DEF 14A 1 d271275ddef14a.htm DEF 14A DEF 14A
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a)

of the Securities Exchange Act of 1934

 

 

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 Pursuant to § 240.14a-12


    LOWE’S COMPANIES, INC.    

(Name of Registrant as Specified In Its Charter)

         

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

 

 

April 21, 2017

Dear Fellow Shareholders:

I am pleased to invite you to attend our 2017 Annual Meeting of Shareholders to be held at 10:00 a.m., Eastern Time, on Friday, June 2, 2017 at the Ballantyne Hotel, 10000 Ballantyne Commons Parkway, Charlotte, North Carolina 28277. Details regarding admission to the meeting and the business to be conducted are described in the accompanying Notice of 2017 Annual Meeting of Shareholders and Proxy Statement.

Your vote is important. Regardless of whether you plan to attend the meeting, I strongly encourage you to vote as soon as possible to ensure that your shares are represented at the meeting. The accompanying Proxy Statement explains more about voting. Please read it carefully.

Sincerely,

 

LOGO

Robert A. Niblock

Chairman of the Board, President

and Chief Executive Officer

 

 

 


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LOWE’S COMPANIES, INC.

1000 Lowe’s Boulevard

Mooresville, North Carolina 28117

(704) 758-1000

Notice of 2017 Annual Meeting of Shareholders

April 21, 2017

The 2017 Annual Meeting of Shareholders (the “Annual Meeting”) of Lowe’s Companies, Inc. (the “Company”) will be held at 10:00 a.m., Eastern Time, on Friday, June 2, 2017 at the Ballantyne Hotel, 10000 Ballantyne Commons Parkway, Charlotte, North Carolina 28277, for the purpose of voting on the following matters:

 

1. To elect the 11 persons nominated by the Board of Directors for election as directors;

 

2. To approve, on an advisory basis, the Company’s named executive officer compensation in fiscal 2016;

 

3. To vote, on an advisory basis, on the frequency of future advisory votes to approve the Company’s named executive officer compensation;

 

4. To ratify the appointment of Deloitte & Touche LLP as the Company’s independent registered public accounting firm for fiscal 2017;

 

5. To consider and vote upon the shareholder proposal set forth in the accompanying Proxy Statement, if properly presented at the Annual Meeting; and

 

6. To transact such other business as may properly come before the Annual Meeting or any adjournment or postponement thereof.

The Board of Directors unanimously recommends a vote “FOR” items 1, 2 and 4, a vote in favor of a frequency of every “1 YEAR” for item 3 and a vote “AGAINST” the shareholder proposal in item 5. The persons named as proxies will use their discretion to vote on other matters that may properly arise at the Annual Meeting or any adjournment or postponement thereof.

Only shareholders of record as of the close of business on March 24, 2017 will be entitled to notice of, and to vote at, the Annual Meeting.

Your vote is important. Whether or not you plan to attend the Annual Meeting, you are encouraged to vote as soon as possible to ensure that your shares are represented at the meeting. If you received a printed copy of the proxy materials by mail, you may vote your shares by proxy using one of the following methods: (i) vote via the Internet; (ii) vote by telephone; or (iii) complete, sign, date and return your proxy card in the postage-paid envelope provided. If you received only a Notice of Internet Availability of Proxy Materials by mail, you may vote your shares at the Internet site address listed on your notice. If you hold your shares through an account with a bank, broker or similar organization, please follow the instructions you receive from the holder of record to vote your shares.

Sincerely,

 

LOGO

Ross W. McCanless

Chief Legal Officer, Secretary and

Chief Compliance Officer

 

Important Notice Regarding the Availability of Proxy Materials

for the Annual Meeting of Shareholders To Be Held on June 2, 2017:

The Notice of 2017 Annual Meeting of Shareholders, Proxy Statement and

2016 Annual Report to Shareholders are available at www.proxyvote.com.


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PROXY SUMMARY

 

 

 

We have demonstrated a strong commitment to returning capital to our shareholders and have had continued dividend growth since 1961.

 

$19.3 Billion   24%   $4.3 Billion

SHARES REPURCHASED UNDER OUR SHARE

REPURCHASE PROGRAM IN THE LAST FIVE YEARS

 

2016 INCREASE IN

ANNUAL DIVIDEND

 

DIVIDENDS PAID IN THE

LAST FIVE YEARS

 

 

 

LOGO

 

This summary includes certain financial and operational, governance and executive compensation highlights. This summary does not contain all of the information that you should consider, and you should read the entire Proxy Statement carefully before voting.

Executive Compensation Highlights

Our executive compensation program is designed to link pay to the executives’ advancement of Lowe’s performance and business strategies and their performance for our shareholders. To that end, the primary objectives of our executive compensation program are to:

 

  Attract and retain executives who have the requisite leadership skills to support the Company’s culture and strategic growth priorities;

 

  Maximize long-term shareholder value through alignment of executive and shareholder interests;

 

  Align executive compensation with the Company’s business strategies, including expanding home improvement reach, developing capabilities to anticipate and support customer needs and generating profitable growth and substantial returns; and

 

  Target executive total compensation at the market median with an opportunity to earn above market pay when the Company delivers results that exceed performance targets.

Governance Highlights

Our Board of Directors is committed to sound and effective corporate governance practices. The following are highlights of our corporate governance practices:

 

  Declassified Board

 

  Independent Lead Director

 

  10 of 11 Director Nominees are Independent

 

  Majority Voting for Directors

 

  Adoption of Proxy Access

 

  Audit, Compensation, Nominating and Governance and Public Policy Committees are comprised only of Independent Directors

 

  Commitment to Sustainability and Public Policy Matters

 

  Regular Executive Sessions of Independent Directors

 

  Stock Ownership Guidelines for Executive Officers and Non-Employee Directors

 

  Annual Board, Committee and CEO Evaluations

 

  Active Board Oversight of Enterprise Risk Management

 

  Active Board Engagement in Succession Planning of Executive Officers

 

  Commitment to Board Refreshment

 

  Enhanced Shareholder Engagement Program
 

 

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FISCAL 2016 FINANCIAL AND OPERATIONAL HIGHLIGHTS

$4.6

Billion

  47

Million Shares

  $1.1
Billion
  $5.6
Billion
IN CAPITAL RETURNED
TO SHAREHOLDERS
  REPURCHASED UNDER

THE SHARE REPURCHASE PROGRAM

  DIVIDENDS PAID   CASH FLOW FROM OPERATIONS

 

 

 

We made meaningful progress this year expanding our customer reach and advancing our omni-channel capabilities, as evidenced by the rollout of our interior project specialists across all US stores, our successful redesign of Lowes.com, strengthening our market position in Canada with the acquisition of RONA and deepening and broadening our relationship with the Pro customer.

We remain resolute in our focus on generating long-term profitable growth and substantial returns for shareholders, taking a balanced approach to capital allocation with a focus on making strategic investments to grow our businesses while returning excess cash to shareholders in the form of dividends and share repurchases.

                   
    $65 BILLION IN SALES            
   

+10.1% SALES YOY

+2.5% COMP AVERAGE TICKET YOY

+1.6% COMP TRANSACTIONS YOY

 

      
   

$1.33 DIVIDENDS/
SHARE

+24% DIVIDENDS YOY

    

$3.47 DILUTED EPS

+27.1% DILUTED EPS

YOY

   
   

* YOY = Year over Year Comparison

 

             
 

 

2017 PROPOSALS    Board
Recommends
 

Proposal 1: Election of Directors

     LOGO       

Proposal 2: Advisory Vote to Approve Named Executive Officer Compensation

     LOGO       

Proposal 3: Advisory Vote on the Frequency of Future Advisory Votes to Approve Named Executive Officer Compensation

     1 YEAR  

Proposal 4: Ratification of the Appointment of Independent Registered Public Accounting Firm

     LOGO       

Proposal 5: Shareholder Proposal Regarding the Feasibility of Setting Renewable Energy Sourcing Targets

     LOGO       

 

LOGO

 

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General Information      1  
Shareholder Engagement      5  
General Information      5  
Proposal 1: Election of Directors      6  
Identifying and Evaluating Director Nominees      7  
Director Nominees      9  
Information About the Board of Directors and Committees of the Board      15  
Corporate Governance Guidelines and Code of Business Conduct and Ethics      15  
Director Independence      15  
Compensation of Directors      16  
Board Meetings, Committees of the Board and Board Leadership Structure      18  
Security Ownership of Certain Beneficial Owners and Management      24  
Section 16(a) Beneficial Ownership Reporting Compliance      25  
Compensation Discussion and Analysis      26  
Executive Summary      27  
Compensation Philosophy and Elements      31  
Compensation Decision-Making Process      33  
2016 Compensation Actions      35  
Other Compensation Policies      40  
Compensation Tables      42  
Compensation Committee Interlocks and Insider Participation      50  
Compensation Committee Report      50  
Equity Compensation Plan Information      51  
Related Person Transactions      52  
Policy and Procedures for Review, Approval or Ratification of Related Person Transactions      52  
Approved Related Person Transactions      52  
Audit Matters      53  
Report of the Audit Committee      53  
Fees Paid to the Independent Registered Public Accounting Firm      54  
Proposal 2: Advisory Vote to Approve Named Executive Officer Compensation      55  
Proposal 3: Advisory Vote on the Frequency of Future Advisory Votes to Approve Named Executive Officer Compensation      56  
Proposal 4: Ratification of the Appointment of Independent Registered Public Accounting Firm      57  
Proposal 5: Shareholder Proposal Regarding the Feasibility of Setting Renewable Energy Sourcing Targets      58  
Additional Information      60  
Delivery of Proxy Materials      60  
Electronic Delivery of Proxy Materials      60  
Shareholder Proposals for the 2018 Annual Meeting      60  
Annual Report      61  
Appendix A: Categorical Standards for Determination of Director Independence      A-1  

 

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Proxy Statement

The Board of Directors (the “Board of Directors” or the “Board”) of Lowe’s Companies, Inc. is providing these materials to you in connection with the 2017 Annual Meeting of Shareholders (the “Annual Meeting”). The Annual Meeting will be held at 10:00 a.m., Eastern Time, on Friday, June 2, 2017 at the Ballantyne Hotel, 10000 Ballantyne Commons Parkway, Charlotte, North Carolina 28277. References in this Proxy Statement to “Lowe’s,” the “Company,” “we,” “us,” “our” and similar terms refer to Lowe’s Companies, Inc.

General Information

 

Why am I receiving these materials?

You have received these materials because the Board is soliciting your proxy to vote your shares at the Annual Meeting. This Proxy Statement includes information that the Company is required to provide you under the Securities and Exchange Commission rules and regulations (the “SEC rules”) and is designed to assist you in voting your shares.

What is a proxy?

The Board of Directors is asking for your proxy. This means you authorize persons selected by the Company to vote your shares at the Annual Meeting in the way that you instruct. All shares represented by valid proxies received and not revoked before the Annual Meeting will be voted in accordance with the shareholder’s specific voting instructions.

Why did I receive a one-page notice regarding Internet availability of proxy materials instead of a full set of proxy materials?

The SEC rules allow companies to choose the method for delivery of proxy materials to shareholders. For most shareholders, the Company has elected to mail a notice regarding the availability of proxy materials on the Internet (the “Notice of Internet Availability of Proxy Materials” or the “Notice”), rather than sending a full set of these materials in the mail. The Notice of Internet Availability of Proxy Materials, or a full set of the proxy materials (including the Proxy Statement and form of proxy), as applicable, was sent to shareholders beginning April 21, 2017, and the proxy materials were posted on the investor relations portion of the Company’s website, www.Lowes.com/investor, and on the website referenced in the Notice on the same day. Utilizing this method of proxy delivery expedites receipt of proxy materials by the Company’s shareholders and lowers the cost of the Annual Meeting. If you would like to receive a paper or e-mail copy of the proxy materials, you should follow the instructions in the Notice for requesting a copy.

What is included in these materials?

These materials include:

 

  the Notice of Annual Meeting and Proxy Statement; and

 

  the 2016 Annual Report to Shareholders, which contains the Company’s audited consolidated financial statements.

If you received a printed copy of these materials by mail, these materials also include the proxy card or voting instruction form for the Annual Meeting.

What items will be voted on at the Annual Meeting?

There are five proposals scheduled to be voted on at the Annual Meeting:

 

  the election of the 11 directors nominated by the Board;

 

  the approval, on an advisory basis, of the Company’s named executive officer compensation in fiscal 2016;

 

  the vote, on an advisory basis, on the frequency of future advisory votes to approve the Company’s named executive officer compensation;

 

  the ratification of the appointment of Deloitte & Touche LLP as the Company’s independent registered public accounting firm for fiscal 2017; and

 

  a shareholder proposal regarding the feasibility of setting renewable energy sourcing targets.

The Board is not aware of any other matters to be brought before the Annual Meeting. If other matters are properly raised at the meeting, the proxy holders may vote any shares represented by proxy in their discretion.

What are the Board’s voting recommendations?

The Board unanimously recommends that you vote your shares:

 

  “FOR” the election of each of the director nominees named in this Proxy Statement to the Board;
 

 

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General Information

 

 

  “FOR” the approval, on an advisory basis, of the Company’s named executive officer compensation in fiscal 2016;

 

  “1 YEAR” for the advisory vote on the frequency of future advisory votes to approve the Company’s named executive officer compensation;

 

  “FOR” the ratification of the appointment of Deloitte & Touche LLP as the Company’s independent registered public accounting firm for fiscal 2017; and

 

  “AGAINST” the shareholder proposal regarding the feasibility of setting renewable energy sourcing targets.

Who can attend the Annual Meeting?

Admission to the Annual Meeting is limited to:

 

  shareholders of record as of the close of business on March 24, 2017;

 

  holders of valid proxies for the Annual Meeting; and

 

  invited guests.

Admission to the meeting will be on a first-come, first-served basis. Each shareholder may be asked to present valid photo identification, such as a driver’s license or passport, and proof of stock ownership as of the record date for admittance.

When is the record date and who is entitled to vote?

The Board set March 24, 2017 as the record date. As of the record date, 858,060,755 shares of common stock, $0.50 par value per share, of the Company (“Common Stock”) were issued and outstanding. Shareholders are entitled to one vote per share of Common Stock outstanding on the record date on any matter presented at the Annual Meeting.

What is a shareholder of record?

A shareholder of record or registered shareholder is a shareholder whose ownership of Common Stock is reflected directly on the books and records of the Company’s transfer agent, Computershare Trust Company, N.A. If you hold Common Stock through an account with a bank, broker or similar organization, you are considered the beneficial owner of shares held in “street name” and are not a shareholder of record. For shares held in street name, the shareholder of record is your bank, broker or similar organization. The Company only has access to ownership records for the registered shares. If you are not a shareholder of record and you wish to attend the Annual Meeting, the Company will require additional documentation to evidence your stock ownership as of the record date, such as a copy of your brokerage account statement, a letter from your bank, broker or other nominee, or a copy of your voting instruction form or Notice.

How do I vote?

You may vote by proxy or in person at the Annual Meeting. If you received a printed copy of the proxy materials by mail, you may vote your shares by proxy using one of the following methods: (i) vote via the Internet; (ii) vote by telephone; or (iii) complete, sign, date and return your proxy card in the postage-paid envelope provided. If you received only a Notice of Internet Availability of Proxy Materials by mail, you may vote your shares at the Internet site address listed on your Notice. If you hold your shares through an account with a bank, broker or similar organization, please follow the instructions you receive from the holder of record to vote your shares. Even if you plan to attend the Annual Meeting, you are encouraged to vote by proxy prior to the meeting. You can always change your vote as described in the following Q&A.

How can I revoke my proxy or change my vote?

You may revoke your proxy or change your vote as follows:

 

  Shareholders of record. You may revoke your proxy or change your vote at any time prior to the taking of the vote at the Annual Meeting by (i) submitting a written notice of revocation to Ross W. McCanless, Chief Legal Officer, Secretary and Chief Compliance Officer, at Lowe’s Companies, Inc., 1000 Lowe’s Boulevard, Mooresville, North Carolina 28117; (ii) delivering a proxy bearing a later date using any of the voting methods described in the immediately preceding Q&A, including via the Internet or by telephone, and until the applicable deadline for each method specified in the accompanying proxy card or voting instruction form or Notice of Internet Availability of Proxy Materials; or (iii) attending the Annual Meeting and voting in person. Attendance at the Annual Meeting will not cause your previously granted proxy to be revoked unless you specifically make that request or vote in person at the meeting. For all methods of voting, the last vote cast will supersede all previous votes.

 

  Beneficial owners of shares held in “street name.” You may change or revoke your voting instructions by following the specific directions provided to you by the holder of record, or, if you have obtained a legal proxy from your bank, broker or other nominee, by attending the Annual Meeting and voting in person.

What happens if I vote by proxy and do not give specific voting instructions?

Shareholders of record. If you are a shareholder of record and you vote by proxy, via the Internet, by telephone or by signing, dating and returning a proxy card, without giving specific voting instructions, then the proxy holders will vote your shares in the manner recommended by the Board on all matters presented in this Proxy Statement and as the proxy holders may determine in their discretion for any other matters properly presented for a vote at the Annual Meeting.

 

 

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General Information

 

 

Beneficial owners of shares held in “street name.” If you are a beneficial owner of shares held in street name and do not provide the organization that holds your shares with specific voting instructions, under the rules of various national and regional securities exchanges, the organization that holds your shares may generally vote on routine matters but cannot vote on non-routine matters. If the organization that holds your shares does not receive instructions from you on how to vote your shares on a non-routine matter, the organization that holds your shares will inform the inspector of election that it does not have the authority to vote on that matter with respect to your shares. This is referred to as a “broker non-vote.”

The election of directors, the advisory vote to approve the Company’s named executive officer compensation in fiscal 2016, the advisory vote on the frequency of future advisory votes to approve the Company’s named executive officer compensation and the shareholder proposal are non-routine matters. Consequently, without your voting instructions, the organization that holds your shares cannot vote your shares on these proposals. The ratification of the appointment of Deloitte & Touche LLP as the Company’s independent registered public accounting firm for fiscal 2017 is considered a routine matter.

What is the voting requirement to approve each of the proposals?

Proposal 1: Election of Directors. In uncontested elections, directors are elected by the affirmative vote of a majority of the outstanding shares of the Company’s voting securities voted at the meeting in person or by proxy, including those shares for which votes are cast as “withheld.” In the event that a director nominee fails to receive the required majority vote, the Board may decrease the number of directors, fill any vacancy, or take other appropriate action. If the number of nominees exceeds the number of directors to be elected, directors will be elected by a plurality of the votes cast by the holders of voting securities entitled to vote in the election.

Proposal 2: Advisory Vote to Approve Named Executive Officer Compensation. Approval, on an advisory basis, of the Company’s named executive officer compensation in fiscal 2016 requires the affirmative vote of a majority of the votes cast on the proposal at the Annual Meeting in person or by proxy (meaning the number of shares voted “for” the proposal must exceed the number of shares voted “against” such proposal). The results of the advisory vote will not be binding on the Company, the Compensation Committee or the Board of Directors. The Compensation Committee and the Board will, however, review the voting result and take it into consideration when making future decisions regarding executive compensation.

Proposal 3: Advisory Vote on the Frequency of Future Advisory Votes to Approve Named Executive Officer Compensation. The advisory vote on the frequency of future advisory votes to approve the Company’s named executive officer compensation requires a plurality of the votes cast on the proposal at the Annual Meeting in person or by proxy (meaning the option of every 1 year, 2 years or 3 years that receives the highest number of votes cast by shareholders will be considered the frequency for the advisory vote that is preferred by our shareholders). The results of the advisory vote will not be binding on the Company, the Compensation Committee or the Board of Directors. The Compensation Committee and the Board will, however, review the voting result and take it into consideration when making future decisions on the frequency of future advisory votes to approve named executive officer compensation.

Proposal 4: Ratification of the Appointment of Independent Registered Public Accounting Firm. Ratification of the appointment of Deloitte & Touche LLP as the Company’s independent registered public accounting firm for fiscal 2017 requires the affirmative vote of a majority of the votes cast on the proposal at the Annual Meeting in person or by proxy (meaning the number of shares voted “for” the proposal must exceed the number of shares voted “against” such proposal).

Proposal 5: Shareholder Proposal. Approval of the shareholder proposal requires the affirmative vote of a majority of the votes cast on the proposal at the Annual Meeting in person or by proxy (meaning the number of shares voted “for” the proposal must exceed the number of shares voted “against” such proposal).

Other Items. Approval of any other matters requires the affirmative vote of a majority of the votes cast on the item at the Annual Meeting in person or by proxy (meaning the number of shares voted “for” the item must exceed the number of shares voted “against” such item).

What is the quorum for the Annual Meeting? How are withhold votes, abstentions and broker non-votes treated?

The presence, in person or by proxy, of the holders of a majority of the votes entitled to be cast by the holders of Common Stock is necessary for the transaction of business at the Annual Meeting. Your shares are counted as being present if you vote in person at the Annual Meeting, via the Internet, by telephone or by submitting a properly executed proxy card or voting instruction form by mail. Abstentions and broker non-votes are counted as present or represented for the purpose of determining a quorum for the Annual Meeting.

With respect to Proposal 1, the election of directors, only “for” and “withhold” votes may be cast. Broker non-votes will not be counted as votes cast and, therefore, will not have any effect on the election of director nominees.

 

 

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General Information

 

 

With respect to Proposals 2, 3, 4 and 5, the advisory vote to approve the Company’s named executive officer compensation in fiscal 2016, the advisory vote on the frequency of future advisory votes to approve the Company’s named executive officer compensation, the proposal to ratify the appointment of Deloitte & Touche LLP as the Company’s independent registered public accounting firm for fiscal 2017 and the shareholder proposal, respectively, abstentions and broker non-votes will not be counted as votes cast and, therefore, will not have any effect on the outcomes of these proposals.

Who pays for solicitation of proxies?

The Company is paying the cost of soliciting proxies and will reimburse brokerage firms and other custodians, nominees and fiduciaries for their reasonable out-of-pocket expenses for sending proxy materials to shareholders and obtaining their

proxies. In addition to soliciting the proxies by mail and the Internet, certain of the Company’s directors, officers and employees, without compensation, may solicit proxies personally or by telephone, facsimile and e-mail. The Company has engaged Georgeson LLC to assist in distributing proxy materials and soliciting proxies for the Annual Meeting for a fee of approximately $8,500 (plus handling fees).

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

The Company will publish final voting results in the Company’s Quarterly Report on Form 10-Q for the first quarter of fiscal 2017 or in a Current Report on Form 8-K filed with the Securities and Exchange Commission (the “SEC”) within four business days of the Annual Meeting.

 

 

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Shareholder Engagement

GENERAL INFORMATION

Lowe’s recognizes the value of and is committed to engaging with our shareholders and soliciting their views and input. In fiscal 2016, members of Lowe’s management continued this long-standing practice of shareholder engagement, reinforcing our commitment to building long-term relationships with our shareholders. We conduct shareholder outreach throughout the year to ensure that we understand and consider the issues of importance to our shareholders and are able to address them appropriately. During fiscal 2016, we engaged with representatives of many of our top institutional shareholders to discuss board diversity and overboarding concerns on public company boards, climate change and sustainability efforts, governance practices, executive compensation and other matters. We report to our Nominating and Governance Committee and Board about these meetings and provide feedback from our shareholders.

The following diagram provides an overview of Lowe’s shareholder engagement practice:

 

 

LOGO

 

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Proposal 1: Election of Directors

We are asking our shareholders to vote on the election of the 11 persons nominated by the Board of Directors for election as directors.

The Board has nominated the 11 persons named in this proposal for election as directors at the Annual Meeting. If elected, each nominee will serve until his or her term expires at the 2018 Annual Meeting of Shareholders or until his or her successor is duly elected and qualified. Each nominee has agreed to be named in this Proxy Statement and to serve if elected.

All of the nominees are currently serving as directors and were elected to the Board at the 2016 Annual Meeting of Shareholders. The Nominating and Governance Committee identifies, considers and recommends director candidates to the Board who have expertise that would complement and enhance the current Board’s skills and experience and reviews the existing time commitments of director candidates to ensure that they do not have any obligations that would conflict with the time commitments of a director of the Company. Generally, the Nominating and Governance Committee identifies candidates through third-party search firms and, from time to time, through business and organizational contacts of the directors and management.

Although the Company knows of no reason why any of the nominees would not be able to serve, if any nominee is unavailable for election, the proxy holders intend to vote your shares for any substitute nominee proposed by the Board. At the Annual Meeting, proxies cannot be voted for a greater number of individuals than the 11 nominees named in this Proxy Statement.

 

 

 

LOGO    The Board of Directors unanimously recommends a vote “FOR” the election of each of the 11 nominees named in this proposal. Unless authority to vote in the election of directors is withheld, it is the intention of the persons named as proxies to vote “FOR” the election of each of the 11 nominees named in this proposal.

 

 

 

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Proposal 1: Election of Directors

 

IDENTIFYING AND EVALUATING DIRECTOR NOMINEES

 

 

LOGO     

IDENTIFYING AND EVALUATING DIRECTOR NOMINEES

 

Board Nomination Process

 

The Nominating and Governance Committee, in consultation with the Chairman of the Board and Chief Executive Officer, reviews each director’s continuation on the Board prior to his or her renomination to serve on the Board. The Nominating and Governance Committee evaluates whether or not the director, based upon his or her skills, background, expertise and contribution to the Board, is capable of supporting Lowe’s present and future needs. After the evaluation of a director, the Chairperson of the Nominating and Governance Committee and the Chairman of the Board inform each director under consideration of the Committee’s decision.

 

Additionally, with the assistance of an independent search firm, the Nominating and Governance Committee conducts targeted searches to identify well-qualified candidates who may have different skills or backgrounds needed for the Company to execute its strategic vision. If an independent search firm is used, the Nominating and Governance Committee retains the search firm and approves payment of its fees.

 

The Nominating and Governance Committee will consider nominees recommended by shareholders, and its process for doing so is no different than its process for screening and evaluating candidates suggested by directors, management of the Company or third parties. See “Shareholder Proposals for the 2018 Annual Meeting” elsewhere in this Proxy Statement for the timeframe for shareholders to provide notice of any nominations of persons for election to the Board of Directors.

 

Board Commitment

 

The Board understands the significant time commitment involved with serving on the Board and its committees, and it takes steps to assess that all directors and director nominees have the time necessary to fulfill their duties. Our Nominating and Governance Committee and Board only nominate candidates who they believe are capable of devoting the necessary time to successfully meet their duties, taking into account principal occupations, memberships on other boards and other responsibilities. Directors must advise our Chairman of the Board and Lead Director prior to joining the board of another public company, or any assignment to the audit or compensation committee of the board of directors of any public company of which such director is a member. In addition, directors must offer to resign from the Board as a result of changes to their principal occupation, subject to further consideration by the Nominating and Governance Committee. The Nominating and Governance Committee assesses directors’ time commitment to the Board throughout the year, including through the annual self-evaluation process, and it determined that all of the director nominees clearly demonstrated the necessary time commitment involved in serving on our Board and its committees.

 

Further, the Nominating and Governance Committee regularly assesses and closely monitors shareholders’ views on the appropriate number of public company boards on which directors may serve. In connection with its review in 2016, the Nominating and Governance Committee considered: input from our shareholders during our engagement discussion; voting policies of the major proxy advisory firms; corporate governance guidelines adopted by other public companies; board trends at peer companies; and advice from outside advisors.

 

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Table of Contents

Proposal 1: Election of Directors

 

IDENTIFYING AND EVALUATING DIRECTOR NOMINEES

 

 

Board Diversity

 

The Board is committed to having diverse individuals from different backgrounds with varying perspectives, professional experience, education and skills serving as members of the Board. The Board believes that a diverse membership with a variety of perspectives and experiences is an important feature of a well-functioning board, and the composition of the Board reflects the Board’s commitment to diversity.

 

Board Criteria

 

Candidates nominated for election or re-election to the Board should possess the following qualifications:

 

•  high personal and professional ethics, integrity, practical wisdom and mature judgment;

 

•  broad training and experience at the policy-making level in business, government, education or technology;

 

•  expertise that is useful to the Company and complementary to the background and experience of other Board members;

 

•  willingness to devote the required amount of time to carrying out duties and responsibilities of Board membership;

 

•  commitment to serve on the Board over a period of several years to develop knowledge about the Company’s principal operations; and

 

•  willingness to represent the best interests of all shareholders and objectively appraise management performance.

 

When determining whether to recommend a director for re-election, the Nominating and Governance Committee also considers the result of the Board self-evaluation and the director’s attendance and overall engagement in Board activities.

 

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Table of Contents

Proposal 1: Election of Directors

 

DIRECTOR NOMINEES

 

DIRECTOR NOMINEES

 

 

RAUL ALVAREZ

 

 

LOGO  

Director Since: 2010

 

Age: 61

 

Lowe’s Board Committees:

•  Audit, Chair

•  Executive

•  Public Policy

 

Current Public Company Directorships:

•  Dunkin’ Brands Group, Inc.

•  Eli Lilly and Company

•  Realogy Holdings Corp.

•  Skylark Co., Ltd.

Mr. Alvarez is the Chairman of Skylark Co., Ltd., a public Japanese holding company operating more than 3,000 restaurants. Mr. Alvarez served as President and Chief Operating Officer of McDonald’s Corporation, which franchises and operates over 32,000 McDonald’s restaurants in the global restaurant industry, from August 2006 until his retirement in December 2009. Previously, he served as President of McDonald’s North America from January 2005 to August 2006 and as President of McDonald’s USA from July 2004 to January 2005, where he led a team that aligned employees, owner/operators, and suppliers behind the company’s “Plan to Win” strategy – the catalyst for the turnaround of the U.S. business. Mr. Alvarez joined McDonald’s in 1994 and held a variety of leadership positions during his tenure with the company, including Chief Operations Officer and President of the Central Division, both with McDonald’s USA, and President of McDonald’s Mexico. Before joining McDonald’s, Mr. Alvarez served as a Corporate Vice President and as Division Vice President-Florida for Wendy’s International, Inc. from 1990 to 1994. Prior to that, he was with Burger King Corporation from 1977 to 1989 where he held a variety of positions, including Managing Director of Burger King Spain, President of Burger King Canada and Regional Vice President for the Florida Region.

 

Specific Experience, Qualifications, Attributes and Skills Relevant to Lowe’s

Mr. Alvarez brings to the Lowe’s Board 40 years of experience in the retail industry as well as extensive executive leadership experience in managing some of the world’s best known brands. As a senior executive of the leading global foodservice retailer and other global restaurant businesses, Mr. Alvarez developed in-depth knowledge of consumer marketing, brand management, global expansion, multi-national operations and strategic planning.

 

ANGELA F. BRALY

 

 

LOGO  

Director Since: 2013

 

Age: 55

 

Lowe’s Board Committees:

•  Audit

•  Executive

•  Public Policy, Chair

 

Current Public Company Directorships:

•  Brookfield Asset Management, Inc.

•  ExxonMobil Corporation

•  The Procter & Gamble Company

Ms. Braly is the former Chair, President and Chief Executive Officer of WellPoint, Inc. (now Anthem, Inc.), a health benefits company. She served as Chair of the board from March 2010 until August 2012 and President and Chief Executive Officer from June 2007 through August 2012. Prior to that, Ms. Braly served as Executive Vice President, General Counsel and Chief Public Affairs Officer of WellPoint from 2005 to 2007, and President and Chief Executive Officer of Blue Cross Blue Shield of Missouri from 2003 to 2005.

 

Specific Experience, Qualifications, Attributes and Skills Relevant to Lowe’s

As Chair and Chief Executive Officer of a publicly traded company, Ms. Braly developed strong executive leadership and strategic management skills while leading a Fortune 50 company in a highly regulated industry. Ms. Braly also brings extensive legal experience as a former partner of an NLJ 500 law firm and General Counsel of RightCHOICE Managed Care, Inc. and WellPoint, Inc. As Chief Public Affairs Officer for WellPoint, Ms. Braly was also responsible for the company’s public policy development, government relations, legal affairs, corporate communications, marketing and social responsibility initiatives.

 

 

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Table of Contents

Proposal 1: Election of Directors

 

DIRECTOR NOMINEES

 

 

 

 

SANDRA B. COCHRAN

 

 

LOGO  

Director Since: 2016

 

Age: 58

 

Lowe’s Board Committees:

•  Compensation

 

Current Public Company Directorships:

•  Cracker Barrel Old Country Store, Inc.

•  Dollar General Corporation

 

Ms. Cochran has served as a director and as President and Chief Executive Officer of Cracker Barrel Old Country Store, Inc., which operates over 641 old country stores and restaurants across 43 states, since September 2011. Ms. Cochran joined Cracker Barrel in April 2009 as Executive Vice President and Chief Financial Officer and was named President and Chief Operating Officer in November 2010. She was previously Chief Executive Officer at book retailer Books-A-Million, Inc. from February 2004 to April 2009 and also served as that company’s President from August 1999 to February 2004, Chief Financial Officer from September 1993 to August 1999 and Vice President of Finance from August 1992 to September 1993. Ms. Cochran has served as a director of Dollar General Corporation since December 2012.

 

Specific Experience, Qualifications, Attributes and Skills Relevant to Lowe’s

Ms. Cochran brings to Lowe’s Board over 20 years of retail experience as well as expertise in a number of critical areas, including marketing, risk management and strategic planning. Ms. Cochran also has significant executive-level financial experience, which she developed while serving in multiple leadership finance positions, including Vice President, Corporate Finance at SunTrust Bank and Chief Financial Officer of both Cracker Barrel Old Country Store, Inc. and Books-A-Million, Inc. Her financial expertise will continue to be a tremendous asset as the Company transitions to an omni-channel home improvement company.

 

LAURIE Z. DOUGLAS

 

 

LOGO  

Director Since: 2015

 

Age: 53

 

Lowe’s Board Committees:

•  Audit

•  Public Policy

 

Ms. Douglas has served as Senior Vice President, Chief Information Officer and Chief Security Officer of Publix Super Markets, Inc., an operator of retail food supermarkets in Florida, Georgia, Alabama, South Carolina, Tennessee and North Carolina, since 2006. Before joining Publix Super Markets, Ms. Douglas served as Senior Vice President and Chief Information Officer of FedEx Kinko’s Office and Print Services, Inc. from 2004 to 2005. From 2003 to 2004, she was Senior Vice President and Chief Information Officer of Kinko’s, Inc.

 

Specific Experience, Qualifications, Attributes and Skills Relevant to Lowe’s

As Chief Information Officer of several different retail enterprises, Ms. Douglas brings to Lowe’s Board many years of experience in driving the IT and data security vision for two Fortune 500 companies. She is a highly respected technology leader who has financial management responsibility for all IT investments and has provided direction to large teams of information technology associates, contractors and third-party partners. Ms. Douglas also has significant experience with developing and delivering innovative IT solutions that support business goals, position companies to secure a competitive advantage and enhance the shopping experience for customers.

 

 

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Table of Contents

Proposal 1: Election of Directors

 

DIRECTOR NOMINEES

 

 

 

RICHARD W. DREILING

 

 

LOGO  

Director Since: 2012

 

Age: 62

 

Lowe’s Board Committees:

•  Compensation

•  Public Policy

 

Current Public Company Directorships:

•  Aramark

•  Kellogg Company

•  PulteGroup, Inc.

Mr. Dreiling retired in June 2015 from Dollar General Corporation, the nation’s largest small-box discount retailer, as Chief Executive Officer, a position he held since January 2008. Mr. Dreiling served as Chairman of Dollar General Corporation from December 2008 until January 2016 and as Senior Advisor from June 2015 until January 2016. Before joining Dollar General, Mr. Dreiling served as Chief Executive Officer, President and a director of Duane Reade Holdings, Inc. and Duane Reade Inc., the largest drugstore chain in New York City, from November 2005 until January 2008, and as Chairman of Duane Reade from March 2007 until January 2008. Prior to that, Mr. Dreiling, beginning in March 2005, served as Executive Vice President-Chief Operating Officer of Longs Drug Stores Corporation, an operator of a chain of retail drug stores on the West Coast and Hawaii, after having joined Longs in July 2003 as Executive Vice President and Chief Operations Officer. From 2000 to 2003, Mr. Dreiling served as Executive Vice President-Marketing, Manufacturing and Distribution at Safeway, Inc., a food and drug retailer. Prior to that, Mr. Dreiling served from 1998 to 2000 as President of Vons, a southern California food and drug division of Safeway. Mr. Dreiling is former Chairman and was, until January 2016, a member of the board of directors of the Retail Industry Leaders Association (RILA), a trade association based in Arlington, Virginia for the retail industry that includes nine of the top 10 U.S. retailers among its members.

 

Specific Experience, Qualifications, Attributes and Skills Relevant to Lowe’s

Mr. Dreiling brings to Lowe’s Board over 40 years of retail industry experience at all operating levels and a unique perspective as a result of his experience progressing through the ranks within various retail companies. Over the course of his career, Mr. Dreiling has developed deep insight into all key areas of a retail business as a result of his experience overseeing the operations, marketing, manufacturing and distribution functions of a number of retail companies. Mr. Dreiling also has strong business development expertise in expanding the footprint and offerings provided by several retailers into new regions.

 

ROBERT L. JOHNSON

 

 

LOGO  

Director Since: 2005

 

Age: 71

 

Lowe’s Board Committees:

•  Compensation

•  Nominating and Governance

 

Current Public Company Directorships:

•  KB Home

•  RLJ Entertainment, Inc.

•  RLJ Lodging Trust

Mr. Johnson is the founder and Chairman of The RLJ Companies, which owns or holds interests in a diverse portfolio of companies in the banking, private equity, real estate, hospitality, professional sports, film production, gaming and automobile dealership industries. Prior to forming The RLJ Companies, he was founder and Chairman of Black Entertainment Television (BET), which was acquired in 2001 by Viacom Inc., a media-entertainment holding company. Mr. Johnson continued to serve as Chief Executive Officer of BET until 2006. Before founding BET in 1979, Mr. Johnson served as vice president of government relations for the National Cable & Telecommunications Association. In July 2007, Mr. Johnson was named by USA Today as one of the 25 most influential business leaders of the past 25 years. Mr. Johnson was a director of Strayer Education, Inc. until 2016.

 

Specific Experience, Qualifications, Attributes and Skills Relevant to Lowe’s

As a successful business leader and entrepreneur, Mr. Johnson brings to Lowe’s Board his experience in a number of critical areas, including mergers and acquisitions, real estate, brand development, multicultural marketing and customer experience design. Mr. Johnson also has extensive finance expertise, which he developed through his prior senior leadership roles and his interest in the various businesses operating in the banking and private equity industries held by The RLJ Companies. Mr. Johnson also brings significant government experience, which he obtained while serving in senior leadership positions in several highly regulated industries, including banking and television.

 

 

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Table of Contents

Proposal 1: Election of Directors

 

DIRECTOR NOMINEES

 

 

 

MARSHALL O. LARSEN

 

 

LOGO  

Director Since: 2004

 

Age: 68

 

Lowe’s Board Committees:

•  Compensation

•  Executive

•  Nominating and Governance, Chair

 

Current Public Company Directorships:

•  Air Lease Corporation

•  Becton, Dickinson and Company

•  United Technologies Corporation

Mr. Larsen retired in July 2012 as Chairman, President and Chief Executive Officer of Goodrich Corporation, a supplier of systems and services to the aerospace and defense industry. Mr. Larsen had served as Chairman of Goodrich since October 2003 and President and Chief Executive Officer, since February 2002 and April 2003, respectively. Prior to that, Mr. Larsen was Executive Vice President and President and Chief Operating Officer of the Aerospace division of Goodrich from 1995 to 2002. Mr. Larsen serves as Lowe’s Lead Director.

 

Specific Experience, Qualifications, Attributes and Skills Relevant to Lowe’s

As Chairman, President and Chief Executive Officer of a publicly traded company, Mr. Larsen developed strong executive leadership and strategic management skills. Mr. Larsen also brings to Lowe’s Board over 30 years of domestic and international business experience, including expertise in a number of critical areas, such as technology, accounting and finance, retail sales and marketing. Mr. Larsen also has extensive financial expertise in cost management, value creation and resource allocation and in oversight of complex financial transactions developed during prior operations and leadership roles at Goodrich Corporation.

 

JAMES H. MORGAN

 

 

LOGO  

Director Since: 2015

 

Age: 69

 

Lowe’s Board Committees:

•  Audit

•  Nominating and Governance

 

Current Public Company Directorships:

•  Coca-Cola Bottling Co. Consolidated

 

Mr. Morgan has served as Chairman of Covenant Capital LLC, an investment management firm, since February 2015, after previously serving in that capacity from 2001 to 2008. Mr. Morgan served as Chairman of Krispy Kreme Doughnuts, Inc., a leading branded specialty retailer and wholesaler of premium quality sweet treats and complementary products, from January 2005 to August 2016. He served as Executive Chairman of Krispy Kreme from June 2014 to January 2015, as Chief Executive Officer from January 2008 to June 2014 and as President from April 2012 to June 2014. Mr. Morgan also previously served as President of Krispy Kreme from January 2008 to November 2011. Mr. Morgan served as Vice Chairman of Krispy Kreme from March 2004 to January 2005. Previously, Mr. Morgan served as a consultant for Wachovia Securities, Inc., a securities and investment banking firm, from January 2000 to May 2001. From April 1999 to December 1999, Mr. Morgan was Chairman and Chief Executive Officer of Wachovia Securities, Inc. Mr. Morgan was employed by Interstate/Johnson Lane, an investment banking and brokerage firm, from 1990 to 1999 in various capacities, including as Chairman and Chief Executive Officer.

 

Specific Experience, Qualifications, Attributes and Skills Relevant to Lowe’s

As Chairman and Chief Executive Officer of both major public and private companies, Mr. Morgan has developed strong executive leadership and strategic management skills. Mr. Morgan also brings to Lowe’s Board more than 10 years of experience in the retail industry as well as valuable expertise and insights into the complex financial and operational issues facing large companies. As Chairman of Covenant Capital LLC and Chairman and Chief Executive Officer of Wachovia Securities, Inc. and Interstate/Johnson Lane, Mr. Morgan developed a deep understanding of financial functions as well as enterprise risk management.

 

 

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Table of Contents

Proposal 1: Election of Directors

 

DIRECTOR NOMINEES

 

 

 

ROBERT A. NIBLOCK

 

 

LOGO  

Director Since: 2004

 

Age: 54

 

Lowe’s Board Committees:

• Executive, Chair

 

Current Public Company Directorships:

•  ConocoPhillips

 

Mr. Niblock has served as Chairman and Chief Executive Officer of Lowe’s since January 2005. In May 2011, he reassumed the title of President, after having served in that role from 2003 to 2006. Mr. Niblock joined Lowe’s in 1993, and during his career with the Company, has served as Vice President and Treasurer, Senior Vice President-Finance, and Executive Vice President and Chief Financial Officer. Before joining Lowe’s, Mr. Niblock had a nine-year career with the accounting firm Ernst & Young LLP. Mr. Niblock has been a member of the board of directors of the Retail Industry Leaders Association (RILA) since 2004 and has served as Secretary since 2012. He previously served as its Chairman in 2008 and 2009 and Vice Chairman in 2006 and 2007.

 

Specific Experience, Qualifications, Attributes and Skills Relevant to Lowe’s

Mr. Niblock has broad experience in the home improvement retail industry, having spent his career spanning over 20 years with Lowe’s. He has held a number of different positions with the Company, gaining a deep understanding of Lowe’s operations and its purpose and values and playing a significant role as architect of Lowe’s strategic plans. With a background in accounting and over two decades of financial experience, including serving as Lowe’s Chief Financial Officer, Mr. Niblock brings accounting and related financial management experience to Lowe’s Board. Mr. Niblock also has extensive knowledge of international markets and international retailing in connection with his roles at Lowe’s and as a director of an international oil and gas company.

 

BERTRAM L. SCOTT

 

 

LOGO  

Director Since: 2015

 

Age: 66

 

Lowe’s Board Committees:

• Audit

• Nominating and Governance

 

Current Public Company Directorships:

•  AXA Equitable Life Insurance Company

•  Becton, Dickinson and Company

•  MONY Life Insurance Company of America

Mr. Scott has served as Senior Vice President of Population Health and Value Based Care at Novant Health, a leading healthcare provider, since 2015. Prior to that, Mr. Scott was President, Chief Executive Officer and a director of Affinity Health Plan, a provider of New York State-sponsored health coverage, from 2012 to 2014; President, U.S. Commercial of CIGNA Corporation, a global health services organization, from 2010 to 2011; Executive Vice President and Chief Institutional Development and Sales Officer of TIAA-CREF from 2000 to 2010; and President and Chief Executive Officer of TIAA-CREF Life Insurance Company from 2000 to 2007.

Mr. Scott currently serves on the board of AXA Equitable Life Insurance Company (“AXA”); Becton, Dickinson and Company; and MONY Life Insurance Company of America (“MONY”). AXA and MONY, which are affiliates of AXA Group, file reports with the SEC but they do not have securities listed on an exchange.

 

Specific Experience, Qualifications, Attributes and Skills Relevant to Lowe’s

Mr. Scott has served in a variety of senior leadership positions in organizations that are in highly regulated industries and may be directly affected by governmental actions and socioeconomic trends and brings invaluable experience to Lowe’s Board in the areas of development and implementation of strategy, mergers and acquisitions and integration. Mr. Scott also brings significant experience and responsibility in the areas of sales and marketing in his roles as Executive Vice President and Chief Institutional Development and Sales Officer of TIAA-CREF and President and Chief Executive Officer of TIAA-CREF Life Insurance Company.

 

 

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Table of Contents

Proposal 1: Election of Directors

 

DIRECTOR NOMINEES

 

 

 

ERIC C. WISEMAN

 

 

LOGO  

Director Since: 2011

 

Age: 61

 

Lowe’s Board Committees:

• Compensation, Chair

• Executive

• Public Policy

 

Current Public Company Directorships:

•  CIGNA Corporation

•  V.F. Corporation

Mr. Wiseman is the Chairman of V.F. Corporation, a global leader in the design, production, procurement, marketing and distribution of branded lifestyle apparel, footwear and related products. Previously, Mr. Wiseman served as the Chairman from August 2008 to January 2017; Chief Executive Officer from January 2008 to January 2017; and President from March 2006 to June 2015. Prior to that, he served as Chief Operating Officer of V.F. from March 2006 to January 2008. Mr. Wiseman joined V.F. in 1995 and has held a variety of leadership positions during his tenure with the company. Mr. Wiseman also served as Treasurer and a member of the board of directors of the Retail Industry Leaders Association (RILA) in 2016 and currently is a member of the Board of Visitors of the School of Business at Wake Forest University.

 

Specific Experience, Qualifications, Attributes and Skills Relevant to Lowe’s

Mr. Wiseman has developed valuable strategic management skills and brings to Lowe’s Board valuable expertise and insights in a number of critical areas, including consumer marketing, brand management, multi-national operations and strategic planning. Mr. Wiseman is responsible for transforming V.F. into an industry leader by creating innovative marketing initiatives and building powerful brands and for creating an oversight system to guide the sustainability and responsibility efforts and goals for one of the largest apparel and footwear companies in the world.

 

 

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Table of Contents

 

 

 

Information About the Board of Directors and Committees of the Board

 

CORPORATE GOVERNANCE GUIDELINES AND CODE OF BUSINESS CONDUCT AND ETHICS

The Board of Directors has adopted Corporate Governance Guidelines setting forth guidelines and standards with respect to the role and composition of the Board, the functioning of the Board and its committees, the compensation of directors, succession planning and management development, the Board’s and its committees’ access to independent advisors and other matters. The Nominating and Governance Committee of the Board of Directors regularly reviews and assesses corporate governance developments and recommends to the Board modifications to the Corporate Governance Guidelines as warranted. The Company has also adopted a Code of Business Conduct and Ethics for its directors, officers and employees. The Corporate Governance Guidelines and the Code of Business Conduct and Ethics are posted on the Company’s website at www.Lowes.com/investor.

DIRECTOR INDEPENDENCE

The Company’s Corporate Governance Guidelines provide that, in accordance with Lowe’s long-standing policy, a majority of the members of the Board must qualify as independent directors. The rules and regulations of the New York Stock Exchange (the “NYSE rules”) provide that a director does not qualify as “independent” unless the board of directors affirmatively determines that the director has no material relationship with the company (either directly or as a partner, shareholder or officer of an organization that has a relationship with the company). The NYSE rules recommend that a board of directors consider all of the relevant facts and circumstances in determining the materiality of a director’s relationship with a company. The Board has adopted Categorical Standards for Determination of Director Independence (the “Categorical Standards”), which incorporate the independence standards of the NYSE rules, to assist the Board in determining whether a particular relationship a director has with the Company is a material relationship that would impair the director’s independence. The Categorical Standards establish thresholds at which directors’ relationships with the Company are deemed to be not material and, therefore, shall not disqualify any director or nominee from being considered “independent.” A copy of the Categorical Standards is attached as Appendix A to this Proxy Statement.

In March 2017, the Board of Directors, with the assistance of the Nominating and Governance Committee, conducted an evaluation of director independence based on the Categorical Standards, the NYSE rules and the SEC rules. The Board

considered all relevant transactions, relationships or arrangements between each director (and his or her immediate family members and affiliates) and each of Lowe’s, its management and its independent registered public accounting firm in each of the most recent three completed fiscal years. In determining the independence of each director, the Board considered and deemed immaterial to the directors’ independence transactions involving the purchase or sale of products and services in the ordinary course of business between the Company, on the one hand, and, on the other, companies or organizations at which some of our directors or their immediate family members were officers, employees or directors in each of the most recent three completed fiscal years. In each case, the amount paid to or received from these companies or organizations was well below 2% of total revenue of such companies or organizations and consequently below the threshold set forth in our Categorical Standards.

In addition, the Board considered the amount of Lowe’s discretionary charitable contributions in each of the most recent three completed fiscal years to charitable organizations where a director, or a member of his or her immediate family, serves as a director or trustee. The Company has not made any payments to such organizations in the last three fiscal years.

As a result of the evaluation of the transactions, relationships or arrangements that do exist or did exist within the most recent three completed fiscal years (except for Mr. Niblock’s), the Board determined that they all fall well below the thresholds in the Categorical Standards. Consequently, the Board of Directors determined that each of Messrs. Alvarez, Dreiling, Johnson, Larsen, Morgan, Scott and Wiseman and Mss. Braly, Cochran and Douglas is an independent director under the Categorical Standards, the NYSE rules and the SEC rules. The Board also determined that each member of the Audit, Compensation, Nominating and Governance and Public Policy Committees (see membership information below under “Board Meetings, Committees of the Board and Board Leadership Structure—Board Committees”) is independent, including that each member of the Audit Committee is “independent” as that term is defined under Rule 10A-3(b)(1)(ii) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and that each member of the Compensation Committee is an “outside director” as defined under Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”), and a “non-employee director” as defined under Rule 16b-3(b)(3)(i) of the Exchange Act. Robert A. Niblock, the Company’s Chairman, President and Chief Executive Officer, is not independent due to his employment by the Company.

 

 

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Table of Contents

Information About the Board of Directors and Committees of the Board

 

COMPENSATION OF DIRECTORS

 

COMPENSATION OF DIRECTORS

 

General

Lowe’s policy on compensating directors who are not employees (“non-employee directors”) is to use a mix of cash and equity that will align the interests of our directors with the long-term interests of Lowe’s shareholders and compensate our directors fairly and competitively for the obligations and responsibilities of serving as a director at a company of Lowe’s size and scope. A director who is an employee of the Company receives no additional compensation for his or her services as a director. A non-employee director receives compensation for his or her services as described in the following paragraphs. All directors are reimbursed for reasonable expenses incurred in connection with attendance at Board and committee meetings.

Annual Retainer Fees

For fiscal 2016, each non-employee director was paid an annual retainer of $80,000. Our directors do not receive any meetings fees. Non-employee directors who served as the Chair of the Nominating and Governance Committee or the Public Policy Committee received an additional $15,000; the Chair of the Compensation Committee received an additional $20,000; and the Chair of the Audit Committee received an additional $25,000. The Lead Director received an additional $25,000 in fiscal 2016.

For fiscal 2017, the Board increased the annual retainer and the Lead Director retainer to help bring total director compensation closer in line with the median pay of our peer companies (using the same peer companies used for purposes of executive compensation, as described in the “Compensation Discussion and Analysis” section of this Proxy Statement). The annual retainer for non-employee directors was increased to $90,000 and the Lead Director retainer was increased to $30,000. Annual retainers for the Chairs of the Board committees remained unchanged from fiscal 2016.

Stock Awards

The Board believes that director stock ownership is a hallmark of enlightened corporate governance and provides greater alignment of interests between directors and shareholders. The compensation plan adopted by the Board for non-employee directors adheres to this principle by providing a substantial portion of such director’s compensation in deferred stock units, which are credited to a deferral account during the term of such director’s service and are payable to the director (or to the director’s estate if the director should die while serving on the Board) in one share of Common Stock of the Company per deferred stock unit only upon the director’s termination of service as a director.

Non-employee directors receive grants of deferred stock units at the first Board meeting following the Annual Meeting of Shareholders each year (the “Award Date”). The annual grant of deferred stock units for each of the Company’s non-employee directors is determined by taking the annual grant amount and dividing it by the closing price of a share of Common Stock as reported on the New York Stock Exchange (the “NYSE”) on the Award Date, which amount is then rounded up to the next 100 units. The deferred stock units receive dividend equivalent credits, in the form of additional units, for any cash dividends subsequently paid with respect to Common Stock. All units credited to a director are fully vested and payable in the form of Common Stock after the termination of the director’s service.

For fiscal 2016, each non-employee director received an annual equity award of $150,000, which was increased to $175,000 for fiscal 2017 based on the results of benchmarking across our peer companies and consultation with our compensation advisors. With this increase, the annual equity award is now in line with the peer group median. In accordance with the Company’s long-term incentive plan, the value of a non-employee director’s annual equity award may not exceed $500,000.

Deferral of Annual Retainer Fees

Each non-employee director may elect to defer receipt of all, but not less than all, of the annual retainer and any committee Chair or Lead Director fees otherwise payable to the director in cash. Deferrals are credited to a bookkeeping account and account values are adjusted based on the investment alternative selected by the director. One investment alternative adjusts the account value based on interest calculated in the same manner and at the same rate as interest on amounts invested in the short-term interest fund option available to employees participating in the Lowe’s 401(k) Plan, a tax-qualified, defined contribution plan sponsored by the Company. The other investment alternative assumes that the deferrals are invested in Common Stock with reinvestment of all dividends. At the end of each year, a director participating in the plan makes an election to allocate the fees deferred for the following year between the two investment alternatives in 25% multiples. Account balances may not be reallocated between the investment alternatives. Account balances are paid in cash in a single sum payment following the termination of a director’s service.

 

 

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Table of Contents

Information About the Board of Directors and Committees of the Board

 

COMPENSATION OF DIRECTORS

 

Fiscal 2016 Compensation

The following table shows the compensation paid to each non-employee director who served on the Board in fiscal 2016:

 

Name   

Fees Earned
or Paid in
Cash

($)

     Stock
Awards
($)(1)
     Total
($)
 

Raul Alvarez

     105,000        152,665        257,665  

David W. Bernauer(2)

     40,000               40,000  

Angela F. Braly

     91,250        152,665        243,915  

Sandra B. Cochran

     80,000        152,665        232,665  

Laurie Z. Douglas

     80,000        152,665        232,665  

Richard W. Dreiling

     80,000        152,665        232,665  

Robert L. Johnson

     80,000        152,665        232,665  

Marshall O. Larsen

     120,000        152,665        272,665  

Richard K. Lochridge(3)

     40,000               40,000  

James H. Morgan

     80,000        152,665        232,665  

Bertram L. Scott

     80,000        152,665        232,665  

Eric C. Wiseman

     100,000        152,665        252,665  

 

(1) The dollar amount shown for these stock awards represents the aggregate grant date fair value computed in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718 “Compensation—Stock Compensation” (“FASB ASC Topic 718”) for 2,200 deferred stock units granted to each non-employee director in fiscal 2016. See Note 10, “Accounting for Share-Based Payments” to the Company’s consolidated financial statements in its Annual Report on Form 10-K for the fiscal year ended February 3, 2017 for additional information about the Company’s accounting for share-based compensation arrangements, including the assumptions used for calculating the grant date value of the deferred stock units. These amounts do not correspond to the actual value that may be recognized by a director with respect to these awards when they are paid in the form of Common Stock after the termination of the director’s service.

 

(2) Mr. Bernauer retired from the Board on May 27, 2016.

 

(3) Mr. Lochridge retired from the Board on May 27, 2016.

The following table shows the number of deferred stock units held by each non-employee director as of February 3, 2017:

 

Name

   Deferred
Stock Units
(#)
 

Raul Alvarez

     23,535  

Angela F. Braly

     7,506  

Sandra B. Cochran

     1,918  

Laurie Z. Douglas

     4,174  

Richard W. Dreiling

     17,138  

Robert L. Johnson

     53,662  

Marshall O. Larsen

     53,662  

James H. Morgan

     4,174  

Bertram L. Scott

     1,918  

Eric C. Wiseman

     17,138  

Director Stock Ownership Guidelines

To ensure that non-employee directors become and remain meaningfully invested in Common Stock, non-employee directors are required to own shares of Common Stock having a market value equal to five times the annual retainer fee payable to them. A non-employee director must meet the stock ownership requirement within five years of becoming a member of the Board. In addition to shares owned by non-employee directors, the full value of deferred stock units are counted for purposes of determining a director’s compliance with the stock ownership requirement. All of our non-employee directors have met or are on track to meet their objectives within the five-year time requirement.

 

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Table of Contents

Information About the Board of Directors and Committees of the Board

 

BOARD MEETINGS, COMMITTEES OF THE BOARD AND BOARD LEADERSHIP STRUCTURE

 

 

BOARD MEETINGS, COMMITTEES OF THE BOARD AND BOARD LEADERSHIP STRUCTURE

Attendance at Board and Committee Meetings

During fiscal 2016, the Board of Directors held five meetings. Each incumbent director attended 75% or more of the aggregate number of meetings of the Board and committees of the Board on which the director served during fiscal 2016.

Executive Sessions of the Independent Directors

The independent directors meet in executive session at each of the regularly scheduled Board meetings and as necessary at other Board meetings. The Company’s Lead Director presides over these executive sessions and, in the Lead Director’s absence, the independent directors will select another independent director present to preside.

Annual Meetings of Lowe’s Shareholders

Directors are expected to attend the Annual Meeting of Shareholders. Mr. Johnson was unable to attend last year’s Annual Meeting of Shareholders due to a personal conflict. All 10 of the remaining directors in office at the time attended last year’s Annual Meeting of Shareholders.

Annual Evaluation of Board of Directors and Committees

The Board of Directors evaluates the performance of the Board, the committees of the Board and individual directors on an annual basis. The data to evaluate the quality and impact of an individual director’s service is gathered by having each director complete a questionnaire assessing the performance of all other directors and the committees of the Board in which the director completing the evaluation is a member. The Chair of the Nominating and Governance Committee provides each director with a summary of the results. The goal is to use the results of the assessment process to enhance the Board’s functioning as a strategic partner with management as well as the Board’s ability to carry out its traditional monitoring function.

Board Leadership Structure

Lowe’s Board is responsible for ensuring that its leadership structure provides independent oversight of senior management and discusses the appropriate structure for Lowe’s on an annual basis. When evaluating the optimal structure, the Board reviews a variety of criteria, including shareholder feedback, Lowe’s strategic goals, the current operating and governance environment, the skill set of the independent directors, the dynamics of Lowe’s Board, and the strengths and talents of Lowe’s senior management at any given point in time. The Board does not believe that there is one leadership structure that is preferred and regularly discusses what the optimal leadership structure is for Lowe’s at that time.

Lowe’s Corporate Governance Guidelines permit the roles of Chairman and Chief Executive Officer to be filled by the same or different individuals. The Corporate Governance Guidelines further provide that if the Board determines the roles of Chairman and Chief Executive Officer are filled by the same individual, then a Lead Director, who must be an independent director, will be elected by the independent directors annually at the meeting of the Board of Directors held in conjunction with the Annual Meeting of Shareholders. The duties of the Lead Director are consistent with the responsibilities held by lead directors at other public companies and are further described below.

The Nominating and Governance Committee analyzed the considerations noted above, and after careful consideration, the independent directors of the Board determined that having a strong, independent Lead Director along with the strong leadership of a combined Chairman and Chief Executive Officer in Mr. Niblock is in the best interest of Lowe’s at this time. The independent directors believe that Mr. Niblock has exercised leadership that has generated strong operational performance; effectively led the Board and the Company during a challenging macroeconomic environment; has extensive knowledge of Lowe’s and the home improvement retail industry; and has served as a highly effective bridge between the Board and management. Further, the independent directors believe that as the Company continues to develop its omni-channel capabilities, differentiate itself through better customer experiences and improve its product and service offering for the Pro customer, Lowe’s is best served by having the leader and architect of the strategies as Chairman of the Board. Accordingly, Marshall A. Larsen currently holds the position of Lead Director and Robert A. Niblock currently holds the positions of Chairman of the Board, President and Chief Executive Officer of the Company.

 

 

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Information About the Board of Directors and Committees of the Board

 

BOARD MEETINGS, COMMITTEES OF THE BOARD AND BOARD LEADERSHIP STRUCTURE

 

 

ROLE OF THE LEAD DIRECTOR

 

The Company’s Corporate Governance Guidelines provide that the Lead Director will:

 

    preside at all meetings of the Board at which the Chairman of the Board is not present, including executive sessions of the non- management directors;

 

    serve as a liaison between the Chairman and the independent directors;

 

    approve meeting agendas for the Board;

 

    approve meeting schedules to assure that there is sufficient time for discussion of all agenda items;

 

    have the authority to call meetings of the independent directors; and

 

    be available for consultation and direct communication with major shareholders upon request at the direction of the Chief Executive Officer.

The Lead Director also serves as the Chair of the Nominating and Governance Committee of the Board of Directors, which is comprised entirely of independent directors.

 

Lowe’s independent directors appointed Marshall A. Larsen to serve as Lead Director of the Company in May 2015 and have re-appointed him for the role in each subsequent year. As Chairman and Chief Executive Officer of a publicly traded company for almost 10 years, Mr. Larsen developed strong executive leadership and strategic management skills. Mr. Larsen also brings to Lowe’s Board over 30 years of domestic and international business experience, including expertise in a number of critical areas, such as technology, accounting and finance, retail sales and marketing. Beyond his responsibilities as set forth above, Mr. Larsen also:

 

  regularly meets with the Chairman and Chief Executive Officer before and after Board meetings to discuss matters of concern;

 

  leads the Nominating and Governance Committee in an annual performance review of the Chief Executive Officer and communicates the results to the Chief Executive Officer;

 

  leads the Board evaluation process and provides each continuing director with a review of his or her performance, as determined by the other directors; and

 

  meets with members of senior management, other than the Chairman and Chief Executive Officer, on a regular basis.

The Board believes that having an independent Lead Director whose responsibilities closely parallel those of an independent Chairman ensures that the appropriate level of independent oversight is applied to all Board decisions.

 

 

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Information About the Board of Directors and Committees of the Board

 

BOARD MEETINGS, COMMITTEES OF THE BOARD AND BOARD LEADERSHIP STRUCTURE

 

In addition to requiring an independent Lead Director if the roles of Chairman and Chief Executive Officer are served by the same individual, Lowe’s Board has implemented additional practices to ensure that there is independent oversight of management.

 

 

    BOARD REFRESHMENT      OVERSIGHT PRACTICES   
    6    

DIRECTOR NOMINEES JOINED

LOWE’S BOARD WITHIN THE

LAST 5 YEARS

 

     100%  

OF NON-MANAGEMENT

DIRECTORS ARE

INDEPENDENT

 

  
   

 

5

 

 

 

 

THE BOARD IS REFRESHED ON A REGULAR BASIS AND THE AVERAGE CURRENT TENURE OF THE INDEPENDENT DIRECTORS IS FIVE YEARS.

    

100%

 

 

OF ALL DIRECTORS ON THE AUDIT,

COMPENSATION, NOMINATING AND GOVERNANCE AND PUBLIC POLICY COMMITTEES ARE INDEPENDENT

  
        

INDEPENDENT DIRECTORS MEET IN EXECUTIVE SESSION AT EACH

OF THE REGULARLY SCHEDULED BOARD MEETINGS AND AS NECESSARY

AT OTHER BOARD MEETINGS.

  

 

  ENHANCED BOARD RECRUITMENT
  The Board is committed to having diverse individuals from different backgrounds with varying perspectives, professional experience, education and skills serving as members of the Board and believes that a diverse membership with a variety of perspectives and experiences is an important feature of a well-functioning board. Currently, our Board has the following characteristics:
  9   2   7   5   3   2   1   
 

DIRECTOR

NOMINEES ARE

CURRENT OR

FORMER CHIEF

EXECUTIVE OFFICERS

  DIRECTOR
NOMINEES ARE CURRENT OR FORMER CHIEF FINANCIAL OFFICERS
 

DIRECTOR

NOMINEES

HAVE

RETAIL

EXPERIENCE

 

DIRECTOR

NOMINEES

HAVE

GLOBAL

EXPERIENCE

 

DIRECTOR

NOMINEES

ARE WOMEN

 

DIRECTOR

NOMINEES

ARE

AFRICAN-AMERICAN

 

DIRECTOR

NOMINEE

IS HISPANIC

  

Lowe’s independent directors remain committed to evaluating Lowe’s Board leadership structure at least annually. Under Lowe’s Corporate Governance Guidelines, the Board can and will change its leadership structure if it determines that doing so is in the best interest of Lowe’s shareholders.

 

Board’s Role in the Risk Management Process

Management must take a wide variety of risks to enhance shareholder value. It is the Board of Directors’ responsibility to ensure that management has established and adequately resourced processes for identifying and preparing the Company to manage those risks effectively. It is also the Board’s responsibility to challenge management regularly to demonstrate that those processes are effective in operation.

Lowe’s has adopted an enterprise risk management (“ERM”) framework for identifying, assessing and mitigating key risks. The Company’s Chief Financial Officer, who reports directly to the Chairman, President and Chief Executive Officer, is responsible for implementing the Company’s ERM framework. During the Board meeting held each November, the Chief Financial Officer presents to the Board a comprehensive review of the Company’s ERM framework. His presentation includes an update on existing and any significant new risks that have been identified and assessed during the year and the strategies management has developed for managing them.

During his presentation, the directors actively discuss with him and other members of management the risks that have been identified to gain a deeper understanding of the risks the Company faces and establish a mutual understanding between the Board and management regarding the Company’s willingness to take risks and the strategies to be used to manage them.

The Company’s Chief Financial Officer also presents updates on the Company’s ERM processes and specific potential risks and trends at other meetings of the Board during the year. In addition, as necessary at the regularly scheduled Board meetings, the Chairman, President and Chief Executive Officer addresses matters of particular importance or concern to the Company, including any significant areas of risk requiring Board attention. In the course of reviewing the Company’s strategic initiatives throughout the year, the Board considers the types and nature of risks associated with those initiatives, their potential impact on the Company and the steps that have or could be taken by management to mitigate them.

 

 

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Information About the Board of Directors and Committees of the Board

 

BOARD MEETINGS, COMMITTEES OF THE BOARD AND BOARD LEADERSHIP STRUCTURE

 

Although the Board of Directors believes that oversight of the Company’s ERM processes is a responsibility of the full Board, the Audit Committee of the Board addresses at each of its regular meetings risk oversight of the Company’s major financial exposures and the steps management has taken to identify, assess, monitor, control, remediate and report such exposures. The Audit Committee also periodically reviews legal matters that may have a material adverse impact on the Company’s financial statements, compliance with laws and any material reports received from regulatory agencies with the Company’s Chief Legal Officer and Chief Compliance Officer. Additionally, the Public Policy Committee identifies, evaluates and monitors the social, political and environmental trends, issues, risks and concerns that could affect the Company’s business activities and performance. And finally, as noted in the “Compensation Discussion and Analysis” section of this Proxy Statement, the Compensation Committee annually reviews an audit and analysis of the risk associated with the Company’s executive compensation program.

The Board believes that its oversight of the Company’s ERM processes benefits from having one person serve as the Chairman of the Board and Chief Executive Officer. With his in-depth knowledge and understanding of the Company’s operations, Mr. Niblock, as Chairman, President and Chief Executive Officer, is better able to bring key strategic and business issues and risks to the Board’s attention than would a Non-Executive Chairman of the Board. The role of the Board’s Audit Committee, which consists solely of independent directors, in the oversight of the Company’s major financial exposures, preserves the benefit of independent risk oversight along with full Board responsibility and review.

Compensation Committee Advisors

The Compensation Committee has sole authority under its charter to retain compensation consultants and other advisors and to approve such consultants’ and advisors’ fees and retention terms. In May 2010, the Compensation Committee retained Farient Advisors LLC to act as its independent compensation consultant and to provide it with advice and support on executive compensation issues. The Compensation Committee has renewed this engagement each year since 2010. Since its engagement, the compensation consultant has assisted with peer group identification and benchmarking,

design of the Company’s executive compensation program and conduct of annual risk assessment related thereto, review of compensation-related disclosures and related services. A more detailed description of the services performed by the Compensation Committee’s compensation consultant in fiscal 2016 is included in the “Compensation Discussion and Analysis” section of this Proxy Statement.

The Compensation Committee has reviewed and confirmed the independence of its compensation consultant. Neither the compensation consultant nor any of its affiliates provide any services to the Company except for services provided to the Compensation Committee. In addition to its compensation consultant, the Compensation Committee has reviewed the independence of outside counsel engaged by the Compensation Committee in advance of receiving advice from counsel.

How to Communicate with the Board of Directors and Non-Management Directors

Shareholders and other interested parties can communicate directly with the Board of Directors by sending a written communication addressed to the Board or to any member individually in care of Lowe’s Companies, Inc., 1000 Lowe’s Boulevard, Mooresville, North Carolina 28117. Shareholders and other interested parties wishing to communicate with Mr. Larsen, as Lead Director, or with the independent directors as a group may do so by sending a written communication addressed to Mr. Larsen, in care of Lowe’s Companies, Inc. at the above address. Any communication addressed to a director that is received at Lowe’s principal executive offices will be delivered or forwarded to the individual director as soon as practicable. Lowe’s will forward all communications received from its shareholders or other interested parties that are addressed simply to the Board of Directors to the Lead Director or to the Chair of the committee of the Board of Directors whose purpose and function is most closely related to the subject matter of the communication. All such communications are promptly reviewed before being forwarded to the addressee. Lowe’s generally will not forward to directors a shareholder communication that it determines to be primarily commercial in nature, relates to an improper or irrelevant topic or requests general information about the Company.

 

 

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Information About the Board of Directors and Committees of the Board

 

BOARD MEETINGS, COMMITTEES OF THE BOARD AND BOARD LEADERSHIP STRUCTURE

 

Board Committees

The Board has five standing committees: the Audit Committee, the Compensation Committee, the Executive Committee, the Nominating and Governance Committee and the Public Policy Committee. The Public Policy Committee was established in May 2016. The Board may also establish other committees from time to time as it deems necessary. Committee members and committee chairs are appointed by the Board. The members of these committees are identified in the following table:

 

LOGO  Chairperson                         LOGO  Member    
    Audit
Committee
  Compensation
Committee
  Nominating and
Governance
Committee
  Public Policy
Committee
  Executive
Committee

 

Raul Alvarez

 

 

LOGO

 

         

 

LOGO

 

 

 

LOGO

 

Angela F. Braly

  LOGO

 

          LOGO

 

  LOGO

 

Sandra B. Cochran

      LOGO

 

           

Laurie Z. Douglas

  LOGO

 

          LOGO

 

   

Richard W. Dreiling

      LOGO

 

      LOGO

 

   

Robert L. Johnson

      LOGO

 

  LOGO

 

       

Marshall O. Larsen

      LOGO

 

  LOGO

 

      LOGO

 

James H. Morgan

  LOGO

 

      LOGO

 

       

Robert A. Niblock

                  LOGO

 

Bertram L. Scott

  LOGO

 

      LOGO

 

       

Eric C. Wiseman

      LOGO

 

      LOGO

 

  LOGO

 

Each of these committees, with the exception of the Executive Committee, acts pursuant to a written charter adopted by the Board of Directors. The Executive Committee operates in accordance with the Company’s Bylaws and Corporate Governance Guidelines. A copy of each written committee charter and the Corporate Governance Guidelines are available on the Company’s website at www.Lowes.com/investor.

 

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Information About the Board of Directors and Committees of the Board

 

BOARD MEETINGS, COMMITTEES OF THE BOARD AND BOARD LEADERSHIP STRUCTURE

 

The following table provides information about the operation and key functions of each of the standing Board committees:

 

Committee    Key Functions and Additional Information    Number of
Meetings in
Fiscal 2016

Audit

Committee

  

•  Oversees the Company’s accounting and financial reporting processes, internal controls and internal audit functions.

 

•  Reviews and discusses with management and the independent registered public accounting firm the annual and quarterly financial statements and earnings press releases.

 

•  Reviews and discusses the Company’s major financial risk exposures and the steps management has taken to identify, assess, monitor, control, remediate and report such exposures.

 

•  Reviews with the Company’s Chief Legal Officer and Chief Compliance Officer legal matters and the program of monitoring compliance with the Company’s Code of Business Conduct and Ethics.

 

•  Reviews and pre-approves all audit and non-audit services proposed to be performed by the independent registered public accounting firm.

 

•  Reports regularly to the Board.

 

•  The Board has determined that Raul Alvarez, Chair of the Audit Committee, is an “audit committee financial expert” within the meaning of the SEC rules and that Mr. Alvarez is “independent” as that term is defined under Rule 10A-3(b)(1)(ii) of the Exchange Act and the NYSE rules.

 

   7

Compensation

Committee

  

•  Reviews and approves on an annual basis the corporate goals and objectives relevant to the compensation for the executive officers, evaluates at least once a year the Chief Executive Officer’s performance in light of these established goals and objectives and, based upon this evaluation, determines and approves the Chief Executive Officer’s compensation, which it forwards to the Board for ratification by the independent directors.

 

•  Reviews and approves the compensation for the other executive officers.

 

•  Makes recommendations to the Board with respect to incentive compensation and equity-based plans that are subject to Board approval.

 

•  Reviews and approves all annual incentive plans for executives and all awards to executives under multi-year incentive plans, including equity-based incentive arrangements authorized under the Company’s equity incentive compensation plans.

 

•  Oversees regulatory compliance and risk regarding compensation matters.

 

•  Reports regularly to the Board.

 

   5

Executive

Committee

  

•  Has authority to exercise all powers of the Board of Directors, except those reserved to the Board of Directors by the North Carolina Business Corporation Act or the Company’s Bylaws.

 

•  Considers at least annually succession planning for the Chairman and Chief Executive Officer and provides a report on such succession planning to the Nominating and Governance Committee on a regular basis.

 

•  Reviews and recommends to the Board for approval the form and amount of director compensation.

 

•  Reports regularly to the Board.

 

   4

Nominating

and

Governance

Committee

  

•  Develops criteria for evaluation of potential candidates for the Board and its committees.

 

•  Makes recommendations to the Board concerning committee appointments.

 

•  Makes recommendations to the Board with respect to determinations of director independence.

 

•  Identifies, evaluates and recommends director candidates to the Board.

 

•  Oversees annual evaluation of the Board, the committees of the Board and each individual director.

 

•  Develops and recommends to the Board the Corporate Governance Guidelines applicable to the Company.

 

•  Reviews and approves, ratifies or disapproves related person transactions.

 

•  Considers and recommends to the Board other actions relating to corporate governance.

 

•  Reports regularly to the Board.

 

   4

Public Policy

Committee (established in May 2016)

  

•  Monitors the Company’s reputation generally.

 

•  Assists the Board with the Company’s enterprise risk management system by identifying, evaluating and monitoring social, political and environmental trends, issues, risks and concerns.

 

•  Reviews the Company’s compliance with policies, programs and practices.

 

•  Reviews and monitors the Company’s positions and responses to significant public policy issues.

 

•  Reviews and monitors the Company’s policies and practices with respect to political contributions, lobbying priorities, trade association memberships and political action committees.

 

•  Considers and recommends to the Board other actions relating to public policy.

 

•  Reports regularly to the Board.

   3

 

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Security Ownership of Certain Beneficial Owners and Management

The following table provides information about the beneficial ownership of Common Stock as of March 24, 2017, except as otherwise noted, by each person known by the Company to beneficially own more than 5% of the outstanding shares of Common Stock as well as each director, nominee for director, named executive officer and all directors and executive officers as a group. Except as otherwise indicated below, each of the persons named in the table has sole voting and investment power with respect to the securities indicated as beneficially owned by such person, subject to community property laws where applicable. Unless otherwise indicated, the address for each of the beneficial owners is c/o Lowe’s Companies, Inc., 1000 Lowe’s Boulevard, Mooresville, North Carolina 28117.

 

Name or Number of Persons in Group    Number of Shares
(#)(1)
    Percent of
Class
 

Raul Alvarez

     23,647       *  

Angela F. Braly

     7,542       *  

Sandra B. Cochran

     3,427       *  

Rick D. Damron

     158,890       *  

Laurie Z. Douglas

     4,194       *  

Richard W. Dreiling

     17,220       *  

Robert F. Hull, Jr.

     140,164       *  

Robert L. Johnson

     53,919       *  

Michael A. Jones

     3       *  

Marshall O. Larsen

     55,919       *  

Ross W. McCanless

     26,201       *  

James H. Morgan

     4,194       *  

Robert A. Niblock

     1,263,064       *  

Bertram L. Scott

     1,927       *  

Jennifer L. Weber

     17,342       *  

Eric C. Wiseman

     17,220       *  

Directors and Executive Officers as a Group (20 total)

     1,970,304       *  

BlackRock, Inc.

     61,527,142 (2)      7.2

The Vanguard Group, Inc.

     61,221,058 (3)      7.1

 

* Represents holdings of less than 1%.

 

(1) Includes shares that may be acquired or issued within 60 days under the Company’s stock option and award plans as set forth in the following table:

 

Name or Number of Persons in Group   

Number of Shares

(#)

 

Raul Alvarez

     23,647  

Angela F. Braly

     7,542  

Sandra B. Cochran

     1,927  

Rick D. Damron

     46,731  

Laurie Z. Douglas

     4,194  

Richard W. Dreiling

     17,220  

Robert F. Hull, Jr.

      

Robert L. Johnson

     53,919  

Michael A. Jones

      

Marshall O. Larsen

     53,919  

Ross W. McCanless

     8,587  

James H. Morgan

     4,194  

Robert A. Niblock

     547,478  

Bertram L. Scott

     1,927  

Jennifer L. Weber

     6,030  

Eric C. Wiseman

     17,220  

Directors and Executive Officers as a Group (20 total)

     947,841  

 

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Security Ownership of Certain Beneficial Owners and Management

 

 

 

(2) Shares held at December 31, 2016, according to a Schedule 13G/A filed with the SEC on January 25, 2017 by BlackRock, Inc. (“BlackRock”), whose address is 55 East 52nd Street, New York, New York 10055. The Schedule 13G/A reports that BlackRock has sole voting power over 51,793,247 shares, shared voting power over 24,962 shares, sole investment power over 61,502,180 shares and shared investment power over 24,962 shares.

 

(3) Shares held at December 31, 2016, according to a Schedule 13G/A filed with the SEC on February 10, 2017 by The Vanguard Group, Inc. (“Vanguard”), whose address is 100 Vanguard Boulevard, Malvern, Pennsylvania 19355. The Schedule 13G/A reports that Vanguard has sole voting power over 1,368,894 shares, shared voting power over 179,773 shares, sole investment power over 59,684,157 shares and shared investment power over 1,536,901 shares.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act requires Lowe’s directors, executive officers and persons who beneficially own more than 10% of Lowe’s outstanding Common Stock (collectively, the “reporting persons”) to file with the SEC initial reports of their beneficial ownership and reports of changes in their beneficial ownership of Common Stock. Based solely on a review of such reports and written representations made by Lowe’s directors and executive officers that no other reports were required, the Company believes that the reporting persons complied with all applicable filing requirements on a timely basis during fiscal 2016.

 

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Table of Contents

 

 

 

Compensation Discussion and Analysis

This Compensation Discussion and Analysis (“CD&A”) explains the key elements of our executive compensation program and compensation decisions as they relate to the following named executive officers (“NEOs”) of the Company in the 2016 fiscal year:

 

Robert A. Niblock

   Chairman of the Board, President and Chief Executive Officer

Robert F. Hull, Jr.

   Chief Financial Officer(1)

Rick D. Damron

   Chief Operating Officer

Michael A. Jones

   Chief Customer Officer(2)

Ross W. McCanless

   Chief Legal Officer, Secretary and Chief Compliance Officer

Jennifer L. Weber

   Chief Human Resources Officer

 

(1) Mr. Hull retired as Chief Financial Officer on March 3, 2017.

 

(2) Mr. Jones served as Chief Customer Officer until October 27, 2016.

Our CD&A is organized as follows:

 

I. Executive Summary

 

II. Compensation Philosophy and Elements

 

III. Compensation Decision-Making Process

 

IV. 2016 Compensation Actions

 

V. Other Compensation Policies

 

VI. Compensation Tables

 

VII. Compensation Committee Interlocks and Insider Participation

 

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Compensation Discussion and Analysis

 

EXECUTIVE SUMMARY

 

I. EXECUTIVE SUMMARY

 

 

We have demonstrated a strong commitment to returning capital to our shareholders and have had continued dividend growth since 1961.

 

$19.3 Billion   24%   $4.3 Billion
SHARES REPURCHASED UNDER OUR SHARE REPURCHASE PROGRAM IN THE LAST FIVE YEARS  

2016 INCREASE IN

ANNUAL DIVIDEND

  DIVIDENDS PAID IN THE
LAST FIVE YEARS

 

 

Lowe’s delivered solid financial and operational results in fiscal 2016, which demonstrates the strong foundation we are building to provide home improvement solutions that differentiate Lowe’s in the marketplace and demonstrate our commitment to customers. Total sales grew 10.1% driven by comparable sales growth of 4.2%, with all regions and product categories achieving positive comps.

Along with improved operating results, we made meaningful progress in fiscal 2016 expanding our customer reach and advancing our omni-channel capabilities, as evidenced by the rollout of our interior project specialists across all US stores, our successful redesign of Lowes.com, strengthening our market position in Canada with the acquisition of RONA, and deepening and broadening our relationship with the pro customer.

The CD&A includes disclosure of our incentive compensation performance measures including: earnings before interest and taxes (“EBIT”), sales and return on non-cash average assets (“RONCAA”). EBIT and sales for fiscal 2016 as presented in this Proxy Statement include adjustments described on page 36, and as adjusted these measures are referred to as “Adjusted EBIT” and “Adjusted Sales” in this Proxy Statement. Three-Year Average RONCAA for fiscal 2016 includes adjustments described on page 38, and as adjusted this measure is referred to as “Adjusted Average RONCAA”. Each of these performance measures are further described on pages 36 and 37.

 

LOGO

 

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Table of Contents

Compensation Discussion and Analysis

 

EXECUTIVE SUMMARY

 

2016 Executive Compensation

Lowe’s has a long-standing commitment to pay for performance that we implement by providing a significant portion of compensation through variable pay arrangements. These arrangements are designed to hold our executive officers accountable for business results and reward them for consistently strong financial performance and the creation of value for our shareholders.

Our 2016 executive compensation program consisted of the following elements:

 

  Base salary

 

  Annual incentive awards

 

  Performance share unit awards (“PSUs”)

 

  Grants of stock options and time-vested restricted stock awards (“RSAs”)

 

  Retirement and health benefits

 

  Limited perquisites

Lowe’s mix is heavily performance-based with 73% of the CEO’s and 66% of the other NEOs’ target compensation being linked to performance.

 

 

LOGO    LOGO

How Our Executive Compensation Is Tied to Performance

A significant portion of our executive compensation program is performance-based with a balanced focus on top- and bottom-line growth and leadership effectiveness.

 

  Annual Incentive Awards: Payout is based on the Company’s achievement of financial (EBIT and sales) and Leadership Effectiveness goals.

 

  PSUs: Payout is based on the Company’s achievement of a three-year average RONCAA goal established at the beginning of a three-year performance period and, since 2016, a relative TSR modifier which compares the Company’s TSR to the median TSR of companies listed in the S&P 500 Index over a three-year period.

 

  Stock Options: Value realized is based on the increase in the market value of Common Stock.

 

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Table of Contents

Compensation Discussion and Analysis

 

EXECUTIVE SUMMARY

 

Based on our performance through fiscal 2016 illustrated below, our executives received the following payouts of performance- based compensation:

 

  Annual incentive awards paid out below target based on the slightly below target performance in our financial measures. The strategic measure of Leadership Effectiveness was based on total Company results which met target performance.

 

  PSUs paid out at 150% of target based on RONCAA achievement at maximum for the 2014-2016 performance period.

 

 

LOGO

 

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Table of Contents

Compensation Discussion and Analysis

 

EXECUTIVE SUMMARY

 

   WHAT WE DO
LOGO    Pay for Performance. Between 81% and 90% of total direct compensation opportunity (assuming target performance) for our NEOs is provided in the form of annual and long-term incentives.
LOGO    Conduct an Annual Compensation Assessment. This annual assessment includes:
     •   Review of publicly-available, peer group data to analyze compensation and related company performance data and evaluate how our executives’ compensation compares to that of executives at comparable companies;
     •   Risk assessment of regulatory, shareholder and market changes related to compensation that may have an impact on the Company;
     •   Risk assessment of whether the Company’s compensation plans and practices discourage inappropriate risk taking by Company executives;
     •   Review of the design alternatives of our incentive plans and the correlation between our performance goals, business strategy and organizational priorities; and
     •   Assessment of the difficulty of our performance goals and the alignment of pay and performance to ensure that our incentive programs are consistent with our stated philosophy and performance objectives.
LOGO    Tie Incentive Compensation to a Clawback Policy. We maintain a clawback policy that would allow us to recover incentive compensation which would have been lower had it been based on restated financial results.
LOGO    Limit Incentive Payouts. Under our annual and long-term incentive plans, we cap actual payouts at 200% of target awards.
LOGO    Require Significant Stock Ownership. We strongly believe that executive officers should own appropriate amounts of Common Stock to align their interests with those of the Company’s shareholders. The Compensation Committee has adopted stock ownership and retention guidelines for all senior executives in the Company.
LOGO    Conduct an Annual Say-on-Pay Vote. Our shareholders have the opportunity each year to provide input on our executive compensation programs through an annual “say-on-pay” vote.
LOGO    Have an Independent Compensation Committee. The Compensation Committee is comprised entirely of independent directors. The independence of the Compensation Committee members is reviewed and confirmed on an annual basis.
LOGO    Use an Independent Compensation Consultant. The Compensation Committee has engaged an independent compensation consultant to report directly to the Compensation Committee. The consultant provides independent advice to the Compensation Committee.
   WHAT WE DO NOT DO
LOGO    Provide Single-Trigger Severance or Permit Golden Parachute Tax Gross-Ups, Following Change-in-Control. We do not provide, in any management continuity agreements executed after 2012, single trigger or modified single-trigger benefits or tax gross-up provisions for excise taxes assessed against excess parachute payments in connection with a change-in-control.
LOGO    Permit Hedging of the Company’s Securities. We have a policy that prohibits employees (including the NEOs) from engaging in any derivative transactions based on the trading price of the Company’s securities, such as puts, calls and other derivative securities.
LOGO    Permit Unauthorized Trading. We have adopted a trading policy prohibiting executives from engaging in the purchase or sale of our Common Stock except during open trading windows and requiring pre-clearance for executives’ transactions in our Common Stock.
LOGO    Grant Discounted Options, Extend the Original Option Term or Reprice or Exchange Underwater Options without Shareholder Approval. Our long-term incentive plan prohibits the grant of stock options with an exercise price below fair market value; the extension of the original term of option awards; and the repricing or exchange of any underwater stock options without shareholder approval.
LOGO    Have an Evergreen Provision in our Long-Term Incentive Plan. Our long-term incentive plan does not provide for automatic annual increases in the plan’s share reserve.
LOGO    Provide Employment Agreements. Our executives are “at-will” employees of the Company, and no executives are provided an employment agreement.
LOGO    Provide Excessive Perquisites. The perquisites we provide to our executives are limited to an executive physical, tax and financial planning reimbursement, and limited personal use of corporate aircraft (only for CEO). The Company does not provide gross-ups on these perquisites.
 

 

 

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Table of Contents

Compensation Discussion and Analysis

 

EXECUTIVE SUMMARY

 

 

Say-on-Pay and Frequency of Say-on-Pay Advisory Votes

The Board of Directors carefully considers the results of our shareholders’ advisory “say-on-pay” vote. Lowe’s shareholders continue to express strong support for the Company’s executive compensation program with the Company receiving approximately 96% advisory approval in 2016. This is consistent with the advisory approval over the past three years. In view of this continued support, the Compensation Committee of the Board of Directors maintained the principal features and performance-based elements of the executive compensation program in 2016. At the Annual Meeting, the Company’s shareholders will again have the opportunity to approve Lowe’s executive compensation program through the advisory say-on-pay vote included as Proposal 2 in this Proxy Statement. In addition, in Proposal 3 in this Proxy Statement, the Company’s shareholders will have the opportunity to approve through an advisory vote how frequently the Lowe’s executive compensation program is approved by its shareholders. The Board of Directors recommends a vote to hold say-on-pay votes every year.

Shareholder Engagement

We believe in continued shareholder discussions and engagement. We solicit and respond to feedback regarding our compensation program to better understand our shareholders’ concerns and the topics of interest. For example in 2016, the Compensation Committee made changes to the compensation program to continue to focus on the alignment of pay and performance with shareholder value creation. In addition, last year we also enhanced our proxy statement to include more detailed, transparent, and easy-to-read disclosure regarding the compensation program.

II. COMPENSATION PHILOSOPHY AND ELEMENTS

Compensation Philosophy and Objectives

Our long-term success depends on our ability to attract and retain highly talented leaders who are committed to our purpose, growth and strategy. The fundamental philosophy of our executive compensation program is to align our executives’ pay to overall Company growth and the effective execution of our business strategies. The primary objectives of our program are to:

 

  Attract and retain executives who have the requisite leadership skills to support the Company’s culture and strategic growth priorities;

 

  Maximize long-term shareholder value through alignment of executive and shareholder interests;

 

  Align executive compensation with the Company’s business strategies, including expanding home improvement reach, developing capabilities to anticipate and support customer needs and generating profitable growth and substantial returns; and

 

  Target executive total compensation at the market median with an opportunity to earn above market pay when the Company delivers results that exceed performance targets.

Key Components

To support these objectives, the Compensation Committee has designed the executive compensation program with an appropriate balance between annual and long-term compensation, as well as fixed and variable pay. To encourage executives to drive Company performance, the largest portion of our executive compensation program is variable and performance-based. Moreover, the long-term incentive award opportunities, as a percentage of total compensation, are greater than the annual incentive award opportunities.

The Board of Directors places far greater emphasis on the long-term success of the Company and strong alignment with the interest of shareholders, customers and employees.

 

 

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Table of Contents

Compensation Discussion and Analysis

 

COMPENSATION PHILOSOPHY AND ELEMENTS

 

The following table lists the key elements of the Company’s 2016 executive compensation program:

 

 

    KEY ELEMENTS OF EXECUTIVE COMPENSATION

 

       

 

    Element

 

 

 

Form

 

 

 

Key Characteristics

 

 

 

Link to Shareholder Value

 

 

 

Key Decisions

 

    Base Salary   Cash  

Fixed cash compensation based on the Compensation Committee’s review of a market benchmark, the duties and responsibilities of each executive’s position and the performance and the effectiveness of the executive

 

  Provide a base level of fixed income to the executive; encourage retention and attraction of top talent; and recognize collaborative, purpose-driven leadership   Base salaries are reviewed annually each January. Approved adjustments are effective at the start of the fiscal year.

    Annual

    Incentive

    Awards

  Cash  

Variable cash compensation tied to the achievement of annual strategic and financial performance goals established by the Compensation Committee for each fiscal year

 

  Motivate executives to achieve the Company’s annual strategic and financial goals  

All design elements of the annual incentive program are reviewed and approved each March. Year-end results are certified at the end of February following the completion of the fiscal year.

 

    Long-Term

    Incentive

    Awards

  PSUs  

PSUs are based on (i) the Company’s average RONCAA(1) relative to pre-determined threshold, target and maximum levels of performance for the three-year performance period, and (ii) the relative TSR modifier

 

  Reward achievement of long- term growth goals and creation of shareholder value   Results are certified the February following the completion of the performance period.
  Stock Options  

Stock options vest on a pro rata basis over three-year period(2)

 

  Provide incentive to increase the market value of Common Stock   All design elements of the long-term incentive program are reviewed and approved each March.
  Time-Vested RSAs   Time-vested RSAs cliff vest on the third anniversary of the grant date(2)  

Promote long-term retention and support stock ownership and alignment with shareholders

 

 

    Retirement

    and Other     Benefit Plans

 

401(k) Plan

 

Group Insurance Plan

 

Employee Stock Purchase Plan

 

Benefit Restoration Plan

 

 

Broad-based retirement and welfare plans sponsored by the Company on the same terms and conditions applicable to all eligible employees; supplemental 401(k) benefits for executives

 

  Provide welfare benefits and retirement benefits to encourage the retention and attraction of top talent   Review periodically to ensure consistency with market competitiveness and leading trends.
    Perquisites   Other Benefits  

Reimbursement of annual tax and financial planning, physical examination costs, and personal use of corporate aircraft (CEO only)

 

  Attract and retain executive talent and enhance efficiency, productivity, wellness and safety   Executives’ utilization of perquisites is reviewed annually each March.

 

(1) RONCAA is a comprehensive long-term financial metric that incorporates both operating income and balance sheet performance in the calculation. This metric motivates management to generate sustained profitable growth over time while balancing the Company’s effectiveness at allocating shareholder capital to drive future investment and growth. RONCAA is computed by dividing the Company’s EBIT for the year by the average of the Company’s non-cash assets as of the beginning and end of the fiscal year. The return percentages for each fiscal year in the performance period will be averaged to yield a RONCAA measure for the three-year performance period.

 

(2) Executives must maintain employment with the Company during the three-year period or terminate from the Company due to death, disability or qualified retirement (as defined in the grant agreement) in order to earn the awards.

 

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Compensation Discussion and Analysis

 

COMPENSATION DECISION-MAKING PROCESS

 

III. COMPENSATION DECISION-MAKING PROCESS

Role of the Compensation Committee

The Compensation Committee, which consists of five independent directors, is responsible for developing and administering our executive compensation program. The Compensation Committee works closely with its independent compensation consultant and meets regularly, approximately five times each year, to make decisions related to our executive compensation program and the compensation of our NEOs. The Compensation Committee reports its actions to the full Board at the Board meeting following each Compensation Committee meeting. The Compensation Committee’s responsibilities include reviewing and approving:

 

  Our compensation philosophy and strategy

 

  The Select Peer Group and the Survey Data Group for benchmarking

 

  Amount and form of executive compensation

 

  Annual and long-term incentive targets and performance goals

 

  Achievement of goals in annual and long-term incentive plans

 

  General compensation levels for executives to ensure market competitiveness

 

  CD&A disclosure in the annual proxy statement

The full description of the Compensation Committee’s authority and responsibilities is provided in the Compensation Committee Charter, which is available on our Company website: www.Lowes.com/investor.

Role of the Independent Compensation Consultant

The Compensation Committee directly engages and regularly consults with Farient Advisors LLC, its independent compensation consultant, for ongoing executive compensation matters. The Compensation Committee’s compensation consultant reports directly to the Compensation Committee and does not provide any services to the Company other than the Compensation Committee consulting services. The Compensation Committee has assessed the independence of its compensation consultant pursuant to the independence factors specified by the SEC rules (as incorporated into the NYSE listing standards) and concluded that no conflict of interest exists that would prevent its compensation consultant from independently representing the Compensation Committee. During the 2016 fiscal year, Farient Advisors LLC performed the following services:

 

  Attended all Compensation Committee meetings
  Advised the Compensation Committee on the design of the Company’s annual and long-term incentive plans (including the selection of the performance metrics and assessment of performance goals)

 

  Provided the Compensation Committee with an external perspective on the reasonableness and competitiveness of our executive compensation program

 

  Assisted with the selection of the peer group of companies to be used for compensation and performance benchmarking

 

  Performed an assessment of the relationship between our CEO pay and performance over the past several years

 

  Provided periodic updates and guidance on regulatory and governance trends impacting compensation

 

  Assisted the Compensation Committee in conducting its annual risk assessment of our executive compensation program

 

  Reviewed compensation-related proxy disclosures

Role of Management

When making decisions on executive compensation, the Compensation Committee considers input from the Company’s Chief Human Resources Officer who works most closely with the Compensation Committee, both in providing information and analysis for review and in advising the Compensation Committee concerning compensation decisions (except as it relates specifically to her compensation and the compensation of our CEO). Our CEO reviews the performance of the NEOs (other than himself) and other executive officers and provides recommendations on executive officer compensation for the Compensation Committee’s consideration. The Compensation Committee reviews and discusses pay decisions related to the CEO in executive sessions without the CEO or any other members of management present.

 

 

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Table of Contents

Compensation Discussion and Analysis

 

COMPENSATION DECISION-MAKING PROCESS

 

Compensation Benchmarking and Peer Group

Each year, the independent compensation consultant provides the Compensation Committee a review and analysis of the peer group companies to be used for compensation and performance benchmarking. After reviewing the report and recommendation, the Compensation Committee approved the use of benchmarking data from two sources for fiscal 2016: the Survey Data Group and the Select Peer Group.

The Survey Data Group is comprised of a broad group of retail companies with over $15 billion in annual revenue available in compensation surveys.

The Select Peer Group is a group of retail and customer service companies selected for direct relevance to Lowe’s business using the following criteria:

 

  Headquartered in the United States with publicly-traded securities listed on a major United States exchange;

 

  Operating in the Consumer Discretionary or Food & Staples retail sectors;

 

  Annual revenue greater than $15 billion; and

 

  Retail or customer service based business model focused on producing median or higher EBIT and TSR growth.

The companies in the Select Peer Group for fiscal 2016 were:

 

Amazon.com, Inc.    Best Buy Co., Inc.   

Costco Wholesale Corporation

CVS Health Corporation    Kohl’s Corporation    Macy’s, Inc.
Nordstrom, Inc.   

Sears Holdings Corporation

  

Staples, Inc.

Target Corporation   

The Home Depot, Inc.

  

The Kroger Co.

The TJX Companies, Inc.   

Walgreen Co.

   Wal-Mart Stores, Inc.

The number of companies in the Select Peer Group was the same in fiscal 2016 as the prior year. The companies in the Select Peer Group were the same in fiscal 2016 as the prior year, except Nordstrom, Inc. replaced SUPERVALU INC. The removal of SUPERVALU INC. from the peer group was due to weak financial and operational performance and business model dissimilarities. The addition of Nordstrom, Inc. to the peer group was due to stable financial and operational performance as well as strong customer focus. The Compensation Committee agreed that these companies were relevant given our peer selection criteria and that the size of the Select Peer Group remained appropriate based on market practices.

 

 

  SELECT PEER GROUP DATA FOR FISCAL 2016(1)

                 

  ($ in Millions)

                 
        Market        

 

 

 

TSR

 

 

    

Revenues

 

    

Capitalization

 

    

EBIT(2)

 

    

 

1-year

 

    

3-year

 

    

 

5-year  

 

 

  75th Percentile

   $ 118,035        $83,667      $ 5,740        10%        21%        20%    

  50th Percentile

   $ 69,495        $35,808      $ 3,672        3%        7%        13%    

  25th Percentile

   $ 23,958        $  8,801      $ 1,608        -13%        -4%        1%    

  Lowe’s Companies, Inc.

   $ 65,017        $63,751      $ 5,846        4%        18%        24%    

      Percentile Ranking

     49%        61%        76%        59%        73%        83%    

 

Source: S&P Capital IQ

 

(1) Revenues and EBIT are as of each company’s latest fiscal year. Market Capitalization and TSR are as of February 3, 2017, which is Lowe’s 2016 fiscal year end date.

 

(2) EBIT is based on S&P Capital IQ’s definition (Total Revenues — Cost of Revenues — Selling, General & Administrative Expenses — Depreciation & Amortization).

 

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Compensation Discussion and Analysis

 

COMPENSATION DECISION-MAKING PROCESS

 

At the November 2015 meeting, the Compensation Committee reviewed a thorough compensation benchmark based on the two peer groups described above. The Compensation Committee concluded that the benchmark indicated that the NEOs’ target total direct compensation (“TDC”) approximated market median, with an opportunity to earn above market pay when the Company delivers results that exceed performance targets. The following chart summarizes Lowe’s pay positioning versus the market median and the results of the compensation benchmarking report used for the Compensation Committee’s 2016 compensation actions:

 

 

  % DEVIATION FROM MARKET MEDIAN

 

        
  

 

Salary

 

  

 

Target STI

 

  

 

Target LTI

 

  

 

Target TDC

 

  CEO

  

–4%

  

10%

   –2%   

3%

  Other NEOs

   –8%    –16%   

14%

  

3%

IV. 2016 COMPENSATION ACTIONS

Base Salary Adjustments

The Compensation Committee reviews and adjusts the NEO base salaries in January each year after it has considered competitive benchmark and relative compensation positioning. In 2016, the Compensation Committee approved the following base salaries for the NEOs:

 

       Name and Position

 

  

2015

Base Salary

 

    

2016

Base Salary

 

    

% Increase(1)    

 

 

 

       Robert A. Niblock

       Chairman of the Board, President and Chief Executive Officer

 

  

 

$

 

1,300,000

 

 

  

 

$

 

1,300,000

 

 

  

 

 

 

0.0%    

 

 

 

       Robert F. Hull, Jr.

       Chief Financial Officer

  

 

 

$

 

 

748,000

 

 

 

  

 

 

$

 

 

769,000

 

 

 

  

 

 

 

 

 

2.8%    

 

 

 

 

       Rick D. Damron

       Chief Operating Officer

  

 

$

 

790,000

 

 

  

 

$

 

790,000

 

 

  

 

 

 

0.0%    

 

 

 

       Michael A. Jones(2)

       Chief Customer Officer

  

 

$

 

790,000

 

 

  

 

$

 

790,000

 

 

  

 

 

 

0.0%    

 

 

 

       Ross W. McCanless

       Chief Legal Officer, Secretary and Chief Compliance Officer

  

 

$

 

530,000

 

 

  

 

$

 

545,000

 

 

  

 

 

 

2.8%    

 

 

 

       Jennifer L. Weber(3)

       Chief Human Resources Officer

  

 

$

 

 

 

  

 

$

 

545,000

 

 

  

 

 

 

—    

 

 

 

(1) The general Company-wide base salary adjustments averaged approximately 2.8% for all employees in 2016, and the average Company-wide base salary adjustments averaged approximately 2.4% for all employees who were Senior Vice Presidents and above.

 

(2) Mr. Jones served as Chief Customer Officer until October 27, 2016.

 

(3) Ms. Weber became the Chief Human Resources Officer on March 1, 2016.

The Compensation Committee did not increase Mr. Niblock’s base salary for 2017.

Annual Incentive Awards

Our annual incentive plan provides each NEO the opportunity to receive an annual cash award based on the Company’s achievement of predetermined financial and strategic goals. The formula for computing annual incentive payouts is as follows:

 

 

BASE SALARY       X      

TARGET AWARD

PERCENTAGE (1)

(% of Base Salary)

      X      

 

PERFORMANCE GOAL

ACHIEVEMENT LEVEL(2)

(% of Target Level)

 

      =      

ANNUAL INCENTIVE

AWARD EARNED

 

(1) The target award percentage was 200% of base salary for the CEO and 90% to 100% of base salary for the other NEOs. For fiscal 2016, target awards as a percentage of base salary remained the same as the prior year.
(2) The CEO had a maximum opportunity of 175% of target and the other NEOs had a 200% of target maximum opportunity in fiscal 2016, which were the same percentages of target as the prior year.

 

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Compensation Discussion and Analysis

 

2016 COMPENSATION ACTIONS

 

The following table describes the financial and strategic goals for the 2016 annual incentive awards and the weighting assigned to each goal, which is the same for all of the NEOs:

 

 

  Performance

  Metric

 

      Metric Weighting 

 

   

Description

 

 

Performance Measured By

 

 
LOGO  

 

  EBIT

 

 

Rewards the executives for profitability of over-all Company operations and focuses the management team on operational efficiency and expense management

 

 

 

Company’s EBIT

 

 

60%

 

 

  Sales

 

 

Focuses the executives on effective merchandising, driving market share gains, international expansion and the enhancement of the Company’s omni-channel sales and marketing

 

 

 

Company’s net sales

 

 

25%

LOGO

    

 

 

  Leadership

  Effectiveness

 

 

Provides incentive compensation for leadership behavior that has the greatest positive impact on employee motivation, engagement and commitment to implementing the Company’s long-term strategy

 

 

 

Percentage of responses to the Lowe’s Employee Opinion Survey that rate leadership in the top two categories of effectiveness

 

 

15%

 

The Compensation Committee has for several years used EBIT and sales as the performance metrics for annual incentive awards. The Compensation Committee added leadership effectiveness in 2014 as a strategic goal to better enable execution of the Company’s strategic objectives. The Compensation Committee, having considered the level of difficulty inherent in the goals, based the 2016 target performance levels on the Company’s annual operating plan and expected growth over prior year performance. The target EBIT and sales goals for the 2016 annual incentive plan were set higher than a majority of the peers’ expected EBIT and sales growth rates in 2016.

The Compensation Committee’s objective in administering our incentive plan is to cause incentive awards to be calculated on a comparable basis from year-to-year, and to ensure that plan participants are incentivized and rewarded appropriately. For these reasons, the Compensation Committee may make adjustments to the actual levels of achievement under each performance goal at its discretion. The Compensation Committee adopted adjustment guidelines in January 2011, which in general, relate to (i) changes in applicable laws or regulations, (ii) items of gain, loss or expense that are related to the disposal or acquisition of a business or change in accounting principles, (iii) unusual or non-recurring transactions that were not anticipated, or (iv) other unusual, non-recurring or unexpected items similar in nature as determined by the Compensation Committee. The adjustment guidelines include the following specific items as potential adjustments for consideration: extraordinary items, accounting principles or assumptions changes, acquisitions and divestitures (and related charges), litigation, regulatory claims and insurance claims, write-downs, store closing costs and restructuring charges.

In February 2017, the Compensation Committee reviewed the Company’s 2016 performance relative to the EBIT and sales goals and the leadership effectiveness goal to determine the annual incentive awards earned under the annual incentive plan for fiscal year 2016. The Compensation Committee adjusted fiscal 2016 EBIT to add (i) a non-cash impairment charge of $290 million recognized in connection with the Company’s investment in its joint venture in Australia, (ii) a non-cash impairment charge of $76 million for goodwill and long-lived asset impairment charges associated with the Company’s Orchard Supply Hardware operations, and (iii) $84 million in productivity restructuring and severance costs; and to subtract (i) $76 million in a net gain on the settlement of a foreign currency hedge entered into in advance of the Company’s acquisition of RONA, inc. and (ii) $16 million of RONA, inc. operating EBIT net of transaction-related costs. The Compensation Committee adjusted fiscal 2016 sales to subtract $2.193 billion of RONA, inc. sales. The Compensation Committee concluded, in accordance with the Compensation Committee’s adjustment guidelines, the above described charges were unusual, non-recurring items that were not anticipated when the 2016 performance metrics were adopted and should not be considered for purposes of measuring Company performance and determining the 2016 annual incentive awards. Additionally, the acquisition of RONA, inc. was not contemplated when the Company established its 2016 EBIT and sales goals and was also not considered in determining 2016 incentive payments.

 

 

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Compensation Discussion and Analysis

 

2016 COMPENSATION ACTIONS

 

Based on the performance metrics established by the Compensation Committee and the Company’s 2016 performance, the Compensation Committee determined that Lowe’s achieved approximately 74% and approximately 80% of the target incentive opportunities for the CEO and the other NEOs, respectively.

 

      Performance Metric(1)

 

    

Threshold

 

    

Target

 

    

Maximum

 

    

2016 Actual        

Performance        

 

      EBIT

 

     $5.960 billion

 

     $6.462 billion

 

     $6.797 billion

 

     $6.205 billion(2)     

 

      Sales

 

     $61.104 billion

 

     $62.869 billion

 

     $63.690 billion

 

     $62.824 billion(2)

 

 

(1) The performance goal achievement for the strategic goal of Leadership Effectiveness is disclosed on page 29.
(2) The Compensation Committee adjusted fiscal 2016 EBIT and sales as described on page 36.

Based on the Compensation Committee’s determination of the results above, the NEOs earned annual incentive awards for 2016 as follows:

 

      Name

 

  

Base Salary

 

      

x

 

    

Target Award %
(% of Base Salary)

 

   

x

 

    

Performance Goal
Achievement Level
(% of Target)

 

   

=

 

    

Actual Award        

Earned        

 

 

      Robert A. Niblock

 

   $ 1,300,000                   200              74.07            $ 1,925,716  

      Robert F. Hull, Jr.

 

   $ 769,000                   90              80.79            $ 559,148  

      Rick D. Damron

 

   $ 790,000                   100              79.57            $ 628,579  

      Michael A. Jones(1)

 

                       100                           $ 0  

      Ross W. McCanless

 

   $ 545,000                   90              80.79            $ 396,275  

      Jennifer L. Weber(2)

 

   $ 500,930                   90              80.79            $ 364,231  

 

(1) Mr. Jones was not eligible for an annual incentive award due to his departure from the Company in October 2016.
(2) Ms. Weber’s annual incentive award was based on base salary earned during the year based on her start date after the beginning of the fiscal year.

Long-Term Equity Awards

 

In 2016, the Compensation Committee awarded the NEOs a mix of 50% PSUs, 25% stock options and 25% time-vested RSAs. The Compensation Committee believes the mix of equity award types reflects an appropriate balance between providing incentive compensation for the achievement of Company-specific performance measures (PSUs), increases in the market value of the Common Stock (stock options) and retention (time-vested RSAs).

 

In March each year, the Compensation Committee approves a target long-term equity award for each executive officer, expressed as a percentage of base salary. Target awards are determined based on each executive officer’s position and level of responsibility, the Company’s historical grant practices and market benchmarks reviewed annually by the Compensation Committee. For fiscal 2016, target awards as a percentage of base salary remained the same as the prior year. The following table reflects the target awards granted to the NEOs in 2016:

 

 

    

2016 Target Long-Term Equity Awards  

 

 

      Name

 

  

% of Base Salary    

 

   

Amount ($000s)  

 

 

      Robert A. Niblock

 

     700   $ 9,100  

      Robert F. Hull, Jr.

 

     300   $ 2,307  

      Rick D. Damron

 

     400   $ 3,160  

      Michael A. Jones(1)

 

     400   $ 3,160  

      Ross W. McCanless

 

     300   $ 1,635  

      Jennifer L. Weber

 

     300   $ 1,635  

 

(1) Mr. Jones’ 2016 equity awards were forfeited due to his departure from the Company in October 2016.

 

The Compensation Committee decided that the PSUs awarded in 2016 will be earned based on the Company’s RONCAA for the three-year performance period from fiscal 2016 to fiscal 2018 and the relative TSR modifier. RONCAA is computed by dividing the Company’s EBIT for the year by the average of the

Company’s non-cash assets as of the beginning and end of the fiscal year. The return percentages for each fiscal year in the performance period will be averaged to yield a RONCAA measure for the three-year performance period. The Compensation Committee believes strong RONCAA

 

 

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Table of Contents

Compensation Discussion and Analysis

 

2016 COMPENSATION ACTIONS

 

performance is aligned with creating long-term value for the Company’s shareholders. Specifically, RONCAA is a comprehensive long-term financial metric that incorporates both operating income and balance sheet performance in the

calculation, incenting management to generate sustained profitable growth over time. This metric also incentivizes the effective allocation of shareholder capital toward future growth investments.

 

 

The chart below illustrates how the relative TSR modifier expands the PSU performance award to range from 34% of target at threshold performance to 200% of target at maximum performance:

 

    PSU   
Performance   
Level   

 

  Payout Percentage   
(% of Target   

Award)   

 

    Lowe’s 3-Year TSR   
Percentage Spread   
from S&P 500 Index   

 

  Modifier(1)   
    PSU   
Performance   
Level   

 

  Final Payout   
Opportunity   
(% of  Target Award)(1)   

 

PSUs

    Maximum   

 

  150%   

 

    ³+20%   

 

  1.33x   

 

    Maximum   

 

  200%   

 

 Granted 

 

LOGO

  Target   

 

  100%   

 

    x     0%   

 

  1.00x   

 

    =     Target   

 

  100%   

 

    Threshold   

 

  50%   

 

    £ (20)%   

 

  0.67x   

 

    Threshold   

 

  34%   

 

    <Threshold   

 

  0%   

 

          <Threshold   

 

  0%   

 

 

(1) Performance between discrete points will be interpolated; TSR modifier cannot be lower than 0.67x; if RONCAA is below threshold, there will be no payout.

 

2014 PSU Awards. The performance period for the PSUs awarded in 2014 (the “2014 PSUs”) ended on February 3, 2017, the last day of the 2016 fiscal year. The 2014 PSU awards were eligible to be earned based on the Company’s average RONCAA for fiscal years 2014 through 2016.

The target RONCAA goal for the PSUs awarded in 2014 was set higher than a majority of the peers’ historical RONCAA performance for each of the five preceding fiscal years. Based

on the performance measures established by the Compensation Committee and the Company’s adjusted performance for the 2014-2016 performance period, 150% of the 2014 PSUs, as calculated below, were earned and converted to shares of Common Stock. For purposes of determining the Company’s RONCAA performance and the number of PSUs earned, the Compensation Committee made adjustments to exclude the impact of the acquisition of RONA, inc. on fiscal 2016 EBIT and Non-Cash Assets.

 

 

      Performance Metric

 

  

Threshold

 

    

Target

 

    

Maximum

 

    

2014–2016
Adjusted
Performance

 

    

Performance
Goal
Achievement
(% of Target)

 

      RONCAA

 

   12.50%

 

     14.50%

 

     16.50%

 

     16.67%(1)

 

     150%

 

 

(1) Adjusted to exclude the impact of the acquisition of RONA, inc. in 2016.

Benefit Restoration Plan and Perquisites

 

The Benefit Restoration Plan, adopted by the Company in August 2002, is intended to provide NEOs and other qualifying executives with benefits lost due to qualified plan limitations imposed by the Code that are equivalent to those received by all other employees under the Company’s qualified retirement plans. The Company makes matching contributions to each executive officer’s Benefit Restoration Plan account under the same matching contribution formula based on the executive’s elective contribution to the 401(k) Plan, regardless of the Code limitations.

Since 2010, NEOs and other qualifying executives have been eligible for an annual executive physical assessment of overall health, screening and risk reviews for chronic diseases and other specialty consultations, which helps protect the investment we make in these key individuals, at either the

Mayo Clinic Executive Health Program or Duke Executive Health Program. In addition, these executives are eligible for a reimbursement of up to $12,000 for financial and tax planning services.

The Company owns and operates business aircraft to allow employees to safely and efficiently travel for business purposes. The corporate aircraft allows executive officers to be far more productive than commercial flights since the corporate aircraft provides a confidential, safe and productive environment in which to conduct business. The independent members of the Board of Directors require the Chairman, President and Chief Executive Officer to use the corporate aircraft for all business and personal travel needs to protect his safety and enhance productivity.

 

 

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2016 COMPENSATION ACTIONS

 

Pay-for-Performance Alignment

 

Each year, the Compensation Committee assesses the relationship between our CEO’s pay and the Company’s performance over time. To conduct this assessment, the Compensation Committee uses its independent compensation consultant’s proprietary alignment model to test whether our CEO’s Performance-Adjusted Compensation (“PAC”) was: (i) reasonable in comparison to the Company’s revenue size and the comparable company group (which for this purpose was the Select Peer Group described on page 34), and (ii) sensitive to the Company’s TSR over time. PAC includes our CEO’s salary, actual annual incentive compensation, and the performance-adjusted value of long-term incentives, averaged over 3-year rolling periods. Performance is TSR, averaged over

the same 3-year rolling periods. Each data point on the chart below, which is adjusted for inflation and the Company’s size, represents PAC over a three-year period and TSR for the same period.

As indicated by the chart below, the Compensation Committee concluded that there was a strong relationship between our CEO’s PAC and the Company’s performance. This is because our CEO’s PAC generally fluctuates with performance. Moreover, the Compensation Committee determined that our CEO’s PAC was reasonable because it generally fell below the upper boundary of a competitive pay range that our consultant deemed to be acceptable based on the Company’s size, Select Peer Group PAC levels, and performance.

 

 

 

LOGO

(1) PAC measures compensation outcomes after performance has occurred, in contrast to target compensation, which indicates expected compensation before performance has occurred.

The Compensation Committee’s analysis of the Company’s pay for performance indicates that Lowe’s CEO pay has historically been and continues to be strongly aligned with the Company’s performance and shareholder interests. This is indicated by the fact that Lowe’s CEO PAC is both reasonable and sensitive to Company performance over time.

 

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Lowe’s Companies Inc CEO Total Direct PACTM vs. Peer Group
Pay for Performance Alignment
Over 3 Year Period Ending in Year Shown


Table of Contents

Compensation Discussion and Analysis

 

OTHER COMPENSATION POLICIES

 

 

V. OTHER COMPENSATION POLICIES

Compensation Risk Assessment

Each November, the Compensation Committee reviews an audit and analysis of the risk associated with the Company’s executive compensation program. In this review, the Compensation Committee considers the balance between pay components, measures of performance, plan caps, plan time horizons and over-lapping performance cycles, program design and other features that are designed to mitigate risk (e.g., stock ownership guidelines and clawback policy). The Compensation Committee believes the Company’s pay practices, stock ownership and holding requirements and clawback policies all discourage inappropriate risk taking by Company executives.

Stock Ownership Guidelines

The Compensation Committee strongly believes that executive officers should own appropriate amounts of Common Stock to align their interests with those of the Company’s shareholders. The Company’s 401(k) Plan, employee stock purchase plan and long-term incentive plan provide ample opportunity for executives to acquire Common Stock.

The Compensation Committee has adopted stock ownership and retention guidelines for all senior executives in the Company. The ownership targets under the current guidelines are as follows:

 

     Position

 

  

Target Ownership
(Multiple of Base Salary)

 

    Chairman, President and Chief Executive Officer

 

   10.0x

 

    Chief Operating Officer and Chief Customer Officer

 

     5.0x

 

    Executive Vice Presidents

 

     4.0x

 

    Senior Vice Presidents

 

 

 

     2.0x

 

The Compensation Committee reviews compliance with the guidelines annually at its March meeting. The Company determines the number of shares of Common Stock required to be held by each senior officer by dividing the ownership requirement (expressed as a dollar amount) by the average closing price of the Common Stock for the preceding fiscal year. Shares of Common Stock are counted towards ownership as follows:

 

  All shares held or credited to a senior officer’s accounts under the Lowe’s 401(k), benefit restoration, deferred compensation and employee stock purchase plans;

 

  All shares owned directly by the senior officer and his or her immediate family members residing in the same household;
  50% of the number of vested stock options; and

 

  50% of the number of shares of unvested RSAs.

Senior officers may not sell the net shares resulting from a restricted stock or PSU vesting event or stock option exercise until the ownership requirement has been satisfied. With the exception of Mr. McCanless and Ms. Weber, who joined the Company in 2015 and 2016, respectively, all of the NEOs were in compliance with this policy for fiscal 2016.

Oversight of Executive Stock Ownership, No Hedging and Clawback of Incentive Compensation

The Compensation Committee has always supported governance and compliance practices that are transparent and protect the interests of the Company’s shareholders. To strengthen the Company’s practices in these areas, the Company has (i) controls over executive equity awards and ownership and (ii) a policy on the clawback of incentive compensation in the event of a significant restatement of the Company’s financial results.

The Company’s controls over executive equity awards and ownership prohibit any executive from:

 

  Using Common Stock as collateral for any purpose, including in a margin account;

 

  Engaging in short sales of Common Stock;

 

  Engaging in any transaction involving the use of a financial instrument or other investment designed to hedge or offset any decrease in the market value of the Company’s securities or to leverage the potential return of a predicted price movement (up or down) in the Company’s securities; or

 

  Entering standing purchase or sell orders for Common Stock except for a brief period of time during open window trading periods.

Trading in Common Stock, including stock held in an account under Lowe’s 401(k) Plan, by an executive and the executive’s immediate family members who reside with the executive or whose transactions are subject to the executive’s influence or control, is limited to open window trading periods designated by the Company’s Chief Legal Officer and Chief Compliance Officer. In addition, all transactions by an executive involving Common Stock must be pre-cleared by the Chief Legal Officer and Chief Compliance Officer.

The clawback policy is a part of the Company’s Corporate Governance Guidelines and requires the Board of Directors to review any incentive compensation that was provided to executive officers on the basis of the Company having met or exceeded specific performance goals during a performance period that is subject to a significant restatement of Company

 

 

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Compensation Discussion and Analysis

 

OTHER COMPENSATION POLICIES

 

financial results. If (i) the incentive compensation would have been lower had it been based on the restated financial results and (ii) the Board determines that an executive officer engaged in fraud or intentional misconduct that caused or substantially caused the need for the restatement, then the Board is required, to the extent practicable, to seek to recover, for the benefit of the Company, the portion of such compensation that would not have been earned had the incentive compensation been based on the financial results as restated.

Tax Deductibility of Compensation

Section 162(m) of the Code limits the amount of compensation paid, with certain exceptions, to the NEOs (other than the Chief Financial Officer) that may be deducted by the Company for federal income tax purposes in any fiscal year to $1 million. Certain performance-based compensation that has been approved by the Company’s shareholders and that is administered by a committee composed entirely of outside directors is not subject to the $1 million deduction limit. A

large portion of our executive compensation, including our annual incentives and long-term incentive awards in the form of stock options and PSUs, are intended to qualify as performance-based compensation under Section 162(m) of the Code.

Although the Compensation Committee has not adopted a formal policy that requires all compensation paid to the NEOs to be deductible, the Compensation Committee structures, whenever practical, compensation programs to make the compensation paid thereunder fully deductible. However, our corporate objectives and strategies may not necessarily align with the requirements of Section 162(m). Accordingly, the Compensation Committee may grant awards or enter into compensation arrangements under which payments are not deductible under Section 162(m) of the Code. Restricted stock awards, for example, are not considered performance-based under Section 162(m) and accordingly, are subject to the $1 million deduction limit.

 

 

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Table of Contents

Compensation Discussion and Analysis

 

COMPENSATION TABLES

 

VI. COMPENSATION TABLES

Summary Compensation Table

This table shows the base salary, annual incentive compensation and all other compensation paid to the NEOs. The table also shows the grant date fair value of the stock and option awards made to the NEOs.

 

    Name and Principal Position

 

  

Year

 

    

Salary

($)

 

    

Bonus
($)

 

    

Stock
Awards
($)(1)(2)

 

    

Option
Awards
($)(1)(3)

 

    

Non-Equity
Incentive Plan
Compensation
($)

 

    

All Other
Compensation
($)(4)

 

    

Total

($)

 

 

Robert A. Niblock

Chairman of the Board, President

and Chief Executive Officer

    

 

2016

 

 

 

    

 

1,300,000

 

 

 

    

 

0

 

 

 

    

 

6,922,556

 

 

 

    

 

2,319,098

 

 

 

    

 

1,925,716

 

 

 

    

 

202,649

 

 

 

    

 

12,670,019

 

 

 

    

 

2015

 

 

 

    

 

1,300,000

 

 

 

    

 

0

 

 

 

    

 

5,955,842

 

 

 

    

 

2,988,878

 

 

 

    

 

2,657,993

 

 

 

    

 

252,451

 

 

 

    

 

13,155,164

 

 

 

    

 

2014

 

 

 

    

 

1,280,000

 

 

 

    

 

0

 

 

 

    

 

5,813,280

 

 

 

    

 

4,369,540

 

 

 

    

 

2,547,494

 

 

 

    

 

269,631

 

 

 

    

 

14,279,945

 

 

 

Robert F. Hull, Jr.

Chief Financial Officer

    

 

2016

 

 

 

    

 

769,000

 

 

 

    

 

0

 

 

 

    

 

1,755,249

 

 

 

    

 

587,887

 

 

 

    

 

559,148

 

 

 

    

 

62,774

 

 

 

    

 

3,734,058

 

 

 

    

 

2015

 

 

 

    

 

748,000

 

 

 

    

 

0

 

 

 

    

 

1,468,869

 

 

 

    

 

736,931

 

 

 

    

 

801,123

 

 

 

    

 

74,144

 

 

 

    

 

3,829,067

 

 

 

    

 

2014

 

 

 

    

 

726,000

 

 

 

    

 

0

 

 

 

    

 

1,453,320

 

 

 

    

 

1,054,130

 

 

 

    

 

721,673

 

 

 

    

 

63,753

 

 

 

    

 

4,018,876

 

 

 

Rick D. Damron

Chief Operating Officer

    

 

2016

 

 

 

    

 

790,000

 

 

 

    

 

0

 

 

 

    

 

2,403,706

 

 

 

    

 

805,273

 

 

 

    

 

628,579

 

 

 

    

 

73,101

 

 

 

    

 

4,700,659

 

 

 

    

 

2015

 

 

 

    

 

790,000

 

 

 

    

 

0

 

 

 

    

 

2,068,252

 

 

 

    

 

1,037,785

 

 

 

    

 

939,073

 

 

 

    

 

80,572

 

 

 

    

 

4,915,682

 

 

 

    

 

2014

 

 

 

    

 

780,000

 

 

 

    

 

0

 

 

 

    

 

2,055,900

 

 

 

    

 

1,513,187

 

 

 

    

 

861,494

 

 

 

    

 

74,825

 

 

 

    

 

5,285,406

 

 

 

Michael A. Jones*

Chief Customer Officer

    

 

2016

 

 

 

    

 

581,321

 

 

 

    

 

0

 

 

 

    

 

2,403,706

 

 

 

    

 

805,273

 

 

 

    

 

0

 

 

 

    

 

30,005

 

 

 

    

 

3,820,305

 

 

 

    

 

2015

 

 

 

    

 

790,000

 

 

 

    

 

0

 

 

 

    

 

2,068,252

 

 

 

    

 

1,037,785

 

 

 

    

 

939,073

 

 

 

    

 

87,127

 

 

 

    

 

4,922,237

 

 

 

    

 

2014

 

 

 

    

 

583,791

 

 

 

    

 

0

 

 

 

    

 

1,553,750

 

 

 

    

 

1,173,145

 

 

 

    

 

622,408

 

 

 

    

 

20,171

 

 

 

    

 

3,953,265

 

 

 

Ross W. McCanless

Chief Legal Officer, Secretary and

Chief Compliance Officer

    

 

2016

 

 

 

    

 

545,000

 

 

 

    

 

0

 

 

 

    

 

1,243,923

 

 

 

    

 

416,656

 

 

 

    

 

396,275

 

 

 

    

 

48,270

 

 

 

    

 

2,650,124

 

 

 

Jennifer L. Weber**

Chief Human Resources Officer

    

 

2016

 

 

 

     500,930        0        1,653,963        743,969        364,231        26,384        3,289,477  

 

* Mr. Jones served as the Chief Customer Officer until October 27, 2016.

 

** Ms. Weber became the Chief Human Resources Officer on March 1, 2016.

 

(1) The value of the stock and option awards presented in the table equals the grant date fair value of the awards for financial reporting purposes (excluding the effect of estimated forfeitures) computed in accordance with FASB ASC Topic 718. For financial reporting purposes, the Company determines the fair value of a stock or option award accounted for as an equity award on the grant date. Stock awards accounted for as liability awards are measured at fair value at each reporting date. The Company recognizes expense for a stock or option award over the vesting period of the award. PSUs are expensed over the vesting period based on the probability of achieving the performance goal, with changes in expectations recognized as an adjustment in the period of the change.

See Note 10, “Accounting for Share-Based Payments,” to the Company’s consolidated financial statements in its Annual Report on Form 10-K for the fiscal year ended February 3, 2017 for additional information about the Company’s accounting for share-based compensation arrangements, including the assumptions used in the Black-Scholes option-pricing model.

 

(2) The amounts reported in this column include the sum of the grant date fair values of PSU awards and time-vested RSAs.

The PSUs will be earned based on the Company’s RONCAA over a three-year performance period, and for the 2016 PSUs, a relative TSR modifier. The PSUs are accounted for as equity awards. The 2016 stock awards amounts include the following grant date fair values of the PSUs: Mr. Niblock $4,647,767, Mr. Hull $1,178,351, Mr. Damron $1,613,591, Mr. Jones $1,613,591, Mr. McCanless $835,317 and Ms. Weber $835,317. The grant date fair values of the PSUs, assuming the maximum number of shares would be earned at the end of the three-year performance period based on the closing market price of the Common Stock on the date of the award of $76.50, would have been: Mr. Niblock $9,272,249, Mr. Hull $2,350,764, Mr. Damron $3,219,055, Mr. Jones $3,219,055, Mr. McCanless $1,666,414 and Ms. Weber $1,666,414.

The grant date fair value of a time-vested RSA is equal to the closing market price of the Common Stock on the date of the award. The grant date fair value of a PSU is the value at the grant date of the probable outcome of the award and was determined using a Monte-Carlo simulation.

Executives receive dividends on unvested shares of time-vested RSAs during the vesting period. Dividends are not paid or accrued on unearned PSUs. The right to receive dividends has been factored into the determination of the fair values used in the amounts presented above.

Ms. Weber received an additional grant in 2016 of RSAs to replace some of the equity value she forfeited at her previous employer.

 

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COMPENSATION TABLES

 

 

(3) The grant date fair value of an option award is determined using the Black-Scholes option-pricing model with assumptions for expected dividend yield, expected term, expected volatility and a risk-free interest rate. Ms. Weber received an additional grant in 2016 of stock options to replace some of the equity value she forfeited at her previous employer.

 

(4) Amounts presented consist of the following for the 2016 fiscal year:

 

   

Company Matching
Contributions to:

 

                  

Cost of
Company Required
Physical Exam

($)

 

        

  Name

 

 

401(k)
Plan
($)

 

    

Benefit Restoration
Plan

($)

 

    

Reimbursement of Tax
and Financial Planning
Costs

($)

 

    

Personal Use of
Corporate Aircraft
($)

 

          Total  
($)
 

  Mr. Niblock

 

   

 

9,138

 

 

 

    

 

130,080

 

 

 

    

 

12,000

 

 

 

    

 

48,223

 

 

 

    

 

3,208

 

 

 

    

 

202,649

 

 

 

  Mr. Hull

 

   

 

8,927

 

 

 

    

 

48,742

 

 

 

    

 

3,050

 

 

 

    

 

0

 

 

 

    

 

2,055

 

 

 

    

 

62,774

 

 

 

  Mr. Damron

 

   

 

8,801

 

 

 

    

 

52,780

 

 

 

    

 

750

 

 

 

    

 

0

 

 

 

    

 

10,770

 

 

 

    

 

73,101

 

 

 

  Mr. Jones

 

   

 

5,165

 

 

 

    

 

21,307

 

 

 

    

 

3,533

 

 

 

    

 

0

 

 

 

    

 

0

 

 

 

    

 

30,005

 

 

 

  Mr. McCanless

 

   

 

1,198

 

 

 

    

 

39,672

 

 

 

    

 

7,400

 

 

 

    

 

0

 

 

 

    

 

0

 

 

 

    

 

48,270

 

 

 

  Ms. Weber

 

   

 

7,678

 

 

 

    

 

0

 

 

 

    

 

10,060

 

 

 

    

 

0

 

 

 

    

 

8,646

 

 

 

    

 

26,384

 

 

 

All amounts presented above, other than the amount for personal use of corporate aircraft, equal the actual cost to the Company of the particular benefit or perquisite provided. The amount presented for personal use of corporate aircraft is equal to the incremental cost to the Company of such use. Incremental cost includes fuel, landing and ramp fees and other variable costs directly attributable to personal use. Incremental cost does not include an allocable share of the fixed costs associated with the Company’s ownership of the aircraft.

 

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Table of Contents

Compensation Discussion and Analysis

 

COMPENSATION TABLES

 

Grants of Plan-Based Awards

This table presents the potential annual incentive awards the NEOs were eligible to earn in fiscal 2016, the stock options, time-vested RSAs and PSUs awarded to the executives in fiscal 2016 and the grant date fair value of those awards.

 

 Name

 

 

Grant
Date

 

   

Date of
Committee
Action

 

   

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
(#)(3)

 

   

All Other
Option
Awards:
Number of
Securities
Underlying
Options
(#)(4)

 

   

Exercise or
Base Price of
Option
Awards
($/Sh)

 

   

Grant
Date Fair
Value of
Stock
and
Option

Awards

($)

 

 
     

Threshold
(#)

 

   

Target
(#)

 

   

Maximum
(#)

 

   

Threshold
(#)

 

   

Target
(#)

 

   

Maximum
(#)

 

         

 Mr. Niblock

 

       

 

68,250

 

 

 

   

 

2,600,000

 

 

 

   

 

4,550,000

 

 

 

             
   

 

4/1/2016

 

 

 

   

 

3/17/2016

 

 

 

         

 

19,925

 

 

 

   

 

59,480

 

 

 

   

 

118,662

 

 

 

         

 

4,647,767

 

 

 

   

 

9/15/2016

 

 

 

   

 

3/17/2016

 

 

 

                 

 

147,220

 

 

 

   

 

 

71.31

 

 

 

 

 

   

 

2,319,098

 

 

 

     

 

 

9/15/2016

 

 

 

 

 

   

 

3/17/2016

 

 

 

                                                   

 

31,900

 

 

 

                   

 

2,274,789

 

 

 

 Mr. Hull

 

       

 

40,373

 

 

 

   

 

692,100

 

 

 

   

 

1,384,200

 

 

 

             
   

 

4/1/2016

 

 

 

   

 

3/17/2016

 

 

 

         

 

5,051

 

 

 

   

 

15,080

 

 

 

   

 

30,084

 

 

 

         

 

1,178,351

 

 

 

   

 

9/15/2016

 

 

 

   

 

3/17/2016

 

 

 

                 

 

37,320

 

 

 

   

 

71.31

 

 

 

   

 

587,887

 

 

 

     

 

9/15/2016

 

 

 

   

 

3/17/2016

 

 

 

                                                   

 

8,090

 

 

 

                   

 

576,898

 

 

 

 Mr. Damron

 

       

 

41,475

 

 

 

   

 

790,000

 

 

 

   

 

1,580,000

 

 

 

             
   

 

4/1/2016

 

 

 

   

 

3/17/2016

 

 

 

         

 

6,917

 

 

 

   

 

20,650

 

 

 

   

 

41,196

 

 

 

         

 

1,613,591

 

 

 

   

 

9/15/2016

 

 

 

   

 

3/17/2016

 

 

 

                 

 

51,120

 

 

 

   

 

71.31

 

 

 

   

 

805,273

 

 

 

     

 

9/15/2016

 

 

 

   

 

3/17/2016

 

 

 

                                                   

 

11,080

 

 

 

                   

 

790,115

 

 

 

 Mr. Jones

 

       

 

41,475

 

 

 

   

 

790,000

 

 

 

   

 

1,580,000

 

 

 

             
   

 

4/1/2016

 

 

 

   

 

3/17/2016

 

 

 

         

 

6,917

 

 

 

   

 

20,650

 

 

 

   

 

41,196

 

 

 

         

 

1,613,591

 

 

 

   

 

9/15/2016

 

 

 

   

 

3/17/2016

 

 

 

                 

 

51,120

 

 

 

   

 

71.31

 

 

 

   

 

805,273

 

 

 

      9/15/2016      

 

3/17/2016

 

 

 

                                                   

 

11,080

 

 

 

                   

 

790,115

 

 

 

 Mr. McCanless

 

       

 

28,613

 

 

 

   

 

490,500

 

 

 

   

 

981,000

 

 

 

             
   

 

4/1/2016

 

 

 

   

 

3/17/2016

 

 

 

         

 

3,581

 

 

 

   

 

10,690

 

 

 

   

 

21,326

 

 

 

         

 

835,317

 

 

 

   

 

9/15/2016

 

 

 

   

 

3/17/2016

 

 

 

                 

 

26,450

 

 

 

   

 

71.31

 

 

 

   

 

416,656

 

 

 

     

 

9/15/2016

 

 

 

   

 

3/17/2016

 

 

 

                                                   

 

5,730

 

 

 

                   

 

408,606

 

 

 

 Ms. Weber

       

 

28,613

 

 

 

   

 

490,500

 

 

 

   

 

981,000

 

 

 

             
   

 

4/1/2016

 

 

 

   

 

3/17/2016

 

 

 

         

 

3,581

 

 

 

   

 

10,690

 

 

 

   

 

21,326

 

 

 

         

 

835,317

 

 

 

   

 

4/1/2016

 

 

 

   

 

3/17/2016

 

 

 

                 

 

18,090

 

 

 

   

 

76.50

 

 

 

   

 

327,313

 

 

 

   

 

 

4/1/2016

 

 

 

 

 

   

 

3/17/2016

 

 

 

               

 

5,360

 

 

 

       

 

410,040

 

 

 

   

 

9/15/2016

 

 

 

   

 

3/17/2016

 

 

 

                 

 

26,450

 

 

 

   

 

71.31

 

 

 

   

 

416,656

 

 

 

     

 

9/15/2016

 

 

 

   

 

3/17/2016

 

 

 

                                                   

 

5,730

 

 

 

                   

 

408,606

 

 

 

 

(1) The executives are eligible to earn annual incentive compensation under the Company’s annual incentive plan for each fiscal year based on the Company’s achievement of one or more performance measures established at the beginning of the fiscal year by the Compensation Committee. For the 2016 fiscal year ended February 3, 2017, the performance measures selected by the Compensation Committee were the Company’s EBIT (weighted 60% for the CEO and all other NEOs), sales (weighted 25% for the CEO and all other NEOs) and strategic initiatives (weighted 15% for the CEO and all other NEOs). The performance levels for the performance measures, the Company’s actual performance and the amounts earned by the NEOs for the 2016 fiscal year are shown beginning on page 37. The amounts earned by the executives are also reported in the “Non-Equity Incentive Plan Compensation” column of the Summary Compensation Table on page 42.

 

(2) The PSUs reported in this column are earned based on the Company’s RONCAA over a three-year performance period, and for the 2016 PSUs, a relative TSR modifier. No dividends will accrue or be paid on the PSUs during the three-year performance period. The terms of the PSUs are described in more detail beginning on page 37.

 

(3) The time-vested RSAs vest on the third anniversary of the grant date or, if earlier, the date the executive terminates employment due to death or disability or, in the case of Mr. Niblock, in the event of retirement. For other executives who meet the retirement provisions of the RSA grant agreements, their awards will continue to vest under the normal vesting schedule. Retirement for this purpose is defined as termination of employment with the approval of the Board on or after the date the executive has satisfied an age and service requirement, provided the executive has given the Board advance notice of such retirement. Mr. Niblock has satisfied the age and service requirement for retirement specified in his award agreements. Messrs. Damron and McCanless and Ms. Weber will satisfy the age and service requirement for retirement once the executive’s age in addition to years of service equals at least 70; provided the executive is at least 55 years old. Mr. Hull did not satisfy the age and service requirements upon retirement, so his unvested awards were canceled. Mr. Jones’ unvested awards were canceled upon his departure from the Company. The executives receive all cash dividends paid with respect to the shares included in the stock awards during the vesting period. Ms. Weber received an additional grant in 2016 of RSAs to replace some of the equity value she forfeited at her previous employer.

 

 

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COMPENSATION TABLES

 

(4) All options have a 10-year term and an exercise price equal to the closing price of the Common Stock on the grant date. The options vest in three annual installments on each of the first three anniversaries of the grant date or, if earlier, the date the executive terminates employment due to death or disability or, in the case of Mr. Niblock, in the event of retirement, and remain exercisable until their expiration dates. The options granted to Messrs. Damron and McCanless and Ms. Weber will become exercisable in the event of retirement in accordance with the original three-year vesting schedule and remain exercisable until their expiration dates. Retirement for this purpose has the same meaning as for the stock awards as described in Footnote 3 above. Ms. Weber received an additional grant in 2016 of stock options to replace some of the equity value she forfeited at her previous employer.

Outstanding Equity Awards at Fiscal Year-End

This table presents information about unearned or unvested stock and option awards held by the NEOs on February 3, 2017.

 

  Name

   





Number of
Securities
Underlying
Unexercised
Options

(#)
Exercisable

 
 
 
 
 

 
 

   





Number of
Securities
Underlying
Unexercised
Options

(#)
Unexercisable

 
 
 
 
 

 
 

   


Option
Exercise
Price

($)

 
 
 

 

   

Option
Expiration
Date
 
 
 
     





Number of
Shares or
Units of
Stock That
Have Not
Vested
(#)(1)
 
 
 
 
 
 
 
   





Market Value
of Shares
or Units
of Stock That
Have Not
Vested

($)(2)

 
 
 
 
 
 

 

   





Equity Incentive
Plan Awards;
Number

of Unearned
Shares,

Units or Other
Rights

That Have Not
Vested

(#)(3)

 
 
 

 
 

 
 

 
 

 

   






Equity Incentive
Plan Awards;
Market or

Payout Value of
Unearned Shares,
Units or Other
Rights That

Have Not Vested
($)

 
 
 

 
 
 
 

 
 

  Mr. Niblock

    447,000             28.38       3/1/2019         131,580       9,643,498       220,000       16,123,800  
    327,000             38.38       3/1/2023            
    171,334       85,666 (4)      53.13       9/15/2024            
    49,144       98,286 (5)      69.44       9/15/2025            
            147,220 (6)      71.31       9/15/2026                                      

  Mr. Hull

    98,000             25.50       3/1/2018         32,860       2,408,309       55,180       4,044,142  
    112,000             28.38       3/1/2019            
    82,000             38.38       3/1/2023            
    41,334       20,666 (4)      53.13       9/15/2024            
    12,117       24,233 (5)      69.44       9/15/2025            
            37,320 (6)      71.31       9/15/2026                                      

  Mr. Damron

    29,667       29,666 (4)      53.13       9/15/2024         46,250       3,389,663       76,635       5,616,579  
    17,064       34,126 (5)      69.44       9/15/2025            
            51,120 (6)      71.31       9/15/2026                                      

  Mr. Jones(7)

                                                 
                                 
                                                             

  Mr. McCanless

    8,587       17,173 (5)      69.44       9/15/2025         13,360       979,154       23,155       1,697,030  
            26,450 (6)      71.31       9/15/2026                                      

  Ms. Weber

          18,090 (8)      76.50       4/1/2026         11,090       812,786       16,035       1,175,205  
            26,450 (6)      71.31       9/15/2026                                      

 

(1) Executives receive dividends on unvested stock awards. The unvested stock awards become vested as follows:

 

     9/15/2017      9/15/2018      4/1/2019      9/15/2019      Total  

  Mr. Niblock

     56,000        43,680               31,900        131,580  

  Mr. Hull

     14,000        10,770               8,090        32,860  

  Mr. Damron

     20,000        15,170               11,080        46,250  

  Mr. Jones

                                  

  Mr. McCanless

            7,630               5,730        13,360  

  Ms. Weber

                   5,360        5,730        11,090  

 

(2) Amount is based on the closing market price of the Common Stock on February 3, 2017 of $73.29.

 

(3) The number of unearned PSUs in this column is based on the Company’s performance during the 2014, 2015 and 2016 fiscal years and equals (i) the maximum number of PSUs that may be earned based on the Company’s RONCAA during the 2014 through 2016 fiscal year period, (ii) the target number of PSUs that may be earned based on the Company’s RONCAA during the 2015 through 2017 fiscal year period, and (iii) the maximum number of PSUs that may be earned based on the Company’s RONCAA during the 2016 through 2018 fiscal year period and applying the relative TSR modifier. No dividends are paid or accrued on unearned PSUs.

 

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COMPENSATION TABLES

 

 

(4) These options vest on September 15, 2017.

 

(5) These options become vested in two annual installments on September 15, 2017 and September 15, 2018.

 

(6) These options become vested in three annual installments on September 15, 2017, September 15, 2018 and September 15, 2019.

 

(7) Mr. Jones’ unvested equity awards were canceled upon his departure and he exercised all vested options prior to February 3, 2017.

 

(8) These options become vested in three annual installments on April 1, 2017, April 1, 2018 and April 1, 2019.

Option Exercises and Stock Vested

This table presents information about stock options exercised by the NEOs and the number and the value of the NEOs’ stock awards that became vested during the 2016 fiscal year.

 

   

 

Option Awards

 

          

 

Stock Awards

 

 
    Number of Shares
Acquired on Exercise
     Value Realized
on Exercise
           Number of Shares
Acquired on Vesting
     Value Realized
on Vesting
 

  Name

 

 

(#)

 

    

($)

 

          

(#)

 

    

($)

 

 

  Mr. Niblock

    390,000        19,780,474                266,331        19,284,806  

  Mr. Hull

    134,000        7,473,180                68,017        4,925,585  

  Mr. Damron

    68,667        2,368,459                96,972        7,021,957  

  Mr. Jones

    99,064        2,147,224                31,560        2,276,214  

  Mr. McCanless

                                  

  Ms. Weber

                                  

Nonqualified Deferred Compensation

The Company sponsors three non-qualified deferred compensation plans for the benefit of senior management employees: the Benefit Restoration Plan (the “BRP”), the Cash Deferral Plan (the “CDP”) and the Deferred Compensation Program (the “DCP”).

 

Benefit Restoration Plan

The BRP allows a senior management employee to defer receipt of the difference between (i) 6% of the sum of base salary and annual incentive plan compensation and (ii) the amount the employee is allowed to contribute to the Company’s tax-qualified 401(k) Plan. The deferred amounts are credited to the employee’s BRP account. The Company makes matching contributions to the employee’s BRP account under the same matching contribution formula that applies to employee contributions to the 401(k) Plan. An employee’s account under the BRP is deemed to be invested in accordance with the employee’s election in one or more of the investment options available under the 401(k) Plan, except an employee may not elect to have any amounts deferred under the BRP after February 1, 2003 to be deemed to be invested in Common Stock. An employee may elect to change the investment of the employee’s BRP account as frequently as each business day. An employee’s account under the BRP is paid to the employee in cash after the end of the plan year in which the employee terminates employment but no earlier than 180 days after the employee’s termination of employment.

Cash Deferral Plan

The CDP allows a senior management employee to elect to defer receipt of up to 80% of his or her base salary, annual incentive plan compensation and certain other bonuses. The deferred amounts are credited to the employee’s CDP account.

The Company does not make any contributions to the CDP. An employee’s CDP account is deemed to be invested in accordance with the employee’s election in one or more of the investment options available under the 401(k) Plan, except an employee may not elect to have any amounts deferred under the CDP to be deemed to be invested in Common Stock. An employee may elect to change the investment of the employee’s CDP account as frequently as each business day. An employee’s account under the CDP is paid to the employee in cash after the end of the plan year in which the employee terminates employment but no earlier than 180 days after the employee’s termination of employment. In addition, an employee may elect to have a portion of the employee’s deferrals segregated into a separate sub-account that is paid at a date elected by the employee so long as the date is at least five years from the date of the employee’s deferral election.

Deferred Compensation Program

Prior to January 1, 2009, the DCP required the deferral of any long-term incentive compensation payable to a NEO to the extent the compensation would not be deductible for federal income tax purposes under Section 162(m) of the Code. The DCP also allowed executives to elect prior to January 1, 2005 to defer receipt of stock awards and gains from the exercise of stock options. The Company does not make any contributions to the DCP. All deferrals under the DCP are deemed to be

 

 

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Compensation Discussion and Analysis

 

COMPENSATION TABLES

 

invested in shares of Common Stock. Any dividends that would have been paid on shares of Common Stock credited to an executive’s DCP account are deemed to be reinvested in additional shares of Common Stock. The aggregate earnings on an executive’s DCP account shown in the table below are attributable solely to fluctuations in the value of Common Stock and dividends paid with respect to Common Stock. Shares of Common Stock credited to an executive’s DCP

account that are attributable to mandatory deferrals are paid to the executive when the distribution is fully deductible by the Company for federal income tax purposes. Shares of Common Stock credited to an executive’s DCP account that are attributable to pre-2005 elective deferrals are paid in accordance with the executive’s election in a lump sum or five annual installments after the executive’s termination of employment or attainment of a specified age.

 

 

The following table presents information about the amounts deferred by the NEOs under the Company’s three deferred compensation plans.

 

  Name

 

  

Plan
Name

 

  

Executive
Contributions in
Last FY

($)(1)

 

    

Company
Contributions in
Last FY

($)(2)

 

    

 

Aggregate
Earnings in
Last FY

($)(3)

 

    

Aggregate
Withdrawals/
Distributions
($)

 

    

Aggregate  
Balance at  
Last FYE
($)(4)

 

 

  Mr. Niblock

   BRP

 

    

 

227,430

 

 

 

    

 

161,202

 

 

 

    

 

1,062,850

 

 

 

    

 

0

 

 

 

    

 

8,043,314

 

 

 

   CDP

 

    

 

0

 

 

 

    

 

0

 

 

 

    

 

0

 

 

 

    

 

0

 

 

 

    

 

0

 

 

 

     DCP

 

    

 

0

 

 

 

    

 

0

 

 

 

    

 

938,033

 

 

 

    

 

0

 

 

 

    

 

24,129,491

 

 

 

  Mr. Hull

   BRP

 

    

 

81,711

 

 

 

    

 

57,879

 

 

 

    

 

375,162

 

 

 

    

 

0

 

 

 

    

 

2,748,637

 

 

 

   CDP

 

    

 

0

 

 

 

    

 

0

 

 

 

    

 

0

 

 

 

    

 

0

 

 

 

    

 

0

 

 

 

     DCP

 

    

 

0

 

 

 

    

 

0

 

 

 

    

 

44,097

 

 

 

    

 

0

 

 

 

    

 

1,134,379

 

 

 

  Mr. Damron

   BRP

 

    

 

90,664

 

 

 

    

 

64,806

 

 

 

    

 

133,059

 

 

 

    

 

0

 

 

 

    

 

1,458,655

 

 

 

   CDP

 

    

 

0

 

 

 

    

 

0

 

 

 

    

 

0

 

 

 

    

 

0

 

 

 

    

 

0

 

 

 

     DCP

 

    

 

0

 

 

 

    

 

0

 

 

 

    

 

0

 

 

 

    

 

0

 

 

 

    

 

0

 

 

 

  Mr. Jones

   BRP

 

    

 

81,464

 

 

 

    

 

57,703

 

 

 

    

 

18,926

 

 

 

    

 

0

 

 

 

    

 

220,526

 

 

 

   CDP

 

    

 

0

 

 

 

    

 

0

 

 

 

    

 

0

 

 

 

    

 

0

 

 

 

    

 

0

 

 

 

     DCP

 

    

 

0

 

 

 

    

 

0

 

 

 

    

 

0

 

 

 

    

 

0

 

 

 

    

 

0

 

 

 

  Mr. McCanless

   BRP

 

    

 

31,442

 

 

 

    

 

22,831

 

 

 

    

 

1,231

 

 

 

    

 

0

 

 

 

    

 

55,504

 

 

 

   CDP

 

    

 

0

 

 

 

    

 

0

 

 

 

    

 

0

 

 

 

    

 

0

 

 

 

    

 

0

 

 

 

     DCP

 

    

 

0

 

 

 

    

 

0

 

 

 

    

 

0

 

 

 

    

 

0

 

 

 

    

 

0

 

 

 

  Ms. Weber

   BRP

 

    

 

0

 

 

 

    

 

0

 

 

 

    

 

0

 

 

 

    

 

0

 

 

 

    

 

0

 

 

 

   CDP

 

    

 

0

 

 

 

    

 

0

 

 

 

    

 

0

 

 

 

    

 

0

 

 

 

    

 

0

 

 

 

     DCP

 

    

 

0

 

 

 

    

 

0

 

 

 

    

 

0

 

 

 

    

 

0

 

 

 

    

 

0

 

 

 

 

(1) The amounts presented in this column are elective deferrals made by the NEOs from base salary paid during the 2016 fiscal year and annual incentive awards paid to the NEOs in March 2016 for the 2015 fiscal year. Of the amounts presented in this column, the following amounts have been reported in the “Salary” column for 2016 of the Summary Compensation Table of the Proxy Statement for the Annual Meeting: Mr. Niblock — $67,950; Mr. Hull — $39,042; Mr. Damron — $40,108; Mr. Jones — $30,081; and Mr. McCanless — $31,442.

 

(2) The amounts presented in this column are matching contributions made by the Company with respect to deferrals from base salary paid to the NEOs during the 2016 fiscal year and annual incentive awards paid to the NEOs in March 2016 for the 2015 fiscal year. Of the amounts presented in this column, the following amounts have been reported in the “All Other Compensation” column for 2016 of the Summary Compensation Table of the Proxy Statement for the Annual Meeting: Mr. Niblock — $48,238; Mr. Hull — $27,654; Mr. Damron — $28,410; Mr. Jones — $21,307; and Mr. McCanless — $22,831.

 

(3) None of the earnings credited under the three deferred compensation plans are considered above-market earnings under the proxy statement disclosure rules of the SEC. Accordingly, none of the amounts presented in this column have been included in the Summary Compensation Table of the Proxy Statement for the Annual Meeting or any previous annual meeting.

 

(4) Of the amounts presented in this column, the following amounts have been reported in the Summary Compensation Tables of the Company’s proxy statements for all years after 2006 when the compensation disclosure rules were revised to include the current form of the Summary Compensation Table: Mr. Niblock — $1,979,618 under the BRP and $347,137 under the DCP; Mr. Hull — $722,322 under the BRP and $187,758 under the DCP; Mr. Damron — $352,757 under the BRP; and Mr. Jones — $65,403 under the BRP.

 

    LOGO   NOTICE OF ANNUAL MEETING AND PROXY STATEMENT 2017         47


Table of Contents

Compensation Discussion and Analysis

 

COMPENSATION TABLES

 

 

Potential Payments Upon Termination or Change-in-Control

The Company has entered into management continuity agreements with each of the NEOs and certain other senior officers of the Company. The agreements for the NEOs provide for certain benefits if the Company experiences a change-in- control followed by termination of the executive’s employment:

 

  by the Company’s successor without cause;

 

  by the executive during the 30-day period following the first anniversary of the change-in-control; or

 

  by the executive for certain reasons, including a downgrading of the executive’s position.

“Cause” means continued and willful failure to perform duties or conduct demonstrably and materially injurious to the Company or its affiliates.

All of the agreements automatically expire on the second anniversary of a change-in-control notwithstanding the length of the terms remaining on the date of the change-in-control.

If benefits are paid under an agreement, Messrs. Niblock, Hull, Damron and McCanless and Ms. Weber, will receive (i) a lump-sum severance payment equal to the present value of 2.99 times the executive’s annual base salary, annual incentive compensation and welfare insurance costs, and (ii) any other unpaid salary and benefits to which the executive is otherwise entitled. In addition, Messrs. Niblock, Hull and Damron, all of whom entered into management continuity agreements prior to 2012, will be compensated for any excise tax liability he may incur as a result of any benefits paid to the executive that classify as excess parachute payments under Section 280G of the Code. Income and employment taxes attributable to such excise tax will also be reimbursed. None of the amounts that would have been payable to Messrs. Niblock, Hull and Damron under their management continuity agreements (assuming a change-in-control of the Company had occurred on February 3, 2017 and their employment was terminated without cause immediately thereafter) exceed the safe harbor limitation under Section 280G of the Code. Therefore, none of them would be entitled to a tax gross-up payment based on the assumptions described in the immediately preceding sentence.

In 2012, the Compensation Committee determined that any future management continuity agreement would not provide tax gross-up for excise taxes assessed against excess parachute payments. In addition, any future management continuity agreement would not allow an executive officer to resign during the 30-day period following the first anniversary of a change-in-control of the Company and receive severance benefits under the agreement. Mr. McCanless and Ms. Weber entered into management continuity agreements in 2015 and 2016, respectively. Accordingly, they are not entitled to a tax gross-up for excise taxes that may be assessed against any benefits provided to them under those agreements nor are they entitled to resign during the 30-day period following the first anniversary of a change-in-control of the Company and receive severance benefits under the agreements.

All legal fees and expenses incurred by the executives in enforcing these agreements will be paid by the Company.

The Company’s long-term incentive plan provides that, if within one year after a change-in-control, an executive’s employment is terminated by the Company without cause or by the executive for good reason (as defined in the management continuity agreements), then all outstanding stock options will become fully exercisable and all outstanding RSAs will become fully vested. In the event of a change-in-control of the Company, the performance periods for all outstanding PSUs will terminate as of the end of the fiscal quarter preceding the change-in-control and the PSUs will be earned based on Company performance through that date.

The following table shows the amounts payable to the NEOs (other than Mr. Jones whose employment terminated in October 2016) in the event their employment terminated at the end of the 2016 fiscal year due to their resignation, death, disability or retirement and the amounts payable under the management continuity agreements and the long-term incentive plan if a change-in-control of the Company had occurred at the end of the fiscal year and the NEOs’ employment was terminated by the Company’s successor without cause immediately thereafter.

 

 

48         NOTICE OF ANNUAL MEETING AND PROXY STATEMENT 2017   LOGO    


Table of Contents

Compensation Discussion and Analysis

 

COMPENSATION TABLES

 

 

Name and Benefit    Voluntary
Resignation
($)
     Death
($)
     Disability
($)
     Retirement(4)
($)
    

Change of Control
and Qualifying
Termination

($)

 

Mr. Niblock

              

Severance(1)

     0        0        0        0        11,834,399  

Stock Options(2)

     0        2,396,926        2,396,926        2,396,926        2,396,926  

Restricted Stock Awards(2)

     0        9,643,498        9,643,498        9,643,498        9,643,498  

Performance Share Units(2)

     0        13,134,711        13,134,711        13,134,711        13,134,711  

Welfare Benefits(1)

     0        0        0        0        36,436  

Excise Tax Gross-up

     0        0        0        0        0  

Total

     0        25,175,135        25,175,135        25,175,135        37,045,970  

Mr. Hull

              

Severance(1)

     0        0        0        0        4,694,668  

Stock Options(2)

     0        583,817        583,817        0        583,817  

Restricted Stock Awards(2)

     0        2,408,309        2,408,309        0        2,408,309  

Performance Share Units(2)

     0        3,292,450        3,292,450        0        3,292,450  

Welfare Benefits(1)

     0        0        0        0        36,924  

Excise Tax Gross-up

     0        0        0        0        0  

Total

     0        6,284,576        6,284,576        0        11,016,168  

Mr. Damron

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