

Compensation Discussion and Analysis
 

 

  

 

Compensation Committee Report
 

 

  

 

Summary Compensation Table
 

 

  

 

Grants of Plan-Based Awards
 

 

  

 

Outstanding Equity Awards at Fiscal Year-End
 

 

  

 

Option Exercises and Stock Vested
 

 

  

 

Nonqualified Deferred Compensation
 

 

  

 

Potential Payments Upon Termination
 

 

  

 

Equity Compensation Plan Information
 

 

  

 

PROPOSAL NO. 5 — Approval of the Amendment and Restatement of The Gap, Inc. Employee Stock Purchase Plan
 

 

  

 

Purpose of the Amendment and Restatement
 

 

  

 

Summary Description of the Amended and Restated Plan
 

 

  

 

PROPOSAL NO. 6 — Shareholder Proposal
 

 

  

BENEFICIAL OWNERSHIP OF SHARES

 

 

 

 

Beneficial Ownership Table
 

 

  

 

Section 16(a) Beneficial Ownership Reporting Compliance
 

 

  

OTHER INFORMATION

 

 

 

 

Questions and Answers about the Annual Meeting and Voting
 

 

  


 

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PROPOSALS REQUIRING YOUR VOTE

PROPOSAL NO. 1 — Election of Directors

NOMINEES FOR ELECTION AS DIRECTORS

Election Process

Directors will be elected at the Annual Meeting to serve until the next Annual Meeting and until their successors are elected. The Governance and Sustainability Committee of the Board of Directors has nominated the persons whose names are set forth below, all of whom are current directors.

Director Nominations

The Board of Directors has no reason to believe that any of the nominees will be unable to serve. However, if any nominee should for any reason be unavailable to serve, the Board of Directors may reduce the number of directors fixed in accordance with our Bylaws, or the proxies may be voted for the election of such other person to the office of director as the Board of Directors may recommend in place of the nominee. Set forth below is certain information concerning the nominees, including age, experience, qualifications and principal occupation during at least the last five years, based on data furnished by each nominee.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE ELECTION
OF EACH OF THE FOLLOWING NOMINEES.

 

Robert J. Fisher, age 62.
Director since 1990.

Non-executive Chairman of the Board since February 2015. Managing Director, Pisces, Inc., an investment group, since 2010. Interim President and Chief Executive Officer of Gap Inc., January 2007-August 2007. Non-executive Chairman of Gap Inc., 2004-August 2007. Executive of Gap Inc., 1992-1999. Various positions with Gap Inc., 1980-1992. Former director of Sun Microsystems, Inc., 1995-2006.

Mr. Fisher has extensive retail experience, including experience specific to Gap Inc., as a result of his many years serving in a variety of high-level Gap Inc. positions, including Chief Operating Officer, President of Gap Division, Chairman of the Board, and Interim President and Chief Executive Officer.

 

William S. Fisher, age 59.
Director since 2009.

Founder and Chief Executive Officer of Manzanita Capital Limited, a private equity fund, since 2001. Various positions with Gap Inc., 1986-1998.

Mr. Fisher brings extensive global retail experience to the Board as a result of his years serving in a variety of high-level Gap Inc. positions, including President of the International Division, as well as his service on the boards of a number of private retail companies, including Space NK and Diptyque.

 

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Tracy Gardner, age 53.
Director since 2015.

Principal of Tracy Gardner Consultancy, since 2010. Chief Executive Officer of dELiA*s Inc., an omni-channel retail company primarily marketing to teenage girls, 2013-2014. dELiA*s Inc. filed voluntary petitions for relief under Chapter 11 in December 2014. Former executive of J. Crew Group, Inc., 2004-2010. Various positions with Gap Inc., 1999-2004. Former director of Lands' End, 2014-2015.

With over 30 years of experience in the retail industry, Ms. Gardner brings deep product expertise and vast experience as a merchant, creative director and leader in growing multi-channel brands. In addition, her experience as a former senior leader within Gap Inc., and more recently as an advisor to Gap brand, provides Ms. Gardner with an in-depth understanding of the Company's business and operations.

 

Brian Goldner, age 54.
Director since 2016.

Chairman, President and CEO of Hasbro Inc., an American multinational toy and board game company, since 2015.  President and CEO of Hasbro Inc. from 2008 to 2015.  Various positions with Hasbro Inc. from 2000 to 2008 including Chief Operating Officer, President of Toy Segment and U.S. Toys.  Former Chief Operating Officer of Bandai America Inc. from 1997 to 2000. Director of Molson Coors from 2010 to 2016. 

Mr. Goldner’s experience on the board of directors of two other public companies, as Chairman, President and CEO of Hasbro Inc., and as the former chief operating officer of a consumer products manufacturer, provides him with extensive knowledge and expertise in leadership and governance, as well as strategic and operational issues for a retail company.

 

Isabella D. Goren, age 56.
Director since 2011.

Chief Financial Officer of AMR Corporation and American Airlines, Inc., 2010-2013. AMR Corporation and American Airlines, Inc. successfully completed a reorganization under Chapter 11 in December 2013, for which a voluntary petition was filed in November 2011. Senior Vice President of Customer Relationship Marketing of American Airlines, 2006-2010. Various positions with AMR Corporation and American Airlines, Inc., 1986-2006, including President of AMR Services, previously a subsidiary of AMR, 1996-1998. Director of LyondellBasell Industries N.V. and MassMutual Financial Group.

Ms. Goren has broad experience in a number of key corporate functions, including finance, marketing, human resources and international operations. She brings extensive expertise in leadership, management of complex operations, building of customer loyalty programs, financial functions and global strategies.

 

Bob L. Martin, age 68.
Director since 2002.

Lead Independent Director from 2003 to 2015. Operating Partner of Stephens Group, Inc., a private equity group, since 2003. Chief Executive Officer (part-time) of Mcon Management Services, Ltd., a consulting company, since 2002. Independent Consultant, 1999-2002. President and Chief Executive Officer of Wal-Mart International, a division of Wal-Mart Stores, Inc., 1984-1999. Director of Conn’s Inc. Former director of Dillard’s, Inc., 2003-2004, Edgewater Technology, Inc., 1999-2005, Furniture Brands International, Inc., 2003-2010, Guitar Center, 2004-2007, Sabre Holdings Corporation, 1997-2007, and SolarWinds, Inc., 2009-2010.

Mr. Martin has over 35 years of work experience in the retail industry. As the former chief executive officer of Wal-Mart International, during which he ran operations in 12 countries across four continents, Mr. Martin acquired extensive global governance experience. As the former executive vice president and chief information officer for Wal-Mart Stores, Inc., Mr. Martin has extensive insight into the areas of IT and supply chain capabilities and strategies for a retail company.

 

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Jorge P. Montoya, age 70.
Director since 2004.

President, Global Snacks & Beverages, and President, Latin America, of The Procter & Gamble Company, a consumer products company, 1999-2004. Director of The Kroger Co. Former director of Rohm & Haas Company, 1996-2007.

Mr. Montoya spent over 30 years working for The Proctor & Gamble Company, during which time he acquired extensive experience in management, international growth, consumer products, and marketing.

 

Arthur Peck, age 61.
Director since 2015.

Chief Executive Officer of Gap Inc. since February 2015. President, Growth, Innovation and Digital division of Gap Inc., November 2012 to January 2015. President, Gap North America, February 2011 to November 2012. Executive Vice President of Strategy and Operations of Gap Inc., May 2005 to February 2011. President, Gap Inc. Outlet, October 2008 to February 2011. Acting President, Gap Inc. Outlet, February 2008 to October 2008. Senior Vice President of The Boston Consulting Group, a business consulting firm, 1982 to 2005.

As a result of his service as Gap Inc.’s Chief Executive Officer, as well as his service in other senior positions at Gap Inc. and his experience as a Senior Vice President of The Boston Consulting Group, Mr. Peck has extensive management and leadership experience and a deep knowledge of the complex financial and operational issues facing retail companies.

 

Mayo A. Shattuck III, age 62.
Director since 2002.

Non-Executive Chairman of Exelon Corporation, an energy company, since 2013. Executive Chairman of Exelon Corporation, 2012-2013. Chairman, Chief Executive Officer, and President of Constellation Energy Group, 2002-2012. Chief Executive Officer and President of Constellation Energy Group, 2001-2002. Director of Capital One Financial Corporation and Alarm.com Holdings, Inc.

Mr. Shattuck’s experience on the boards of directors of two other public companies, along with his experience as the former chief executive officer of an investment bank and Constellation Energy Group, and his current position as non-executive Chairman of Exelon Corporation, provides him with extensive knowledge of a number of important areas, including leadership, finance, risk assessment, compliance and governance.

 

Katherine Tsang, age 59.
Director since 2010.

Principal of Max Giant Limited, an investment company, since 2014. Chairperson of Greater China Standard Chartered Bank, 2009-2014. Chairperson of Standard Chartered Bank (Taiwan) Ltd., 2009-2014. Chairperson of Standard Chartered Bank (Hong Kong) Ltd., 2011-2014. Chief Executive Officer, Standard Chartered Bank (China) Ltd., 2005-2009. Former director of Baoshan Iron & Steel Co. Limited, 2006-2012.

Ms. Tsang possesses over two decades of work experience in the global banking industry. As the principal of an investment company and a former senior executive at an international bank, Ms. Tsang possesses extensive financial expertise. In addition, she has held global and regional roles in human resources spanning 56 countries. Ms. Tsang brings significant experience in management and international growth to the Board. In addition to her former position as an independent non-executive director of Baoshan Iron & Steel Co. Limited in China, Ms. Tsang has also served on the boards of three Standard Chartered Bank subsidiaries.

Robert J. Fisher and William S. Fisher are brothers. Information concerning our executive officers who are not also directors is set forth in our Annual Report on Form 10-K for the fiscal year ended January 28, 2017.

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Director Independence

The Board of Directors has determined that the following directors are independent under the New York Stock Exchange (“NYSE”) rules and have no direct or indirect material relationships with the Company:

Domenico De Sole*

Brian Goldner

Jorge P. Montoya

Robert J. Fisher

Isabella D. Goren

Mayo A. Shattuck III

William S. Fisher

Bob L. Martin

Katherine Tsang

 

*Mr. De Sole is not standing for reelection

In particular, the Board has determined that none of these directors has relationships that would cause them not to be independent under the specific criteria of Section 303A.02 of the NYSE Listed Company Manual. In making this determination with respect to Robert and William Fisher, the Board considered the following factors: (i) with the exception of Robert Fisher’s brief period of service during 2007 as Interim President and Chief Executive Officer (“CEO”) of the Company during a CEO transition, neither Robert nor William Fisher has served as an officer of the Company in over 15 years; (ii) Donald Fisher (a founder of the Company and their father) ceased being an executive officer of the Company prior to his passing in September 2009; and (iii) NYSE guidance indicates that ownership of even a significant amount of stock does not preclude a finding of independence. After consideration of these factors, the Board concluded that there is no material relationship between the Company and Robert and William Fisher that would impact their independence under NYSE rules.

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CORPORATE GOVERNANCE

Corporate Governance Guidelines

We have adopted Corporate Governance Guidelines that outline, among other matters, the role and functions of the Board, the responsibilities of the various Board committees, and the procedures for

reporting concerns to the Board. Our Corporate Governance Guidelines are available at www.gapinc.com (follow the Investors, Governance, Guidelines links).

Additional Corporate Governance Information

If you would like further information regarding our corporate governance practices, please visit the

Governance and Corporate Compliance sections of www.gapinc.com (follow the Investors link). Those sections include:

Our Corporate Governance Guidelines (available in print on request to our Corporate Secretary);

 

Our Code of Business Conduct (available in print on request to our Corporate Secretary);

 

Our Committee Charters;

 

Our Certificate of Incorporation;

 

Our Bylaws;

 

A method for interested parties to send direct communications to our Board of Directors (through our Chairman and Corporate Secretary) by email to board@gap.com; and

 

Methods for employees and others to report suspected violations of our Code of Business Conduct or accounting, internal accounting controls, or auditing concerns to our Global Integrity department by confidential email to global_integrity@gap.com, through our Code

 

Hotline (866) GAP-CODE or online at speakup.gapinc.com. Callers from outside North America must dial their country’s AT&T Direct Access Code which can be found at

Risk Oversight

Board Oversight of Risk

The Board has an active role in overseeing the management of the Company’s risks. Annually, the Company’s Internal Audit department performs a comprehensive enterprise risk assessment encompassing a number of significant areas of risk, including strategic, operational, compliance, financial, and reputational risks. The assessment process is designed to gather data regarding the most important risks that could impact the Company’s ability to achieve its objectives and execute its strategies. Primary assessment methods include interviews with key executives and Board members, review of critical Company strategies and initiatives, and monitoring of emerging industry trends and issues. The assessment is reviewed by the Company’s CEO, Chief Financial Officer (“CFO”), and Chief Compliance Officer and presented to the Board to facilitate discussion of high risk areas. It provides the foundation for the annual Internal Audit plan, management’s monitoring and risk mitigation efforts, and ongoing Board oversight. In addition, on a regular basis, management communicates with the Board, both formally and informally, about key initiatives, strategies and industry developments, in part to assess and manage the potential risks.

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While the Board of Directors has the ultimate oversight responsibility for the risk management process, various committees of the Board also have responsibility for risk management. In particular, the Audit and Finance Committee focuses on financial and compliance risks, and the Compensation and Management Development Committee sets employee incentives with the goal of encouraging an appropriate level of risk-taking, consistent with the Company’s business strategies.

Compensation Risk Assessment

On an annual basis, management conducts a comprehensive overall review of each of the Company’s compensation policies and practices for the purpose of determining whether any risks arising from those policies and practices are reasonably likely to have a material adverse effect on the Company. As a part of this review, each of the Company’s compensation policies and practices were compared to a number of specific factors that could potentially increase risk, including the specific factors that the SEC has identified as potentially triggering disclosure. The Company balanced these factors against a variety of mitigating factors. Examples of some of the mitigating factors are:

compensation policies and practices are structured similarly across business units;

 

the risk of declines in performance in our largest business units is well understood and managed;

 

incentive compensation expense is not a significant percentage of any significant unit’s revenues;

 

for executives, a significant portion of variable pay is delivered through long-term incentives which carry vesting schedules over multiple years;

 

a mix of compensation vehicles and performance measures is used;

 

stock ownership requirements for executives are in place;

 

significant incentive plans are capped at all levels;

 

threshold levels of performance must be achieved for the bulk of variable pay opportunities; and

 

a clawback policy with respect to financial restatements is in place.

 

Management’s assessment was also presented to the Company’s Chief Compliance Officer and the Chair of the Board’s Compensation and Management Development Committee. As a result of management’s review, the Company determined that any risks arising from its compensation policies and practices are not reasonably likely to have a material adverse effect on the Company.

Communication with Directors

Interested parties can send direct communications to our Board of Directors (through our Chairman and Corporate Secretary) by email to: board@gap.com.

Code of Business Conduct

Our Code of Business Conduct is designed to promote a responsible and ethical work environment for all Gap Inc. employees and directors. The Code contains guidelines on conflicts of interest, legal compliance, Company information and assets, and political contributions and activities. Our Code of

Business Conduct is available at www.gapinc.com (follow the Investors, Corporate Compliance, Code of Business Conduct links).

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Policies and Procedures with Respect to Related Party Transactions

The Board is committed to upholding the highest legal and ethical conduct in fulfilling its responsibilities and recognizes that related party transactions can present a heightened risk of potential or actual conflicts of interest. The Compensation and Management Development Committee’s charter requires that the members of that Committee, all of whom are independent directors, approve all of the Company’s executive compensation policies and programs and all compensation awarded to executive officers. The Audit and Finance Committee’s charter requires that the members of the Audit and Finance Committee, all of whom are independent directors, review and approve transactions with the Company involving management and/or members of the Board of Directors that are not otherwise subject to the approval of the Compensation and Management Development Committee and would require disclosure under SEC rules. In the event a transaction involves a committee member, that member will recuse him or herself from the approval of the transaction.

In addition, the Audit and Finance Committee oversees the Company’s Corporate Compliance Program, which includes procedures for the (i) receipt, retention and treatment of complaints regarding accounting, internal accounting controls or auditing matters, and (ii) confidential, anonymous submission by employees and others of concerns regarding questionable accounting or auditing matters and other matters under the Company’s Code of Business Conduct.

Board Leadership Structure and Succession

Our Amended and Restated Bylaws provide that our Chairman of the Board shall not be an officer or employee of the Company. Robert Fisher, an independent director, has served as our Chairman of the Board since February 2015.

We believe in the importance of independent oversight. We ensure that this oversight is truly independent and effective through a variety of means, including:

We have separated the positions of CEO and Chairman of the Board. We believe this provides the most appropriate leadership structure at this time. Our CEO is responsible for day-to-day leadership and for setting the strategic direction of the Company, while the Chairman of the Board presides over Board meetings, including non-management and independent director sessions, and shareholder meetings.

 

Our Corporate Governance Guidelines provide that at least two-thirds of our directors should be independent. Currently, all of our directors other than Mr. Peck and Ms. Gardner are independent.

 

Our Corporate Governance Guidelines provide that in the event that the Chairman of the Board is not an independent director, the Board shall designate an independent director to serve as Lead Independent Director.

 

At each regularly scheduled Board meeting, all non-management directors are typically scheduled to meet in an executive session without the presence of any management directors.

 

At least annually, the independent directors meet in executive session.

 

The charters for each of our standing committees of the Board described below (Governance and Sustainability, Audit and Finance, and Compensation and Management Development) require that all of the members of those committees be independent.

 

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Governance and Sustainability Committee

The Board’s Governance and Sustainability Committee is composed solely of independent directors, as defined under NYSE rules.

This Committee assists the Board of Directors in fulfilling its oversight responsibilities relating to the Company’s corporate governance matters, including the development of corporate governance guidelines, periodic evaluation of the Board, its committees and individual directors, identification and selection of director nominees, oversight of the Company’s programs, policies and practices relating to social and environmental issues, impacts and strategies, and such other duties as directed by the Board of Directors.

The Committee’s charter is available at www.gapinc.com (follow the Investors, Governance, Board of Directors, Board Committees links).

Nomination of Directors

The Governance and Sustainability Committee has the responsibility to identify, evaluate, and recommend qualified candidates to the Board. The Chairman, CEO, and at least two independent directors interview any qualified candidates prior to nomination. Other directors and members of management interview each candidate as requested by the Chairman, CEO, or chair of the Committee. Mr. Goldner was recommended by management.

The Committee may also engage third-party independent consultants to identify potential director nominees based on identified criteria and a needs assessment. These consultants have also assisted the Committee in identifying a diverse pool of qualified candidates and in evaluating and pursuing individual candidates at the direction of the Committee.

The Committee will also consider director nominees recommended by shareholders. Our Bylaws provide that in order for a shareholder to propose director nominations at the meeting of shareholders in 2018, the shareholder must give written notice to our Corporate Secretary by no later than the close of business (San Francisco Time) on February 16, 2018, and no earlier than January 17, 2018 (i.e., not less than 90 days nor more than 120 days prior to the first anniversary of the date of our 2017 Annual Meeting). The notice must contain information required by our Bylaws about the identity and background of each nominee and the shareholder making the nomination, including interests in derivative securities or arrangements with persons holding derivative securities, relationships or arrangements between the nominee and the shareholder making the nomination, and information that would enable the Board to determine a nominee’s eligibility to serve as an independent director. The notice also must contain other information that must be disclosed in proxy solicitations for election of directors under the proxy rules of the SEC (including information regarding the director nominee’s experience, qualifications, attributes and/or skills), the nominee’s consent to the nomination and to serve if elected, and certain other information required by our Bylaws. If a shareholder fails to submit the notice by February 16, 2018, then the proposed nominee(s) of the shareholder will not be considered at our Annual Meeting in 2018 in accordance with our Bylaws. Notifications must be addressed to our Corporate Secretary at Gap Inc., Two Folsom Street, San Francisco, California 94105. A copy of the full text of the Bylaw provisions relating to our advance notice

procedure may be obtained at www.gapinc.com (follow the Investors, Governance links) or to any shareholder on request by writing to our Corporate Secretary at the above address.

Qualifications and Diversity of Board Members

All director nominees must possess certain core competencies, some of which may include experience in retail, consumer products, international business/markets, real estate, store operations, logistics, product design, merchandising, marketing, general operations, strategy, human resources, technology, media or public relations, finance or accounting, or experience as a CEO or CFO. In addition to

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having one or more of these core competencies, director nominees are identified and considered on the basis of knowledge, experience, integrity, leadership, reputation, background, qualifications, gender, race/ethnicity, personal characteristics, and ability to understand the Company’s business. The Board believes that this overall professional, personal, gender, and racial/ethnic diversity is important to the effectiveness of the Board’s oversight of the Company. Accordingly, diversity is a factor that is considered in the identification and recommendation of potential director candidates. In this regard, of the ten nominees for director, three are female and two are ethnically diverse. In addition, all director nominees are pre-screened to ensure that each candidate has qualifications and experience that complement the overall core competencies of the Board. The screening process also includes conducting a background evaluation and an independence determination. The Board believes that its criteria for selecting board nominees are effective in promoting overall diversity.

Evaluation of Directors

The Governance and Sustainability Committee is responsible for overseeing a formal evaluation process to assess the composition and performance of the Board, each committee, and each individual director on an annual basis. The assessment is conducted to identify opportunities for improvement and skill set needs, as well as to ensure that the Board, committees, and individual members have the appropriate blend of diverse experiences and backgrounds, and are effective and productive. As part of the process, each member completes a survey, or participates in an interview or other method the Committee utilizes to seek feedback. While results are aggregated and summarized for discussion purposes, individual responses are not attributed to any individual and are kept confidential to ensure honest and candid feedback is received. The Committee discusses opportunities and makes recommendations for improvement as appropriate to the full Board, which implements agreed upon improvements. The Committee Chair also meets privately with individual Board members to provide feedback specific to each director received during the evaluation process. A director will not be nominated for reelection unless it is affirmatively determined that he or she is substantially contributing to the overall effectiveness of the Board.

Sustainability

The Governance and Sustainability Committee is also responsible for reviewing and evaluating Company programs, policies and practices relating to social and environmental issues, impacts and strategies to support the sustainable growth of the Company’s businesses. The Committee regularly discusses social and environmental issues at its meetings, and oversees the Company’s development of industry-leading programs and initiatives. For more information regarding our commitment to sustainability,

please see our website and most recent Sustainability Report available at www.gapinc.com (follow the Sustainability link).

Audit and Finance Committee

The Board’s Audit and Finance Committee is composed solely of independent directors, as defined under SEC and NYSE rules.

This Committee assists the Board of Directors in fulfilling its oversight responsibilities relating to the integrity of our financial statements, compliance with legal and regulatory requirements, the registered public accounting firm’s qualifications, independence and performance, the performance of the Internal Audit function, the effectiveness of the corporate compliance program, finance matters, and such other duties as directed by the Board of Directors. In addition, the Committee is directly responsible for the appointment, compensation, retention and oversight of the independent registered public accounting firm.

The Committee’s charter is available at www.gapinc.com (follow the Investors, Governance, Board of Directors, Board Committees links).

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Audit Committee Financial Expert

Our Board of Directors has determined that the Audit and Finance Committee has two members who are “audit committee financial experts” as determined under Regulation S-K Item 407(d)(5) of the Securities Exchange Act of 1934: Mr. Shattuck and Ms. Goren, both of whom are independent directors as determined under applicable NYSE listing standards. See Mr. Shattuck's and Ms. Goren's biographies on pages 2-3 for information regarding their relevant experience.

Compensation and Management Development Committee

The Board’s Compensation and Management Development Committee is composed solely of independent directors, as defined under SEC and NYSE rules.

This Committee assists the Board of Directors in fulfilling its oversight responsibilities relating to executive officer and director compensation, succession planning for senior management, development and retention of senior management, and such other duties as directed by the Board of Directors. The

Committee’s charter is available at www.gapinc.com (follow the Investors, Governance, Board of Directors, Board Committees links).

The Committee approves all of the Company’s executive compensation policies and programs and all compensation awarded to executive officers. Our CEO evaluates each executive officer and discusses with the Committee his assessment and recommendations for compensation. The CEO is not present during the Committee’s deliberations about his own compensation. The Committee also oversees senior management development, retention, and succession plans. The Committee approves grants of stock units to employees at the Vice President or above level, and has delegated authority, within defined parameters, to the CEO or Committee Chair to approve grants of stock units to employees below the Vice President level (see “Long-Term Incentives” beginning on page 28 for more details). The Committee has also delegated authority, within defined parameters, to the Company’s Human Resources personnel to make certain non-material changes to the Company’s employee benefit plans.

The Committee has engaged Frederic W. Cook & Co. as its independent executive compensation consultant. The consultant provides advice to the Committee from time to time on the compensation program structure and specific individual compensation arrangements (see the “Role of the CEO and Compensation Consultant” section on page 34 for more details). In addition, under NYSE rules, the Committee can only retain a compensation advisor after considering six independence factors: (a) whether the advisor’s firm provides other services to the Company, (b) the fees received by the advisor’s firm from the Company as a percentage of the firm’s overall revenue, (c) the policies and procedures of the advisor’s firm designed to prevent conflicts of interest, (d) any business or personal relationship between the advisor and a member of the Committee, (e) any stock of the Company owned by the advisor, and (f) any business or personal relationship of the advisor or advisor’s firm with an executive officer of the Company. Based on a review of the Committee’s relationship with its compensation consultant and an assessment considering these six independence factors, the Committee has identified no conflicts of interest and confirmed the independence of Frederic W. Cook & Co.

Compensation Committee Interlocks and Insider Participation

During fiscal 2016, Mr. De Sole (who is not standing for reelection), Mr. Goldner, Mr. Martin, and Ms. Tsang served on the Compensation and Management Development Committee of the Board of Directors. During fiscal 2016, none of our executive officers served on the board of directors of any company where one of that company’s executive officers served as one of our directors.

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Board Meetings

The Board met six times during fiscal 2016. The following table lists the current members of each of the committees and the number of committee meetings held during fiscal 2016:

Name

Audit &
Finance

Compensation &
Management
Development

Governance &
Sustainability

Domenico De Sole (not standing for reelection)

 

X

 

Robert J. Fisher

 

 

Chair

William S. Fisher

 

 

 

Tracy Gardner

 

 

 

Brian Goldner

 

X

 

Isabella D. Goren

X

 

 

Bob L. Martin

 

Chair

X

Jorge P. Montoya

X

 

 

Arthur Peck

 

 

 

Mayo A. Shattuck III

Chair

 

X

Katherine Tsang

 

X

 

Number of Meetings

8

8

4

Each director nominee attended at least 75% of the meetings of the Board and committees on which he or she served. In addition, individual Board members often work together and with management outside of formal meetings.

The non-management directors are typically scheduled to meet without the presence of management during each regularly scheduled Board meeting. Our Chairman, Robert Fisher, is responsible for organizing, managing and presiding over the non-management and director sessions of the Board, and reporting on outcomes of the sessions to the CEO, as appropriate.

Attendance of Directors at Annual Meetings of Shareholders

Our policy regarding attendance by directors at our Annual Meeting of Shareholders states that our Chairman and committee chairs should attend and be available to answer questions at our Annual Meeting, if reasonably practicable. Our policy also encourages all other directors to attend. All of our director nominees attended our 2016 Annual Meeting in person, with the exception of Mr. Goldner, who joined the Board of Directors in August 2016, after our 2016 Annual Meeting.

Stock Ownership Guidelines for Directors

We have adopted minimum stock ownership guidelines for our directors. Each non-management director should, within three years of joining the Board of Directors, hold stock (which includes deferred stock units) of the Company worth at least five times the annual base retainer then in effect. Management directors are required to own stock of the Company in accordance with our stock ownership requirements

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for executives, described on page 32. Our insider trading policy, which is applicable to directors, prohibits speculation in the Company’s stock, including short sales, hedging or publicly-traded option transactions, and holding the Company’s stock in a margin account as collateral for a margin loan or otherwise pledging Company stock as collateral.

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COMPENSATION OF DIRECTORS

Retainer and Meeting Fees

The table below shows the annual retainer, attendance fees, and committee chair retainer we paid to our non-employee directors in fiscal 2016, as well as the amounts payable for fiscal 2017:

           

Fiscal Year 2016 and 2017 Director Cash Compensation

 

2016

2017

Annual Retainer

$

75,000

 

$

80,000

 

Annual Retainer for Committee Members

 

 

   

 

 

 

Audit and Finance Committee

 

0

   

16,000

 

 

Compensation and Management Development Committee

 

0

   

12,000

 

 

Governance and Sustainability Committee

 

0

   

8,000

 

Additional Annual Retainer for Committee Chairs

 

 

   

 

 

 

Audit and Finance Committee

 

20,000

   

20,000

 

 

Compensation and Management Development Committee

 

20,000

   

20,000

 

 

Governance and Sustainability Committee

 

15,000

   

15,000

 

Additional Annual Retainer for Chairman of the Board

 

200,000

   

200,000

 

Fee per regularly scheduled Committee Meeting

 

2,000

   

0

 

 

Footnote

(1)

This amount does not include a fee of $2,000 that is paid to non-employee directors who reside primarily outside of North America for attendance at each Board and/or committee meeting requiring travel to the United States.

Employee directors are not eligible for the annual retainer or attendance fees, and are not eligible to serve on committees.

Equity Compensation

Beginning in 2017, non-employee directors will receive the following under our 2016 Long-Term Incentive Plan:

Each new non-employee director automatically receives stock units with an initial value of $160,000 based on the then-current fair market value of the Company’s common stock; and

 

Each continuing non-employee director automatically receives, on an annual basis, stock units with an initial value of $160,000 at the then-current fair market value of the Company’s common stock; provided that newly-appointed non-employee directors who were appointed after the Company’s last annual shareholders’ meeting will receive their first annual stock unit grant on a prorated basis based on the number of days that the director has served between his or her appointment and the date of the first annual stock unit grant.

 

The annual stock units granted to continuing non-employee directors following the Company’s annual shareholders’ meeting, as well as the initial grant made to any non-employee director who is first elected to the Board at the Company’s annual shareholders’ meeting, are granted on June 30 of each year; provided, however, that if the Company’s annual shareholders’ meeting takes place after June 30, then the related stock unit grants will be granted on the first business day following that meeting. All initial stock units to new non-employee directors who are appointed other than at the annual shareholders’ meeting are granted on the date of appointment. The number of stock units is rounded down to the nearest whole share. These stock units are fully-vested but are subject to a three-year deferral period. During the deferral period,

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the stock units earn dividend equivalents which are reinvested in additional units annually. Following the deferral period, shares in an amount equal in value to the stock units, including units acquired through dividend equivalent reinvestment, will be issued to each non-employee director unless a further deferral election has been made; provided, however, that shares and accumulated dividend equivalents will be issued immediately upon ceasing to be a director of the Company.

Expense Reimbursement and Other Benefits

We also pay for or reimburse directors for approved educational seminars and for travel expenses related to attending Board, committee, and approved Company business meetings. Additionally, we provide non-employee directors access to office space and administrative support for Company business from time to time.

Directors and their spouses are eligible to receive discounts on our merchandise on terms similar to the Gap Inc. corporate employee merchandise discount policy.

We established The Gap, Inc. Deferred Compensation Plan (“DCP”) whereby highly compensated employees, including executive officers, and non-employee directors may elect to defer receipt of certain eligible income. The DCP allows eligible employees to defer a percentage of their salary and bonus on a pre-tax basis, and allows non-employee directors to defer their retainers and meeting fees. The deferred amounts are indexed to reflect the performance of the participant’s choice of approved investment funds. Non-employee director deferrals are not matched, and above-market or preferential interest rate options are not available on deferred compensation.

Directors are eligible to participate in our Gift Match Program available to all employees, under which we match contributions to eligible nonprofit organizations, up to certain annual limits. In fiscal 2016, the annual limit for non-employee directors was $15,000 under the Gift Match Program. Art Peck, our CEO, had an annual matching limit of $100,000.

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Director Compensation Summary

The following table sets forth certain information regarding the compensation of our directors in fiscal 2016, which ended January 28, 2017.

                         

Name (1)

Fees
Earned
or Paid
in Cash
($)

Stock
Awards
($) (2)

Option
Awards
($) (3)

Change in
Pension
Value and
Nonqualified
Deferred
Compensation
Earnings
($)

All Other
Compensation
($) (4)

Total
($)

Domenico De Sole

 

83,000

   

139,988

   

0

   

0

   

17,044

   

240,032

 

Robert J. Fisher

 

298,000

   

139,988

   

0

   

0

   

15,261

   

453,249

 

William S. Fisher

 

75,000

   

139,988

   

0

   

0

   

15,261

   

230,249

 

Tracy Gardner

 

75,000

   

88,975

   

0

   

0

   

336

   

164,311

 

Brian Goldner

 

41,500

   

139,994

   

0

   

0

   

0

   

181,494

 

Isabella D. Goren

 

91,000

   

139,988

   

0

   

0

   

15,533

   

246,521

 

Bob L. Martin

 

115,000

   

139,988

   

0

   

0

   

10,261

   

265,249

 

Jorge P. Montoya

 

101,000

   

139,988

   

0

   

0

   

15,145

   

256,133

 

Mayo A. Shattuck III

 

119,000

   

139,988

   

0

   

0

   

8,376

   

267,364

 

Katherine Tsang

 

97,000

   

139,988

   

0

   

0

   

168

   

237,156

 

Padmasree Warrior

 

39,500

   

0

   

0

   

0

   

0

   

39,500

 

 

Footnotes

(1)

Ms. Warrior retired as a director on May 17, 2016.

Mr. Peck was compensated as our CEO and received no additional compensation as a director. Mr. Peck’s compensation is reported in the Summary Compensation Table and related executive compensation tables, beginning on page 37.

(2)

This column reflects the aggregate grant date fair value for awards of stock during fiscal 2016, computed in accordance with FASB ASC 718. All stock awards reported in this column were granted in fiscal 2016. The following directors had outstanding stock awards as of fiscal 2016 year-end: Mr. De Sole (13,632), Mr. Robert Fisher (13,632), Mr. William Fisher (13,632), Ms. Gardner (9,450), Mr. Goldner (5,602), Ms. Goren (13,632), Mr. Martin (13,632), Mr. Montoya (13,632), Mr. Shattuck (21,554), and Ms. Tsang (13,632). For the period during which the payment of these units is deferred (see page 13), they will earn dividend equivalents which are reinvested in additional units annually. Please refer to Note 11, “Share-Based Compensation,” in the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K filed on March 20, 2017 for the relevant assumptions used to determine the valuation of our stock awards.

(3)

No stock options were granted to our directors in fiscal 2016. None of our directors had outstanding option awards as of fiscal 2016 year-end.

(4)

Amounts in this column include any Company matching contributions under the Company’s Gift Match Program (see “Expense Reimbursement and Other Benefits,” on page 14).

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PROPOSAL NO. 2 — Ratification of Selection of
Independent Registered Public Accounting Firm

The Audit and Finance Committee of the Board of Directors has selected Deloitte & Touche LLP as our independent registered public accounting firm for the fiscal year ending February 3, 2018. Deloitte & Touche LLP (or its predecessor firm) has been retained as our independent registered public accounting firm since 1976. If shareholders fail to ratify the selection of Deloitte & Touche LLP, the Audit and Finance Committee will reconsider the selection. If the selection of Deloitte & Touche LLP is approved, the Audit and Finance Committee, in its discretion, may still direct the appointment of a different independent auditing firm at any time and without shareholder approval if the Audit and Finance Committee believes that such a change would be in the best interests of the Company and our shareholders.

THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE
“FOR” THE SELECTION OF DELOITTE & TOUCHE LLP AS OUR
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM.

Representatives of Deloitte & Touche LLP are expected to be present, available to make statements, and available to respond to appropriate shareholder questions at the Annual Meeting.

Principal Accounting Firm Fees

The following table sets forth the aggregate fees paid and accrued by us for audit and other services for the fiscal years ended January 28, 2017 and January 30, 2016 provided by our principal accounting firm, Deloitte & Touche LLP, the member firms of Deloitte Touche Tohmatsu Limited, and their respective affiliates (collectively “Deloitte & Touche”).

         

Fiscal Year 2016 and 2015 Accounting Fees

Fees (see notes below)

Fiscal Year 2016

Fiscal Year 2015

Audit Fees

$

4,793,300

 

$

4,792,223

 

Audit-Related Fees

 

209,079

   

233,401

 

Tax Fees

 

111,271

   

106,617

 

All Other Fees

 

6,886

   

4,500

 

Total

$

5,120,536

 

$

5,136,741

 

 

“Audit Fees” consists of fees for professional services rendered in connection with the integrated audit of our consolidated annual financial statements and internal controls over financial reporting, the review of our interim condensed consolidated financial statements included in quarterly reports, and the audits in connection with statutory and regulatory filings or engagements.

“Audit-Related Fees” consists primarily of fees for professional services rendered in connection with the audit of our employee benefit plans, audit procedures required by store leases and capital verification reports.

“Tax Fees” consists of fees billed for professional services rendered for tax compliance and tax advice. These services include assistance regarding federal, state and international tax compliance, and competent authority proceedings.

“All Other Fees” consists of fees for products and services other than the services reported above.

The Audit and Finance Committee approves the terms, including compensation, of the engagement of our independent registered public accounting firm on an annual basis, and has a policy requiring pre-approval of all services performed by the firm. This policy requires that all services performed by Deloitte & Touche, whether audit or non-audit services, must be pre-approved by the Audit and Finance Committee or a designated member of the Audit and Finance Committee, with any such services reported to the entire Audit and Finance Committee at the next scheduled meeting.

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Rotation

The Audit and Finance Committee periodically reviews and evaluates the performance of Deloitte & Touche’s lead audit partner, oversees the required five-year rotation of the lead audit partner responsible for our audit and, through the Committee’s Chair as representative of the Audit and Finance Committee, reviews and considers the selection of the lead audit partner. In addition, the Audit and Finance Committee periodically considers whether there should be a rotation of the independent registered public accounting firm. At this time, the Audit and Finance Committee and the Board believe that the continued retention of Deloitte & Touche to serve as our independent registered public accounting firm is in the best interests of the Company and our shareholders.

Report of the Audit and Finance Committee

The Audit and Finance Committee assists the Board of Directors in fulfilling its oversight responsibilities relating to the integrity of our financial statements, compliance with legal and regulatory requirements, the independent registered public accounting firm qualifications, independence and performance, the performance of the Internal Audit function, the effectiveness of the corporate compliance program, finance matters, and such other duties as directed by the Board of Directors. The Committee

operates under a written charter (available at www.gapinc.com, follow the Investors, Governance, Board of Directors, Board Committees links) adopted by the Board of Directors. The Committee is composed exclusively of directors who are independent under New York Stock Exchange listing standards and Securities and Exchange Commission rules.

The Committee has reviewed and discussed the audited financial statements of the Company for the fiscal year ended January 28, 2017 with the Company’s management. In addition, the Committee has discussed with Deloitte & Touche LLP, the Company’s independent registered public accounting firm, the matters required to be discussed by the applicable Public Company Accounting Oversight Board and Securities and Exchange Commission requirements.

The Committee also has received the communications, including written disclosures and the letter from Deloitte & Touche LLP, required by the applicable requirements of the Public Company Accounting Oversight Board regarding the independent accountant’s communications with the Committee concerning independence, and the Committee has discussed the independence of Deloitte & Touche LLP with that firm.

Based on the Committee’s review and discussions noted above, the Committee recommended to the Board of Directors that the Company’s audited financial statements be included in the Company’s Annual Report on Form 10-K for the fiscal year ended January 28, 2017 for filing with the Securities and Exchange Commission.

Mayo A. Shattuck III (Chair)
Isabella D. Goren
Jorge P. Montoya

Notwithstanding anything to the contrary in any of the Company’s previous or future filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, that might incorporate this Proxy Statement or future filings with the Securities and Exchange Commission, in whole or in part, this report shall not be deemed to be incorporated by reference into any such filing.

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PROPOSAL NO. 3 — Advisory Vote on the Frequency of the Advisory Vote on the Overall Compensation of The Gap, Inc.’s Named Executive Officers

Pursuant to Section 951 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, at least once every six years, the Company is required to submit for shareholder vote a non-binding resolution to determine whether the advisory vote on the compensation of the Company’s named executive officers should occur every one, two, or three years. When the Company last submitted this non-binding resolution for shareholder vote at the Annual Meeting of Shareholders in 2011, it recommended that shareholders vote to approve, on an advisory basis, to hold an advisory vote on the overall compensation of the Company’s named executive officers on an annual basis, which shareholders overwhelmingly supported.

The Board of Directors believes that submitting the advisory vote on executive compensation to shareholders on an annual basis continues to be the most appropriate option for the Company and its shareholders at this time.

The proxy card provides shareholders with four choices (every one, two, or three years, or abstain).

THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE, ON AN ADVISORY BASIS, TO HOLD AN ADVISORY VOTE ON THE OVERALL COMPENSATION OF THE COMPANY’S NAMED EXECUTIVE OFFICERS EVERY “ONE YEAR.”

 

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PROPOSAL NO. 4 — Advisory Vote on the Overall Compensation of
The Gap, Inc.’s Named Executive Officers

Pursuant to Section 951 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the Company is providing shareholders with an advisory (non-binding) vote on the overall compensation of our named executive officers. Accordingly, the following resolution will be submitted for a shareholder vote at the 2017 Annual Meeting:

“RESOLVED, that the shareholders of The Gap, Inc. (the ”Company“) approve, on an advisory basis, the overall compensation of the Company’s named executive officers, as described in the Compensation Discussion and Analysis section, the accompanying compensation tables, and the related narrative disclosure pursuant to Item 402 of Regulation S-K, set forth in the Proxy Statement for this Annual Meeting.”

The Board and the Compensation and Management Development Committee, which is comprised entirely of independent directors, will consider the outcome of the shareholders’ non-binding advisory vote when making future executive compensation decisions to the extent they can determine the cause or causes of any significant positive or negative voting results.

As described in detail under the section entitled “Compensation Discussion and Analysis,” our executive compensation program is designed to provide the level of compensation necessary to attract and retain talented and experienced executives, and to motivate them to achieve short-term and long-term goals, thereby enhancing shareholder value and creating a successful company. We are committed to tie pay to performance. Reflecting this commitment, due to the fact that the Company did not meet its performance objectives in 2016, in most cases, certain compensation components to our named executive officers paid out below established targets, as further described on page 21 of the following Compensation Discussion and Analysis. Overall, we believe our executive compensation program meets each of our compensation objectives.

We were pleased to have received over 97% of all votes cast in support of the overall compensation of our executives at our 2016 Annual Meeting of Shareholders. The Compensation and Management Development Committee continued to apply the same philosophy and protocol it used in prior years to determine fiscal 2016 compensation. In addition, as described on page 23, we have several compensation governance programs in place to manage compensation risk and align the Company’s executive compensation with long-term shareholder interests.

Shareholders are encouraged to read the “Compensation Discussion and Analysis” section of this Proxy Statement, the accompanying compensation tables, and the related narrative disclosures, which more thoroughly discuss how our compensation policies and procedures implement our compensation philosophy.

THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS
VOTE TO APPROVE, ON AN ADVISORY BASIS, THE OVERALL
COMPENSATION OF THE COMPANY’S NAMED EXECUTIVE OFFICERS
BY VOTING “FOR” THIS RESOLUTION.

 

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COMPENSATION DISCUSSION AND ANALYSIS

This Compensation Discussion & Analysis explains the key elements of our executive compensation program and compensation decisions for our named executive officers (“Executives”). The Compensation and Management Development Committee of our Board of Directors (the “Committee”) oversees these programs and determines compensation for our Executives.

Introduction

In this Compensation Discussion and Analysis, we discuss the following:

Executive Summary

 

page 20

Compensation Objectives

 

page 23

Elements of Compensation

 

page 24

Compensation Analysis Framework

 

page 32

Executive Summary

Fiscal 2016 was a year in which we accelerated our transformation efforts to bring our customers the world's best clothing through creativity and innovation. At a glance:

Our Transformation Efforts and Key Management Changes

Beginning in 2015, we began to transform the Company to help us deliver more consistently for our customers and our shareholders. In 2016, we accelerated our efforts.

We streamlined our operating model to create a more efficient global brand structure.

 

We closed approximately 100 international stores, inclusive of our Old Navy Japan business, in order to focus on the geographies with the greatest potential.

 

We continued to transform our product-to-market processes to increase speed and flexibility, using our size and scale as a differentiating advantage.

 

Sonia Syngal was appointed Global President of Old Navy.

 

We hired Sebastian DiGrande as EVP, Strategy and Chief Customer Officer to focus on deepening our relationship with our customers.

 

We hired Teri List-Stoll as EVP & CFO, an experienced finance chief with more than three decades in top leadership positions at large, complex global consumer goods companies.

 

Executives

Arthur Peck, Chief Executive Officer

 

Teri List-Stoll, Executive Vice President & Chief Financial Officer

 

Sabrina Simmons, Executive Vice President & Chief Financial Officer (until January 2017)

 

Sebastian DiGrande, Executive Vice President, Strategy & Chief Customer Officer

 

Jeff Kirwan, Global President, Gap

 

Sonia Syngal, Global President, Old Navy

 

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Business Performance & CEO Pay

Fiscal 2016 was a difficult year for much of the retail industry as mall traffic remained challenging and the industry continued to evolve at a rapid pace. Within our portfolio of Global brands, Old Navy delivered another year of positive sales growth. Gap continued to move forward in its transformation, while Banana Republic performance did not meet our expectations. Athleta’s performance was strong and we continue to see opportunity for the brand and category.

During the year, operating expenses increased overall due to restructuring costs and increased investment in some categories of expense, such as marketing, that we consider important for our continued transformation and the long-term health of the business.

The charts below show the directional alignment between Company performance, based on Net Sales and Diluted EPS, and our CEO’s year-over-year reported compensation (Mr. Murphy (2014) and Mr. Peck (2015 & 2016)).

Pay for Performance

For fiscal 2016, consistent with our philosophy of aligning Executive pay to performance, annual bonuses earned were at 15 – 39% of target for all Executives, except Ms. Syngal, who earned 121% of target, given the strong performance of Old Navy, and Mr. DiGrande, whose initial annual bonus was guaranteed to be at least equal to the target amount in order to recruit him from his prior employer.

Stock options granted to our Executives during the year have an exercise price well above the closing stock price at the end of the fiscal year, which means our stock price must increase significantly for our Executives to realize any value from these awards. Our Long-Term Growth Program (“LGP”) awards with a 2014-2016 performance period paid out at 36%, 38% and 68% of target for Mr. Peck, Ms. Simmons and Ms. Syngal, respectively. Similarly for our 2016 LGP awards, based on our fiscal 2016 performance, even if target is achieved in future periods, the actual awards earned would not exceed 67% of the target shares for Mr. Kirwan and 92% of the target shares for all Executives except Ms. Syngal given strong performance at Old Navy.

Say On Pay – 97% Approval

At the 2016 Annual Meeting, shareholders were very supportive of the structure and philosophy of our pay program during fiscal 2015. Consequently, we made no material structural changes during fiscal 2016. We continued to set rigorous goals and align pay with performance.

CEO Pay – Total Reported & Realized Pay(1)

Mr. Peck’s pay since appointment to CEO on February 1, 2015 (2015 – 2016) is set forth below:

Average Annual Reported Pay: $7,523,482

Average Annual Realized Pay: $4,789,207

(1) Average Annual Reported Pay derived from the Summary Compensation Table on page 37. Realized Pay is compensation actually received by the CEO, including salary, net spread on stock option exercises, vested full value awards, and all other compensation amounts realized during the period. For comparison purposes, Realized Pay includes annual incentive payouts for the year earned as in Reported Pay. Excludes the value of unearned and unvested performance shares, including outstanding LGP awards, which will not actually be received, if earned, until a future date.

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Listening to Our Shareholders

Our Committee is comprised solely of experienced independent directors and has established effective means for communicating with shareholders. Our shareholders also have the opportunity for shareholders to cast a non-binding advisory vote on executive compensation at our Annual Meeting.

The Committee is very interested in the ideas and any concerns of our shareholders regarding executive compensation. An advisory vote on executive compensation was presented to our shareholders at last year’s Annual Meeting and approved by over 97% of shareholder votes, consistent with prior favorable advisory votes by our shareholders on executive compensation. We are also recommending that we continue to put executive compensation to an advisory shareholder vote annually.

CEO Compensation Summary

Our CEO’s compensation package is structurally similar to that of our other Executives. The package is intended to reward him for sustained improvement of the Company’s financial performance and returns to shareholders while helping to promote alignment of interests across the executive team. The Committee used the same factors outlined under “Compensation Analysis Framework” below, as well as its judgment, to determine the structure and value of the package. Over 50% of the target long-term incentive compensation is in the form of performance shares and most of the total compensation opportunity requires achievement of performance goals or share price appreciation. Mr. Peck receives essentially the same benefits and limited perquisites provided to our other Executives, except that he is provided limited personal use of a Company airplane. The package is described more fully below:

Base salary was increased by 2.7%, an amount slightly below the budgeted percentage increase for US employees, to $1,335,000.

 

Annual bonus target remained unchanged at 175% of base salary and based 100% on financial performance. In fiscal year 2016, annual bonus was earned at 39% of target based on financial performance, which was below our expectations.

 

We granted multi-year performance shares to Mr. Peck under the LGP. For LGP shares granted in 2014 to Mr. Peck prior to his appointment as CEO, and based on financial performance during fiscal years 2014 – 2016, 12,201 shares, or 36% of the target amount, were earned. This further demonstrates alignment of executive pay to performance.

 

We granted stock options, with an exercise price of $30.18, to Mr. Peck covering 500,000 shares, which will vest over a four-year period subject to continued service. Our stock price must increase significantly for the stock options to create any value for Mr. Peck.

 

The chart below shows the proportion of each component of our CEO’s fiscal 2016 compensation, as reported in the Summary Compensation Table on page 37, the majority of which is weighted toward incentive compensation tied to rigorous financial goals and aligned with the long-term return to shareholders.

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Compensation Governance

Overall, we believe that our executive compensation program met each of our compensation objectives and continues to demonstrate our strong commitment to pay for performance. The table below highlights key compensation practices – both the practices we believe support strong governance principles and the practices we have not implemented because we do not believe they would serve our shareholders’ long-term interests.

What we do

What we don’t do

✓ Pay for Performance
We tie pay to performance. Our compensation programs are heavily weighted toward performance with limited perquisites.

✓ Tally Sheets
We review tally sheets, which are intended to summarize key elements of total compensation and potential wealth accumulation, for our Executives prior to making annual compensation decisions.

✓ Recoupment Policy
We have an incentive compensation recoupment (“clawback”) policy covering our Executives.

✓ Culture of Ownership
We have executive stock ownership requirements which we review on a regular basis and revise as needed.

✓ No Hedging
We prohibit Executives from engaging in any hedging or publicly-traded derivative transactions in Company stock.

✓ No Pledging
We prohibit Executives from pledging Company stock as collateral for a loan or for any other purpose.

✓ Independent Compensation Consultant
The Committee utilizes an independent compensation consulting firm, Frederic W. Cook & Co., Inc. The firm does not provide any other services to the Company.

X No Long-Term Employment Agreements with Guarantees
We do not have employment contracts of defined length with our Executives or multi-year guarantees for base salary increases, bonuses or equity compensation.

X No Golden Parachute Tax Gross-Ups
None of our Executives are entitled to tax gross-up payments other than for relocation and international assignment related payments or services that are business-related and also generally available to other employees.

X No Repricing
We have not repriced stock options nor are we able to do so without shareholder approval.

X No SERP
We do not have a supplemental executive retirement plan (“SERP”).

X No Change in Control Arrangements
We do not have severance arrangements specific to a change in control.

X No Material Compensation Risk
We do not have incentive compensation arrangements for Executives that create potential material risk for the Company, based on a risk assessment conducted by the Company.

X No Dividends on Unearned Performance Awards
We do not pay dividends on unearned performance awards.

Compensation Objectives

Our compensation program is intended to align total compensation for executives with the short and long-term performance of the Company and to enable us to attract and retain executive talent. Specifically, the program is designed to:

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Support a performance-oriented culture;

 

Support our business strategy by motivating and rewarding achievement of short and long-term objectives, as well as individual contributions;

 

Attract and retain executive talent;

 

Link executive rewards to shareholder returns; and

 

Promote a culture of executive stock ownership.

 

Our program rewards executives for the achievement of corporate and divisional financial and non-financial objectives, for their individual contributions to these results, and for optimizing long-term returns to shareholders. The majority of each executive’s total compensation opportunity is weighted toward incentive compensation tied to the financial performance of the Company and aligned with the long-term return to our shareholders. When we do not achieve targeted performance levels and/or our stock price does not appreciate, compensation that can be realized by our executives is substantially reduced. When we exceed targeted performance levels and/or our stock price appreciates, compensation that can be realized by our executives is substantially increased. We believe that this is the most effective means of aligning executive pay with our shareholders’ interests.

Elements of Compensation

The main components of our executive compensation program are:

Base salary;

 

Annual cash incentive bonus; and

 

Long-term incentives.

 

We have chosen these elements because we believe each supports achievement of one or more of our compensation objectives, and that together they have been and will continue to be effective in this regard. We also provide our Executives with benefits and limited perquisites that are available to a broader group of employees or that are intended to maximize productivity.

The use and weight of each compensation element is based on the judgment of the Committee regarding the importance of each compensation objective in supporting our business and talent strategies, as well as the structure of these elements for executives at other companies. Base salary, benefits and perquisites represent less than half of each Executive’s potential compensation at target performance levels, to emphasize the importance of performance-based compensation.

Base Salary

Base salaries are set at a level that the Committee believes will effectively attract and retain top talent, considering the factors described below under “Compensation Analysis Framework.” In addition, the Committee considers the impact of base salary changes on other compensation components where applicable. The Committee reviews base salaries for Executives in the first fiscal quarter, and as needed in

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connection with promotions or other changes in responsibilities. The table below summarizes base salaries during fiscal 2016, and changes that occurred during the year.

           

Name

Base Salary
on 1/30/2016

Base Salary
on 1/28/2017

Comments

Arthur Peck

$

1,300,000

 

$

1,335,000

 

Salary was increased in March 2016 as part of the annual review by an amount slightly below the budgeted percentage increase for U.S. employees.

Teri List-Stoll

 

N/A

 

$

875,000

 

Ms. List-Stoll joined the Company in January 2017 as Executive Vice President & Chief Financial Officer.

Sebastian DiGrande

 

N/A

 

$

730,000

 

Mr. DiGrande joined the Company in May 2016 as Executive Vice President, Strategy & Chief Customer Officer.

Jeff Kirwan

$

850,000

 

$

900,000

 

Salary was increased in March 2016 as part of the annual review to position Mr. Kirwan appropriately relative to other executives.

Sonia Syngal

$

750,000

 

$

875,000

 

Salary was increased in April 2016 following Ms. Syngal’s appointment as Global President, Old Navy.

Former Executive

 

 

   

 

 

 

Sabrina Simmons

$

875,000

 

$

875,000

 

Ms. Simmons ceased to be Executive Vice President & Chief Financial Officer in January 2017.

Annual Cash Incentive Bonus

Fiscal 2016 Annual Bonus

We have an annual cash incentive bonus program for Executives to motivate and reward achievement of financial and individual objectives and to provide a competitive total compensation opportunity. Mr. Peck’s annual incentive bonus was based exclusively on earnings and net sales performance (weighted 75% and 25%, respectively) given his role as CEO and direct accountability for operating results. For Executives other than Mr. Peck, the annual incentive bonus was based on two components:

 

1.

75% of their total opportunity was based on the financial performance of the Company or a division of the Company (of this, 75% was based on earnings, given the importance of accountability for operating results, and 25% on net sales, to drive top-line focus).

 

2.

25% of their total opportunity was based on subjective individual and organizational objectives to recognize results beyond earnings and net sales goals that contribute to the success of the Company.

 

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In setting the fiscal 2016 annual bonus structure, the Committee considered our business priorities and the factors described below under “Compensation Analysis Framework.” The table below describes the target annual bonus and potential payout range for each Executive. Ms. List-Stoll received a $400,000 sign-on bonus when she joined the Company in January 2017 and was not eligible for a bonus under our fiscal 2016 annual bonus program.

       

Name

Target
Percentage of
Base Salary

Potential
Payout
Range as a
Percentage of
Target

Arthur Peck

175%

 

0 – 200

%

Sebastian DiGrande

80%

 

0 – 200

%

Jeff Kirwan

100%

 

0 – 200

%

Sonia Syngal (1)

80% / 100%

 

0 – 200

%

Former Executive

 

 

 

 

Sabrina Simmons

100%

 

0 – 200

%

 

Footnotes

(1)

Ms. Syngal’s bonus target was increased following her appointment to Global President in April 2016, consistent with other Global Presidents.

Financial Performance Component

Bonus payments based on financial performance are generally made under the Executive Management Incentive Compensation Award Plan (“Executive MICAP”). The Committee approves threshold, target and maximum performance goals at the beginning of each performance period. Bonuses are paid under the financial performance component only if threshold goals are exceeded. Actual bonuses are generally paid in March of each year.

Bonuses for fiscal 2016 financial performance were based on earnings (weighted 75%) and net sales (weighted 25%) goals. Earnings and net sales were used to measure both Company and division performance, in both cases subject to potential adjustment for certain pre-established items that are unusual in nature or infrequently occur. The earnings measure was selected for fiscal 2016 and weighted more heavily because the Committee believed that earnings should continue to be a focus of Executives and is a good measure of actual operating performance within their control and accountability. The net sales measure is intended to drive top-line focus and to promote continued focus on growing market share. Measuring both earnings and net sales diversifies performance metrics and we believe it provides an appropriate balance between cost management and top line performance. For fiscal 2016, a range of earnings and sales targets was used in light of heightened uncertainty from macroeconomic factors and our transformation activities.

The following table shows fiscal 2016 earnings and net sales goals expressed as a percentage of fiscal 2015 actual results. Goals for fiscal 2016 were set at realistic levels given our expected performance at the time they were established and were intended to provide a meaningful incentive for Executives to improve performance. Also shown are the actual weighted percentages achieved expressed as a percentage of fiscal 2015 actual results after adjustments made primarily to exclude goodwill impairment and restructuring charges, and the direct supply chain impact resulting from the fire at our Fishkill, New York distribution facility. The Committee used discretion to reduce payouts to Mr. Peck and Ms. Syngal after considering the overall impact of the Fishkill fire, and the actual attainment percentages below reflect this

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reduction. No other adjustments to the results were made other than neutralization of foreign exchange rate fluctuations. Ms. Simmons, who left the Company in February 2017, was not eligible to receive a payout and has been excluded from the table below.

 

 

2016 Earnings / Net Sales Goals as a
Percentage of Fiscal 2015
Actual Earnings / Net Sales

Actual Fiscal 2016
Percentage Achieved
After Adjustments

Name

Company /
Division

Threshold

Target Range

Maximum

Earnings

Net Sales

Arthur Peck

Gap Inc.

87.9% / 101.1%

104.0-110.8% /
102.3-103.9%

115.1% / 104.4%

96.4%

98.8%

Sebastian DiGrande

Gap Inc.

87.9% / 101.1%

104.0-110.8% /
102.3-103.9%

115.1% / 104.4%

96.4%

98.8%

Jeff Kirwan

Gap Global

101.8% / 98.1%

127.4-132.6% /
100.1-101.3%

139.2% / 101.8%

90.5%

95.4%

Sonia Syngal (1)

Gap Inc.

87.9% / 101.1%

104.0-110.8% /
102.3-103.9%

115.1% / 104.4%

96.4%

98.8%

Old Navy

91.6% / 102.3%

107.8-112.8% /
104.4-105.9%

116.2% / 106.4%

114.9%

102.6%

 

Footnotes

(1)

Ms. Syngal’s financial performance component was based on Gap Inc. prior to her appointment to Global President, Old Navy in April and based on Old Navy thereafter.

Individual Objectives Component

Executives other than the CEO were eligible to receive bonuses based on individual performance and organizational objectives. At the beginning of the year, 32 objectives were established for Gap Inc. with shared accountability by Executives. These objectives consisted of initiatives centered on three key themes: (i) product, which included objectives on product design, production and distribution; (ii) customer experience, which included objectives for driving increased traffic and mobile advancements; and (iii) talent, which included objectives on talent acquisition and management.

For Executives other than Mr. Peck, the extent to which these objectives were met, partially met, or exceeded was assessed qualitatively by Mr. Peck after the end of the fiscal year. In this regard, while certain of the objectives had quantitative components, there was no formulaic link between the extent to which a particular objective was satisfied and the ultimate payout that an Executive received. The CEO also had the discretion to consider some goals more heavily than others. In addition, in judging each Executive’s individual performance, the CEO took into account any additional initiatives and challenges that the Executive faced over the course of the year, as well as earnings performance, in determining a recommended payout. Payout amounts were then recommended to the Committee for consideration and approval.

Actual Bonuses

For fiscal 2016, performance against earnings and net sales goals applicable to each Executive was below target levels for all Executives, except Ms. Syngal. The following table describes the calculation of the actual bonus for fiscal 2016 for each eligible Executive. In order to recruit him from his prior employer, Mr. DiGrande was paid a $1,000,000 signing bonus and his annual bonus for fiscal 2016 was guaranteed to be at least the target amount, prorated for time he was in the role during the fiscal year. Ms. Simmons received a retention payment with repayment provisions in February 2015, of which a portion was earned in 2016. For additional details regarding Ms. Simmons' retention payment, please see our 2016 Proxy Statement. Ms. Simmons, who left the Company in February 2017, was not eligible to receive a payout and has been excluded from the table below.

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Name

Base
Salary

x

Target
Percentage
of Base
Salary

x

(

Actual
Percentage
Achieved:
Financial
Performance
Component
(1)

x

Weight

+

Actual
Percentage
Achieved:
Individual
Objectives
Component
(1)

x

Weight )

=

Actual
Bonus

Art Peck

$1,330,288

x

175%

x

(

39%

x

100%

+

N/A

x

N/A )

=

$917,511

Sebastian DiGrande (2)

$503,379

x

80%

x

(

N/A

x

75%

+

N/A

x

25% )

=

$402,703

Jeff Kirwan

$893,269

x

100%

x

(

0%

x

75%

+

60%

x

25% )

=

$133,990

Sonia Syngal (3)

$849,931

x

80% / 100%

x

(

39% / 124%

x

75%

+

150%

x

25% )

=

$992,501

 

Footnotes

(1)

(2)

Actual percentages achieved are rounded for presentation.

Mr. DiGrande received an annual bonus guaranteed at the target amount, prorated for time he was in the role during the fiscal year.

(3)

Ms. Syngal’s bonus target was increased following her appointment to Global President in April 2016.

Long-Term Incentives

Stock-based long-term incentives align executive compensation and shareholder returns by linking a significant portion of total compensation to the performance of our stock. Unlike some of the members of our peer group, we do not have a pension plan, and we rely on long-term incentives to provide a substantial percentage of each Executive’s potential retirement savings. Long-term incentives have typically consisted of stock options, stock units or performance shares. It has been our practice to grant long-term incentives to Executives on an annual basis, usually in the first quarter of each fiscal year. This timing was selected because it follows the release of our annual financial results and completion of annual compensation reviews. We also grant long-term incentives on other dates to newly hired Executives and periodically in connection with promotions or for special recognition and retention. Grants are typically approved by the Committee at a meeting and are effective on the meeting date or, if approved by unanimous written consent, the date of the last signature on the consent. However, the effective date for new hires is no earlier than the first day of employment. Stock-based awards are granted under our 2016 Plan, which was approved by our shareholders.

In determining the long-term incentive structure and award amounts, the Committee considered the factors described below under “Compensation Analysis Framework,” including a review of each individual’s accumulated vested and unvested awards, the current and potential realizable value over time using stock appreciation assumptions, vesting schedules, comparison of individual awards between Executives and in relation to other compensation elements, shareholder dilution and accounting expense.

Stock Options

We believe stock options focus Executives on managing the Company from the long-term perspective of an owner. Stock options provide value to the recipient only if the price of our stock increases. Because of this inherent linkage to increased shareholder returns, we believe stock options are an important component of executive long-term incentive compensation. However, we believe that this component as a percentage of total long-term incentive grant value should typically be weighted at less than 50% to balance performance focus and potential compensation-related risk, so that the majority of long-term incentive value at grant is placed on full-value awards, including those subject to achievement of performance goals. Award amounts for Executives were increased in fiscal 2016 in order to promote retention in a difficult retail industry environment and to further incentivize Executives. Ms. Syngal was granted additional stock options in April 2016 in connection with her appointment as Global President, Old Navy. Mr. DiGrande and Ms. List-Stoll received an initial stock option grant covering 325,000 shares and 200,000 shares, respectively, to induce them to join the Company. The options vest based on continued service at a rate of 25% annually beginning one year from the grant date. Awards were differentiated based

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on the Executive’s role in the organization and competitive practice. All stock options granted to employees during fiscal 2016 had an exercise price equal to the closing price of our stock on the date of grant. The stock option grants received by our Executives are described in more detail in the Grants of Plan-Based Awards table on page 41.

Stock options typically vest based on continued service at a rate of 25% annually beginning one year from the grant date, which we have determined helps meet our retention objectives. We have also used other vesting schedules to align with timing of compensation being forfeited at a prior employer for new hires or to align with critical retention periods. Stock options are typically granted with a maximum term of ten years and vested options are exercisable for three months following employment termination. Vesting is generally accelerated upon death or retirement if the stock options are held for at least one year.

Stock Units and Performance Shares

A portion of long-term incentives is delivered in units representing full-value shares of our stock to drive performance, promote retention and foster a long-term ownership perspective. Unlike stock options, full-value share awards, in combination with stock ownership requirements, subject Executives to the same downside risk experienced by shareholders but still encourage retention if our stock price does not appreciate, and help to focus Executives on sustaining the value of the Company. In general, we believe the grant or vesting of a significant percentage of full-value shares for Executives should be based on performance against annual or long-term objectives unless they are made to offset compensation from prior employment in the case of new hires. However, to balance our performance, retention, and ownership objectives, in the past we have granted stock units or other full-value shares that vest only for continued service with the Company, and we may do so in the future. Mr. DiGrande and Ms. List-Stoll each received an initial stock unit grant covering 100,000 shares to induce them to join the Company. The stock units vest based on continued service at a rate of 25% annually beginning one year from the grant date. The stock unit grants received by our Executives are described in more detail in the Grants of Plan-Based Awards table on page 41.

Stock units that are granted to Executives other than the CEO have in most cases been scheduled to vest over three or four years, but the schedule may differ based on critical retention or performance periods, or the vesting of compensation being forfeited at a prior employer for new hires. Executives generally must be employed on the vesting date or awards are forfeited. Vesting is generally accelerated upon death or retirement if the awards are held for at least one year and any performance conditions have been previously satisfied. Additional circumstances under which vesting of long-term incentives may be accelerated is described on pages 47-49 of this Proxy Statement.

LGP (Long-Term Growth Program)

Executives are eligible to participate in the LGP, which is intended to promote sustained improvement in financial performance and long-term value creation for shareholders, while taking into account the inherent difficulty in setting long-term performance goals in the volatile retail industry. Mr. DiGrande joined the Company in May 2016 as Executive Vice President, Strategy and Chief Customer Officer and received a prorated LGP grant for fiscal 2016. Ms. Syngal was appointed as Global President, Old Navy in April 2016 and received additional LGP shares in order to bring her total grant to the Global President level. Ms. List-Stoll joined the Company in January 2017 as Executive Vice President and Chief Financial Officer and did not receive a LGP grant for fiscal 2016. The key features of the program are described below:

Each Executive is eligible to receive an annual performance share award. Performance shares give the Executive the right to receive a number of shares of our stock based on achievement against performance goals during a specified three-year performance period. Actual shares paid out, if any, will vary based on achievement of the performance goals.

 

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The number of actual shares paid after the end of three years is based on two performance metrics: (i) average attainment of separate annual earnings goals that are established each year over three years, measured at the division level for Global Presidents and the corporate level for those with Company-wide responsibilities, and (ii) attainment of a three-year cumulative Company earnings goal set at the beginning of the same three-year period. The potential payout range as a percentage of the target award based on average annual earnings attainment is 0% to 250%. The award is modified up or down by up to 20% (for a maximum opportunity of 300% of target) based on the level of attainment of the cumulative Company earnings goal.

 

If earned, 50% of the award is payable at the end of the three-year performance period, and the remaining 50% is subject to a one-year vesting schedule based on continued service with the Company.

 

The table below describes the potential payout range as a percentage of the target award for the fiscal 2016-2018 performance period. The target number of shares was determined using our closing stock price on the date of grant and a percentage of base salary. Targets were increased for fiscal 2016 to further incentivize Executives to improve performance and for retention after considering relevant factors described below under “Compensation Analysis Framework”. The performance share grants represent only an opportunity to earn actual shares of our stock based on achievement of performance goals over three years. The associated amount listed in the Summary Compensation Table under Stock Awards is the grant date fair value for accounting purposes, which is the required disclosure under SEC rules, not necessarily the compensation that will be actually realized by each Executive. The same threshold, target range, maximum earnings goals, and adjustments described above under “Fiscal 2016 Annual Bonus” applied to the 2016 performance year under the LGP. We use earnings for both annual cash awards and performance-based long-term incentives because we believe that it is the best metric to drive shareholder value. The use of annual goals over a three-year period maintains our ability to set realistic goals while creating focus on results over a longer time horizon and a strong linkage to overall long-term Company results. All payments are made in shares at vesting and dividends are not paid or accrued on unvested shares. Ms. Simmons left the Company in February 2017 and is not eligible to receive a payout under the fiscal 2015 or fiscal 2016 awards.

           

Fiscal 2016 Award Potential Payout

Name

Target

Percentage
of Base Salary

Target
Number
of Performance
Shares

Potential
Payout
Range as
Percentage
of Target Shares

Arthur Peck

 

500

%

 

221,172

 

0 – 300%

Sebastian DiGrande

 

120

%

 

21,769

 

0 – 300%

Jeff Kirwan

 

180

%

 

53,677

 

0 – 300%

Sonia Syngal

 

180

%

 

52,186

 

0 – 300%

Former Executive

 

 

   

 

 

 

Sabrina Simmons

 

180

%

 

52,186

 

0 – 300%

 

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The following table describes the actual achievement levels and actual shares for the LGP awards for the completed fiscal 2014-2016 performance period for each eligible Executive.

Fiscal 2014 Award Achievement

Name

Target
Shares

Year 1, Year 2, & Year 3
(2014-2016)
Actual Percentage
Achieved

Three
Year
Average

Actual
Cumulative
Company
Earnings
Goal
Modifier

Actual
Percentage
Achieved (1)

Actual
Shares (1)

Arthur Peck

33,767

59%

0%

76%

45%

20%

36%

12,201

Sonia Syngal

14,218

64%

0%

191%

85%

20%

68%

9,669

Former Executive

 

 

 

 

 

 

 

 

Sabrina Simmons

29,324

64%

0%

76%

47%

20%

38%

11,005

 

Footnotes

(1)

Actual percentage achieved is rounded for presentation and is the three-year average, decreased by the cumulative Company earnings goal modifier. Actual shares is the product of the target shares and the actual percentage achieved.

The table below describes, for each eligible Executive, the actual percentage achievement levels for the completed fiscal years under the LGP awards for the fiscal 2015-2017 and fiscal 2016-2018 performance periods. Final achievement and actual shares for these outstanding awards are still subject to the remaining performance periods and the cumulative Company earnings goal over the same three-year performance period.

 

Fiscal 2015 Award
Achievement

Fiscal 2016 Award
Achievement

 

 

Year 1
(2015)

Year 2
(2016)

 

Year 1
(2016)

Name

Target
Shares

Actual
Percentage
Achieved

Actual
Percentage
Achieved

Target
Shares

Actual
Percentage
Achieved

Arthur Peck

141,749

0%

76%

221,172

76%

Sebastian DiGrande

N/A

N/A

N/A

21,769

76%

Jeff Kirwan

30,894

0%

0%

53,677

0%

Sonia Syngal

18,173

0%

191%

52,186

191%

Benefits and Perquisites

Executives generally are eligible for the same health and welfare plans as other full-time Gap Inc. employees, including medical, dental, life and disability insurance, and retirement plans. Although not a significant part of total compensation, we also provide limited additional benefits and perquisites to our Executives, which we believe are reasonable and consistent with our overall compensation objectives. These perquisites and benefits include: financial planning services or an allowance, as Executives typically have more complex financial planning requirements; participation in a deferred compensation plan that is offered to all highly compensated employees, as a means to help meet retirement savings goals; and matching charitable donations, up to certain annual limits, which are available to all employees. For Mr. Peck only, we allow limited personal use of a Company airplane at an amount not to exceed $150,000 per year based on the incremental cost to the Company in order to provide an efficient way for Mr. Peck to manage travel and time commitments.

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Various agreements, as described in more detail beginning on page 47, provide for severance benefits in the event of a termination of employment. These benefits were selected in light of competitive conditions and customary practices at the time of their implementation.

The value of the benefits and perquisites received by our Executives are described in more detail in the footnotes to the Summary Compensation Table beginning on page 40.

Stock Ownership Requirements for Executive Officers / Hedging and Pledging Prohibitions

We have minimum stock ownership requirements for certain executive positions to more closely link executive and shareholder interests, to balance potential rewards and risks, and to encourage a long-term perspective in managing the Company. Each executive has five years from the date of his or her appointment to reach the requirement.

As of January 28, 2017, all Executives had either met the shares requirement in the table below or had remaining time to do so.

 

Requirements
(shares)

CEO

300,000

Global President

75,000

Corporate Executive Vice President

40,000

Executives not meeting the requirement must retain 50% of their after-tax shares acquired through stock compensation programs until the requirement is reached.

For purposes of determining stock ownership levels, in addition to shares held directly, certain forms of equity interests in the Company count towards the stock ownership requirement, including non-performance-based stock units (vested or unvested) and shares held within our 401(k) Plan. A complete description of the requirements, including a complete list of accepted forms of ownership, is located at

Our insider trading policy applicable to executives prohibits speculation in our stock, including short sales, hedging or publicly-traded option transactions. We also prohibit executives from pledging Company stock as collateral for a loan or for any other purpose.

Termination Payments

Various agreements, as described in more detail beginning on page 47, provide for severance benefits in the event of a termination of employment. These benefits were selected in light of competitive conditions and customary practices at the time of their implementation. We have no severance arrangements specific to a change in control.

Compensation Analysis Framework

The Committee reviews executive compensation at least annually. The Committee’s review includes base salary, annual incentives, long-term incentives and the value of benefits and perquisites. Each element is reviewed individually and in total using tally sheets, which are intended to summarize all of the elements of total actual and potential compensation and wealth accumulation. The tally sheets present

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the dollar value of each compensation component, including accumulated vested and unvested long-term incentive gains and potential gains using stock price assumptions, vesting schedules for long-term incentive awards, accumulated deferred compensation and potential severance benefits.

The Committee also uses a summary of compensation data covering other companies to support its analysis. The Committee selected a broad spectrum of retail and consumer products companies for purposes of comparing market compensation levels (the “peer group”) because we have both recruited from and lost executive talent to these industries in the past, and to ensure appropriate scope and complexity relative to the Company. Because the size of the peer group companies varies considerably, regression analysis is used where appropriate to adjust the compensation data for differences in Company revenues.

The peer group is reviewed by the Committee each year. The peer group used in 2016 was comprised of the companies listed below and reflects changes from the prior year (removal of J.C. Penney and Sears Holdings and addition of Under Armour and V.F. Corporation) to better align with Gap Inc.’s talent market and global presence.

Abercrombie & Fitch

American Eagle Outfitters

Avon Products

Best Buy

Children’s Place Retail Stores

Coach

Coca-Cola

Costco Wholesale

Estee Lauder Companies

Disney

General Mills

J. Crew

Kellogg

Kimberly Clark

Kohl’s

Levi Strauss

L Brands

Macy’s

McDonald’s

Nike

Nordstrom

PepsiCo

Polo Ralph Lauren

PVH Corporation

Ross Stores

Staples

Starbucks

Target

TJX Companies

Under Armour

V.F. Corporation

Williams-Sonoma

YUM! Brands

The majority of the peer group provides compensation data through surveys conducted by Willis Towers Watson, an international consulting company. The surveys provide levels of base salary, annual incentives, and long-term incentive grant values in a summarized form, and we believe that this data provides a reasonable indicator of total compensation values for the peer group. This data is supplemented by information obtained through proxy statement disclosures and other public sources. The Committee uses the peer group data along with the tally sheet data as a frame of reference to inform compensation decisions, but compensation is not set to meet specific benchmarks or percentiles.

In conducting its analysis and determining compensation, the Committee also takes into account the following factors where relevant:

Business and talent strategies;

 

The nature of each Executive’s role;

 

Individual performance (based on specific financial and operating objectives for each Executive, as well as leadership behaviors);

 

Compensation history, including at former employers in the case of new hires;

 

Future potential contributions by the Executive;

 

Internal comparisons to other Executives;

 

Comparisons of the value and nature of each compensation element to each other and in total; and

 

Retention risk.

 

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As described below, the Committee also considers management’s recommendations and advice from the Committee’s independent compensation consultant when appropriate. The Committee periodically reviews the accounting and tax implications of each compensation element, and shareholder dilution in the case of equity awards.

Role of the CEO and Compensation Consultant

The CEO evaluates each Executive using relevant factors described above under “Compensation Analysis Framework” and makes recommendations to the Committee about the structure of the compensation program and individual arrangements. The CEO is generally present at Committee meetings when compensation, other than his own, is considered and approved. However, approval rests solely with the Committee.

The Committee has engaged Frederic W. Cook & Co. as its independent compensation consultant to advise the Committee periodically on the compensation program structure and individual compensation arrangements. The consultant was selected by the Committee and does not provide any other services to the Company. In addition, we have conducted a review of the Committee’s relationship with its compensation consultant, and have identified no conflicts of interest. From time to time, the consultant attends Committee meetings, presents briefings on general and retail-industry compensation trends and developments, and is also available to the Committee outside of meetings as necessary. The consultant reports directly to the Committee, although the consultant meets with management from time to time to obtain information necessary to advise the Committee.

Accounting and Tax Considerations

Accounting, tax and related financial implications to the Company and Executives are considered during the analysis of our compensation and benefits program and individual elements. Overall, the Committee seeks to balance attainment of our compensation objectives with the need to maximize current tax deductibility of compensation that may impact earnings and other measures of importance to shareholders. The Committee determined that the accounting and tax impacts described below were reasonable in light of our objectives.

In general, base salary, annual cash incentive bonus payments, and the costs related to benefits and perquisites are generally recognized as compensation expense at the time they are earned or provided. Share-based compensation expense is recognized in our consolidated statements of income for stock options, stock units, and performance shares.

Subject to the exceptions and limits below, we generally deduct for federal income tax purposes all payments of compensation and other benefits to Executives. We do not deduct deferred compensation until the year that the deferred compensation is paid to an Executive.

Section 162(m) of the Internal Revenue Code generally does not allow a tax deduction to public companies for compensation over $1,000,000 paid to the principal executive officer or any of the other three most highly compensated executive officers (other than the principal financial officer) unless the compensation is based on attainment of pre-established objective performance goals and certain other requirements are met. It is our preference to qualify executive compensation as deductible under Section 162(m) where we determine it is consistent with our interests and compensation objectives. However, to maintain maximum flexibility in achieving compensation objectives, the Committee, while considering company tax deductibility as one of its factors in determining compensation, will not limit compensation to those levels or types of compensation that are intended to be deductible. Our compensation plans have generally been designed to permit awards that qualify as deductible under Section 162(m). However, the

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individual objectives component of the annual incentive bonus is qualitative in nature and is subject to the deduction limits of Section 162(m). In addition, stock units, other than performance shares, that have vesting based only on continued service are also subject to the deduction limits of Section 162(m). Because of the fact-based nature of the performance-based compensation exception and the limited amount of guidance, there is no guarantee that compensation that is intended to comply with the performance-based compensation exception under Section 162(m) will in fact so qualify.

Section 4999 and Section 280G of the Internal Revenue Code provide that executives could be subject to additional taxes if they receive payments or benefits that exceed certain limits in connection with a change in control of the Company and that the Company could lose an income tax deduction for such payments. We have not provided any Executive with tax gross-ups or other reimbursement for tax amounts the Executive might be required to pay under Section 4999.

Recovery and Adjustments to Awards

Subject to the approval of the Board, we will require reimbursement and/or cancellation of any bonus or other incentive compensation, including stock-based compensation, where all of the following factors are present: (i) the award was predicated upon the achievement of certain financial results that were subsequently the subject of a restatement, (ii) in the Board’s view, the Executive engaged in fraud or intentional misconduct that was a substantial contributing cause to the need for the restatement, and (iii) a lower award would have been made to the Executive based upon the restated financial results. In each such instance, we will seek to recover the individual Executive’s entire annual bonus or award for the relevant period, plus a reasonable rate of interest. The Board is monitoring this policy to ensure that it is consistent with applicable laws, including any requirements under the Dodd-Frank Wall Street Reform and Consumer Protection Act.

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COMPENSATION COMMITTEE REPORT

The Compensation and Management Development Committee (the “Committee”) has reviewed and discussed this Compensation Discussion and Analysis with management. Based on the review and discussions, the Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in our annual report on Form 10-K for the fiscal year ended January 28, 2017 and the Proxy Statement for the 2017 Annual Meeting of Shareholders.

Bob L. Martin (Chair)

Brian Goldner
Domenico De Sole
Katherine Tsang

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Summary Compensation Table

The following table shows compensation information for fiscal 2016, which ended January 28, 2017, for our CEO, CFO, the three other most highly compensated executive officers at fiscal year-end, and another officer who served as the Company's principal financial officer during the fiscal year, regardless of compensation, as required under SEC rules (“named executive officers”). The table also shows compensation information for fiscal 2015 and fiscal 2014, which ended January 30, 2016 and January 31, 2015, respectively, for those named executive officers who also were named executive officers in either of those years.

                                       

Name and Principal Position (1)

Fiscal
Year

Salary
($) (2)

Bonus
($) (3)

Stock Awards
($) (4) (5)

Option
Awards
($) (5) (6)

Non-Equity
Incentive Plan
Compensation
($) (7)

Change in
Pension Value
and
Nonqualified
Deferred
Compensation
Earnings
($) (8)

All Other
Compensation
($) (9)

Total
($)

Arthur Peck

 

2016

   

1,330,288

   

0

   

3,637,795

   

2,932,000

   

917,511

   

0

   

88,572

   

8,906,166

 

 

CEO

 

2015

   

1,300,000

   

0

   

2,733,227

   

2,079,960

   

0

   

0

   

27,611

   

6,140,798

 

 

 

2014

   

943,269

   

0

   

1,397,332

   

656,576

   

419,411

   

0

   

93,424

   

3,510,012

 

Teri List-Stoll

 

2016

   

30,288

   

0

   

2,192,680

   

1,076,000

   

0

   

0

   

22,874

   

3,321,842

 

 

EVP and CFO

 

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

Sebastian DiGrande

 

2016

   

505,385

   

342,466

   

1,725,887

   

1,147,445

   

402,703

   

0

   

29,400

   

4,153,286

 

 

EVP, Strategy & Chief Customer Officer

 

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

Jeff Kirwan

 

2016

   

893,269

   

0

   

771,499

   

1,319,400

   

133,990

   

0

   

65,394

   

3,183,552

 

 

Global President, Gap

 

2015

   

850,000

   

0

   

3,642,268

   

555,728

   

127,500

   

0

   

1,061,541

   

6,237,037

 

Sonia Syngal

 

2016

   

850,000

   

0

   

729,630

   

1,081,720

   

992,501

   

0

   

70,603

   

3,724,454

 

 

Global President, Old Navy

 

2015

   

750,000

   

0

   

3,378,237

   

243,131

   

90,000

   

0

   

67,541

   

4,528,909

 

Former Executive Officer

 

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

Sabrina Simmons

 

2016

   

875,000

   

500,000

   

1,048,174

   

1,319,400

   

0

   

0

   

67,195

   

3,809,769

 

 

Former EVP and CFO

 

2015

   

868,269

   

0

   

4,156,533

   

625,194

   

130,241

   

0

   

64,810

   

5,845,047

 

 

 

2014

   

825,000

   

0

   

2,258,223

   

738,648

   

457,385

   

0

   

63,651

   

4,342,907

 

 

Footnotes

(1)

Mr. Peck became our CEO in February 2015. Ms. List-Stoll became our CFO in January 2017. Mr. DiGrande became an executive officer of the Company in May 2016. Ms. Simmons ceased to be our CFO in January 2017.

(2)

The amounts in this column for Ms. Syngal in fiscal 2016, for Mr. Kirwan in 2016, for Mr. Peck in 2014 and 2016, and for Ms. Simmons in fiscal 2015, reflect the prorated payment of their salaries based on changes during the year. Base salary changes in fiscal 2016 are further described on page 25 of the Compensation Discussion and Analysis section.

 

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Footnotes (continued)

(3)

The amount in this column for Mr. DiGrande reflects the earned portion of a bonus with repayment provisions that he received when he joined the Company. The amount in this column for Ms. Simmons reflects the earned portion of a retention payment with repayment provisions from February 2015. For additional details regarding Ms. Simmons' retention payment, please see our 2016 Proxy Statement.

(4)

This column reflects the aggregate grant date fair value for awards of stock during fiscal 2016, 2015 and 2014, computed in accordance with FASB ASC 718. These amounts reflect the grant date fair value, and do not necessarily represent the actual value that may be realized by the named executive officers. For 2014, this column includes (a) the grant date fair value of the target number of shares that may be earned under the Company’s Long-Term Growth Program (LGP) with respect to year 3 of a three-year performance period beginning with fiscal 2012 (“LGP 1”), (b) the grant date fair value of the target number of shares that may be earned under the LGP with respect to year 2 of a three-year performance period beginning with fiscal 2013 (“LGP 2”), and (c) the grant date fair value of the target number of shares that may be earned under the LGP with respect to year 1 of a three-year performance period beginning with fiscal 2014 (“LGP 3”). For 2015, this column includes (a) the grant date fair value of the target number of shares that may be earned under the LGP with respect to year 3 of LGP 2, (b) the grant date fair value of the target number of shares that may be earned under the LGP with respect to year 2 of LGP 3, and (c) the grant date fair value of the target number of shares that may be earned under the LGP with respect to year 1 of a three-year performance period beginning with fiscal 2015 (“LGP 4”). For 2016, this column includes (a) the grant date fair value of the target number of shares that may be earned under the LGP with respect to year 3 of LGP 3, (b) the grant date fair value of the target number of shares that may be earned under the LGP with respect to year 2 of LGP 4, and (c) the grant date fair value of the target number of shares that may be earned under the LGP with respect to year 1 of a three-year performance period beginning with fiscal 2016 (“LGP 5”). See page 31 of the Compensation Discussion and Analysis section for actual shares granted under LGP 3. Mr. Kirwan received his first grant under the LGP in 2015, and Mr. DiGrande received his first grant under the LGP in 2016.

 

 

 

For executives other than Mr. Peck, this column also includes the aggregate grant date fair value of any restricted stock units granted during fiscal 2016, 2015 and 2014.

 

 

 

Details on the figures included in this column for 2016 are reflected in the following table. Details on the figures included in this column for 2015 and 2014 are included in our 2016 and 2015 Proxy Statements.

 

 

LGP 3 (FY 2014 Grant)
Year 3
Target Shares
Grant Date Fair Value
($)

LGP 4 (FY 2015 Grant)
Year 2
Target Shares
Grant Date Fair Value
($)

LGP 5 (FY 2016 Grant)
Year 1
Target Shares
Grant Date Fair Value
($)

Grant Date Fair
Value of Non-LGP Stock
Awards
($)

Total Reported in
Stock Awards Column
(Rounded to the
nearest dollar)
($)

Arthur Peck

324,369

1,319,192

1,994,234

0

3,637,795

Teri List-Stoll

0

0

0

2,192,680

2,192,680

Sebastian DiGrande

0

0

110,727

1,615,160

1,725,887

Jeff Kirwan

0

287,520

483,979

0

771,499

Sonia Syngal

136,578

169,111

423,941

0

729,630

Sabrina Simmons (a)

281,687

295,952

470,535

0

1,048,174

 

 

(a)

Ms. Simmons, who left the Company in February 2017, is not eligible to receive a payout under any outstanding LGP 4 or LGP 5 awards.

 

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Footnotes (continued)

The total grant date fair value of the LGP awards if maximum performance conditions were achieved over the entire three-year period under LGP 3, LGP 4 and LGP 5 are detailed in the following tables. The grant date fair values per share used in calculating the total grant date fair values below were as follows: (i) year 1 of LGP 3 ($39.21), year 2 of LGP 3 ($39.01), and year 3 of LGP 3 ($28.82), (ii) year 1 of LGP 4 ($38.13), and years 2 and 3 of LGP 4 ($27.92), and (iii) years 1, 2 and 3 of LGP 5 ($20.80 for Ms. Syngal, $15.26 for Mr. DiGrande, and $27.05 for the other named executive officers). The grant date fair value for year 2 of LGP 4 was used for year 3 of LGP 4, and the grant date fair value for year 1 of LGP 5 was used for years 2 and 3 of LGP 5. Mr. Kirwan did not receive an LGP grant in fiscal 2014, Mr. DiGrande did not receive an LGP grant until he joined the Company in 2016, and Ms. List-Stoll did not receive an LGP grant until she joined the Company in 2017. For a description of the Company’s Long-Term Growth Program, please see pages 29-31 of the Compensation Discussion and Analysis section.

 

 

 

LGP 3
(FY 2014 Cycle)

Maximum Shares
Total Grant Date Fair Value
($)

 

LGP 4
(FY 2015 Cycle)

Maximum Shares
Total Grant Date Fair Value
($)

 

LGP 5
(FY 2016 Cycle)

Maximum Shares
Total Grant Date Fair Value
($)

Art Peck

3,614,420

 

Art Peck

13,320,154

 

Art Peck

17,948,108

Teri List-Stoll

n/a

 

Teri List-Stoll

n/a

 

Teri List-Stoll

n/a

Sebastian DiGrande

n/a

 

Sebastian DiGrande

n/a

 

Sebastian DiGrande

996,585

Jeff Kirwan

n/a

 

Jeff Kirwan

2,903,109

 

Jeff Kirwan

4,355,889

Sonia Syngal

1,521,895

 

Sonia Syngal

1,707,717

 

Sonia Syngal

3,815,550

Sabrina Simmons (a)

3,138,841

 

Sabrina Simmons (a)

2,988,434

 

Sabrina Simmons (a)

4,234,894

 

 

(a)

Ms. Simmons, who left the Company in February 2017, is not eligible to receive a payout under any outstanding LGP 4 or LGP 5 awards.

 

 

(5)

Please refer to Note 11, “Share-Based Compensation,” in the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K filed on March 20, 2017 for the relevant assumptions used to determine the compensation cost of our stock and option awards. Please refer to the Grants of Plan-Based Awards table in this Proxy Statement and in our 2016 and 2015 Proxy Statements for information on awards actually granted in fiscal 2015 and 2014.

(6)

This column reflects the aggregate grant date fair value for awards of stock options during fiscal 2016, 2015 and 2014, computed in accordance with FASB ASC 718. These amounts reflect the grant date fair value, and do not necessarily represent the actual value that may be realized by the named executive officers.

(7)

The amounts in this column reflect the non-equity amounts earned by the named executive officers under the Company’s annual incentive bonus plan. For Mr. DiGrande, this amount reflects the guaranteed portion of his annual bonus for fiscal 2016 under his employment agreement.

(8)

No above-market or preferential interest rate options are available under our deferred compensation programs. Please refer to the Nonqualified Deferred Compensation table for additional information on deferred compensation earnings.

(9)

The amounts shown in the All Other Compensation column are detailed in the following table.

 

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Name

Fiscal
Year

Personal
Use of
Airplane
($) (a)

Financial
Counseling
($) (b)

Tax
Payments
($) (c)

Deferred
Compensation
Plan Match
($) (d)

401(k)
Plan
Match
($) (e)

Disability
Plan
($) (f)

Life
Insurance
($) (g)

Relocation
($) (h)

Gift
Matching
($) (i)

Other
($) (j)

Total ($)

Arthur Peck

 

2016

   

19,523

   

14,838

   

0

   

42,477

   

10,703

   

524

   

507

   

0

   

0

   

0

   

88,572

 

 

 

2015

   

0

   

14,800

   

0

   

0

   

11,261

   

650

   

900

   

0

   

0

   

0

   

27,611

 

 

 

2014

   

0

   

14,800

   

0

   

27,139

   

11,813

   

624

   

1,128

   

0

   

10,000

   

27,920

   

93,424

 

Teri List-Stoll

 

2016

   

0

   

0

   

0

   

0

   

0

   

16

   

48

   

22,810

   

0

   

0

   

22,874

 

Sebastian DiGrande

 

2016

   

0

   

9,182

   

0

   

7,485

   

11,678

   

548

   

507

   

0

   

0

   

0

   

29,400

 

Jeff Kirwan

 

2016

   

0

   

14,838

   

0

   

24,938

   

10,342

   

527

   

507

   

14,242

   

0

   

0

   

65,394

 

 

 

2015

   

0

   

14,800

   

777,099

   

23,400

   

9,881

   

647

   

900

   

234,814

   

0

   

0

   

1,061,541

 

Sonia Syngal

 

2016

   

0

   

18,341

   

0

   

22,919

   

8,553

   

489

   

648

   

15,703

   

3,950

   

0

   

70,603

 

 

 

2015

   

0

   

10,627

   

0

   

18,823

   

8,774

   

650

   

900

   

23,272

   

4,495

   

0

   

67,541

 

Sabrina Simmons

 

2016

   

0

   

14,838

   

0

   

24,400

   

11,785

   

524

   

648

   

0

   

15,000

   

0

   

67,195

 

 

 

2015

   

0

   

14,800

   

0

   

23,938

   

9,529

   

643

   

900

   

0

   

15,000

   

0

   

64,810

 

 

 

2014

   

0

   

14,800

   

0

   

22,600

   

10,387

   

736

   

1,128

   

0

   

14,000

   

0

   

63,651

 

 

 

(a)

The Compensation and Management Development Committee determined that it was appropriate to provide Mr. Peck use of a Company airplane for limited personal use (not to exceed $150,000 per fiscal year in incremental cost to the Company). As required by SEC rules, the amounts shown are the incremental cost to the Company of personal use of the Company airplane and are calculated based on the variable operating costs to the Company, including fuel costs, mileage, trip-related maintenance, and other miscellaneous variable costs. Since the Company airplane is primarily used for business travel, fixed costs which do not change based on usage, such as the pilot's salary and maintenance costs unrelated to the trip, are excluded.

 

(b)

We provide certain executive officers access to financial counseling services, which may include tax preparation and estate planning services. We value this benefit based on the actual cost for those services.

 

(c)

For Mr. Kirwan, these amounts reflect tax reimbursements in connection with his previous international assignments and relocation to the U.S.

 

(d)

These amounts reflect Company matching contributions under the Company’s nonqualified Deferred Compensation Plan for base salary deferrals representing the excess of the participant’s base pay over the current IRS qualified plan limit ($265,000 for calendar year 2016), which are matched at up to 4% of base pay, the same rate as is in effect under the Company’s 401(k) plan.

 

(e)

These amounts reflect Company matching contributions under the Company’s 401(k) Plan.

 

(f)

These amounts reflect premium payments for long-term disability insurance, which is available to benefits-eligible employees generally.

 

(g)

These amounts reflect premiums paid for life insurance provided to employees at the Director level and above.

 

(h)

For Mr. Kirwan, the amounts reflect costs in connection with his relocation from China to New York when he assumed the role of Global President, Gap brand. For Ms. Syngal, the amounts reflect costs in connection with her relocation from the U.K. to San Francisco.

 

(i)

These amounts reflect Company matching contributions under the Company’s Gift Match Program, available to all employees, under which contributions to eligible nonprofit organizations are matched by the Company, up to certain annual limits. In fiscal 2016, the limit for the named executive officers was $15,000, with the exception of Mr. Peck who had an annual matching limit of $100,000. The annual gift match eligibility limits are based on the executive’s original donation date.

 

(j)

The amount in this column for Mr. Peck reflects reimbursement of attorney fees he incurred in connection with the review of his October 2014 agreement with the Company regarding his transition to the CEO position.

 

 

 

 

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Grants of Plan-Based Awards

The following table shows all plan-based awards granted to the named executive officers during fiscal 2016, which ended on January 28, 2017. The option awards and the unvested portion of the stock awards identified in the table below are also reported in the Outstanding Equity Awards at Fiscal Year-End table.

                                                 

Name

Grant
Date

Approval
Date

Estimated Future Payouts
Under Non-Equity Incentive
Plan Awards (1)

Estimated Future Payouts
Under Equity Incentive Plan
Awards (2)

All Other
Stock
Awards:
Number of
Shares of
Stock or
Units
(#)

All Other
Option
Awards:
Number of
Securities
Underlying
Options
(#)

Exercise
or Base
Price of
Option
Awards
($)

Grant Date
Fair
Value of
Stock
and Option
Awards
($) (3)

Threshold
($)

Target
($)

Maximum
($)

Threshold
(#)

Target
(#)

Maximum
(#)

Arthur Peck

 

3/14/16

   

3/14/16

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

500,000

   

30.18

   

2,932,000

 

 

 

 

   

 

   

 

   

 

   

 

   

5,065

   

11,255

   

33,767

   

 

   

 

   

 

   

324,369

 

 

 

 

   

 

   

 

   

 

   

 

   

21,262

   

47,249

   

141,749

   

 

   

 

   

 

   

1,319,192

 

 

 

 

   

 

   

 

   

 

   

 

   

33,175

   

73,724

   

221,172

   

 

   

 

   

 

   

1,994,234

 

 

 

N/A

   

 

   

 

   

2,328,005

   

4,656,010

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

Teri List-Stoll

 

1/17/17

   

11/09/16

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

200,000

   

24.15

   

1,076,000

 

 

 

1/17/17

   

11/09/16

   

 

   

 

   

 

   

 

   

 

   

 

   

100,000

   

 

   

 

   

2,192,680

 

Sebastian DiGrande

 

5/23/16

   

4/18/16

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

325,000

   

18.41

   

1,147,445

 

 

 

5/23/16

   

4/18/16

   

 

   

 

   

 

   

 

   

 

   

 

   

100,000

   

 

   

 

   

1,615,160

 

 

 

5/23/16

   

4/18/16

   

 

   

 

   

 

   

3,265

   

7,256

   

21,769

   

 

   

 

   

 

   

110,727

 

 

 

N/A

   

 

   

 

   

402,703

   

805,407

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

Jeff Kirwan

 

3/14/16

   

3/14/16

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

225,000

   

30.18

   

1,319,400

 

 

 

3/14/16

   

3/14/16

   

 

   

 

   

 

   

4,634

   

10,298

   

30,894

   

 

   

 

   

 

   

287,520

 

 

 

3/14/16

   

3/14/16

   

 

   

 

   

 

   

8,051

   

17,892

   

53,677

   

 

   

 

   

 

   

483,979

 

 

 

N/A

   

 

   

223,317

   

893,269

   

1,786,538

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

Sonia Syngal

 

3/14/16

   

3/14/16

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

125,000

   

30.18

   

733,000

 

 

 

4/13/16

   

3/31/16

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

75,000

   

23.93

   

348,720

 

 

 

3/14/16

   

3/14/16

   

 

   

 

   

 

   

2,132

   

4,739

   

14,218

   

 

   

 

   

 

   

136,578

 

 

 

3/14/16

   

3/14/16

   

 

   

 

   

 

   

2,725

   

6,057

   

18,173

   

 

   

 

   

 

   

169,111

 

 

 

3/14/16

   

3/14/16

   

 

   

 

   

 

   

4,473

   

9,940

   

29,821

   

 

   

 

   

 

   

268,877

 

 

 

4/13/16

   

3/31/16

   

 

   

 

   

 

   

3,354

   

7,455

   

22,365

   

 

   

 

   

 

   

155,064

 

 

 

N/A

   

 

   

204,962

   

819,849

   

1,639,698

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

Former Executive Officer

 

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

Sabrina Simmons

 

3/14/16

   

3/14/16