DEF 14A 1 tv484021-def14a.htm DEFINITIVE PROXY STATEMENT tv484021-def14a - none - 9.6019312s
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
Macy’s, Inc.
(Name of Registrant as Specified In Its Charter)
   
(Name of Person(s) Filing Proxy Statement if Other than the Registrant)
Payment of Filing Fee (Check the appropriate box):

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Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
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Title of each class of securities to which transaction applies:
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Notice of 2018 Annual Meeting
and Proxy Statement​
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MACY’S, INC.
7 West Seventh Street, Cincinnati, Ohio 45202
and
151 West 34th Street, New York, New York 10001
April 4, 2018​
To the Shareholders:
I invite you to join me, our Board of Directors, senior management team and your fellow shareholders at Macy’s 2018 Annual Meeting of Shareholders scheduled for Friday, May 18, 2018, 11:00 a.m., Eastern Time, at Macy’s offices located at 7 West Seventh Street, Cincinnati, Ohio 45202. We are enclosing the official notice of meeting, proxy statement and form of proxy with this letter. The matters listed in the notice of meeting are described in the proxy statement.
Once again, we are pleased to save costs and help protect the environment by using the “Notice and Access” method of delivering proxy materials. Instead of receiving paper copies of our proxy materials, many of you will receive a Notice Regarding the Availability of Proxy Materials, which provides an Internet address where you can access electronic copies of the proxy statement and our Annual Report on Form 10-K for the fiscal year ended February 3, 2018 and vote your shares. This website also has instructions for voting by phone and for requesting paper copies of the proxy materials and proxy card.
Your vote is important and we want your shares to be represented at the meeting. Regardless of whether you plan to attend the annual meeting, we hope you will vote as soon as possible. We encourage you to read the proxy statement and cast your vote promptly. You may vote by telephone or over the Internet, or by completing, signing, dating and returning the enclosed proxy card or voting instruction card if you requested or received printed proxy materials.
We appreciate your continued confidence in and support of Macy’s, Inc.
Sincerely,
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JEFF GENNETTE
Chairman and Chief Executive Officer
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING,
PLEASE CAST YOUR VOTE PROMPTLY.

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MACY’S, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
Date and Time:
May 18, 2018 11:00 a.m. (Eastern Time)
Place:
Macy’s, Inc. Corporate Office, 7 West Seventh Street, Cincinnati, Ohio 45202
Items of Business:
1.
Elect 10 members of Macy’s board of directors named and for the term described in this Proxy Statement;
2.
Ratify the appointment of KPMG LLP as Macy’s independent registered public accounting firm for the fiscal year ending February 2, 2019;
3.
Hold an advisory vote approving the compensation of our named executive officers;
4.
Approve the Macy’s, Inc. 2018 Equity and Incentive Compensation Plan; and
5.
Transact any other business as may properly come before the meeting or any postponement or adjournment of the meeting.
Record Date:
You must be a shareholder of record as of the close of business on March 23, 2018 to attend and vote at the Annual Meeting of Shareholders and any adjournment thereof.
Proxy Voting:
You may vote your shares in one of the following ways: (1) in person at the Annual Meeting; (2) by telephone at 1-800-690-6903; (3) over the Internet at www.proxyvote.com; (4) by mailing your completed proxy to Macy’s, Inc. c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717. If your shares are held in “street name” with a broker or similar party, you have a right to direct that organization on how to vote the shares held in your account. You will need to contact your broker to determine whether you will be able to vote using one of these alternative methods.
Whether or not you plan to attend the Annual Meeting, we urge you to vote your shares by completing and returning the proxy card as promptly as possible, or by voting by telephone or over the Internet, prior to the Annual Meeting to ensure that your shares will be represented at the Annual Meeting.
Annual Meeting Admission:
For security reasons, a picture identification will be required if you attend the Annual Meeting. We reserve the right to exclude any person whose name does not appear on our official shareholder list as of the Record Date. If you hold shares in “street name,” you must bring a letter from your broker, or a current brokerage statement, to indicate that the broker is holding shares for your benefit. We also reserve the right to request any person leave the Annual Meeting who is disruptive, refuses to follow the rules established for our meeting or for any other reason. Cameras, recording devices and other electronic devices, signs and placards will NOT be permitted at the meeting.
By Order of the Board of Directors,
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Elisa D. Garcia
Secretary
April 4, 2018
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE SHAREHOLDER MEETING TO BE HELD ON MAY 18, 2018. The Notice of Annual Meeting, Proxy Statement and Annual Report on Form 10-K for the year ended February 3, 2018 are available at www.proxyvote.com and www.macysinc.com.

PROXY STATEMENT
The Notice of Annual Meeting of Shareholders, this proxy statement, our Annual Report on Form 10-K for the fiscal year ended February 3, 2018 (fiscal 2017) and a proxy card or voting instruction card are being mailed to, or can be accessed online by, shareholders on or about April 4, 2018.

TABLE OF CONTENTS
1
5
11
25
26
27
ITEM 4. APPROVAL OF THE MACY’S, INC. 2018 EQUITY AND INCENTIVE COMPENSATION PLAN
40
56
56
57
78
80
80
81
83
84
A-1
APPENDIX B. MACY’S, INC. 2018 EQUITY AND INCENTIVE COMPENSATION PLAN

PROXY SUMMARY
This summary highlights certain information contained elsewhere in our proxy statement. This summary does not contain all of the information you should consider. You should read the entire proxy statement carefully before voting.
ANNUAL MEETING OF SHAREHOLDERS
Time and date:
11:00 a.m., Eastern Time, on May 18, 2018
Place:
Macy’s, Inc., 7 West Seventh Street, Cincinnati, OH 45202
Record date:
March 23, 2018
How to vote:
You may vote in person at the annual meeting, by telephone at 1-800-690-6903, over the Internet at www.proxyvote.com, or by mail addressed to Macy’s, Inc. c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717.
Common shares outstanding as of record date:
305,949,839 shares
VOTING MATTERS
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Macy’s, Inc. 2018 Notice of Meeting and Proxy Statement [MISSING IMAGE: ico_macystar-pms.jpg]1

CORPORATE GOVERNANCE HIGHLIGHTS
We believe that good governance is integral to achieving long-term shareholder value. We are committed to governance policies and practices that serve the
interests of the Company and its shareholders. Our corporate governance policies and practices include:
Highlights of Corporate Governance
Page​
Page​
13

Annual Board and Committee Evaluations
17​

Majority Voting in Uncontested Director Elections
82
24; 54
83
13
24; 53
81
2[MISSING IMAGE: ico_macystar-pms.jpg] Macy’s, Inc. 2018 Notice of Meeting and Proxy Statement

NOMINEES FOR DIRECTOR (page 5)
Name
Age
Director
Since
Independent
Principal
Occupation
Committee
Memberships
Other Public
Directorships
Francis S. Blake
68
2015
Former Chairman and CEO of The Home Depot, Inc.

Compensation and Management Development

Nominating and Corporate Governance

Delta Air Lines, Inc.

The Procter & Gamble Company
John A. Bryant
52
2015
Former Chairman, President and CEO of Kellogg Company

Audit (Chair)

Finance
Deirdre P. Connelly
57
2008
Former President, North American Pharmaceuticals of GlaxoSmithKline

Compensation and Management Development

Nominating and Corporate Governance

Lincoln Financial Corporation

Genmab A/S
Jeff Gennette
56
2016
Chairman of the Board and CEO of Macy’s, Inc.
Leslie D. Hale
45
2015
COO, CFO and Executive Vice President of RLJ Lodging Trust

Audit

Finance
William H. Lenehan
41
2016
President and CEO of Four Corners Property Trust, Inc.

Audit

Finance

Four Corners Property Trust, Inc.
Sara Levinson
67
1997
Co-Founder and Director of Katapult

Compensation and Management Development

Nominating and Corporate Governance

Harley Davidson, Inc.
Joyce M. Roché
71
2006
Former President and CEO of Girls Incorporated

Audit

Nominating and Corporate Governance (Chair)

AT&T, Inc.

Tupperware Corporation
Paul C. Varga
54
2012
Chairman and CEO of Brown-Forman Corporation

Compensation and Management Development (Chair)

Finance

Brown-Forman Corporation
Marna C. Whittington
70
1993
Former CEO of Allianz Global Investors Capital

Audit

Finance (Chair)

Oaktree Capital Group, LLC

Phillips 66
Our director nominees provide an effective mix of experience and fresh ideas, as well as gender, age and ethnic diversity.
TENURE (# years)
<5
5 to <10
10 to <20
≥20
Blake Varga Connelly Levinson
Bryant Roché Whittington
Gennette
Hale
Lenehan
AGES (# years)
<50
50 to <60
60 to <70
≥70
Hale Bryant Blake Roché
Lenehan Connelly Levinson Whittington
Gennette
Varga
   
ETHNIC DIVERSITY
African-American: 2
Hispanic: 1
GENDER
Female
Male
5
5
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EXECUTIVE COMPENSATION PROGRAM
Pay packages for our named executive officers consist of salary, annual and long-term incentive opportunities and other benefits. Our executive compensation program,
methodology for setting pay opportunities and approving actual payouts are discussed in the Compensation Discussion & Analysis (CD&A), beginning on page 40.
Pay-for-Performance Compensation Mix (page 40)
A majority (87% and 75%, respectively) of our CEO’s and other named executive officers’ annual targeted total direct compensation (salary, annual incentive and grant date fair value of long-term incentive awards) for fiscal
2017 was variable and tied to financial performance, corporate objectives and/or stock price performance (see page 42).
Pay-for-Performance Alignment
In making decisions regarding the compensation opportunities and amounts earned by our named executive officers in fiscal 2017, the Compensation and Management Development (“CMD”) Committee took into account our performance results, including our results versus internal goals and relative to industry competitors, as well as the broad economic climate in which the Company operated.

Annual incentive award. Annual incentive award payouts for fiscal 2017 performance were subject to achievement of pre-determined targeted levels of three key performance metrics included in our annual business plan, Adjusted EBIT, sales and cash flow, and five strategic initiatives in support of the North Star strategies. The Company achieved performance between target and outstanding levels for the Adjusted EBIT, sales metric and the Strategic
Initiatives and above outstanding for the cash flow metric. This performance resulted in incentive award payments to the named executive officers of approximately 141% of their targeted annual incentive opportunity (see page 49).

Vesting of PRSUs. Vesting of performance-based restricted stock units (PRSUs) granted in fiscal 2015 was subject to financial performance over the three-year (fiscal 2015-2017) performance period with respect to four performance metrics – cumulative Adjusted EBITDA, average Adjusted EBITDA margin, average ROIC and relative total shareholder return (TSR). Actual performance fell below threshold levels, resulting in 0% of the targeted number of PRSUs being earned and therefore forfeited (see page 53).
4[MISSING IMAGE: ico_macystar-pms.jpg] Macy’s, Inc. 2018 Notice of Meeting and Proxy Statement

ITEM 1. ELECTION OF DIRECTORS
In accordance with the recommendation of the Nominating and Corporate Governance (“NCG”) Committee, the Board has nominated the following individuals for election as directors. Each nominee is currently a member of the Board. If elected, each nominee will serve for a one-year term that will expire at our annual meeting of shareholders in 2019 or until his or her successor is duly elected and qualified.
Information regarding the director nominees is set forth below. Ages are as of March 23, 2018. The criteria considered and process undertaken by the NCG
Committee in recommending qualified director candidates is described under “Further Information Concerning the Board of Directors – Director Nomination and Qualifications.”
Each nominee has agreed to serve if elected. If any nominee becomes unavailable to serve before the annual meeting, the Board may designate a substitute nominee and the persons named as proxies may, in their discretion, vote your shares for the substitute nominee. Alternatively, the Board may reduce the number of directors to be elected at the annual meeting.
THE BOARD RECOMMENDS THAT YOU VOTE FOR THE ELECTION
OF EACH OF THE NOMINEES NAMED BELOW, AND YOUR
PROXY WILL BE SO VOTED UNLESS YOU SPECIFY OTHERWISE.
NOMINEES FOR ELECTION AS DIRECTORS:
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Francis S. Blake
Current and Past Positions:

Chairman of The Home Depot, Inc. from January 2007 until his retirement in February 2015.

Chief Executive Officer of The Home Depot, Inc. from January 2007 to November 2014.

Vice Chairman of The Home Depot, Inc. from October 2006 to January 2007.

Executive Vice President – Business Development and Corporate Operations of The Home Depot, Inc. from 2002 to January 2007. In this position, Mr. Blake was responsible for the company’s real estate, store construction, credit services, strategic business development, growth initiatives, and international and home services businesses.

Prior to his affiliation with The Home Depot, Mr. Blake served in a variety of executive positions at General Electric Company from 1992 to May 2001, including as Senior Vice President, Corporate Business Development in charge of all worldwide mergers, acquisitions and dispositions and identification of strategic growth opportunities.

U.S. Deputy Secretary of Energy from May 2001 to March 2002.
Key Qualifications, Experience and Attributes:
Mr. Blake has extensive leadership experience and expertise as a former Chief Executive Officer and senior executive of large publicly-traded companies with global operations. He has extensive background in strategy and general management of large organizations and significant knowledge of the retail consumer industry, supply chain, merchandising, customer service, growth initiatives, and evolving market practices. Mr. Blake has several years of valuable experience as a public company board member and expertise in finance, risk management, strategy and governance through his service on board committees.
Former Chairman and Chief Executive Officer of The Home Depot, Inc.
Age: 68
Director Since: November 2015
Committees:

CMD

NCG
Other Current Directorships:

Delta Air Lines, Inc.

The Procter & Gamble Company
Other Previous Directorships During Last Five Years:

The Home Depot, Inc. (until 2015)
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John A. Bryant
Current and Past Positions:

Former Chairman of the Board of Kellogg Company from July 2014 to March 2018.

Retired as President and Chief Executive Officer of Kellogg Company on October 1, 2017 having served in that role since January 2011.

Member of the Board of Kellogg Company from July 2010 to March 2018.

Held various operating roles, including President Kellogg International, President Kellogg North America, and Chief Operating Officer, Kellogg Company, from December 2006 through January 2011.

Chief Financial Officer of Kellogg Company from February 2002 until June 2004 and again from December 2006 through December 2009.

Mr. Bryant joined Kellogg Company in 1998 and was promoted during the next four years to a number of key financial and executive leadership roles.

Mr. Bryant has also been a trustee of the W. K. Kellogg Foundation Trust since 2015.
Key Qualifications, Experience and Attributes:
Mr. Bryant has many years of leadership experience and expertise as a Chief Executive Officer, Chief Financial Officer and senior executive of a large public company with global operations. He has extensive knowledge and expertise in accounting and financial matters, branded consumer products and consumer dynamics, crisis management, international markets, people management, the retail environment and strategy and strategic planning. In addition, Mr. Bryant has several years of valuable experience as a public company board member.
Former Chairman, President and Chief Executive Officer of Kellogg Company
Age: 52
Director Since: March 2015
Committees:

Audit (chair)

Finance
Other Previous Directorships During Last Five Years:

Kellogg Company
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Deirdre P. Connelly
Current and Past Positions:

President, North American Pharmaceuticals of GlaxoSmithKline, a global pharmaceutical company, from February 2009 until her retirement in February 2015.

President – U.S. Operations of Eli Lilly and Company from June 2005 to January 2009.

Senior Vice President – Human Resources of Eli Lilly and Company from October 2004 to June 2005.

Executive Director, Human Resources – U.S. Operations of Eli Lilly and Company from 2003 to October 2004.

Leader, Women’s Health Business – U.S. Operations of Eli Lilly and Company from 2001 to 2003.
Key Qualifications, Experience and Attributes:
Ms. Connelly has many years of leadership experience and expertise as a senior executive of large publicly-traded companies with global operations. She has extensive knowledge and expertise in strategy, operations, product development, brand marketing and merchandising. In addition, as a former Human Resources executive, Ms. Connelly also has valuable insight in managing a large-scale, diverse workforce.
Former President, North American Pharmaceuticals of GlaxoSmithKline
Age: 57
Director since: January 2008
Committees:

CMD

NCG
Other Current Directorships:

Lincoln National Corporation

Genmab A/S
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Jeff Gennette
Current and Past Positions:

Chief Executive Officer of Macy’s, Inc. since March 2017, Chairman of the Board of Macy’s, Inc. since January 2018.

President of Macy’s, Inc. from March 2014 through August 2017.

Chief Merchandising Officer from February 2009 through March 2014.

Chairman and Chief Executive Officer of Macy’s West in San Francisco from February 2008 through February 2009.

Chairman and Chief Executive Officer of Seattle-based Macy’s Northwest from February 2006 through February 2008.
Key Qualifications, Experience and Attributes:
Mr. Gennette has over three decades of experience with Macy’s which gives him unique insights to Macy’s strategy and operations. Mr. Gennette began his retail career in 1983 as an executive trainee at Macy’s West. Mr. Gennette has deep knowledge of marketing, merchandising, risk management and e-commerce with a particular focus on the Macy’s customer.
Chairman and Chief Executive Officer of Macy’s, Inc.
Age: 56
Director since: June 2016
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Leslie D. Hale
Current and Past Positions:

Executive Vice President, Chief Operating Officer and Chief Financial Officer of RLJ Lodging Trust, a publicly-traded lodging real estate investment trust, since August 2016.

Chief Financial Officer, Treasurer and Executive Vice President of RLJ Lodging Trust, from February 2013 to July 2016.

Chief Financial Officer, Treasurer and Senior Vice President of RLJ Lodging Trust from May 2011 through January 2013.

Chief Financial Officer and Senior Vice President of Real Estate and Finance of RLJ Development from September 2007 until the formation of RLJ Lodging Trust in 2011.

Vice President of Real Estate and Finance for RLJ Development from 2006 to September 2007.

Director of Real Estate and Finance of RLJ Development from 2005 to 2006.

From 2002 to 2005, Mrs. Hale held several positions within the global financial services divisions of General Electric Corp., including as a Vice President in the business development group of GE Commercial Finance, and as an Associate Director in the GE Real Estate strategic capital group. Prior to that, she was an investment banker at Goldman, Sachs & Co.
Key Qualifications, Experience and Attributes:
Mrs. Hale has many years of leadership experience and expertise as a senior executive of large public companies. She has extensive knowledge and experience in a wide range of financial disciplines, including corporate finance, treasury, real estate and business development. In addition, through her positions with RLJ Lodging Trust, General Electric and Goldman Sachs, Mrs. Hale also has expertise in investor relations, risk management, long-term strategic planning and mergers and acquisitions.
Chief Operating Officer, Chief Financial Officer and Executive Vice President of RLJ Lodging Trust
Age: 45
Director since: January 2015
Committees:

Audit

Finance
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William H. Lenehan
Current and Past Positions:

President and Chief Executive Officer of Four Corners Property Trust, Inc., a real estate investment trust, since August 2015.

Special Advisor to the Board of Directors of EVOQ Properties, Inc., an owner of a substantial portfolio of development assets in downtown Los Angeles, California, from June 2012 to 2014.

Interim Chief Executive Officer of MI Developments, Inc. (now known as Granite Real Estate Investment Trust), a real estate operating company with a global net lease portfolio, from June 2011 to December 2011.

Investment Professional at Farallon Capital Management LLC, a global institutional asset management firm, from August 2001 to February 2011. At Farallon Capital Management, Mr. Lenehan was involved with numerous public and private equity investments in the real estate sector.
Key Qualifications, Experience and Attributes:
Mr. Lenehan has many years of investment and leadership experience in the real estate industry, both in public companies and private assets. Specifically, Mr. Lenehan has relevant experience in monetizing real estate held by operating companies. Mr. Lenehan has several years of valuable experience as a public company executive and board member and expertise in strategy, finance and corporate governance through his service on board committees.
President and Chief Executive Officer of Four Corners Property Trust, Inc.
Age: 41
Director since: April 2016
Committees:

Audit

Finance
Other Current Directorships:

Four Corners Property Trust, Inc.
Other Previous Directorships During Last Five Years:

Darden Restaurants, Inc. (until 2015)

Gramercy Property Trust Inc. (until 2015)

Stratus Properties, Inc. (until 2015)
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Sara Levinson
Current and Past Positions:

Co-Founder and a Director of Katapult (formerly known as Kandu), a digital entertainment company making products for today’s creative generation, since April 2013.

Non-Executive Chairman of ClubMom, Inc., an online social networking community for mothers, from October 2002 until February 2008.

Chairman and Chief Executive Officer of ClubMom from May 2000 through September 2002.

President of the Women’s Group of publisher Rodale, Inc. from October 2002 until June 2005.

President of NFL Properties, Inc. from September 1994 through April 2000, where she oversaw a $2 billion consumer products and e-commerce division, corporate sponsorship, marketing, special events, club services and publishing.
Key Qualifications, Experience and Attributes:
Ms. Levinson has many years of leadership experience and expertise as a former senior executive of several major consumer-oriented companies in the publishing, entertainment, and sports licensing industries. She has extensive knowledge and expertise in marketing, merchandising and trademark licensing. In addition, she has expertise in social networking, e-commerce and technology innovation. Ms. Levinson has several years of valuable experience as a public company board member and expertise in strategy, governance and executive compensation through her service on board committees.
Co-Founder and a Director of Katapult
Age: 67
Director since: May 1997
Committees:

CMD

NCG
Other Current Directorships:

Harley Davidson, Inc.
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Joyce M. Roché
Current and Past Positions:

President and Chief Executive Officer of Girls Incorporated, a national non-profit research, education and advocacy organization, from September 2000 through May 2010.

Independent marketing consultant from 1998 to August 2000.

President and Chief Operating Officer of Carson, Inc. from 1996 to 1998.

Ms. Roché also held senior marketing positions with Carson, Inc., Revlon, Inc. and Avon, Inc.
Key Qualifications, Experience and Attributes:
Ms. Roché has extensive leadership experience and expertise as the former Chief Executive Officer of a national nonprofit organization and former senior executive of several consumer products companies. She has extensive knowledge and experience in general management and in the marketing and merchandising areas, as well as financial acumen developed from her executive officer positions. Ms. Roché has several years of valuable experience as a public company board member and expertise in risk, accounting, executive compensation and governance through her service on board committees.
Former President and Chief Executive Officer of Girls Incorporated
Age: 71
Director since: February 2006
Committees:

Audit

NCG (chair)
Other Current Directorships:

AT&T, Inc.

Tupperware Corporation
Other Previous Directorships During Last Five Years:

Dr. Pepper Snapple Group
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Paul C. Varga
Current and Past Positions:

Chairman of Brown-Forman Corporation, a spirits and wine company, since August 2007 and Chief Executive Officer since 2005.

President and Chief Executive Officer of Brown-Forman Beverages (a division of Brown-Forman Corporation) from 2003 to 2005.

Global Chief Marketing Officer for Brown-Forman Spirits from 2000 to 2003.
Key Qualifications, Experience and Attributes:
Mr. Varga has many years of leadership experience and expertise as the Chief Executive Officer of a global, publicly-traded consumer products company. He has extensive knowledge and experience in corporate finance, strategy, building brand awareness, product development, marketing, distribution and sales. In addition, Mr. Varga has several years of valuable experience as a public company board member.
Chairman and Chief Executive Officer of Brown-Forman Corporation
Age: 54
Director since: March 2012
Committees:

CMD (chair)

Finance
Other Current Directorships:

Brown-Forman Corporation
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Marna C. Whittington
Current and Past Positions:

Chief Executive Officer of Allianz Global Investors Capital, a successor firm of Nicholas Applegate Capital Management, from 2002 until her retirement in January 2012. Allianz Global Investors Capital is a diversified global investment firm.

Chief Operating Officer of Allianz Global Investors, the parent company of Allianz Global Investors Capital, from 2001 to 2011.

Prior to joining Nicholas Applegate in 2001, Dr. Whittington was Managing Director and Chief Operating Officer of Morgan Stanley Investment Management.

Dr. Whittington started in the investment management industry in 1992, joining Philadelphia-based Miller Anderson & Sherrerd.

Executive Vice President and CFO of the University of Pennsylvania, from 1984 to 1992. Earlier, she had been first, Budget Director, and later, Secretary of Finance, for the State of Delaware.
Key Qualifications, Experience and Attributes:
Dr. Whittington has many years of leadership experience and expertise as a former Chief Executive Officer and senior executive in the investment management industry. She has extensive knowledge and experience in management, and in financial, investment and banking matters. In addition, Dr. Whittington has several years of valuable experience as a public company board member and expertise in finance, risk, accounting, strategy and governance through her service on board committees.
Former Chief Executive Officer of Allianz Global Investors Capital
Age: 70
Director since: June 1993
Committees:

Audit

Finance (chair)
Lead Independent Director
Other Current Directorships:

Oaktree Capital Group, LLC

Phillips 66
10[MISSING IMAGE: ico_macystar-pms.jpg] Macy’s, Inc. 2018 Notice of Meeting and Proxy Statement

FURTHER INFORMATION CONCERNING
THE BOARD OF DIRECTORS
ATTENDANCE AT MEETINGS
The Board held seven meetings during fiscal 2017. All directors attended more than 75% of the total number of meetings of the Board and Board Committees on which the director served.
We expect our directors to make reasonable efforts to attend the annual meetings of shareholders. All individuals then serving as a Company director attended our most recent annual meeting of shareholders held in May 2017.
COMMUNICATIONS WITH THE BOARD
You may communicate with the full Board, the Audit Committee, the lead independent director, the other Non-Employee Directors, or any individual director by communicating through our Internet website at www.macysinc.com/for-investors/corporate-governance or by mailing the communications to Macy’s, Inc., 7 West Seventh Street, Cincinnati, Ohio 45202, Attn: Chief
Legal Officer. Please indicate to whom the communications are addressed. Communications we receive that relate to accounting, internal accounting controls or auditing matters will be referred to the Audit Committee unless the communication is otherwise addressed. You may communicate anonymously and/or confidentially.
INVESTOR ENGAGEMENT
We communicate regularly with our investors to ensure that both management and the Board understand and consider the issues that matter most to our shareholders. We conducted many outreach programs over the last year, including several investor conferences and analyst meetings as well as other meetings with the investor community, one-on-one or small group meetings, and telephone calls to discuss the Company’s strategy and performance, governance and business matters and other topics. These discussions involved members of
senior management and, as appropriate, our lead independent director. We offer shareholders a variety of avenues to communicate with the Company and members of the Board, including through our investor relations website, our quarterly earnings webcasts, and our annual shareholders meeting. We value dialogue with our shareholders and believe such communications help ensure that we understand the perspectives of our many stakeholders.
DIRECTOR INDEPENDENCE
Our Corporate Governance Principles require that a majority of the Board consist of directors who the Board has determined do not have any material relationship with Macy’s and are independent. The Board has adopted Standards for Director Independence to assist the Board in determining director independence. These standards, disclosed on our website at www.macysinc.com/for-investors/corporate-governance, are as follows:

The director may not be (and may not have been within the preceding 36 months) an employee and no member of the director’s immediate family may be (and may not have been within the preceding 36 months) an executive officer of Macy’s or any of its subsidiaries. For purposes of these standards, “immediate family” includes a person’s spouse, parents, children, siblings, mothers and fathers-in-law, sons and daughters-in-law, brothers and sisters-in-law, and anyone (other than domestic employees) who shares such person’s home.

Neither the director nor any member of his or her immediate family receives, or has received during any 12-month period within the preceding 36 months, direct compensation of more than $120,000 per year from Macy’s or any of its subsidiaries (other than director and committee fees and pension or other forms of deferred compensation for prior service that is not contingent on continued service or, in the case of an immediate family member, compensation for service as a non-executive employee).

(A) The director is not a current partner or employee of a firm that is Macy’s internal or external auditor; (B) no member of the director’s immediate family is a current partner of such a firm; (C) no member of the director’s immediate family is an employee of such a firm and personally works on Macy’s audit; or (D) neither the director nor any member of his or her immediate family was within the last three years a partner or employee of such a firm and personally worked on Macy’s audit within that time.
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The director is not a current employee and no member of his or her immediate family is a current executive officer of a company that makes payments to, or receives payments from, Macy’s for property or services in an amount which, in any of the last three fiscal years, exceeds the greater of $1 million or 2% of such other company’s consolidated gross revenues.

The director does not serve as an executive officer of a charitable or non-profit organization to which Macy’s has made contributions that, in any of the last three fiscal years, exceed the greater of $1 million or 2% of the charitable or non-profit organization’s consolidated gross revenues.

Neither the director nor a member of the director’s immediate family is employed as an executive officer (and has not been so employed for the preceding 36 months) by another company where any of Macy’s present executive officers at the same time serves or served on that company’s compensation committee.
The Board has determined that each of the following Non-Employee Director nominees qualifies as independent under New York Stock Exchange (“NYSE”) rules and satisfies our Standards for Director Independence: Francis Blake, John Bryant, Deirdre
Connelly, Leslie Hale, William Lenehan, Sara Levinson, Joyce Roché, Paul Varga and Marna Whittington.
To assist the Board in making that determination, the NCG Committee reviewed, among other things, each director’s employment status and other board commitments and, where applicable, each director’s (and his or her immediate family members’) affiliation with consultants, service providers or suppliers of the Company. With respect to each Non-Employee Director, the NCG Committee determined that either the director was not providing goods or services to the Company or that the amounts involved fell below the monetary thresholds set forth in the Standards for Director Independence.
Annie Young-Scrivner served as a Director until her resignation in August 2017. Ms. Young-Scrivner accepted the position of Chief Executive Officer of Godiva Chocolatier, Inc. effective September 2017. In accordance with Macy’s Board policy, she was required to offer to resign from the Board following the change in her employment status. The NCG Committee determined that she would no longer be independent under our Standards for Director Independence based on her employment with Godiva Chocolatier and recommended to the Board that it accept her resignation.
BOARD LEADERSHIP STRUCTURE
Our Corporate Governance Principles provide that the Board is free to elect its Chairman and the Chief Executive Officer (CEO) in the manner the Board considers in the best interests of the Company at any given point in time and that these positions may be held by one individual or by two different individuals. Our Corporate Governance Principles also provide that when the Chairman is not an independent director, the Board will designate a lead independent director.
Our Chairman and CEO functions have historically been performed by a single individual. In March 2017 the Board elected Mr. Gennette as Chief Executive Officer and determined that Mr. Lundgren, who had served as Chairman and CEO until his retirement as CEO in March 2017, would retain the Chairman of the Board title as part of the Board’s succession plan that included Mr. Gennette’s election as President in 2014. This structure enabled Mr. Gennette to focus on executing the corporate strategies and provided him with the continued counsel of Mr. Lundgren. Mr. Lundgren retired from the Board of Directors effective January 31, 2018 and the Board appointed Mr. Gennette to the additional position of Chairman of the Board. The Board believes that this combined leadership model has worked well in the past and, when combined with the current composition of the Board, the use of a lead independent director and the other elements of our corporate governance structure,
strikes an appropriate balance between strong and consistent leadership and independent and effective oversight of our business and affairs.
Mr. Gennette is an experienced retail executive and long-time employee with several years of board experience. As CEO of the Company he bears the primary responsibility of developing corporate strategy and managing our day-to-day business operations. As a board member, he understands the responsibilities and duties of a director and is well positioned to chair regular Board meetings, provide direction to management regarding the needs, interests and opinions of the Board and help ensure that key business issues and shareholder matters are brought to the attention of the Board. Having Mr. Gennette serve as both CEO and Chairman promotes unified leadership and direction for the Board and management. We have strong corporate governance structures and processes that are intended to ensure that our independent directors will continue to effectively oversee management and key issues such as strategy, risk and integrity. Each of the committees of the Board is comprised solely of independent directors. Consequently, independent directors oversee such critical matters as the integrity of our financial statements, the compensation of management executives, including the CEO, financial commitments for capital projects, the selection and annual evaluation of
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directors, and the development and implementation of corporate governance programs.
The Board and each Board committee has complete and open access to any member of management and the authority to retain independent legal, financial and other advisors as they deem appropriate. The Non-Employee
Directors, all of whom are independent, meet in executive session without management either before or after all regularly scheduled Board and Board committee meetings to discuss various issues and matters of concern to the Board and/or Board committee, including the effectiveness of management, our performance and our strategic plans.
LEAD INDEPENDENT DIRECTOR
In December 2015, the Board determined to transition from a presiding director structure to a lead independent director, with significantly greater duties and responsibilities than the presiding director. Marna
Whittington, who was our presiding director, has been designated as the lead independent director for a term ending in May 2019.
The Board has adopted a Lead Independent Director Policy. Under this policy, the lead independent director has the following responsibilities:
Functions as Liaison with the Chairman and/or the CEO
Board Membership and Performance Evaluation

Serves as liaison between the independent directors and the Chairman and/or the CEO (although all directors have direct and complete access to the Chairman and/or CEO at any time as they deem necessary or appropriate).

Provides input, when appropriate, to the chair of the NCG Committee with respect to the annual Board and committee evaluation process.

Communicates Board member feedback to the Chairman and/or CEO.

Advises the NCG Committee and Chairman on the membership of the various Board committees and the selection of committee chairpersons.
Meetings of Independent Directors
Shareholder Communication

Has the authority to call meetings of the independent directors.

Is regularly apprised of inquiries from shareholders and involved in correspondence responding to these inquiries when appropriate.

Approves the agenda for executive sessions of the independent directors.

If requested by shareholders or other stakeholders, ensures that he/she is available, when appropriate, for consultation and direct communication.
Presides at Executive Sessions/Committee Meetings
Approves Appropriate Provision of Information to the
Board Such as Board Meeting Agendas and Schedules

Presides at all meetings of the Board at which the Chairman is not present, including executive sessions of the independent directors.

Consults with the Chairman on, and approves when appropriate, the information sent to the Board, including the quality, quantity and timeliness of such information, as well as approving meeting agendas.

Facilitates the Board’s approval of the number and frequency of Board meetings, and approves meeting schedules to ensure that there is sufficient time for discussion of all agenda items.
The lead independent director is selected from among the Non-Employee Directors. The chair of the NCG Committee and management discuss candidates for the lead independent director position, taking into account the same types of criteria considered when discussing candidates for the chair of Board committees (including,
among other things, tenure, previous service as a Board committee chair, diverse experience, participation in and contributions to activities of the Board and time commitment). The chair of the NCG Committee recommends for consideration by the NCG Committee a nominee for lead independent director every two years at
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its regularly scheduled meeting in May (or as otherwise required to address any vacancy in the position). If the NCG Committee approves the nominee, it will
recommend that the Board elect the nominee as lead independent director at its next regularly scheduled meeting.
RISK OVERSIGHT
Enterprise Risk Assessment
We have an enterprise risk management program pursuant to which enterprise risks are identified and prioritized. At committee and Board meetings throughout the year, management discusses the risk exposures identified as being most significant to the Company and actions that management may take to monitor the exposures. The Audit Committee, in particular, discusses with management the risk assessments and risk management policies relating to a variety of risks, including certain financial, operational, IT and
compliance risks. The chairman of the Audit Committee updates the full Board on these discussions.
The Audit Committee, and the full Board when appropriate, receives regular updates from management on IT security, internal and external security reviews, data protection, risk assessments, breach preparedness and response plans in overseeing our cybersecurity risk management program.
Compensation Risk Assessment
The CMD Committee considers risks associated with our compensation programs. As part of its ongoing advisory role to the CMD Committee, the CMD Committee’s independent executive compensation consultant, Frederic W. Cook & Co., Inc., referred to as FW Cook, continually evaluates the potential for unintended risk associated with the design of our executive compensation program.
At the direction of the CMD Committee, FW Cook completed a comprehensive review of our compensation programs in fiscal 2010, as well as updated assessments every year thereafter, to determine whether potential risk existed and whether there were design factors that mitigated potential risk areas. Following each review, including the review carried out in fiscal 2017, FW Cook concluded that our compensation programs are well-designed and do not encourage behaviors that could create material risk for the Company. FW Cook also noted that there are a number of features in our programs that mitigate risk and protect against perverse behavior and the potential for unintended consequences.
In reaching this conclusion, FW Cook noted the following features of our compensation programs:

Pay philosophy, peer group and market positioning are appropriate in light of our business model and size relative to our peer group of companies.

The programs have an appropriate degree of balance with respect to the mix of cash and equity
compensation and measure performance against both annual and multi-year standards.

Performance goals are set at levels that are sufficiently high to encourage strong performances and support the resulting compensation expense, but within reasonably attainable parameters to discourage pursuit of excessively risky business strategies.

The performance metrics focus participants on profitable growth, asset efficiency and sustainable long-term shareholder value creation, thereby holding management accountable to achievement of key operational and strategic priorities that support our short- and long-term strategic objectives.

The CMD Committee has the ability to reduce amounts earned under the annual incentive program to reflect a subjective evaluation of the quality of earnings, individual performance and other factors that should influence earned compensation.

Meaningful risk mitigators are in place, including substantial stock ownership guidelines, the three-year relative TSR performance goal in the performance share program, compensation clawback provisions, anti-hedging/pledging policies, independent CMD Committee oversight, and the engagement of an independent consultant that does no other work for the Company or management.
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COMMITTEES OF THE BOARD
The following standing committees of the Board were in existence throughout fiscal 2017: Audit Committee, Compensation and Management Development (CMD) Committee, Finance Committee, and Nominating and Corporate Governance (NCG) Committee.
Audit Committee
Number of Meetings in Fiscal 2017: 4
The Audit Committee was established in accordance with the applicable requirements of the Securities Exchange Act of 1934 and the NYSE. Its charter is available on our website at www.macysinc.com/for-investors/corporate-governance. All current members of the Audit Committee are independent under our Standards for Director Independence and the NYSE independence standards, as well as applicable SEC rules. The Board has determined that all members are financially literate for purposes of NYSE listing standards, and that Mr. Bryant qualifies as an “audit committee financial expert” because of his business experience, understanding of generally accepted accounting principles and financial statements, and educational background.
The responsibilities of the Audit Committee include:

reviewing the professional services provided by our independent registered public accounting firm and the independence of the firm;

reviewing the scope of the audit;

reviewing and approving any proposed non-audit services by our independent registered public accounting firm;

reviewing our annual financial statements, systems of internal controls, and legal compliance policies and procedures;

discussing our risk assessment and risk management policies;

monitoring the functions of our Compliance and Ethics organization; and

reviewing with members of our internal audit staff the internal audit department’s staffing, responsibilities and performance, including its audit plans and audit results.
See “Report of the Audit Committee” for further information regarding certain reviews and discussions undertaken by the Audit Committee.
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Compensation and Management Development Committee
Number of Meetings in Fiscal 2017: 7
The charter for the CMD Committee is available on our website at www.macysinc.com/for-investors/corporate-governance. All current members of the CMD Committee are independent under our Standards for Director Independence and the NYSE independence standards, as well as applicable SEC rules, are “non-employee directors” under Rule 16b-3 of the Securities Exchange Act of 1934, and are “outside directors” under Section 162(m) of the Internal Revenue Code.
The responsibilities of the CMD Committee include:

recommending to the Board for our chief executive officer, and determining for other executive officers, their annual compensation opportunity including salary, target bonus and target equity compensation;

administering our incentive and equity plans, including (i) establishing annual or long-term performance goals and objectives and threshold and maximum annual or long-term incentive awards for the executive officers, (ii) determining whether and the extent to which annual and/or long-term performance goals and objectives have been achieved, and (iii) recommending or determining related annual and/or long-term incentive award payouts for our CEO and other executive officers, respectively;

reviewing and approving any proposed severance, termination or retention plans, agreements or payments applicable to, any of our executive officers;

advising and consulting with management regarding our employee benefit programs; and

establishing executive succession plans, including plans in the event of an emergency, resignation or retirement.
Finance Committee
Number of Meetings in Fiscal 2017: 6
The charter for the Finance Committee is available on our website at www.macysinc.com/for-investors/corporate-governance. All current members of the Finance Committee are independent under our Standards for Director Independence.
The responsibilities of the Finance Committee include:

reviewing and approving capital projects and other financial commitments above $25 million and below $50 million, reviewing and making recommendations to the Board with respect to approval of all such projects and commitments of  $50 million and above, and reviewing and tracking the actual progress of approved capital projects against planned projections;

reporting to the Board on potential transactions affecting our capital structure, such as financings, refinancings and issuance, redemption or repurchase of debt or equity securities;

reporting to the Board on potential material changes in our financial policy or structure;

reviewing and approving the financial considerations relating to acquisitions of businesses and operations involving projected costs, and sales or other dispositions of assets, real estate and other property, above $25 million and below $50 million, and recommending to the Board on all such transactions involving projected costs or proceeds of  $50 million and above; and

reviewing the management and performance of our retirement plans.
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Nominating and Corporate Governance Committee
Number of Meetings in Fiscal 2017: 6
The charter for the NCG Committee is available on our website at www.macysinc.com/for-investors/corporate-governance. All current members of the NCG Committee are independent under our Standards for Director Independence and the NYSE independence standards, as well as applicable SEC rules.
The responsibilities of the NCG Committee include:

identifying and screening candidates for Board membership;

proposing nominees for election to the Board by shareholders at annual meetings;

reviewing and recommending modifications to our Corporate Governance Principles;

overseeing the annual evaluation of and reporting to the Board on the performance and effectiveness of the Board and its committees, and recommending to the Board any changes concerning the composition, size, structure and activities of the Board and its committees;

reviewing, reporting and recommending to the Board with respect to director compensation and benefits; and

considering possible conflicts of interest of Board members and management and making recommendations to prevent, minimize, or eliminate such conflicts of interest.
The NCG Committee reviews our director compensation program periodically. To help it perform its responsibilities, the NCG Committee makes use of company resources, including members of senior management in our human resources and legal departments. The NCG Committee also engages the services of an independent outside compensation consultant to assist the Committee in assessing the competitiveness and overall appropriateness of our director compensation program.
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DIRECTOR NOMINATION AND QUALIFICATIONS
Our By-Laws provide that director nominations may be made by or at the direction of the Board. The NCG Committee is charged with identifying individuals qualified to become Board members and recommending such individuals to the Board for its consideration. The NCG Committee is authorized to employ third-party search firms to identify potential candidates. In evaluating potential candidates, the NCG Committee considers, among other things:

personal qualities and characteristics, accomplishments and reputation in the business community;

knowledge of the retail industry or other industries relevant to our business;

relevant experience and background that would benefit the Company;

ability and willingness to commit adequate time to Board and committee matters;

the fit of the individual’s skills and personality with those of other directors and potential directors in building a Board that is effective, collegial and responsive to our needs; and

diversity of viewpoints, background, experience and demographics.
The NCG Committee also takes into consideration whether particular individuals satisfy the independence criteria set forth in the NYSE listing standards and our Standards for Director Independence, together with any special criteria applicable to service on various standing committees of the Board. The NCG Committee does not have a formal policy with respect to diversity; however, the Board and the NCG Committee believe that it is desirable that Board members represent diversity of gender, race and national origin as well as diversity of viewpoints, background, experience and demographics.
Since 2006, the NCG Committee has retained an independent director search firm, Heidrick & Struggles,
to identify and evaluate potential director candidates. The firm provides background information on potential candidates and, if so directed by the NCG Committee, makes initial contact with potential candidates to assess their interest in becoming a director of Macy’s. The NCG Committee members, the CEO and, at times, other members of the Board and/or senior management meet with and interview the potential candidates.
The NCG Committee generally identifies nominees by first determining whether the current members of the Board continue to provide the appropriate mix of knowledge, skills, judgment, experience, differing viewpoints and other qualities necessary to the Board’s ability to oversee and direct the business and affairs of the Company. The Board generally nominates for re-election current members of the Board who are willing to continue in service, collectively satisfy the criteria listed above and are available to devote sufficient time and attention to the affairs of the Company. When the NCG Committee seeks new candidates for director, it seeks individuals with qualifications that will complement the experience, skills and perspectives of the other members of the Board. The full Board (a) considers candidates that the NCG Committee recommends, (b) considers the optimum size of the Board, (c) determines how to address any vacancies on the Board, and (d) determines the composition of all Board committees.
Below we identify and describe the key experience, qualifications and skills the NCG Committee and Board consider in concluding a director is qualified to serve as a director of the Company. The experience, qualifications, attributes and skills that the Board considered in the re-nomination of our directors are reflected in their individual biographies beginning on page 5 and the skills matrix beginning on page 20. The matrix is a summary; it does not include all of the skills, experiences and qualifications that each director nominee offers, and the fact that a particular experience, skill or qualification is not listed does not mean that a director does not possess it.
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Leadership Experience:
Directors with experience in significant senior leadership positions with large organizations over an extended period provide the Company with special insights. Strong leaders bring vision, strategic agility, diverse and global perspectives and broad business insight to the Company. These individuals demonstrate a practical understanding of how large organizations operate, including the importance of succession planning, talent management and how employee and executive compensation is set. They possess skills for managing change and growth and demonstrate a practical understanding of organizations, operations, processes, strategy, risk management and methods to drive growth.
The relevant leadership experience we seek includes a past or current leadership role in a major public company or recognized privately-held entity, especially CEO, president or other senior-level positions; a past or current leadership role at a prominent educational institution or senior faculty position in an area of study important or relevant to the Company; a past elected or appointed senior government position; or a past or current senior managerial or advisory position with a highly visible nonprofit organization.

Finance Experience:
An understanding of finance and related reporting processes is important for directors. We measure our operating and strategic performance by reference to financial goals, including for purposes of executive compensation. Accurate financial reporting is critical to our success. Directors who are financially literate are better able to analyze our financial statements, capital structure and complex financial transactions and ensure the effective oversight of the Company’s financial measures and internal control processes.

Industry Knowledge and Global Business Experience:
We seek to have directors with experience as executives, directors or in other leadership positions in areas relevant to the retail industry on a global scale. We value directors with a global business perspective and those with experience in our high priority areas, including consumer products, customer service, licensing, human resource management and merchandising (including e-commerce and other channels of commerce).

Sales and Marketing Experience:
Directors with experience in dealing with consumers, particularly in the areas of marketing, marketing-related technology, advertising or otherwise selling products or services to consumers, provide valuable insights to the Company. They understand consumer needs and are experienced in identifying and developing marketing campaigns that might resonate with consumers, the use of technology and emerging and non-traditional marketing media (such as social media, viral marketing and e-commerce), and identifying potential changes in consumer trends and buying habits.

Technology Experience:
Directors with an understanding of technology as it relates to the retail industry, marketing and/or governance to help the Company focus its efforts in developing and investing in new technologies.

Real Estate Experience:
Directors with an understanding of real estate investment and development to assist the Company in developing and executing our business strategies to leverage our large portfolio of stores and distribution centers.

Public Company Board Experience:
Directors who have experience on other public company boards develop an understanding of corporate governance trends affecting public companies and the extensive and complex oversight responsibilities associated with the role of a public company director. They also bring to the Company an understanding of different business processes, challenges and strategies.
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SKILLS MATRIX
Area of Experience
Blake
Bryant
Connelly
Gennette
Hale
Lenehan
Levinson
Roché
Varga
Whittington
Leadership Experience
• CEO/President/senior executive of public company
x
x
x
x
x
x
x
x
x
x
• Senior advisor to leading financial services firm
x
• Senior government position or appointment
x
x
• Senior-level executive position with nonprofit organization
x
x
• Senior-level executive positions with companies that have grown their businesses through mergers and acquisitions
x
x
x
x
x
x
x
x
x
Finance Experience
• Financially literate
x
x
x
x
x
x
x
x
x
x
• Specific experience in investment or banking matters or as a current or former CFO
x
x
x
x
• Has served as an audit committee financial expert
x
x
Industry Knowledge and Global Business Experience
• Senior executive or director of substantial business enterprise engaged in merchandising, licensing, consumer products and/or consumer and customer service
x
x
x
x
x
x
x
x
x
• Experience in human resource management
x
x
x
x
x
Sales and Marketing Experience
• Experience in sales and/or marketing, including use of social media, e-commerce and other alternative channels
x
x
x
x
x
x
x
Technology Experience
• Understanding of technology as it relates to retail and/or marketing
x
x
x
x
• IT Governance
Real Estate Experience
• Senior-level executive position with real estate investment company or developer
x
Public Company Board Experience
• Experience on boards other than Macy’s
x
x
x
x
x
x
x
x
Collectively, the composition of our Board reflects a wide range of viewpoints, background, experience and demographics, and includes individuals from a variety of professional disciplines in the business sectors, with leadership experience at well-regarded commercial enterprises and nonprofit organizations.
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DIRECTOR NOMINATIONS BY SHAREHOLDERS
The NCG Committee will consider candidates for nomination recommended by shareholders of Macy’s and will evaluate such candidates using the same criteria discussed above that it uses to evaluate director candidates identified by the NCG Committee. Shareholders who wish to recommend a candidate for a director nomination should write to the Nominating and Corporate Governance Committee, c/o Elisa D. Garcia, Secretary, Macy’s, Inc., 7 West Seventh Street, Cincinnati, Ohio 45202. The recommendation should include the full name and address of the proposed candidate, a description of the proposed candidate’s qualifications and other relevant biographical information.
Advance Notice By-Law. The advance notice provision of our By-Laws requires that shareholders intending to nominate candidates for election as directors deliver written notice thereof to the Secretary of Macy’s not less than 60 days prior to the meeting of shareholders. However, in the event that the date of the meeting is not publicly announced by the Company by inclusion in a report filed with the SEC, furnished to shareholders, or in a press release more than 75 days prior to the meeting, for notice by the shareholder to be timely, it must be delivered to the Secretary of Macy’s not later than the close of business on the tenth day following the day on which such announcement of the date of the meeting was so communicated. The advance notice provision requires the nominating shareholder to submit specified information concerning itself and the proposed nominee, including ownership information, name and address, and appropriate biographical information about and qualifications of the proposed nominee.
The presiding officer of the meeting may refuse to acknowledge the nomination of any person not made in compliance with these requirements. Similar procedures prescribed by the By-Laws are applicable to shareholders desiring to bring any other business before an annual meeting of the shareholders. See “Submission of Future Shareholder Proposals.”
Proxy Access By-Law. The proxy access provision in our By-Laws allows an eligible shareholder or group of no more than 20 eligible shareholders that has maintained continuous ownership of 3% or more of our common stock for at least three years to include in our proxy materials for an annual meeting of shareholders a
number of director nominees up to the greater of two or 20% of the directors then in office. An eligible shareholder must maintain the 3% beneficial ownership requirement at least until the annual meeting at which the proponent’s nominee will be considered. Proxy access nominees who withdraw or who do not receive at least a 25% vote in favor of election will be ineligible as a nominee for the following two years. If any shareholder proposes a director nominee under our advance notice provision, we are not required to include any proxy access nominee in our proxy statement for the annual meeting.
The proponent is required to provide the information about itself and the proposed nominee(s) that is specified in the proxy access provision of our By-Laws. The required information must be in writing and delivered by personal delivery, overnight express courier or U.S. mail, postage pre-paid, addressed to the Secretary of Macy’s and received not earlier than the close of business on the 150th calendar day and not later than the close of business on the 120th calendar day prior to the one-year anniversary of the mailing date of the previous year’s proxy statement. If the scheduled annual meeting date differs from the anniversary date of the prior year’s annual meeting by more than 30 calendar days, the required information must be in writing and provided to the Secretary of Macy’s not earlier than the close of business on the 120th calendar day prior to the date of the annual meeting and not later than the close of business on the 60th calendar day prior to the annual meeting or, in the event that public announcement of the date of the annual meeting is not made at least 75 calendar days prior to the date of the annual meeting, notice must be received not later than the close of business on the tenth calendar day following the day on which public announcement is first made. For purposes of this By-Law, “close of business” shall mean 5:00 p.m. Eastern Time, on any calendar day, whether or not the day is a business day, and the “principal executive offices” of the Company shall mean 7 West Seventh Street, Cincinnati, Ohio 45202.
We are not required to include any proxy access nominee in our proxy statement if the nomination does not comply with the proxy access requirements of our By-Laws.
RETIREMENT POLICY
Our Corporate Governance Principles provide for a mandatory retirement age for directors of 74. Our directors are required to resign from the Board as of the annual meeting following their 74th birthday.
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RESIGNATION POLICY
The Board does not believe that a Non-Employee Director who retires or experiences an employment position change since becoming a member of the Board should necessarily leave the Board. The Board requires, however, that promptly following such an event, the director notify the NCG Committee in writing and tender his or her resignation to the Committee for consideration.
Upon receipt of the notification of a change in status, the NCG Committee reviews the continued appropriateness of the affected director remaining on the Board under the circumstances and recommends to the full Board whether or not to accept the resignation based on its assessment of what is best for the Company and its shareholders.
CORPORATE GOVERNANCE PRINCIPLES AND CODE OF BUSINESS CONDUCT AND ETHICS
Our Corporate Governance Principles, Non-Employee Director Code of Business Conduct and Ethics, and Code of Conduct, that is applicable to our principal executive officer, principal financial officer and principal accounting officer, are available on our website at www.macysinc.com/for-investors/corporate-governance.
Shareholders may obtain copies of these documents and the charters for the Board committees, without charge, by sending a written request to: Secretary, Macy’s, Inc., 7 West Seventh Street, Cincinnati, Ohio 45202.
FISCAL 2017 DIRECTOR COMPENSATION PROGRAM
Non-Employee Directors were entitled to receive the following compensation in fiscal 2017:
Type of Compensation
Amount of Compensation
Board Retainer $70,000 annually
Committee Chair Retainer $20,000 annually
Committee (non-chair) Member Retainer $10,000 annually
Lead Independent Director Retainer $25,000 annually
Equity Grant
Annual award of restricted stock units with a value of  $140,000
Matching Philanthropic Gift Up to $1,000 annually
A Non-Employee Director may elect to defer all or a portion of his or her cash compensation into either stock credits or cash credits under the Director Deferred Compensation Plan. Those amounts are not paid to him or her until service on the Board ends. Stock credits are calculated monthly and shares of Macy’s common stock associated with the stock credits are transferred quarterly to a rabbi trust for the benefit of the participating Non-Employee Director. Dividend equivalents on the amounts deferred as stock credits are “reinvested” in additional stock credits. Compensation deferred as cash credits earns interest each year at a rate equal to the yield (percent per annum) on 30-Year Treasury Bonds as of December 31 of the prior plan year.
On the date of the 2017 annual meeting, Non-Employee Directors received a grant of restricted stock units with a market value of approximately $140,000. The restricted stock units vest at the earlier of  (i) the first anniversary of
the grant or (ii) the next annual meeting of shareholders. Upon vesting, receipt of the restricted stock units is automatically deferred as stock credits under the Director Deferred Compensation Plan. Dividend equivalents on these restricted stock units will be “reinvested” in additional stock credits. The stock credits will be paid out in shares of Macy’s common stock six months after the director’s service on the Board ends.
Non-Employee Directors and retired Non-Employee Directors may participate in the Company’s philanthropic matching gift program on the same terms as all company employees. Macy’s matches up to a total of  $1,000 of gifts made by the director to qualifying charities in any calendar year.
Each Non-Employee Director and his or her spouse and eligible dependents receive the same merchandise discount on merchandise purchased at our stores that is available to all regular employees. This benefit remains available to them following retirement from the Board.
DIRECTOR RETIREMENT PLAN
We terminated our retirement plan for Non-Employee Directors on a prospective basis effective May 16, 1997 (the “Plan Termination Date”). Persons who first become Non-Employee Directors after the Plan Termination Date are not entitled to receive any benefit from the plan.
Persons who were Non-Employee Directors as of the Plan Termination Date are entitled to receive retirement benefits accrued as of the Plan Termination Date. They are entitled to receive an annual payment equal to the amount of the annual Board retainer earned immediately
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prior to retirement, payable in monthly installments, commencing at retirement and continuing for the lesser of the person’s remaining life or a number of years equal to the person’s years of Board service prior to the Plan Termination Date. There are no survivor benefits under the terms of the retirement plan.
Ms. Whittington is the only current Non-Employee Director that participates in the plan. If she had retired on December 31, 2017, she would have been entitled to a $70,000 annual payment for a maximum of four years.
FISCAL 2017 DIRECTOR COMPENSATION PROGRAM REVIEW
During fiscal 2017, the NCG Committee engaged FW Cook to review the design and competitiveness of our compensation program for Non-Employee Directors. FW Cook looked at current overall trends in director compensation and analyzed the competitiveness of the current compensation program for Non-Employee Directors using the following 12-company peer group, which is identical to the peer group that the CMD Committee uses in connection with its review of the compensation of the Named Executive Officers: Bed, Bath & Beyond, Dillard’s, Gap, J.C. Penney, Kohl’s, L Brands, Nordstrom, Ross Stores, Sears Holdings, Target, TJX Companies and Walmart.
FW Cook determined that the structure of the Non-Employee Director compensation program continues to be aligned with peer group policy and
contemporary investor preferences and, therefore, did not recommend changes to the design of the program. It also determined that the value of our Non-Employee Director total compensation (both cash and equity compensation) is between the 25th percentile and median of the peer group. To keep pace with expected market movement, FW Cook recommended that Non-Employee Director total compensation be increased by $25,000 for fiscal 2018, split 40% cash and 60% equity. Non-Employee Director compensation has been at current levels since fiscal 2014.
Upon the recommendation of the NCG Committee, the Board approved an increase of the annual Board retainer from $70,000 to $80,000 and an increase of the annual restricted stock unit award from $140,000 to $155,000, effective as of the beginning of fiscal 2018.
FISCAL 2017 NON-EMPLOYEE DIRECTOR COMPENSATION TABLE
The following table reflects the compensation earned by each Non-Employee Director for fiscal 2017.
Messrs. Lundgren and Gennette did not receive separate compensation for their service as Directors.
2017 Non-Employee Director Compensation Table
Name
Fees Earned
or Paid in
Cash(1)
($)
Stock
Awards(2)
($)
Changes in Pension
Value and
Nonqualified Deferred
Compensation
Earnings(3)
($)
All Other
Compensation(4)
($)
Totals
($)
Francis S. Blake 90,833 139,993 0 3,388 234,214
John A. Bryant 109,167 139,993 0 4,168 253,328
Deirdre P. Connelly 90,833 139,993 0 1,727 232,553
Leslie D. Hale 94,167 139,993 0 1,900 236,060
William H. Lenehan 87,500 139,993 0 481 227,974
Sara Levinson 90,833 139,993 0 1,359 232,185
Joyce M. Roché 102,083 139,993 0 3,623 245,699
Paul C. Varga 100,833 139,993 0 1,876 242,702
Marna C. Whittington 125,833 139,993 23,208 8,184 297,995
Annie Young-Scrivner(5)
52,500 139,993 0 2,335 54,835
(1)
All cash compensation is reflected in the “Fees Earned or Paid in Cash” column, whether paid currently in cash or deferred under the Director Deferred Compensation Plan.
(2)
The Non-Employee Directors received 6,084 restricted stock units on May 19, 2017, valued at $23.01 per share, which was the closing price of our common stock on the grant date. The following table shows the number of stock options, deferred stock unit credits and restricted stock units held by each of the Non-Employee Directors as of the end of fiscal 2017.
Stock Options
Deferred Stock Unit
Credits
(#)
Restricted Stock Units
(#)
Name
Exercisable
(#)
Unexercisable
(#)
Blake 0 0 7,333 6,084
Bryant 0 0 15,566 6,084
Connelly 10,000 0 28,293 6,084
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Stock Options
Deferred Stock Unit
Credits
(#)
Restricted Stock Units
(#)
Name
Exercisable
(#)
Unexercisable
(#)
Hale 0 0 11,264 6,084
Lenehan 0 0 10,702 6,084
Levinson 0 0 59,327 6,084
Roché 10,000 0 65,629 6,084
Varga 0 0 17,744 6,084
Whittington 0 0 62,775 6,084
Scrivner 0 0 8,655 0
(3)
The present value of benefits under the retirement plan for Ms. Whittington was determined as a deferred temporary life annuity based on years of Board service prior to May 16, 1997. The present value of benefits was determined using an effective discount rate of 3.78%. Base mortality rates are the RP-2014 White Collar mortality table adjusted to back out estimated mortality improvements from 2006 to the measurement date using MP-2014, and then projected forward to the measurement date using MP-2017. Mortality is projected generationally from the measurement date using scale MP-2017. Scale MP-2017 defines how future mortality improvements are incorporated into the projected mortality table and is based on a blend of Social Security experience and the long-term assumption for mortality improvement rates by the Society of Actuaries’ Retirement Plans Experience Committee. The calculations assume that the annual cash retainer remains at $70,000 (the retainer at the end of fiscal 2017) and a retirement at age 74, the mandatory retirement age for Directors as of the end of fiscal 2017.
(4)
“All Other Compensation” consists of the items shown below. Merchandise discounts are credited to the Directors’ Macy’s charge accounts.
Name
Merchandise
Discount
($)
Matching
Philanthropic Gift
($)
Total
($)
Blake 3,388 0 3,388
Bryant 4,168 0 4,168
Connelly 1,727 0 1,727
Hale 1,900 0 1,900
Lenehan 481 0 481
Levinson 1,359 0 1,359
Roché 2,623 1,000 3,623
Varga 876 1,000 1,876
Whittington 7,184 1,000 8,184
Scrivner 2,335 0 2,335
(5)
The Restricted Stock Units granted to Ms. Young-Scrivner in May 2017 were forfeited upon her resignation from the Board.
DIRECTOR STOCK OWNERSHIP GUIDELINES; HEDGING/PLEDGING POLICY
The Board adopted stock ownership guidelines for Non-Employee Directors. Under these guidelines, Non-Employee Directors are required to own Macy’s common stock equal in value to five times the annual Board retainer and maintain that ownership level for their tenure on the Board. As of fiscal 2018, the annual Board retainer is $80,000, so the guideline currently is $400,000 worth of our common stock. Shares counted toward this requirement include:

any shares beneficially owned by the director or immediate family members of the director;

time-based restricted stock or restricted stock units, whether or not vested; and

stock credits or other stock units credited to a director’s account.
Stock subject to unvested or unexercised stock options granted to Non-Employee Directors does not count toward the ownership requirement. Non-Employee Directors must comply with these guidelines within five years from the date the director’s Board service commenced. Each Non-Employee Director who has reached his or her ownership guideline date has satisfied the ownership requirement. In addition to these stock ownership guidelines, the restricted stock units granted to Non-Employee Directors each year are automatically deferred upon vesting under the Director Deferred Compensation Plan until six months after termination of Board service.
The Non-Employee Directors are covered by our policy which prohibits directors, officers and other participants in our long-term incentive plan from engaging in hedging and pledging transactions. The policy is described in greater detail on page 54.
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ITEM 2. RATIFICATION OF THE APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Audit Committee has appointed KPMG LLP, an independent registered public accounting firm, to audit Macy’s financial statements for the fiscal year ending February 2, 2019. KPMG LLP and its predecessors have served as our independent registered public accounting firm since 1988. Representatives of KPMG LLP are expected to be present at the annual meeting and will
have the opportunity to make a statement if they desire to do so. It is also expected that they will be available at the annual meeting to respond to appropriate questions. The Audit Committee has asked the Board to submit to shareholders a proposal to ratify the appointment of KPMG LLP.
Fees Paid to Independent Registered Public Accounting Firm
The table below summarizes the fees paid to KPMG LLP during fiscal 2017 and fiscal 2016:
Year
Audit Fees
($)
Audit-Related
Fees
($)
Tax Fees
($)
All Other
Fees
($)
Total
($)
2017 4,696,530 531,280 43,550 0 5,271,360
2016 4,655,000 826,080 58,840 0 5,539,920
Audit fees represent fees for professional services rendered for the audit of our annual financial statements, the audit of our internal controls over financial reporting and the reviews of the interim financial statements included in our Forms 10-Q.
Audit-related fees represent professional services principally related to the audits of financial statements of employee benefit plans, audits of financial statements of certain subsidiaries and certain agreed upon procedures reports.
Tax fees represent professional services related to tax compliance and consulting services.
The Audit Committee has adopted policies and procedures for the pre-approval of all permitted non-audit services provided by our independent registered public accounting firm. All permitted non-audit services were pre-approved pursuant to this policy. A description of such policies and procedures is attached as Appendix A to this proxy statement and incorporated herein by reference.
The Board of Directors unanimously recommends that you vote “FOR” ratification of the appointment of KPMG LLP, and your proxy
will be so voted unless you specify otherwise.
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REPORT OF THE AUDIT COMMITTEE
The Board has adopted a written Audit Committee Charter. All members of the Audit Committee are independent, as defined in Sections 303A.06 and 303A.07 of the NYSE’s listing standards.
The Audit Committee has reviewed and discussed with Macy’s management and KPMG LLP the audited financial statements contained in Macy’s Annual Report for fiscal 2017. The Audit Committee has also discussed with KPMG LLP the matters required to be discussed by the applicable Public Company Accounting Oversight Board and Securities and Exchange Commission requirements.
The Audit Committee has received and reviewed the written disclosures and the letter from KPMG LLP required by applicable requirements of the Public Company Accounting Oversight Board regarding KPMG
LLP’s communications with the Audit Committee concerning independence, and has discussed with KPMG LLP their independence.
Based on the review and discussions referred to above, the Audit Committee recommended to the Board that the audited financial statements be included in Macy’s Annual Report on Form 10-K for fiscal 2017 filed with the United States Securities and Exchange Commission.
Respectfully submitted,
John A. Bryant, Chairperson
Leslie D. Hale
William H. Lenehan
Joyce M. Roché
Marna C. Whittington
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ITEM 3. ADVISORY VOTE TO APPROVE
NAMED EXECUTIVE OFFICER COMPENSATION
We are asking shareholders to approve, on an advisory basis, the compensation of our named executive officers (the “Named Executive Officers” or “NEOs”), as disclosed pursuant to Securities and Exchange Commission rules, including in the Compensation Discussion & Analysis, the executive compensation tables and related material included in this proxy statement. This proposal, commonly known as a say-on-pay proposal, gives shareholders the opportunity to express their views on our executive compensation program and policies. The vote is not intended to address any specific item of compensation, but rather to address our overall approach to the compensation of our Named Executive Officers described in this proxy statement. In 2017, our say-on-pay proposal received a FOR vote of 93.7%.
The text of the resolution setting forth the proposal is as follows:
RESOLVED, that the shareholders of Macy’s, Inc. approve the compensation of the Company’s named executive officers as disclosed in the proxy statement for the Company’s 2018 annual meeting of shareholders pursuant to Item 402 of Regulation S-K, including the Compensation Discussion & Analysis section and the 2017 Summary Compensation Table and related compensation tables and narrative discussion.
We urge you to read the Compensation Discussion & Analysis, which begins on page 40 and discusses how our compensation policies and procedures implement our pay-for-performance compensation philosophy.
We have designed our executive compensation structure to attract, motivate, and retain executives with the skills required to formulate and implement our strategic business objectives and deliver on our commitment to build long-term shareholder value. We believe that our executive compensation program is competitive, strongly focused on pay-for-performance principles and appropriately balanced between risk and rewards.
The vote regarding the compensation of the Named Executive Officers is being provided pursuant to Section 14A of the Securities Exchange Act. The vote is advisory and not binding on the Company, the CMD Committee or the Board of Directors. Although the vote is non-binding, the Board of Directors and the CMD Committee value the opinions that shareholders express in their votes and will take the voting results into consideration when making future compensation decisions as they deem appropriate.
If no voting specification is made on a properly returned or voted proxy card, the proxies named on the proxy card will vote “FOR” the approval of the compensation of the Named Executive Officers as disclosed in this proxy statement and described in this Item 3.
The Board of Directors unanimously recommends that you vote “FOR” the approval of the compensation of the Named Executive Officers
as disclosed in this proxy statement.
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ITEM 4. APPROVAL OF THE MACY’S, INC.
2018 EQUITY AND INCENTIVE
COMPENSATION PLAN
General
We are asking stockholders to approve the Macy’s Inc. 2018 Equity and Incentive Compensation Plan (the “2018 Plan”). On March 23, 2018, upon recommendation by the Compensation and Management Development (“CMD”) Committee, the Board unanimously approved and adopted, subject to the approval of the Company’s stockholders at the Annual Meeting, the 2018 Plan to replace our 2009 Omnibus Incentive Compensation Plan, as amended or amended and restated (the “2009 Plan”). We sometimes refer to the 2009 Plan, plus our 1995 Executive Equity Incentive Plan, as amended or amended and restated, plus our 1994 Stock Incentive Plan, as amended or amended and restated, as the “Predecessor Plans.”
The Board is recommending that the Company’s stockholders vote in favor of the 2018 Plan, which will succeed the 2009 Plan. The 2018 Plan will continue to afford the CMD Committee the ability to design compensatory awards that are responsive to the Company’s needs and includes authorization for a variety of awards designed to advance the interests and long-term success of the Company by encouraging stock ownership among officers and other employees of the Company and its subsidiaries, certain consultants to
the Company and its subsidiaries, and non-employee directors of the Company. You are being asked to approve the 2018 Plan.
Stockholder approval of the 2018 Plan would constitute approval of up to an additional 24,600,000 shares of Common Stock, par value $0.01 per share, available for awards under the 2018 Plan, as described below and in the 2018 Plan. The Board recommends that you vote to approve the 2018 Plan. If the 2018 Plan is approved by stockholders, it will be effective as of the day of the Annual Meeting, and no further grants will be made on or after such date under the 2009 Plan. Outstanding awards under the 2009 Plan, however, will continue in effect in accordance with their terms. If the 2018 Plan is not approved by our stockholders, no awards will be made under the 2018 Plan, and the 2009 Plan will remain in effect.
The actual text of the 2018 Plan is attached to this proxy statement as Appendix B. The following description of the 2018 Plan is only a summary of its principal terms and provisions and is qualified by reference to the actual text as set forth in Appendix B.
Why We Believe You Should Vote for this Proposal
The 2018 Plan authorizes the CMD Committee to provide cash awards and equity-based compensation in the form of stock options, stock appreciation rights (“SARs”), restricted stock, restricted stock units (“RSUs”), performance shares, performance units, dividend equivalents, and certain other awards, including those denominated or payable in, or otherwise based on, shares of Common Stock, for the purpose of providing our non-employee directors, officers and other employees of the Company and its subsidiaries, and certain consultants of the Company and its subsidiaries, incentives and rewards for service and/or performance. Some of the key features of the 2018 Plan that reflect our commitment to effective management of equity and incentive compensation are set forth below in this subsection.
We believe our future success depends in part on our ability to attract, motivate, and retain high quality employees and directors and that the ability to provide equity-based and incentive-based awards under the 2018 Plan is critical to achieving this success. We would
be at a severe competitive disadvantage if we could not use share-based awards to recruit and compensate our employees and directors. The use of Common Stock as part of our compensation program is also important because equity-based awards are an essential component of our compensation program for key employees, as they help link compensation with long-term stockholder value creation and reward participants based on service and/or performance.
As of February 3, 2018, 12,544,554 shares of Common Stock remained available for issuance under the 2009 Plan. If the 2018 Plan is not approved, we may be compelled to increase significantly the cash component of our employee and director compensation, which approach may not necessarily align employee and director compensation interests with the investment interests of our stockholders. Replacing equity awards with cash also would increase cash compensation expense and use cash that could be better utilized if reinvested in our business or returned to our stockholders.
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AWARDS OUTSTANDING AND HISTORICAL GRANTS
The following provides additional information on total equity awards outstanding and total grants made in the last three fiscal years.
Overhang. The following table provides certain additional information regarding total awards outstanding at February 3, 2018 (fiscal year-end):
As of
February 3,
2018
Number of outstanding Options(1) 20,376,000
Weighted average exercise price of outstanding options $ 38.80
Weighted average remaining term of outstanding options
5.8 years​
Number of outstanding full-value awards under Predecessor Plans(1)
3,937,000
Total number of shares of common stock outstanding 304,765,000
(1)
Outstanding full-value awards include dividend equivalents. Outstanding options and time-based restricted stock awards do not provide for dividend equivalents.
The following table provides certain additional information regarding shares that will be available under the 2018 Plan, assuming approval of the 2018 Plan by the Company’s stockholders, as of February 3, 2018:
As of
February 3,
2018
Shares available for grant under the 2018 Plan (including shares previously available for grant under the 2009 Plan 24,600,000
Per-share closing price of common stock as
reported on NYSE
24.89
Burn Rate. The following table provides detailed information regarding our equity compensation activity for the prior three fiscal years:
Fiscal Year
2017
Fiscal Year
2016
Fiscal Year
2015
Number of options granted 3,801,000 3,887,000 3,426,000
Number of stock units granted 3,986,500 1,851,500 1,481,725
Total Share Usage(2) 7,787,500 5,738,500 4,907,725
Weighted-average number of shares of common stock outstanding 305,400,000 308,500,000 328,400,000
Burn Rate (options, stock units and director share awards) 2.55% 1.86% 1.49%
(2)
Reflects the gross number of shares underlying awards made to employees during the respective fiscal year as disclosed in the Company’s Stock Based Compensation footnote of its annual Form 10-K and adjusted using 1 share for every stock option award granted and 1.75 shares for every full-value award granted
In determining the number of shares to request for approval under the 2018 Plan, our management team worked with Frederic W. Cook & Co., Inc. and the CMD Committee to evaluate a number of factors, including our recent share usage and criteria expected to be utilized by institutional proxy advisory firms in evaluating our proposal for the 2018 Plan.
If the 2018 Plan is approved, we intend to utilize the shares authorized under the 2018 Plan to continue our practice of incentivizing key individuals through equity grants. We currently anticipate that the shares requested in connection with the approval of the 2018 Plan will last for about five years, based on our historic grant rates and the approximate current share price, but could last for a shorter period of time if actual practice does not match recent rates or our share price changes materially. As noted below, our CMD Committee retains full discretion
under the 2018 Plan to determine the number and amount of awards to be granted under the 2018 Plan, subject to the terms of the 2018 Plan, and future benefits that may be received by participants under the 2018 Plan are not determinable at this time.
We believe that we have demonstrated a commitment to sound equity compensation practices in recent years. We recognize that equity compensation awards dilute stockholders’ equity, so we have carefully managed our equity incentive compensation. Our equity compensation practices are intended to be competitive and consistent with market practices, and we believe our historical share usage has been responsible and mindful of stockholder interests, as described above.
In evaluating this proposal, stockholders should consider all of the information in this proposal.
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2018 Plan Highlights
Below are certain highlights of the 2018 Plan. These features of the 2018 Plan are designed to reinforce alignment between equity compensation arrangements awarded pursuant to the 2018 Plan with stockholders’ interests, consistent with sound corporate governance practices:

Reasonable 2018 Plan Limits. Awards under the 2018 Plan are limited to 24,600,000 shares minus (1) one share for every share subject to an award of stock options or stock appreciation rights granted under the Predecessor Plans between February 3, 2018 and the effective date of the 2018 Plan, and minus (2) 1.75 shares for every one share subject to an award other than of stock options or stock appreciation rights granted under the Predecessor Plans between February 3, 2018 and the effective date.

Fungible Share Counting. The aggregate number of shares of Common Stock available under the 2018 Plan will be reduced by (1) one share of Common Stock for every one share of Common Stock subject to an award of stock options or SARs granted under the 2018 Plan, and (2) 1.75 shares of Common Stock for every one share of Common Stock subject to an award other than of stock options or SARs granted under the 2018 Plan, subject to add backs at the same ratios for any awards granted under the Predecessor Plans that are canceled or forfeited, expire, are settled in cash, or are unearned.

Other Limits. The 2018 Plan also provides that, subject as applicable to adjustment and the applicable Common Stock counting provisions as described in the 2018 Plan:

the aggregate number of shares of Common Stock actually issued or transferred upon the exercise of Incentive Stock Options (as defined below) will not exceed 13,300,000 shares of Common Stock; and

a non-employee director will not be granted, in any one calendar year, compensation for such service having an aggregate maximum value (measured at the date of grant as applicable and calculating the value of any awards based on the grant date fair value for financial reporting purposes) in excess of  $600,000.

Limited Share Recycling Provisions. Subject to certain exceptions described in the 2018 Plan, if any award granted under the 2018 Plan is canceled or forfeited, expires, is settled for cash (in whole or in part), or is unearned (in whole or in part), the shares of Common Stock subject to such award will, to the extent of such cancellation, forfeiture, expiration, cash settlement, or unearned amount, again be
available under the 2018 Plan at a rate of one share for every one share subject to stock option or SAR awards and 1.75 shares for every one share subject to awards other than stock options or SARs.

The following shares of Common Stock will not be added (or added back, as applicable) to the aggregate share limit under the 2018 Plan: (1) shares of Common Stock withheld by us, tendered or otherwise used in payment of the exercise price of a stock option granted under the 2018 Plan, and (2) shares of Common Stock reacquired by the Company on the open market or otherwise using cash proceeds from the exercise of stock options granted under the 2018 Plan.

Further, all shares of Common Stock covered by stock-settled SARs that are exercised and settled in shares, whether or not all shares of Common Stock covered by the SARs are actually issued to the participant upon exercise, will not be added back to the aggregate number of shares available under the 2018 Plan. In addition, shares of Common Stock withheld by us or tendered or otherwise used to satisfy tax withholding will not be added (or added back, as applicable) to the aggregate share limit under the 2018 Plan.

If a participant elects to give up the right to receive compensation in exchange for shares of Common Stock based on fair market value, such shares of Common Stock will not count against the aggregate number of shares available under the 2018 Plan.

No Repricing Without Stockholder Approval. Outside of certain corporate transactions or adjustment events described in the 2018 Plan or in connection with a “change in control”, the exercise or base price of stock options and SARs cannot be reduced, nor can “underwater” stock options or SARs be cancelled in exchange for cash or replaced with other awards with a lower exercise or base price, without stockholder approval.

Dividend Equivalents Limited. Dividend equivalents or other distributions on awards are deferred until and paid contingent upon vesting. Dividends and dividend equivalents are not paid on stock options or stock appreciation rights.

Change in Control Definition. The 2018 Plan includes a non-liberal definition of  “change in control,” which is described below.

Exercise or Base Price Limitation. The 2018 Plan also provides that, except with respect to certain converted, assumed or substituted awards as
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described in the 2018 Plan, no stock options or SARs will be granted with an exercise or base price less than the fair market value of a share of Common Stock on the date of grant.

No Minimum Vesting Periods. The 2018 Plan does not provide for any minimum vesting periods.
Summary of Other Material Terms of the 2018 Plan
Administration: The 2018 Plan will generally be administered by the CMD Committee (or its successor), or any other committee of the Board designated by the Board to administer the 2018 Plan. References to the “Committee” in this proposal refer to the CMD Committee or such other committee designated by the Board, as applicable. The Committee may from time to time delegate all or any part of its authority under the 2018 Plan to a subcommittee. Any interpretation, construction and determination by the Committee of any provision of the 2018 Plan, or of any agreement, notification or document evidencing the grant of awards under the 2018 Plan, will be final and conclusive. To the extent permitted by applicable law, the Committee may delegate to one or more of its members or to one or more officers, or to one or more agents or advisors of the Company, such administrative duties or powers as it deems advisable. In addition, the Committee may by resolution, subject to certain restrictions set forth in the 2018 Plan, authorize one or more officers of the Company to (1) designate employees to be recipients of awards under the 2018 Plan, and (2) determine the size of such awards. However, the Committee may not delegate such responsibilities to officers for awards granted to non-employee directors or certain employees who are subject to the reporting requirements of Section 16 of the Exchange Act. The Committee is authorized to take appropriate action under the 2018 Plan subject to the express limitations contained in the 2018 Plan.
Eligibility: Any person who is selected by the Committee to receive benefits under the 2018 Plan and who is at that time an officer or other employee of the Company or any of its subsidiaries (including a person who has agreed to commence serving in such capacity within 90 days of the date of grant) is eligible to participate in the 2018 Plan. In addition, certain persons (including consultants) who provide services to the Company or any of its subsidiaries that are equivalent to those typically provided by an employee (provided that such persons satisfy the Form S-8 definition of  “employee”), and non-employee directors of the Company, may also be selected by the Committee to participate in the 2018 Plan. As of March 23, 2018, there were approximately 13,000 employees and nine non-employee directors of the Company eligible to participate in the 2018 Plan. The basis for participation in the 2018 Plan by eligible persons is the selection of such persons by the Committee in its discretion.
Shares Available for Awards under the 2018 Plan: Subject to adjustment as described in the 2018 Plan and the 2018 Plan share counting rules, the number of shares of Common Stock available under the 2018 Plan for awards of:

stock options or SARs;

restricted stock;

RSUs;

performance shares or performance units;

other stock-based awards under the 2018 Plan; or

dividend equivalents paid with respect to awards under the 2018 Plan;
will not exceed, in the aggregate, 24,600,000 shares of Common Stock minus (1) as of the effective date of the 2018 Plan, one share for every one share subject to an award of stock options or stock appreciation rights granted under the Predecessor Plans between February 3, 2018 and the effective date, and minus (2) as of the effective date of the 2018 Plan, 1.75 shares for every one share subject to an award other than of stock options or stock appreciation rights granted under the Predecessor Plans between February 3, 2018 and the effective date, plus any shares of Common Stock that become available under the 2018 Plan as a result of forfeiture, cancellation, expiration, cash settlement or less-than-maximum earning of awards.
Share Counting: The aggregate number of shares of Common Stock available under the 2018 Plan will be reduced by (1) one share of Common Stock for every one share of Common Stock subject to an award of stock options or SARs granted under the 2018 Plan, and (2) 1.75 shares of Common Stock for every one share of Common Stock subject to an award other than of stock options or SARs granted under the 2018 Plan. Additionally, if, after February 3, 2018, any shares of Common Stock subject to an award granted under the Predecessor Plans are forfeited, or an award granted under the Predecessor Plans is canceled or forfeited, expires, is settled in cash (in whole or in part), or is unearned (in whole or in part), the shares of Common Stock subject to such award will, to the extent of such cancellation, forfeiture, expiration, cash settlement, or unearned amount, be available for awards under the 2018 Plan at a rate of one share for every one share subject to stock option or stock appreciation rights
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awards and 1.75 shares for every one share subject to awards other than stock options or stock appreciation rights.
Types of Awards Under the 2018 Plan: Pursuant to the 2018 Plan, the Company may grant cash awards and stock options (including stock options intended to be “incentive stock options” as defined in Section 422 of the Code (“Incentive Stock Options”)), SARs, restricted stock, RSUs, performance shares, performance units, cash incentive awards, and certain other awards based on or related to shares of our Common Stock.
Generally, each grant of an award under the 2018 Plan will be evidenced by an award agreement, certificate, resolution or other type or form of writing or other evidence approved by the Committee (an “Evidence of Award”), which will contain such terms and provisions as the Committee may determine, consistent with the 2018 Plan. A brief description of the types of awards which may be granted under the 2018 Plan is set forth below.
Stock Options: A stock option is a right to purchase shares of Common Stock upon exercise of the stock option. Stock options granted to an employee under the 2018 Plan may consist of either an Incentive Stock Option, a non-qualified stock option that is not intended to be an “incentive stock option” under Section 422 of the Code, or a combination of both. Incentive Stock Options may only be granted to employees of the Company or certain of our related corporations. Except with respect to awards issued in substitution for, in conversion of, or in connection with an assumption of stock options held by awardees of an entity engaging in a corporate acquisition or merger with us or any of our subsidiaries, Incentive Stock Options and non-qualified stock options must have an exercise price per share that is not less than the fair market value of a share of Common Stock on the date of grant. The term of a stock option may not extend more than 10 years from the date of grant. The Committee may provide in an Evidence of Award for the automatic exercise of a stock option.
Each grant of a stock option will specify the applicable terms of the stock option, including the number of shares of Common Stock subject to the stock option and the required period or periods of the participant’s continuous service, if any, before any stock option or portion of a stock option will become exercisable. Stock options may provide for continued vesting or the earlier exercise of the stock options, including in the event of retirement, death or disability of the participant or in the event of a change in control.
Any grant of stock options may specify management objectives that must be achieved as a condition to the exercise of the stock options. Each grant will specify whether the consideration to be paid in satisfaction of the exercise price will be payable: (1) in cash, by check acceptable to the Company, or by wire transfer of
immediately available funds; (2) by the actual or constructive transfer to the Company of shares of Common Stock owned by the participant with a value at the time of exercise that is equal to the total exercise price; (3) subject to any conditions or limitations established by the Committee, by a net exercise arrangement pursuant to which the Company will withhold shares of Common Stock otherwise issuable upon exercise of a stock option; (4) by a combination of the foregoing methods; or (5) by such other methods as may be approved by the Committee. To the extent permitted by law, any grant may provide for deferred payment of the exercise price from the proceeds of a sale through a bank or broker of some or all of the shares to which the exercise relates. Stock options granted under the 2018 Plan may not provide for dividends or dividend equivalents.
Appreciation Rights: The Committee may, from time to time and upon such terms and conditions as it may determine, authorize the granting of SARs. A SAR is a right to receive from us an amount equal to 100%, or such lesser percentage as the Committee may determine, of the spread between the base price and the value of shares of our Common Stock on the date of exercise.
Each grant of a SAR will be evidenced by an Evidence of Award. Each Evidence of Award will be subject to the 2018 Plan and will contain such other terms and provisions, consistent with the 2018 Plan, as the Committee may approve. Each grant of SARs will specify the period or periods of continuous service, if any, by the participant with the Company or any subsidiary that is necessary before the SARs or installments of such SARs will become exercisable. SARs may provide for continued vesting or earlier exercise, including in the case of retirement, death or disability of the participant or in the event of a change in control. Any grant of SARs may specify management objectives that must be achieved as a condition of the exercise of such SARs. A SAR may be paid in cash, shares of Common Stock or any combination of the two.
Except with respect to awards issued in substitution for, in conversion of, or in connection with an assumption of SARs held by awardees of an entity engaging in a corporate acquisition or merger with us or any of our subsidiaries, the base price of a SAR may not be less than the fair market value of a share of Common Stock on the date of grant. The term of a SAR may not extend more than 10 years from the date of grant. The Committee may provide in an Evidence of Award for the automatic exercise of a SAR. SARs granted under the 2018 Plan may not provide for dividends or dividend equivalents.
Restricted Stock: Restricted stock constitutes an immediate transfer of the ownership of shares of Common Stock to the participant in consideration of the
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performance of services, entitling such participant to dividend, voting and other ownership rights, subject to the substantial risk of forfeiture and restrictions on transfer determined by the Committee for a period of time determined by the Committee or until certain management objectives specified by the Committee are achieved. Each such grant or sale of restricted stock may be made without additional consideration or in consideration of a payment by the participant that is less than the fair market value per share of Common Stock on the date of grant.
Any grant of restricted stock may specify management objectives that, if achieved, will result in termination or early termination of the restrictions applicable to the restricted stock. Any grant of restricted stock will require that any and all dividends or distributions paid on restricted stock that remain subject to a substantial risk of forfeiture be automatically deferred and/or reinvested in additional restricted stock, which will be subject to the same restrictions as the underlying restricted stock. Any such dividends or other distributions on restricted stock will be deferred until, and paid contingent upon, the vesting of such restricted stock. Restricted stock may provide for continued vesting or the earlier termination of restrictions on such restricted stock, including in the event of retirement, death or disability of the participant or in the event of a change in control. Each grant of restricted stock will be evidenced by an Evidence of Award. Each Evidence of Award will be subject to the 2018 Plan and will contain such terms and provisions, consistent with the 2018 Plan, as the Committee may approve.
RSUs: RSUs awarded under the 2018 Plan constitute an agreement by the Company to deliver shares of Common Stock, cash, or a combination of the two, to the participant in the future in consideration of the performance of services, but subject to the fulfillment of such conditions (which may include the achievement of management objectives) during the restriction period as the Committee may specify. Each grant or sale of RSUs may be made without additional consideration or in consideration of a payment by the participant that is less than the fair market value of shares of our Common Stock on the date of grant.
RSUs may provide for continued vesting or the earlier lapse or other modification of the restriction period, including in the event of retirement, death or disability of the participant or in the event of a change in control. During the restriction period applicable to RSUs, the participant will have no right to transfer any rights under the award and will have no rights of ownership in the shares of Common Stock underlying the RSUs and no right to vote them. Rights to dividend equivalents may be extended to and made part of any RSU award at the discretion of and on the terms determined by the Committee, on a deferred and contingent basis, either in
cash or in additional shares of Common Stock, but dividend equivalents or other distributions on shares of Common Stock under the RSUs will be deferred until and paid contingent upon vesting of such RSUs. Each grant or sale of RSUs will specify the time and manner of payment of the RSUs that have been earned. A RSU may be paid in cash, shares of Common Stock or any combination of the two.
Each grant of a RSU award will be evidenced by an Evidence of Award. Each Evidence of Award will be subject to the 2018 Plan and will contain such terms and provisions, consistent with the 2018 Plan, as the Committee may approve.
Cash Incentive Awards, Performance Shares, and Performance Units: Performance shares, performance units and cash incentive awards may also be granted to participants under the 2018 Plan. A performance share is a bookkeeping entry that records the equivalent of one share of Common Stock, and a performance unit is a bookkeeping entry that records a unit equivalent to $1.00 or such other value as determined by the Committee. Each grant will specify the number or amount of performance shares or performance units, or the amount payable with respect to a cash incentive award being awarded, which number or amount may be subject to adjustment to reflect changes in compensation or other factors.
These awards, when granted under the 2018 Plan, generally become payable to participants based on the achievement of specified management objectives and upon such terms and conditions as the Committee determines at the time of grant. Each grant may specify with respect to the management objectives a minimum acceptable level or levels of achievement and may set forth a formula for determining the number of performance shares or performance units, or the amount payable with respect to a cash incentive award, that will be earned if performance is at or above the minimum or threshold level or levels, or is at or above the target level or levels but falls short of maximum achievement. Each grant will specify the time and manner of payment of a cash incentive award, performance shares or performance units that have been earned. Any grant may specify that the amount payable with respect to such grant may be paid by the Company in cash, in shares of Common Stock, in restricted stock or RSUs, or in any combination thereof.
Any grant of performance shares or performance units may provide for the payment of dividend equivalents in cash or in additional shares of Common Stock, subject to deferral and payment on a contingent basis based on the participant’s earning and vesting of the performance shares or performance units, as applicable, with respect to which such dividend equivalents are paid.
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The performance period with respect to each cash incentive award or grant of performance shares or performance units will be a period of time determined by the Committee and within which the management objectives relating to such award are to be achieved. The performance period may be subject to continued vesting or earlier lapse or modification, including in the event of retirement, death or disability of the participant or in the event of a change in control. Each grant of performance shares, performance units or a cash incentive award will be evidenced by an Evidence of Award. Each Evidence of Award will be subject to the 2018 Plan and will contain such other terms and provisions of such award, consistent with the 2018 Plan, as the Committee may approve.
Other Awards: Subject to applicable law and applicable share limits under the 2018 Plan, the Committee may grant to any participant shares of Common Stock or such other awards (“Other Awards”) that may be denominated or payable in, valued in whole or in part by reference to, or otherwise based on, or related to, shares of Common Stock or factors that may influence the value of such shares of Common Stock, including, without limitation, convertible or exchangeable debt securities, other rights convertible or exchangeable into shares of Common Stock, purchase rights for shares of Common Stock, awards with value and payment contingent upon performance of the Company or specified subsidiaries, affiliates or other business units or any other factors designated by the Committee, and awards valued by reference to the book value of the shares of Common Stock or the value of securities of, or the performance of the subsidiaries, affiliates or other business units of the Company. The terms and conditions of any such awards will be determined by the Committee. Shares of Common Stock delivered under an award in the nature of a purchase right granted under the 2018 Plan will be purchased for such consideration, paid for at such time, by such methods, and in such forms, including, without limitation, shares of Common Stock, other awards, notes or other property, as the Committee determines.
In addition, the Committee may grant cash awards, as an element of or supplement to any other awards granted under the 2018 Plan. The Committee may also authorize the grant of shares of Common Stock as a bonus, or may authorize the grant of other awards in lieu of obligations of the Company or a subsidiary to pay cash or deliver other property under the 2018 Plan or under other plans or compensatory arrangements, subject to terms determined by the Committee in a manner that complies with Section 409A of the Code.
Other Awards may provide for the earning or vesting of, or earlier elimination of restrictions applicable to, such award, including in the event of the retirement, death, or disability of the participant or in the event of a change in control. The Committee may provide for the payment of
dividends or dividend equivalents on Other Awards in cash or in additional shares of Common Stock, subject to deferral and payment on a contingent basis based on the participant’s earning and vesting of the Other Awards with respect to which such dividends or dividend equivalents are paid.
Change in Control: The 2018 Plan includes a definition of  “change in control.” In general, except as may be otherwise prescribed by the Committee in an Evidence of Award, a change in control will be deemed to have occurred if, in general (subject to certain limitations and as further described in the 2018 Plan): (1) a person or group becomes the beneficial owner of 30% or more of the voting power of the then-outstanding securities of the Company that can vote generally in the election of directors (“Voting Stock”); (2) individuals who constituted the Board cease for any reason to constitute at least a majority of the Board, unless their replacements are approved as described in the 2018 Plan (subject to certain exceptions); (3) consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of its assets as further described in the 2018 Plan (subject to certain exceptions); or (4) the Company’s stockholders approve a complete liquidation or dissolution of the Company. Certain additional terms or limitations apply under this definition with respect to awards that are “non-qualified deferred compensation” for purposes of Code Section 409A, and except with respect to stockholder approval of a complete liquidation or dissolution of the Company, no definition of change in control under an Evidence of Award may provide that a change in control will occur solely upon the announcement, commencement, stockholder approval or other potential occurrence of any event or transaction (rather than its consummation), and/or an unapproved change in less than a majority of the Board, and/or (except as described above) acquisition of 15% or less of the Voting Stock, and/or announcement or commencement of a tender or exchange offer.
Management Objectives: The 2018 Plan provides that any of the awards set forth above may be granted subject to the achievement of specified management objectives. Management objectives are defined as the measurable performance objective or objectives established pursuant to the 2018 Plan for participants who have received grants of performance shares, performance units or cash incentive awards or, when so determined by the Committee, stock options, SARs, restricted stock, RSUs, dividend equivalents or Other Awards, all as determined by the Committee. The following is a non-exhaustive list of the potential management objectives that may be used for awards under the 2018 Plan (including ratios or other relationships between one or more, or a combination, of the following examples of management objectives): sales; comparable sales; sales per square foot; owned
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sales plus licensed sales or comparable owned sales plus licensed sales; pre-tax income; gross margin; operating or other expenses; earnings before interest and taxes; earnings before interest, taxes, depreciation and amortization (“EBITDA”); EBITDA margin; net income; earnings per share (either basic or diluted); cash flow or net cash flow (as provided by or used in one or more of operating activities, investing activities and financing activities or any combination thereof); return on investment (determined with reference to one or more categories of income or cash flow and one or more categories of assets, capital or equity, including return on net assets, return on sales, return on equity and return on invested capital); stock price (appreciation, fair market value); operating income; revenue; total shareowner return; customer satisfaction; gross margin return on investment; gross margin return on inventory; inventory turn; market share; leverage ratio; coverage ratio; employee engagement; employee turnover; strategic business objectives; strategic plan implementation; and individual performance.
Additionally, if the Committee determines that a change in the business, operations, corporate structure or capital structure of the Company, or the manner in which it conducts its business, or other events or circumstances render the management objectives unsuitable, the Committee may in its discretion modify such management objectives or the acceptable levels of achievement, in whole or in part, as the Committee deems appropriate and equitable.
Transferability of Awards: Except as otherwise provided by the Committee, and subject to the terms of the 2018 Plan with respect to Code Section 409A, no stock option, SAR, restricted stock, RSU, performance share, performance unit, cash incentive award, Other Award or dividend equivalents paid with respect to awards made under the 2018 Plan will be transferrable by a participant except by will or the laws of descent and distribution. In no event will any such award granted under the 2018 Plan be transferred for value. Except as otherwise determined by the Committee, stock options and SARs will be exercisable during the participant’s lifetime only by him or her or, in the event of the participant’s legal incapacity to do so, by his or her guardian or legal representative acting on behalf of the participant in a fiduciary capacity under state law or court supervision.
The Committee may specify on the grant date that all or part of the shares of Common Stock that are subject to awards under the 2018 Plan will be subject to further restrictions on transfer.
Adjustments; Corporate Transactions: The Committee will make or provide for such adjustments in: (1) the number of and kind of shares of Common Stock covered by outstanding stock options, SARs, restricted stock, RSUs, performance shares and performance units granted under the 2018 Plan; (2) if applicable, the
number of and kind of shares of Common Stock covered by Other Awards granted pursuant to the 2018 Plan; (3) the exercise price or base price provided in outstanding stock options and SARs, respectively; (4) cash incentive awards; and (5) other award terms, as the Committee in its sole discretion, exercised in good faith determines to be equitably required in order to prevent dilution or enlargement of the rights of participants that otherwise would result from (a) any extraordinary cash dividend, stock dividend, stock split, combination of shares, recapitalization or other change in the capital structure of the Company; (b) any merger, consolidation, spin-off, spin-out, split-off, split-up, reorganization, partial or complete liquidation or other distribution of assets, issuance of rights or warrants to purchase securities; or (c) any other corporate transaction or event having an effect similar to any of the foregoing.
In the event of any such transaction or event, or in the event of a change in control of the Company, the Committee may provide in substitution for any or all outstanding awards under the 2018 Plan such alternative consideration (including cash), if any, as it may in good faith determine to be equitable under the circumstances and will require in connection therewith the surrender of all awards so replaced in a manner that complies with Section 409A of the Code. In addition, for each stock option or SAR with an exercise price or base price, respectively, greater than the consideration offered in connection with any such transaction or event or change in control of the Company, the Committee may in its discretion elect to cancel such stock option or SAR without any payment to the person holding such stock option or SAR. The Committee will make or provide for such adjustments to the numbers of shares of Common Stock available under the 2018 Plan and the share limits of the 2018 Plan as the Committee in its sole discretion may in good faith determine to be appropriate in connection with such transaction or event. However, any adjustment to the limit on the number of shares of Common Stock that may be issued upon exercise of Incentive Stock Options will be made only if and to the extent such adjustment would not cause any option intended to qualify as an Incentive Stock Option to fail to so qualify.
Prohibition on Repricing: Except in connection with certain corporate transactions or changes in the capital structure of the Company or in connection with a change in control, the terms of outstanding awards may not be amended to (1) reduce the exercise price or base price of outstanding stock options or SARs, respectively, or (2) cancel outstanding “underwater” stock options or SARs in exchange for cash, other awards or stock options or SARs with an exercise price or base price, as applicable, that is less than the exercise price or base price of the original stock options or SARs, as applicable, without stockholder approval. The 2018 Plan
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specifically provides that this provision is intended to prohibit the repricing of  “underwater” stock options and SARs and that it may not be amended without approval by our stockholders.
Detrimental Activity and Recapture: Any Evidence of Award may reference a clawback policy of the Company or provide for the cancellation or forfeiture and repayment to us of any award or gain related to an award, or other provisions intended to have a similar effect, upon such terms and conditions as may be determined by the Committee from time to time, if any participant, either during employment or other service with us or a subsidiary or within a specified period after such employment or service, engages in any detrimental activity, as described in the applicable Evidence of Award or such clawback policy. In addition, any Evidence of Award or such clawback policy may provide for cancellation or forfeiture of an award or the forfeiture and repayment of any shares of Common Stock issued under and/or any other benefit related to an award, or other provisions intended to have a similar effect, upon such terms and conditions as may be required by the Committee or under Section 10D of the Exchange Act and any applicable rules and regulations promulgated by the Securities and Exchange Commission or any national securities exchange or national securities association on which the shares of Common Stock may be traded.
Grants to Non-U.S. Based Participants: In order to facilitate the making of any grant or combination of grants under the 2018 Plan, the Committee may provide for such special terms for awards to participants who are foreign nationals, who are employed by the Company or any of its subsidiaries outside of the United States of America or who provide services to the Company or any of its subsidiaries under an agreement with a foreign nation or agency, as the Committee may consider necessary or appropriate to accommodate differences in local law, tax policy or custom. The Committee may approve such supplements to, or amendments, restatements or alternative versions of, the 2018 Plan (including sub-plans) as it may consider necessary or appropriate for such purposes, provided that no such special terms, supplements, amendments or restatements will include any provisions that are inconsistent with the terms of the 2018 Plan as then in effect unless the 2018 Plan could have been amended to eliminate such inconsistency without further approval by our stockholders.
Withholding: To the extent the Company is required to withhold federal, state, local or foreign taxes or other amounts in connection with any payment made or benefit realized by a participant or other person under the 2018 Plan, and the amounts available to us for such withholding are insufficient, it will be a condition to the receipt of such payment or the realization of such
benefit that the participant or such other person make arrangements satisfactory to the Company for payment of the balance of such taxes or other amounts required to be withheld, which arrangements, in the discretion of the Committee, may include relinquishment of a portion of such benefit. If a participant’s benefit is to be received in the form of shares of Common Stock, and such participant fails to make arrangements for the payment of taxes or other amounts, then, unless otherwise determined by the Committee, we will withhold shares of Common Stock having a value equal to the amount required to be withheld. When a participant is required to pay the Company an amount required to be withheld under applicable income, employment, tax or other laws, the participant may elect, unless otherwise determined by the Committee, to satisfy the obligation, in whole or in part, by having withheld, from the shares required to be delivered to the participant, shares of Common Stock having a value equal to the amount required to be withheld or by delivering to us other shares of Common Stock held by such participant. The shares used for tax or other withholding will be valued at an amount equal to the fair market value of such shares of Common Stock on the date the benefit is to be included in participant’s income. In no event will the fair market value of the shares of Common Stock to be withheld and delivered pursuant to the 2018 Plan exceed the minimum amount required to be withheld, unless (i) an additional amount can be withheld and not result in adverse accounting consequences, (ii) such additional withholding amount is authorized by the Committee, and (iii) the total amount withheld does not exceed the participant’s estimated tax obligations attributable to the applicable transaction. Participants will also make such arrangements as the Company may require for the payment of any withholding tax or other obligation that may arise in connection with the disposition of shares of Common Stock acquired upon the exercise of stock options.
No Right to Continued Employment: The 2018 Plan does not confer upon any participant any right with respect to continuance of employment or service with the Company or any of its subsidiaries.
Effective Date of the 2018 Plan: The 2018 Plan will become effective on the date it is approved by the Company’s stockholders. No grants will be made under the Predecessor Plans on or after the date on which our stockholders approve the 2018 Plan, provided that outstanding awards granted under the Predecessor Plans will continue unaffected following such date.
Amendment and Termination of the 2018 Plan: The Board generally may amend the 2018 Plan from time to time in whole or in part. However, if any amendment, for purposes of applicable stock exchange rules (and except as permitted under the adjustment provisions of the 2018 Plan) (1) would materially increase the benefits accruing to participants under the 2018 Plan, (2) would
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materially increase the number of shares which may be issued under the 2018 Plan, (3) would materially modify the requirements for participation in the 2018 Plan, or (4) must otherwise be approved by our stockholders in order to comply with applicable law or the rules of the New York Stock Exchange, all as determined by the Board, then such amendment will be subject to stockholder approval and will not be effective unless and until such approval has been obtained.
Further, subject to the 2018 Plan’s prohibition on repricing, the Committee generally may amend the terms of any award prospectively or retroactively. Except in the case of certain adjustments permitted under the 2018 Plan, no such amendment may be made that would materially impair the rights of any participant without his or her consent. If permitted by Section 409A of the Code and subject to certain other limitations set forth in the 2018 Plan, including in the case of termination of employment or service, or in the case of unforeseeable emergency or other circumstances or in the event of a change in control, the Committee may provide for continued vesting or accelerate the vesting of certain awards granted under the 2018 Plan.
The Board may, in its discretion, terminate the 2018 Plan at any time. Termination of the 2018 Plan will not affect the rights of participants or their successors under any
awards outstanding and not exercised in full on the date of termination. No grant will be made under the 2018 Plan more than 10 years after the effective date of the 2018 Plan, but all grants made on or prior to such date will continue in effect thereafter subject to their terms and the terms of the 2018 Plan.
Allowances for Conversion Awards and Assumed Plans. Shares of Common Stock issued or transferred under awards granted under the 2018 Plan in substitution for or conversion of, or in connection with an assumption of, stock options, SARs, restricted stock, RSUs, or other stock or stock-based awards held by awardees of an entity engaging in a corporate acquisition or merger transaction with us or any of our subsidiaries will not count against (or be added to) the aggregate share limit or other 2018 Plan limits described above. Additionally, shares available under certain plans that we or our subsidiaries may assume in connection with corporate transactions from another entity may be available for certain awards under the 2018 Plan, under circumstances further described in the 2018 Plan, but will not count against the aggregate share limit or other 2018 Plan limits described above.
New Plan Benefits
It is not possible to determine the specific amounts and types of awards that may be awarded in the future under the 2018 Plan because the grant and actual settlement
of awards under the 2018 Plan are subject to the discretion of the plan administrator.
U.S. Federal Income Tax Consequences
The following is a brief summary of certain of the Federal income tax consequences of certain transactions under the 2018 Plan based on Federal income tax laws in effect. This summary, which is presented for the information of stockholders considering how to vote on this proposal and not for 2018 Plan participants, is not intended to be complete and does not describe Federal taxes other than income taxes (such as Medicare and Social Security taxes), or state, local or foreign tax consequences.
Tax Consequences to Participants
Restricted Stock. The recipient of restricted stock generally will be subject to tax at ordinary income rates on the fair market value of the restricted stock (reduced by any amount paid by the recipient for such restricted stock) at such time as the shares of restricted stock are no longer subject to forfeiture or restrictions on transfer for purposes of Section 83 of the Code (“Restrictions”). However, a recipient who so elects under Section 83(b) of the Code within 30 days of the date of transfer of the shares will have taxable ordinary income on the date of transfer of the shares equal to the excess of the fair
market value of such shares (determined without regard to the Restrictions) over the purchase price, if any, of such restricted stock. If a Section 83(b) election has not been made, any dividends received with respect to restricted stock that are subject to the Restrictions generally will be treated as compensation that is taxable as ordinary income to the recipient.
Performance Shares, Performance Units and Cash Incentive Awards. No income generally will be recognized upon the grant of performance shares, performance units or cash incentive awards. Upon payment in respect of the earn-out of performance shares, performance units or cash incentive awards, the recipient generally will be required to include as taxable ordinary income in the year of receipt an amount equal to the amount of cash received and the fair market value of any unrestricted shares of Common Stock received.
Nonqualified Stock Options. In general:

no income will be recognized by an optionee at the time a non-qualified stock option is granted;
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at the time of exercise of a non-qualified stock option, ordinary income will be recognized by the optionee in an amount equal to the difference between the option price paid for the shares and the fair market value of the shares, if unrestricted, on the date of exercise; and

at the time of sale of shares acquired pursuant to the exercise of a non-qualified stock option, appreciation (or depreciation) in value of the shares after the date of exercise will be treated as either short-term or long-term capital gain (or loss) depending on how long the shares have been held.
Incentive Stock Options. No income generally will be recognized by an optionee upon the grant or exercise of an Incentive Stock Option. If shares of Common Stock are issued to the optionee pursuant to the exercise of an Incentive Stock Option, and if no disqualifying disposition of such shares is made by such optionee within two years after the date of grant or within one year after the transfer of such shares to the optionee, then upon sale of such shares, any amount realized in excess of the option price will be taxed to the optionee as a long-term capital gain and any loss sustained will be a long-term capital loss.
If shares of Common Stock acquired upon the exercise of an Incentive Stock Option are disposed of prior to the expiration of either holding period described above, the optionee generally will recognize ordinary income in the year of disposition in an amount equal to the excess (if any) of the fair market value of such shares at the time of exercise (or, if less, the amount realized on the disposition of such shares if a sale or exchange) over the exercise price paid for such shares. Any further gain
(or loss) realized by the participant generally will be taxed as short-term or long-term capital gain (or loss) depending on the holding period.
SARs. No income will be recognized by a participant in connection with the grant of a SAR. When the SAR is exercised, the participant normally will be required to include as taxable ordinary income in the year of exercise an amount equal to the amount of cash received and the fair market value of any unrestricted shares of Common Stock received on the exercise.
RSUs. No income generally will be recognized upon the award of RSUs. The recipient of an RSU award generally will be subject to tax at ordinary income rates on the fair market value of unrestricted shares of Common Stock on the date that such shares are transferred to the participant under the award (reduced by any amount paid by the participant for such RSUs), and the capital gains/loss holding period for such shares will also commence on such date.
Tax Consequences to the Company or its Subsidiaries
To the extent that a participant recognizes ordinary income in the circumstances described above, the Company or the subsidiary for which the participant performs services will be entitled to a corresponding deduction provided that, among other things, the income meets the test of reasonableness, is an ordinary and necessary business expense, is not an “excess parachute payment” within the meaning of Section 280G of the Code and is not disallowed by the $1 million limitation on certain executive compensation under Section 162(m) of the Code.
CODE SECTION 162(m)
Section 162(m) of the Code generally disallows a deduction for certain compensation paid to certain executive officers (and, beginning in 2018, certain former executive officers) to the extent that compensation to a covered employee exceeds $1 million for such year. Compensation qualifying for a performance-based exception as “qualified performance-based compensation” under Section 162(m) of the Code has historically not been subject to the deduction limit if the compensation satisfies the requirements of Section 162(m) of the Code. This exception has now been
repealed, effective for taxable years beginning after December 31, 2017, unless certain transition relief for certain compensation arrangements in place as of November 2, 2017 is available. To be clear, stockholders are not being asked to approve the 2018 Plan (or any of its provisions) for purposes of Section 162(m) of the Code or the performance-based exception. Currently, the Company does not anticipate that it would be able to make any future grants under the 2018 Plan that will be intended to qualify for the performance-based exception.
Registration with the SEC
We intend to file a Registration Statement on Form S-8 relating to the issuance of shares of Common Stock under the 2018 Plan with the Securities and Exchange
Commission pursuant to the Securities Act of 1933, as amended, as soon as practicable after approval of the 2018 Plan by our stockholders.
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Vote Required for Approval
The affirmative vote of a majority of votes cast in person or by proxy is required for approval of the 2018 Plan. Abstentions will have the effect of a vote against the proposal.
Broker non-votes will not be counted.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR”
THE APPROVAL OF THE MACY’S, INC. 2018 EQUITY AND INCENTIVE
COMPENSATION PLAN.
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COMPENSATION DISCUSSION & ANALYSIS
This Compensation Discussion and Analysis (CD&A) describes our executive compensation policies and practices and focuses on how our Named Executive Officers (NEOs) are compensated.
EXECUTIVE SUMMARY
Leadership Transition and Financial Performance
Macy’s successfully completed a leadership transition in 2017 that was carefully planned over a multi-year period and resulted in the retirement of Terry J. Lundgren as CEO and Chairman of the Board and the promotion of Jeff Gennette as his successor. Other important leadership changes also occurred, as discussed below, as Mr. Gennette identified the need for new skills and experiences to better support the execution of the Company’s North Star Strategy, which he introduced in 2017. Under the leadership of the new team, which represents a mix of Macy’s veterans and new hires, the Company delivered strong financial and operational performance that culminated in positive comparable
sales growth in the critical fourth quarter, thereby reversing the negative trend of the prior 11 quarters, a 21% improvement in non-GAAP diluted earnings per share, and a significant improvement in our return on invested capital from 18.5% to 20.8%.
2017 was a year in which we built momentum. Our variable compensation programs are designed with a pay for performance philosophy which only reward executives when appropriate levels of achievement are reached. For a discussion of our short and long-term achievement see pages 49 and 51.
Our Compensation Program Objectives
We seek to provide competitive and reasonable compensation opportunities, focus on results and strategic objectives, foster a pay-for-performance culture,
attract and retain key executives, and balance risk and reward to ensure accountability to shareholders.
Shareholder Support for our Compensation Program
At our 2017 annual meeting, shareholders representing 93% of votes cast approved our “say-on-pay” proposal in support of our executive compensation program, the sixth consecutive year of shareholder support in excess of 90%.
We value the opinions that shareholders express in their votes and dialog regarding our executive compensation program. We communicate regularly with our investors to ensure that our Board, Board Committees and management understand and consider the issues that matter most to our shareholders.
Pay-for-Performance Mix
Because our executive officers have the ability to directly influence our overall performance, the largest portion of NEOs’ compensation is variable, at risk pay. Based on a combination of annual performance-based incentive awards and long-term performance based equity incentive awards, 87% of our CEO’s targeted total direct compensation for fiscal 2017 and 75% of our other
NEOs’ targeted total direct compensation for fiscal 2017 was delivered through variable incentives in which payout is tied to changes in stock price and predetermined performance objectives. Performance-based restricted stock units and stock options represent the largest element of pay for our NEOs.
For fiscal 2017, our NEOs were:
Name
Principal Position
Years with Macy’s
Jeff Gennette Chief Executive Officer
34
Terry J. Lundgren(1) Executive Chairman
36
Karen M. Hoguet Chief Financial Officer
35
Harry A. Lawton III President
<1
Elisa D. Garcia Chief Legal Officer
1
Danielle L. Kirgan Chief Human Resources Officer
<1
Jeffrey A. Kantor Chief Merchandising Officer
36
Tim Baxter(2) Former Chief Merchandising Officer
26
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(1)
Mr. Lundgren served as Chief Executive Officer until his transition to Executive Chairman in March 2017.
(2)
Mr. Baxter’s employment with the Company was terminated in September 2017.
CEO Targeted Pay Mix
Salary
Annual
Incentive
Performance
Restricted
Stock Units
Stock
Options
Total
% of Total Compensation 13% 22% 39% 26% 100%
Short-Term Cash vs. Long-Term Equity
34%​
66%​
100%
Fixed vs. Performance-Based 13%
87%​
100%
Other NEOs Targeted Pay Mix (average)
Salary
Annual
Incentive
Performance
Restricted
Stock Units
Stock
Options
Total
% of Total Compensation 25% 23% 31% 21% 100%
Short-Term Cash vs. Long-Term Equity
48%​
52%​
100%
Fixed vs. Performance-Based 25%
75%​
100%
The following table, which illustrates pay outcomes for Mr. Gennette for the performance period ending with fiscal 2017, demonstrates the variable nature of our overall compensation program and the degree to which earned pay varies with performance.
Component
Target
Earned
Forfeited
Base salary $ 1,250,000 $ 1,250,000 $ 0
2017 Annual Incentive $ 2,125,000 $ 2,997,100 $ 0
2015 – 2017 Performance Shares $ 1,620,000 $ 0 $ 1,620,000
Total $ 4,995,000 $ 4,247,100 $ 1,620,000
As a part of the fiscal 2017 long-term incentives, Mr. Gennette also received both a performance-based restricted stock unit award for the period 2017 – 2019 with a grant date fair value of  $3,900,000 and a stock option award with a grant date fair value of  $2,600,000. The stock price at time of grant was $28.17, so with the stock price of  $24.89 at the end of fiscal 2017, these grants had lost value.
Overview of 2017 Business
We continued implementation of our North Star Strategy, a five-point strategy to transform our retail business and focus on key growth areas, embrace customer centricity, and optimize value in our real estate portfolio. Our focus in fiscal 2017 was growth of our mobile and digital business, stabilization of our store businesses at Macy’s and Bloomingdale’s and establishment of a foundation for future growth. Key steps taken at Macy’s included re-engineering of Macy’s marketing strategy to revitalize customer brand engagement, better understand our customers, improve marketing efficiency and strengthen media mix; rollout of a new customer loyalty program; focus on private label and exclusive merchandise brands; expansion of Macy’s Backstage off-price option in existing stores; and growth of digital initiatives such as mobile app use in store and buy online pickup in store (BOPS) transactions. Early in the year, we reorganized the field structure supporting our stores and restructured central operations to focus on strategic priorities and reduce expense. In 2017, we restructured our marketing department and consolidated our merchandising, planning and private brands teams into a single merchandising function. We also closed 83 of the approximately 100 store closures we announced in
August 2016. In January 2018, we announced actions to continue improvements in organizational efficiency and to allocate resources to support our growth strategy, including staffing adjustments across the stores organization with reductions in some stores and increases in others and the closure of 11 stores in early 2018. We are focused on accelerating the growth of our beauty products at Macy’s and Bloomingdale’s and through spa retailer, bluemercury, by opening additional freestanding bluemercury stores in urban and suburban markets, enhancing its online capabilities and adding bluemercury products and sections to Macy’s stores.
In 2017, we continued to execute our real estate value creation strategy that has three key components:

Review of our flagship properties

Monetization of assets that are not strategically critical to our business

Evaluation of selected properties for development potential under our strategic alliance with Brookfield Asset Management.
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In total, we realized $411 million in asset sales proceeds in 2017, which was in line with what we anticipated when setting our short-term incentive targets. This compares to $673 million in 2016 which included the sale of the Men’s building in Union Square, San Francisco for approximately $250 million.
We exceeded our cash flow target in large part due to improved inventory management throughout the year, which resulted in more cash, improved margins and, importantly, higher quality year-end inventory.
Overview of 2017 Operating Performance
Selected financial results for fiscal 2017 used as performance metrics under our executive compensation plans include:
Annual Incentive Plan
Performance Metric
Fiscal 2017 Results
Adjusted EBIT

Earnings before interest and taxes, excluding restructuring, impairment, store closing and other costs, settlement charges and net premiums on the early retirement of debt.
Adjusted EBIT for fiscal 2017 totaled $2.098 billion, or 104% of target.
Sales Total sales for fiscal 2017 were $25.782 billion, or 100% of target.
Cash Flow
Cash provided by operating activities net of investing activities was $1.571 billion for fiscal 2017 or plus $444.9 million versus target.
Long-Term Incentive Plan
Performance Metric
Fiscal 2015 – 2017 Results
Adjusted EBITDA Margin

Earnings before interest, taxes, depreciation and amortization, excluding restructuring, impairment, store closing and other costs, settlement charges and net premiums on the early retirement of debt, divided by net sales.
Adjusted EBITDA margin was 12.4% for the fiscal 2015 – 2017 period, which was below threshold.
ROIC Return on Invested Capital (ROIC) was 19.8% for the fiscal 2015 – 2017 period, which was below threshold.
Total Shareholder Return
3-year compound annualized total shareholder return (TSR) was-23.0%, which was below threshold relative to the peer group 3-year TSR.
See pages 49 and 51 for information on payouts based on performance under our annual incentive and long-term incentive plans.
See Macy’s Annual Report on Form 10-K for important information regarding the above non-GAAP financial measures.
SUMMARY OF 2017 COMPENSATION ACTIONS
In making decisions regarding the compensation opportunities and amounts earned by the NEOs in fiscal 2017, the CMD Committee took into account competitive
pay practices in the industry, the economic climate, our performance against fiscal 2017 internal goals, and our relative performance against industry competitors.
Target Compensation
The CMD Committee, with support from FW Cook, our independent executive compensation consultant, established target compensation levels for our CEO,
Executive Chairman, and President for fiscal 2017 consistent with our multi-year leadership strategy.
Mr. Gennette, Chief Executive Officer
The CMD Committee established and the Board approved for Mr. Gennette, in his initial year as CEO, a target total compensation package comprised of a base salary of  $1,250,000, target annual incentive opportunity
of 170% of base salary and long-term incentive target of $6,500,000. In establishing this package, the CMD Committee took into consideration numerous factors including the target compensation of CEOs at our peer
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companies; the compensation paid to newly promoted CEOs relative to the prior CEO based on a large sample of comparable situations; the CMD Committee’s historic philosophy regarding the positioning of CEO and other senior officer target compensation levels versus market rates; Mr. Gennette’s then-inexperience as CEO of a public company; and the continued role of Mr. Lundgren
as Executive Chairman and Chairman of the Board. Mr. Gennette’s fiscal 2017 target total compensation of $9,875,000 was between the 25th percentile and median of CEO peer group compensation, providing room for increases and movement toward peer group median assuming strong performance.
Mr. Lundgren, Executive Chairman and Chairman of the Board
The CMD Committee established and the Board approved for Mr. Lundgren, in his new role as Executive Chairman, a reduced target total compensation package comprised of a base salary of  $1,000,000 (reduced from $1,600,000 as CEO), target annual incentive opportunity of 150% of base salary (reduced from 170%) and long-term incentive target of  $4,750,000 (reduced from $10,000,000). In setting Mr. Lundgren’s target compensation, the CMD Committee considered the
critical role he continued to serve, including as an advisor to Mr. Gennette and leadership of our real estate and China strategies. The CMD Committee also considered the compensation paid at other companies that have implemented similar leadership transitions in which the prior CEO assumes an ongoing role as Executive Chairman and Chairman of the Board. Mr. Lundgren’s fiscal 2017 target total compensation was reduced by approximately 50% from fiscal 2016.
Mr. Lawton, President
Mr. Lawton joined the Company in September 2017 as President, bringing expertise in retailing and technology, most recently as a senior executive at eBay, Inc. and Home Depot, Inc. The CMD Committee established and approved for Mr. Lawton a competitive target compensation package consisting of a base salary of $1,000,000, target annual incentive opportunity of 125% of base salary, and a fiscal 2018 target annual equity grant with a grant date fair value of  $4,000,000 in a combination of performance-based restricted stock units
and stock options, weighted 60% to 40%, respectively. In determining Mr. Lawton’s target annual compensation opportunity, the CMD Committee considered market data for comparable positions at our peer group companies, as well as Mr. Lawton’s combined experience in retail and technology, diverse business background and the Company’s omnichannel strategy. Mr. Lawton’s total direct compensation opportunity approximated peer group median.
Ms. Kirgan, Chief Human Resources Officer
Ms. Kirgan joined the Company in October 2017 as Chief Human Resources Officer. She has more than 20 years of experience in a variety of human resources roles across a diverse range of businesses, most recently as Senior Vice President, People, at American Airlines. The CMD Committee established and approved for Ms. Kirgan a target compensation package comprised of a base salary of  $750,000, target annual incentive
opportunity of 75% of base salary, and a fiscal 2018 target annual equity grant with a grant date fair value of $1,200,000. In determining Ms. Kirgan’s target annual compensation opportunity, the CMD Committee considered market data for comparable positions at our peer group companies. Ms. Kirgan’s total direct compensation opportunity was near the median of CHRO peer group compensation.
Sign-On Compensation
To attract Mr. Lawton to Macy’s, Mr. Lawton received a sign-on bonus of  $5,500,000. The sign-on bonus was designed to offset amounts Mr. Lawton was required to repay, and bonus, options, time-based and performance-based equity awards he forfeited, upon his departure from his previous employer. The sign-on bonus, payable $2,000,000 upon hire and $3,500,000 in March 2018, is subject to a repayment agreement that provides for 100% repayment during the first 12 months and 50% repayment during months 13 to 24 in the event of a voluntary termination. Mr. Lawton received a sign-on equity grant of stock options, time-based restricted stock units and performance-based restricted stock units with grant date values of  $4,000,000, $3,500,000 and
$3,000,000, respectively, to replace forfeited equity awards. Mr. Lawton’s position required relocation to New York City and the Company provided relocation benefits to assist with his move.
Ms. Kirgan received a sign-on bonus of  $500,000, payable $300,000 upon hire and $200,000 in April 2018, subject to a repayment agreement on the same terms as Mr. Lawton. Ms. Kirgan also received a new hire equity grant of stock options in November 2017 with a grant date value of  $500,000. The Company provided relocation benefits to Ms. Kirgan to assist with her move to New York City.
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Job Change Equity Grant
In August 2017, we announced the restructuring of our merchandising operations, including the consolidation of merchandising, planning and private brands into a single merchandising function to be led by Jeffery A. Kantor. In recognition of the importance of this role and his
increased job responsibilities, the CMD Committee approved a grant of time-based restricted stock units with a grant date value of  $500,000 to Mr. Kantor, vesting on the third anniversary of the grant date.
Other Actions
The CMD Committee took the following other specific actions with respect to the compensation of NEOs for fiscal 2017:

Determined base salaries would remain at 2016 levels, with the exception of Mr. Gennette and Mr. Lundgren in connection with their leadership succession and Mr. Kantor in connection with his job change;

Added strategic goals to the annual incentive plan for 2017, in addition to financial goals, to focus participants on key priorities that are viewed as drivers of long-term value and are directly within the control of participants;

Based on levels of achievement against pre-determined goals for EBIT, Sales, Cash Flow and Strategic Initiatives, made annual incentive award payments of approximately 141% of the target incentive opportunities to the NEOs;

Based on failure to achieve pre-determined goals for average EBITDA margin, average ROIC and relative TSR over the three-year (fiscal 2015 – 2017) performance period, made no payouts of performance-based restricted stock units because the required threshold levels of performance were not achieved;

Granted performance-based restricted stock units and stock options to the NEOs, with a mix of 60% performance-based restricted stock units and 40% stock options; and

Approved a special performance-based restricted stock unit award for Ms. Hoguet for the performance period 2017 – 2019 with a grant date fair value of $1,000,000.
   
   
WHAT WE DO AND DON’T DO
See
pages
47-48
49-51
49-52
50-52
49-51
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WHAT WE DO AND DON’T DO
See
pages

CMD Committee comprised of independent directors
16​
Ø
Do not provide excise tax gross ups upon a change in control
n/a​
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ROLES IN DETERMINING EXECUTIVE COMPENSATION
CMD Committee
The CMD Committee administers the executive compensation program for senior executives, overseeing our annual incentive and long-term incentive plans, our benefit plans and policies, and ensuring that appropriate succession plans are in place for the CEO and other key executive positions. When making decisions regarding our executive compensation program, the CMD Committee considers, among other things:

our compensation philosophy,

our financial, operating and total shareholder return performance,

compensation policies and practices for our employees generally, and

practices and executive compensation levels within peer companies.
The CMD Committee’s primary goals are to support organizational objectives and shareholder interests, emphasize the pay-for-performance linkage of our executive compensation program and ensure that our executive compensation programs are competitive.
Compensation Consultant
Since 2008, the CMD Committee has engaged FW Cook to assist with executive compensation matters. FW Cook provides no services to the Company other than those provided directly to or on behalf of the CMD Committee, and to or on behalf of the Nominating and Corporate Governance Committee with respect to director compensation. The CMD Committee has assessed the independence of FW Cook pursuant to the New York Stock Exchange listing standards and SEC rules and is not aware of any conflict of interest that would prevent FW Cook from providing independent advice to the CMD Committee.
FW Cook attends CMD Committee meetings at the request of the Committee, meets with the Committee in executive session without management and frequently communicates with the Committee chairman regarding emerging issues and other matters considered by the CMD Committee. The services provided by FW Cook include review and advice relating to:

design of our annual and long-term incentive plans, including the degree to which the incentive plans
support our business strategy and balance risk-taking with potential reward;

setting performance objectives;

peer group pay and performance comparisons;

competitiveness of our key executives’ compensation;

changes to the NEOs’ compensation levels;

design of other compensation and benefits programs; and

preparation of public filings related to executive compensation, including this CD&A and the accompanying tables and footnotes.
Management
The CMD Committee also seeks input from the CEO and senior executives in our human resources, legal and finance departments to develop the design, operation, objectives and values of the various compensation components. These executives may attend and contribute to Committee meetings as requested by the Committee or its chairman. Our human resources department engages a compensation consultant, Korn Ferry Hay Group, to provide calculations, comparator group and general market data to be used by management in its compensation-related analyses.
Our CEO also participates in the executive compensation process. At the beginning of a fiscal year, our CEO meets with each of his direct reports, including the other NEOs, to set their individual performance
objectives for the year, such as meeting key financial and other business goals and effectively managing their business unit or corporate function. Following the end of the fiscal year, our CEO reviews the performance of each direct report against Company and individual performance objectives and the individual’s contribution to our performance. Our CEO takes an active part in CMD Committee discussions of compensation involving his direct reports. He provides input on individual performance and the size, scope and complexity of their positions and recommendations with respect to the amount and composition of their compensation opportunities. Human resources executives, with the assistance of FW Cook, provide the CMD Committee with data and analyses and annually prepare information to help the CMD Committee in its consideration of such
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recommendations. Mr. Gennette and Mr. Lundgren did not participate in the CMD Committee or Board meetings during which their compensation is discussed.
   
HOW WE SET EXECUTIVE COMPENSATION
Review Process
The CMD Committee annually reviews NEO base salary, annual incentive award payments and equity awards at its March meeting. At that time, all financial and other performance results for the prior fiscal year are available and individual and Company performance against applicable targets can be measured.
The targeted total direct compensation of the NEOs other than Mr. Gennette is generally intended to approximate the median of the 12-company peer group of retailers listed below, which is the level the CMD Committee has determined is aligned with the market. Actual positioning of targeted compensation may be above or below the median based on the executive’s experience, skill set, scope of responsibilities, tenure and other factors. For fiscal 2017, the NEOs’ targeted total direct compensation (base salary, target annual incentive and grant date value of long-term incentive awards), other than Mr. Gennette, fell within median
range of the peer group practice, reflecting a combination of median to 75th percentile base salaries, 25th percentile target annual incentive, and near median long-term incentive awards. Actual total direct compensation realized will vary from targeted compensation based upon the level of achievement of short- and long-term operating performance objectives, stock price performance and the Company’s total shareholder return relative to the peer companies. The CMD Committee reviews the compensation of other senior executives to ensure that the compensation of the NEOs is internally consistent and equitable.
The targeted total direct compensation for Mr. Gennette was set between the 25th percentile and median of the peer group, reflecting his first year in the CEO role, with the expectation that targeted total direct compensation will move towards median over time, assuming strong performance.
Peer Companies
The CMD Committee uses comparative compensation data of the following peer group of 12 publicly-traded retail companies to assess the competitiveness of our executive compensation levels and opportunities, and in determining individual components of compensation, compensation practices, and the relative proportions of each component of compensation:
Bed, Bath & Beyond
Kohl’s
Sears Holdings
Dillard’s L Brands Target
Gap Nordstrom
TJX Companies
J.C. Penney
Ross Stores
Walmart
We selected this peer group in 2013 with input from FW Cook, taking into consideration a variety of factors, including revenue, market capitalization, total assets, number of employees, Global Industry Classification Standard, business model, product and customer base, and whether the company competes with Macy’s with respect to product, customers and/or executive talent. We review our peer group annually.
At October 31, 2017, we ranked at or above the 75th percentile of the peer group in revenue, total assets and number of employees, near median in net income, and between the 25th percentile and median in market cap.
($) in millions
Revenue(1)
Net
Income(1)
Market
Cap(2)
Total
Assets(3)
Number of
Employees(4)
75th Percentile $ 23,286 $ 1,466 $ 26,423 $ 13,177 163,750
Median 15,279 741 8,616 8,269 120,500
25th Percentile 12,393 395 2,506 7,408 77,075
Macy’s $ 24,686 $ 697 $ 5,714 $ 20,215 148,300
Macy’s Percentile Rank 76% 48% 34% 84% 74%
Data Source: Standard & Poor’s Capital IQ, as of October 31, 2017
(1)
Most recently reported four quarters.
(2)
As of October 31, 2017.
(3)
Most recently reported quarter.
(4)
Most recently reported fiscal year.
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Competitive Analyses
As part of the fiscal 2017 compensation planning process, the CMD Committee asked FW Cook to review the design of our annual and long-term incentive programs and prepare a competitive analysis of the compensation of the NEOs. The materials prepared by FW Cook included:
(i)
an analysis of the design of our annual incentive and long-term incentive programs in relation to our financial and strategic priorities, human resources objectives and market practice to determine whether changes were appropriate,
(ii)
a competitive analysis of the targeted total direct compensation for the NEOs, including base salary, annual incentives and long-term incentives, and
(iii)
a competitive assessment of our long-term incentive grant practices, including a review of share usage (shares granted in equity plans as
a percentage of weighted-average outstanding shares), potential dilution relative to peer group practice and a fair value transfer analysis that measured the aggregate cost of long-term incentives as a percent of market capitalization and revenue.
FW Cook determined that our incentive compensation programs continue to be well designed and reward profitable growth and appreciation in shareholder value through successful execution of strategies to enhance customer engagement and financial objectives on both absolute and relative peer-to-peer bases. FW Cook noted that while overall competitive positioning of NEOs’ targeted total direct compensation is generally aligned with the CMD Committee’s strategy of peer group median, increases in base salaries, target annual incentives and long-term equity award opportunities may be appropriate based on market data, internal relative comparisons, evolving roles, performance, skill set and experience levels.
THE KEY ELEMENTS OF EXECUTIVE COMPENSATION
The compensation program for our NEOs consists primarily of the four components outlined below:
Element
Purpose
Base Salary Market-driven base-line compensation is targeted at a level necessary to attract and retain high-quality talent and ensure a sustainable level of fixed costs. Amount recognizes differences in positions and responsibilities, experience and individual long-term performance.
Annual Incentive Awards Cash awards that vary based on performance aligns compensation with business strategy and operating performance over short-term (annual) financial and strategic targets.
Long-Term Incentive Awards
Equity awards that vary based on stock price appreciation and financial performance support our longer-term financial goals and stock price growth as well as retention and succession planning.
Benefits NEOs are eligible for group life, health, savings and other benefits available generally to all salaried employees and limited executive benefits to fulfill particular business purposes.
Base Salary
Members of senior management earn a base salary that we believe is competitive and consistent with their position, skill level, experience, knowledge and length of service with the Company. Base salary is intended to aid in the attraction and retention of talent in a competitive market and is generally aligned with market median, although actual salaries may be higher or lower as a result of various factors, including our performance results, the broad economic climate, internal pay equity and specific individual attributes and circumstances.
The CMD Committee, with input from FW Cook and management, established total target compensation for the NEOs for fiscal 2017. The Committee and the Board made no changes to base salary levels for 2017, with the
exception of Mr. Gennette and Mr. Lundgren in connection with their leadership succession and Mr. Kantor in connection with his job change.
Changes to 2017 Base Salary
Name
FY 2017
Salary
(000s)
FY 2016
Salary
(000s)
% Increase
Gennette(1) $ 1,250 $ 1,000 25%
Lundgren $ 1,000 $ 1,600 -37.5%
Hoguet $ 900 $ 900 0%
Lawton(2) $ 1,000
Garcia $ 725 $ 725 0%
Kirgan(3) $ 750
Kantor $ 925 $ 775 19.4%
Baxter(4) $ 850 $ 850 0%
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(1)
Mr. Gennette succeeded Mr. Lundgren as Chief Executive Officer in March 2017.
(2)
Mr. Lawton joined the Company in September 2017 as President.
(3)
Ms. Kirgan joined the Company in October 2017 as Chief Human Resources Officer.
(4)
Mr. Baxter’s employment with the Company was terminated in September 2017.
Annual Incentive
The NEOs participate in the Senior Executive Incentive Compensation Plan, referred to as the Incentive Plan. The Incentive Plan aligns executive compensation with our business strategy and operating performance objectives and is designed to motivate executives to meet or exceed annual corporate financial and strategic goals.
Target Annual Incentive Opportunity. Annual incentive opportunities for NEOs in the past have been tied entirely to financial metrics. To focus management on achieving the objectives of our North Star business strategy, for fiscal 2017 the CMD Committee tied 25% of target annual incentive opportunities to non-financial strategic initiatives and 75% to financial measures.
We use a two-tier funding approach (referred to as a “plan within a plan”) under which a maximum potential award is determined under the Incentive Plan and the actual award is determined by the CMD Committee through application of  “negative discretion” to adjust the maximum award.
Maximum Annual Incentive Opportunity. The NEOs become eligible for a maximum annual incentive award based on a percentage of EBIT achieved for the fiscal year. The maximum potential award for Mr. Gennette and Mr. Lundgren for fiscal 2017 is equal to 0.45% of EBIT and for each of the other NEOs is equal to 0.25% of EBIT, subject to the Incentive Plan’s per-person
maximum of  $7 million. If EBIT is positive, a portion of each dollar of EBIT is used to determine the participant’s maximum award. If EBIT is negative, no incentive awards are paid.
The CMD Committee selected EBIT as the performance metric to ensure that the maximum potential payout is determined as a percentage of controllable profit. Excluding interest and taxes ensures that profit is defined based on operating results that the executives can directly influence.
Reduction of the Maximum Annual Incentive Award. The CMD Committee has discretion to, and has in the past, paid actual incentive awards which are lower than the maximum awards. Maximum incentive awards may be reduced based on a “targeted” annual incentive award opportunity established for each NEO and our overall performance during the fiscal year measured against pre-established financial goals, or on such alternative or additional factors, as the CMD Committee deems appropriate.
Targeted annual incentive award opportunities are expressed as a percent of year-end base salary. Actual awards may range from 0% to 260% or more of the “target” award, depending upon actual performance relative to the pre-determined goals, as shown in the chart below (and on such alternative or additional factors as the CMD Committee deems appropriate).
Annual Incentive as a % of Base Salary
Position
Threshold
Target
Outstanding
Chief Executive Officer 44.63% 170% 412.25%
Executive Chairman 39.46% 150% 363.75%
President 32.88% 125% 303.13%
Chief Merchandising Officer 26.25% 100% 242.50%
Other NEOs 19.69% 75% 181.88%
Performance Measures and Weightings. Performance measures are weighted 40% EBIT, 25% Sales, 10% Cash Flow and 25% Strategic Initiatives (5% each).
Annual Incentive as a % of Target
Performance Metric
Threshold
Outstanding
EBIT
20% of Target
300% of Target
Sales
32% of Target
220% of Target
Cash Flow
40% of Target
200% of Target
Strategic Initiatives(1)
25% of Target
190% of Target
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The CMD Committee selected the following levels of EBIT, Sales and Cash Flow as the financial goals and the strategic initiatives listed below as the strategic goals
for fiscal 2017 for purposes of the targeted annual incentive opportunity for NEOs:
Performance Range ($ in millions)
Performance Metric
Weight
Threshold
Target
Outstanding
EBIT 40%
85% of Target
$2,009.8
120% of Target
Sales 25%
98% of Target
$25,687.2
101% of Target
Cash Flow 10%
$50 below Target
$1,142.1
$150 above Target
Strategic Initiatives(1)
25%
(1)
Strategic initiatives, each equally weighted, consist of cost savings, BOPS penetration, success of off-price in stores, loyalty program and next generation of stores goals.
Reasons for Selecting These Metrics

The EBIT measure focuses executives on maximizing operating income and is a good indicator of how effectively our annual business objectives and strategies, which focus on growth in profits, are being executed.

Sales, a priority for retailers, are a measure of growth and provide opportunities for the achievement of various other financial measures, including EBIT and cash flow. The Sales target includes sales of departments licensed to third parties and excludes certain items that are included in externally reported sales under GAAP, including licensed department income, shipping and handling fees and sales to third-party retailers.

Cash Flow measures how much cash we generate from our operating activities net of investing activities. This cash can be used to further invest in the business, to return to shareholders or to strengthen the balance sheet.

Strategic Initiatives align management with business strategy to drive future growth and shareholder value and introduces a “balanced scorecard” in which a portion of annual incentive is tied to non-financial or strategic imperatives.
The heavier weighting for the EBIT and Sales objectives reflects our emphasis on profitable growth. The performance levels of EBIT, Sales and Cash Flow are determined annually, and are set to help the Company achieve its longer term average EBITDA margin (or comparable sales growth) and average ROIC objectives under the long-term incentive program. These
performance levels are intended to be aggressive but realistic, such that achieving threshold levels would represent minimum acceptable performance and achieving maximum levels would represent outstanding performance. Strategic Initiatives align management on metrics considered critical to business recovery, are achievable, and encompass sales growth, service, cost and innovation.
Fiscal 2017 Annual Incentive Awards. For fiscal 2017, incentive awards were made based on the level of achievement of the EBIT, Sales and Cash Flow metrics. Consistent with the definition approved by the Committee at the time the performance goals were established, EBIT was adjusted for costs associated with unplanned store closings and asset impairment charges, for costs associated with an unplanned restructuring and cost reduction program, and for non-cash settlement charges associated with retirement plans.
Overall, 2017 financial metric performance averaged approximately 159% of target and strategic initiative objective averaged approximately 110% of target resulting in a total payout of 141%.
Sales were planned down versus prior year due to store closings and the reduction expected in comparable sales. Cash Flow was planned down due to 2017 being a transition year for the business as we focus on comparable sales growth, and the fact that 2016 cash flow benefited from the cash proceeds and delayed payment of taxes on the sale of the Union Square property. A key driver of cash flow performance versus our 2017 target was improved inventory management resulting in lower inventory, but fresh fashionable stock.
50[MISSING IMAGE: ico_macystar-pms.jpg] Macy’s, Inc. 2018 Notice of Meeting and Proxy Statement

2017 Performance
($ in millions)
Annual Incentive Payout as a % of Base Salary
Annual Incentive
Component
Results
Achievement
Level
% of Target
CEO
Executive
Chairman
President
CMO
Other NEOs
EBIT ($) $ 2,097.44
Between Target and Outstanding
104.36% 97.65% 86.16% 71.80% 57.44% 43.08%
Sales ($) $ 25,781.94
Between Target and Outstanding
100.37% 61.37% 54.15% 45.13% 36.10% 27.08%
Cash Flow ($) $ 1,587.10
Above Outstanding
+ $444.9
vs. Target
34.00% 30.00% 25.00% 20.00% 15.00%
Strategic Initiatives
110% of
Target
Between Target and Outstanding
46.75% 41.25% 34.38% 27.5% 20.63%
Cost Savings
200%
BOPS Penetration
0%
Success of Off-Price
200%
Loyalty Program
0%
Next Generation
of Stores
200%
Pilots
100%
Total Earned 239.77% 211.56% 176.31% 141.04% 105.79%
Total Target Opportunity 170.00% 150.00% 125.00% 100.00% 75.00%
For fiscal 2017, we achieved positive EBIT (adjusted as described above) of  $2,097.44 million. Under the Plan’s two-tier funding approach, this resulted in a maximum potential incentive award of  $9,438,480 for Mr. Gennette and Mr. Lundgren (0.45% of EBIT), $7,077,978 for Mr. Lawton (0.45% of Fall EBIT), $5,243,600 for each of the other NEOs except Ms. Kirgan (0.25% of EBIT) and $3,493,090 for Ms. Kirgan (0.25% of 4th quarter EBIT), subject to the Plan’s per-person maximum of  $7 million. The CMD Committee exercised its discretion to reduce the maximum potential incentive awards based on the actual level of achievement of EBIT, Sales and Cash Flow metrics.
The North Star strategic priorities included in the Incentive Plan were designed to align all leadership and resources with key enterprise-wide initiatives in support of the North Star strategies. For 2017, the initiatives were focused on: cost savings in certain areas to Fund the Future in critical areas of the business; increase of Buy Online Pick Up in Stores (BOPS) transactions;
expansion of our Backstage off-price model; results of our new loyalty program; and results of Next Generation of Stores initiatives and pilots. The CMD Committee assessed performance against established metrics for each initiative and determined the overall performance achieved was 110% of target.
We omit target and actual performance levels of strategic initiatives because the information is confidential commercial or financial information the disclosure of which would result in competitive harm.
The performance goals for strategic initiatives, which are both financial and operational, are measured on a quantitative basis. The goals were determined by the CMD Committee to be rigorous, given the retail environment, but achievable in order to drive performance. The target for each financial goal was set to require performance above previous levels or trend. This balance of rigor and achievability is demonstrated in the payout for the strategic initiatives at 110% of target, indicating overall achievement of the goals at slightly above the target level.
Long-Term Equity Compensation
Equity compensation awards to the NEOs in fiscal 2017 consisted of performance-based restricted stock units and stock options. The long-term incentive program is designed to align the interests of the Company and its executives with those of its shareholders.
How Awards are Determined. The CMD Committee, with the recommendations of FW Cook, established a target dollar amount for total long-term compensation for each NEO for the performance period beginning with fiscal
2017. Target amounts are consistent with median (25th percentile to median for Mr. Gennette) long-term incentive opportunities provided by our peer group companies, and take into account prior-year opportunities. Target 2017 long-term compensation was allocated:

60% in performance-based restricted stock units that vest after a three-year performance period only
Macy’s, Inc. 2018 Notice of Meeting and Proxy Statement [MISSING IMAGE: ico_macystar-pms.jpg] 51

if we meet pre-determined financial performance and relative TSR goals; and

40% in stock options that vest in installments over a four-year period and have value only if our stock price increases over the grant price of the options.
Reasons for This Mix of Long-Term Awards. This mix of equity awards supports several important objectives:

establishing a direct link between compensation and achievement of our long-term financial objectives and returns to shareholders on both absolute and relative peer-to-peer bases;

achievement of longer-term goals related to our key strategies; and

enhancing retention by mitigating the impact of stock price fluctuations with the use of performance-based restricted stock units in combination with stock options.
The CMD Committee believes this mix provides a reasonable balance between stock price performance and longer-term operating and strategic performance.
Performance-Based Restricted Stock Units. The CMD Committee determines the number of performance- based restricted stock units required to deliver the targeted award value (60% of fiscal 2017 long-term incentive award opportunity) by dividing the targeted award dollar value by the closing price of Macy’s common stock on the grant date.
Award Opportunity. Awards granted in fiscal 2017 may pay out from 0% to 150% of the target award opportunity based on our performance against average EBITDA margin, average ROIC, and relative TSR objectives over the three-year performance period (fiscal 2015-2017) as follows:
EBITDA Margin (50%) weight)
ROIC (30% weight)
Relative TSR (20% weight)
Performance Level
3-Year
Average
Vesting %
3-Year
Average
Vesting %
3-Year
TSR vs.
Peer
Vesting %
Outstanding ≥12.2% 150% ≥19.2% 150% ≥75.0% 150%
Target 11.9% 100% 18.8% 100% 50.0% 100%
Threshold 11.2% 50% 17.2% 50% 35.0% 50%
Below Threshold <11.2% 0% <17.2% 0% <35.0% 0%
Performance levels for each metric are based on our long-term business objectives and strategies and historic performance of key business competitors.
Reasons for Selecting These Metrics. These performance metrics are closely monitored by investors and are the key drivers of long-term sustainable shareholder value creation. The average EBITDA margin and average ROIC metrics complement the EBIT, Sales and Cash Flow measures used in the annual incentive plan by focusing executives on efficient use of assets and profitable growth.

The Company’s objective is to achieve an EBITDA margin rate consistent with internal growth models. While we believe profit levels are an appropriate long-term objective and set goals to encourage margin improvement, we plan to transition to a comparable sales growth metric in the future.

ROIC is a measure of investment productivity and the efficiency in which assets are employed in the business. It is an important measure of our performance over time and is why we include it in our long-term incentive plan as opposed to our annual incentive plan.

Relative TSR is a good measure of shareholder value creation, especially when measured on a consistent basis over extended periods of time.
Peer-to-peer measurement is viewed as an executive compensation “best practice” by many proxy advisory firms and corporate governance experts. We measure TSR against the compensation peer group since it includes our primary competitors for business, talent and investor capital. The 20% weighting given to the relative TSR metric ensures t