3B2 EDGAR HTML -- c72020_def14a.htm

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

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934

Filed by the Registrant  S

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))

S  Definitive Proxy Statement

£  Definitive Additional Materials

£  Soliciting Material Pursuant to §240.14a-12

FOOT LOCKER, 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):

S  No fee required.

£  Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.

 

 

 

(1)

 

Title of each class of securities to which transaction applies:

 

 

 

 

(2)

 

Aggregate number of securities to which transaction applies:

 

 

 

 

(3)

 

Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is calculated and state how it was determined):

 

 

 

 

(4)

 

Proposed maximum aggregate value of transaction:

 

 

 

 

(5)

 

Total fee paid:

 

 

 

£  Fee paid previously with preliminary materials.

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

 

 

 

(1)

 

Amount Previously Paid:

 

 

 

 

(2)

 

Form, Schedule or Registration Statement No.:

 

 

 

 

(3)

 

Filing Party:

 

 

 

 

(4)

 

Date Filed:

 

 

 


NOTICE OF 2013 ANNUAL MEETING
AND
PROXY STATEMENT


TABLE OF CONTENTS

 

 

 

 

 

Page

Notice of 2013 Annual Meeting of Shareholders

 

 

 

i

 

Proxy Statement Summary

 

 

 

ii

 

General Information

 

 

 

1

 

Questions and Answers

 

 

 

1

 

Proxy Materials

 

 

 

1

 

Record Date

 

 

 

2

 

Annual Meeting Information

 

 

 

2

 

Voting Information

 

 

 

2

 

Revoking a Proxy

 

 

 

4

 

Beneficial Ownership of the Company’s Stock

 

 

 

6

 

Directors and Executive Officers

 

 

 

6

 

Persons Owning More than Five Percent of the Company’s Stock

 

 

 

7

 

Section 16(a) Beneficial Ownership Reporting Compliance

 

 

 

8

 

Corporate Governance Information

 

 

 

8

 

Corporate Governance Guidelines

 

 

 

8

 

Committee Charters

 

 

 

8

 

Policy on Voting for Directors

 

 

 

8

 

Director Independence

 

 

 

9

 

Committee Rotation

 

 

 

9

 

Lead Director

 

 

 

9

 

Board Leadership Structure

 

 

 

9

 

Executive Sessions of Non-Management Directors

 

 

 

10

 

Board Members’ Attendance at Annual Meetings

 

 

 

10

 

Director Orientation and Education

 

 

 

10

 

Payment of Directors Fees in Stock

 

 

 

10

 

Director Retirement

 

 

 

10

 

Change in a Director’s Principal Employment

 

 

 

10

 

Risk Oversight

 

 

 

10

 

Stock Ownership Guidelines

 

 

 

11

 

Political Contributions

 

 

 

12

 

Communications with the Board of Directors

 

 

 

12

 

Retention of Outside Advisors

 

 

 

12

 

Code of Business Conduct

 

 

 

12

 

Board of Directors

 

 

 

13

 

Organization and Powers

 

 

 

13

 

Director Qualifications

 

 

 

13

 

Directors’ Independence

 

 

 

13

 

Related Person Transactions

 

 

 

15

 

Committees of the Board of Directors

 

 

 

15

 

Audit Committee

 

 

 

15

 

Compensation and Management Resources Committee

 

 

 

16

 

Finance and Strategic Planning Committee

 

 

 

17

 

Nominating and Corporate Governance Committee

 

 

 

17

 

Executive Committee

 

 

 

18

 

Directors’ Compensation and Benefits

 

 

 

18

 

Executive Compensation

 

 

 

23

 

Compensation and Risk

 

 

 

23

 

Compensation Discussion and Analysis

 

 

 

23

 

Compensation Committee Report

 

 

 

36

 

Summary Compensation Table

 

 

 

37

 

Grants of Plan-Based Awards

 

 

 

39

 

Outstanding Equity Awards at Fiscal Year-End

 

 

 

42

 

Option Exercises and Stock Vested

 

 

 

45

 

Employment Agreements

 

 

 

46

 


 

 

 

 

 

Page

2012 Nonqualified Deferred Compensation

 

 

 

49

 

Potential Payments upon Termination or Change in Control

 

 

 

50

 

Retirement Plans

 

 

 

64

 

Pension Benefits

 

 

 

66

 

Trust Agreement for Certain Benefit Plans

 

 

 

67

 

Equity Compensation Plan Information

 

 

 

67

 

Items to be Voted on by Shareholders

 

 

 

68

 

Proposal 1: Election of Directors

 

 

 

68

 

Nominees for Directors

 

 

 

69

 

Directors Continuing in Office

 

 

 

71

 

Proposal 2: Ratification of the Appointment of Independent Registered Public Accounting Firm

 

 

 

74

 

Audit and Non-Audit Fees

 

 

 

74

 

Audit Committee Pre-Approval Policies and Procedures

 

 

 

74

 

Audit Committee Report

 

 

 

75

 

Proposal 3: Approval of the 2013 Foot Locker Employees Stock Purchase Plan

 

 

 

76

 

Proposal 4: Advisory Approval of Executive Compensation

 

 

 

80

 

Proposal 5: Shareholder Proposal to Repeal Classified Board

 

 

 

82

 

Deadlines and Procedures for Nominations and Shareholder Proposals

 

 

 

84

 

Location of 2013 Annual Shareholders’ Meeting

 

 

 

85

 

Appendix A – 2013 Foot Locker Employees Stock Purchase Plan

 

 

 

A-1

 


112 West 34th Street
New York, New York 10120

NOTICE OF 2013 ANNUAL MEETING OF SHAREHOLDERS

 

 

 

 

 

DATE:

 

May 15, 2013

TIME:

 

9:00 A.M., local time

PLACE:

 

Foot Locker, Inc., 112 West 34th Street, New York, New York 10120

RECORD DATE:

 

Shareholders of record on March 18, 2013 can vote at this meeting.

ITEMS OF BUSINESS:

 

 

Elect three members to the Board of Directors to serve for three-year terms and elect one member to the Board of Directors to serve for a two-year term.

 

 

 

Ratify the appointment of KPMG LLP as our independent registered public accounting firm for the 2013 fiscal year.

 

 

 

Approve the 2013 Foot Locker Employees Stock Purchase Plan.

 

 

 

Advisory approval of the compensation of our named executive officers.

 

 

 

If properly presented at the meeting, consider a shareholder proposal to repeal classified board.

 

 

 

Transact such other business as may properly come before the meeting and at any adjournment or postponement.

PROXY VOTING:

 

YOUR VOTE IS IMPORTANT TO US. Please vote as soon as possible in one of these ways:

 

 

 

Use the toll-free telephone number shown on the Notice of Internet Availability of Proxy Materials for the 2013 Annual Meeting of Foot Locker, Inc. (your “Foot Locker Notice”) or on your proxy card;

 

 

 

Visit the web site shown on your Foot Locker Notice or on your proxy card to vote via the Internet;

 

 

 

If you received a printed copy of the proxy card, you may mark, sign and return the enclosed proxy card using the postage-paid envelope provided; or

 

 

 

Follow the instructions on your proxy materials if your shares are held in the name of your bank, broker, or other holder of record.

 

 

Even if you plan to attend the annual meeting, we encourage you to vote in advance using one of these methods.

 

 

 

 

 

GARY M. BAHLER
Secretary

April 4, 2013

i


PROXY STATEMENT SUMMARY

We are providing this summary of our 2013 Notice of Annual Meeting and Proxy Statement and the items to be voted on by our shareholders. This is only a summary. For more complete information, please review the complete Proxy Statement and our 2012 Annual Report on Form 10-K.

2013 ANNUAL MEETING OF SHAREHOLDERS

 

 

 

Date and Time

 

Wednesday, May 15, 2013, at 9:00 a.m., local time

Place

 

112 West 34th Street, New York, NY 10120

Record Date

 

March 18, 2013

Proposals to be Voted on by Shareholders and the Board of Directors’ Voting Recommendations

 

 

 

 

 

Proposal

 

Board Vote
Recommendation

 

Page Reference
For More Detail

Election of Four Directors

 

FOR EACH NOMINEE

 

68-73

Ratification of the Appointment of KPMG LLP for 2013

 

FOR

 

74

Approval of the 2013 Foot Locker Employees
Stock Purchase Plan

 

FOR

 

76-79

Advisory Approval of Named Executive
Officers’ Compensation

 

FOR

 

80-81

Shareholder Proposal to Repeal Classified
Board

 

AGAINST

 

82-84

Election of Directors

The following table provides summary information about each of the four directors standing for election at this meeting:

 

 

 

 

 

 

 

 

 

 

 

Name

 

Age

 

Director
Since

 

Occupation

 

Independent

 

Other Public
Company Boards

Maxine Clark

 

 

 

64

 

 

 

 

2013

   

Chief Executive Bear of Build-A-Bear Workshop, Inc.

 

 

 

Yes

   

Build-A-Bear Workshop, Inc.

Ken C. Hicks

 

 

 

60

 

 

 

 

2009

   

Chairman, President & CEO of Foot Locker, Inc.

 

 

 

No

   

Avery Dennison Corporation

Guillermo G. Marmol.

 

 

 

59

 

 

 

 

2011

   

President of Marmol & Associates

 

 

 

Yes

   

Information Services Group, Inc.

Dona D. Young

 

 

 

59

 

 

 

 

2001

   

Retired Chairman & CEO of The Phoenix Companies, Inc.

 

 

 

Yes

   

None

Ratification of Appointment of KPMG LLP

We are asking our shareholders to ratify the appointment of KPMG LLP as our independent registered public accounting firm for fiscal year 2013. The following is a summary of KPMG’s fees for 2012 and 2011:

 

 

 

 

 

Category

 

2012

 

2011

Audit Fees

 

 

$

 

2,815,000

 

 

 

$

 

2,572,000

 

Audit-Related Fees

 

 

 

803,000

 

 

 

 

555,000

 

Tax Fees

 

 

 

267,000

 

 

 

 

153,000

 

All Other Fees

 

 

 

0

 

 

 

 

0

 

 

 

 

 

 

Total

 

 

$

 

3,885,000

 

 

 

$

 

3,280,000

 

 

 

 

 

 

ii


Approval of the 2013 Foot Locker Employees Stock Purchase Plan

We are seeking shareholder approval of the 2013 Foot Locker Employees Stock Purchase Plan (the “2013 Stock Purchase Plan”) because the current plan approved by shareholders in 2003 will expire following the last purchase date on June 1, 2013. This plan is available to eligible full-time employees of Foot Locker, Inc. and its subsidiaries. Participating employees under this plan may purchase shares of Foot Locker’s common stock once a year at a discounted purchase price. The Company believes that continuing to offer a purchase plan to its eligible employees enhances the employees’ interest in the continued success of the Company. A summary of the material features of the 2013 Stock Purchase Plan is provided beginning on Page 76, and a complete copy of the plan begins on Page A-1.

Advisory Approval of the Named Executive Officers’ Compensation

We are asking shareholders to approve, on a nonbinding, advisory basis, the 2012 compensation of our named executive officers, as described in this proxy statement on Pages 23 through 67. Over the past two years our shareholders overwhelmingly approved our executive compensation program. Given this support, the Compensation and Management Resources Committee decided to retain the overall program, which ties the executives’ pay closely with Foot Locker’s performance.

In 2012 we had the financial and operating results shown in the following table. At the beginning of 2012, based upon our performance in 2010 and 2011, we updated our strategic plan goals. Our 2012 results represent continued progress toward the goals contained in our long-range plan.

 

 

 

 

 

 

 

Financial Metrics

 

2011

 

2012

 

Long-Term Objectives

 

Sales

 

$5,623 million

 

$6,101 million

 

$7,500 million

 

Sales Per Gross Square Foot

 

$406

 

$443

 

$500

 

Earnings Before Interest and Taxes (EBIT) Margin

 

7.9%

 

9.9%

 

11%

 

Net Income Margin

 

5.0%

 

6.2%

 

7%

 

Return on Invested Capital (ROIC)

 

11.8%

 

14.2%

 

14%

The above table represents non-GAAP results. There is a reconciliation to GAAP on Pages 15-17 of our 2012 Form 10-K.

Based upon the Company’s performance, payments were made to the named executive officers under the Annual Bonus Plan for 2012. Long-term incentive payouts were earned for the 2011-2012 performance measurement period, but the earned amounts will not be paid out until 2014. This is consistent with the change we made to our long-term incentive program in 2010 when we moved to a two-year long-term performance measurement period with an additional one-year holding period, with the awards payable one-half in cash and one-half in equity, provided that the performance goals are achieved.

Shareholder Proposal to Repeal Classified Board

If properly presented at the meeting, we expect that a proposal to repeal the classified board will be presented on behalf of a shareholder at the annual meeting, as described in this proxy statement beginning on Page 82. The Company opposes this proposal and recommends that shareholders vote Against it for the reasons stated beginning on Page 83.

iii


112 West 34th Street
New York, New York 10120


PROXY STATEMENT


GENERAL INFORMATION

We are providing these proxy materials to you for the solicitation of proxies by the Board of Directors of Foot Locker, Inc. for the 2013 Annual Meeting of Shareholders and for any adjournments or postponements of this meeting. We are holding this annual meeting on May 15, 2013 at 9:00 A.M., local time, at our corporate headquarters located at 112 West 34th Street, New York, New York 10120. In this proxy statement we refer to Foot Locker, Inc. as “Foot Locker,” “the Company,” “we,” “our,” or “us.”

We are furnishing proxy materials to our shareholders primarily over the Internet under the Securities and Exchange Commission’s notice and access rules instead of mailing full sets of the printed materials. We believe that this procedure reduces costs, provides greater flexibility to our shareholders, and lessens the environmental impact of our Annual Meeting. On or about April 4, 2013 we started mailing to most of our shareholders in the United States a Notice of Internet Availability of Proxy Materials (the “Foot Locker Notice”). The Foot Locker Notice contains instructions on how to access and read our 2013 Proxy Statement and our 2012 Annual Report to Shareholders on the Internet and to vote online. If you received a Foot Locker Notice by mail, you will not receive paper copies of the proxy materials in the mail unless you request them. Instead, the Foot Locker Notice instructs you on how to access and read the Proxy Statement and Annual Report and how you may submit your proxy over the Internet. If you received a Foot Locker Notice by mail and would like to receive a printed copy of the materials, please follow the instructions on the Foot Locker Notice for requesting the materials, and we will promptly mail the materials to you.

We are mailing to shareholders, or making available to shareholders via the Internet, this Proxy Statement, form of proxy card, and our 2012 Annual Report/Form10-K on or about April 4, 2013.

Important Notice Regarding the Availability of Proxy Materials for the Shareholder Meeting
To Be Held on May 15, 2013

The Company’s Proxy Statement and 2012 Annual Report/Form 10-K are available at
http://materials.proxyvote.com/344849
and http://www.envisionreports.com/FL

QUESTIONS AND ANSWERS ABOUT THIS ANNUAL MEETING
AND VOTING

What is included in these proxy materials?

The proxy materials include our 2013 Proxy Statement and 2012 Annual Report and Form 10-K. If you received printed copies of these materials by mail, these materials also include the proxy card for this annual meeting.

May I obtain an additional copy of the Form 10-K?

You may obtain an additional copy of our 2012 Form 10-K without charge by writing to our Investor Relations Department at Foot Locker, Inc., 112 West 34th Street, New York, New York 10120.


It is also available free of charge through our corporate web site at http://www.footlocker-inc.com/ investors.cfm?page=corporate-governance.

What constitutes a quorum for the Annual Meeting?

We will have a quorum and will be able to conduct the business of the Annual Meeting if the holders of a majority of the shares outstanding are present at the meeting, either in person or by proxy. We will count abstentions and broker non-votes, if any, as present and entitled to vote in determining whether we have a quorum.

What is the record date for this meeting?

The record date for this meeting is March 18, 2013. If you were a Foot Locker shareholder on this date, you are entitled to vote on the items of business described in this proxy statement.

Do I need a ticket to attend the Annual Meeting?

You will need an admission ticket to attend the Annual Meeting. Attendance at the meeting will be limited to shareholders on March 18, 2013 (or their authorized representatives) having an admission ticket or proof of their share ownership, and guests of the Company. If you plan to attend the meeting, please indicate this when you are voting by telephone or Internet or check the box on your proxy card, and we will promptly mail an admission ticket to you.

If your shares are held in the name of a bank, broker, or other holder of record and you plan to attend the meeting, you can obtain an admission ticket in advance by providing proof of your ownership, such as a bank or brokerage account statement, to the Corporate Secretary at Foot Locker, Inc., 112 West 34th Street, New York, New York 10120. If you do not have an admission ticket, you must show proof of your ownership of the Company’s Common Stock at the registration table at the door.

Who may vote at the Annual Meeting?

The only voting securities of Foot Locker are our shares of Common Stock. Only shareholders of record on the books of the Company on March 18, 2013 are entitled to vote at the annual meeting and any adjournments or postponements. Each share is entitled to one vote. There were 150,129,128 shares of Common Stock outstanding on March 18, 2013.

What are shareholders voting on at this meeting and what are the voting recommendations of the Board of Directors?

The proposals that you are being asked to vote on at this Annual Meeting and our Board’s voting recommendations for each proposal are shown in the table below:

 

 

 

 

 

Proposal
Number

 

Subject

 

Board’s Voting
Recommendation

 

1

 

Election of Three Directors in Class I and One Director in Class III

 

FOR EACH NOMINEE

 

2

 

Ratification of the Appointment of KPMG LLP as Our
Independent Registered Public Accounting Firm for 2013

 

FOR

 

3

 

Approval of the 2013 Foot Locker Employees Stock
Purchase Plan

 

FOR

 

4

 

Advisory Approval of Executive Compensation

 

FOR

 

5

 

Shareholder Proposal to Repeal Classified Board

 

AGAINST

2


Could other matters be voted on at the Annual Meeting?

We do not know of any other business that will be presented at the 2013 annual meeting. If any other matters are properly brought before the meeting for consideration, then the persons named as proxies will have the discretion to vote on those matters for you using their best judgment.

What are the voting requirements to elect directors and to approve the other proposals?

 

 

 

 

Proposal 1 (Election of Directors). Directors must be elected by a plurality of the votes cast by shareholders. (Please see our policy described on Page 8 regarding resignations by directors who do not receive more “for” votes than “withheld” votes.)

 

 

 

 

Proposal 2 (Ratification of the appointment of Independent Registered Public Accounting Firm). This proposal requires a majority of the votes cast by shareholders.

 

 

 

 

Proposal 3 (Approval of the 2013 Foot Locker Employees Stock Purchase Plan). This proposal requires a majority of the votes cast by shareholders, provided that the New York Stock Exchange Rules require also that at least a majority of outstanding shares vote with respect to this plan.

 

 

 

 

Proposal 4 (Advisory approval of executive compensation). This proposal requires a majority of the votes cast by shareholders.

 

 

 

 

Proposal 5 (Shareholder proposal to repeal classified board). This proposal requires a majority of the votes cast by shareholders for approval.

What happens if I do not vote my shares?

This depends on how you hold your shares and the type of proposal. If you hold your shares in “street name,” such as through a bank or brokerage account, it is important that you cast your vote if you want it to count for Proposals 1, 3, 4 and 5. If you do not instruct your bank or broker how to vote your shares on these proposals, no votes will be cast on your behalf. With regard to Proposal 2, your bank or broker will have discretion to vote any uninstructed shares for this proposal.

If your stock ownership is reflected directly on the books and records of the Company’s transfer agent, you are a “shareholder of record.” If you do not cast your vote, then no votes will be cast on your behalf on any of the proposals.

How will the votes be counted?

Votes will be counted and certified by representatives of our transfer agent, Computershare, as inspectors of election. The inspectors of election are independent and are not employees of Foot Locker.

Votes withheld for the election of one or more of the nominees for director will not be counted as votes cast for them. We do not count abstentions and broker non-votes, if any, in determining the votes cast for any proposal. With respect to Proposals 2, 3, 4, and 5, if you abstain from voting, this will have no effect on the vote since an abstention is not considered a vote cast.

The Company’s Certificate of Incorporation and By-laws do not contain any provisions on the effect of abstentions or broker non-votes.

Will my vote be confidential?

We maintain the confidentiality of our shareholders’ votes. All proxy cards, electronic voting, voting instructions, ballots, and voting tabulations identifying shareholders are kept confidential from the Company, except:

 

 

 

 

as necessary to meet any applicable legal requirements,

 

 

 

 

when a shareholder requests disclosure or writes a comment on a proxy card,

 

 

 

 

in a contested proxy solicitation, and

 

 

 

 

to allow independent inspectors of election to tabulate and certify the vote.

3


How do I vote my shares?

You may vote using any of the following methods:

 

 

 

 

Telephone

If you are located within the United States or Canada, you can vote your shares by telephone by calling the toll-free telephone number printed on your Notice of Internet Availability of Proxy Materials (“Notice”), on your proxy card, or in the instructions that accompany your proxy materials, as applicable, and following the recorded instructions. You will need the control number printed on your Notice, on your proxy card, or in the instructions that accompany your proxy materials, as applicable. Telephone voting is available 24 hours a day and will be accessible until 1:00 A.M. Eastern Daylight Time on May 15, 2013. The telephone voting system has easy to follow instructions and allows you to confirm that the system has properly recorded your vote. If you vote by telephone, you do NOT need to return a proxy card or voting instruction form. If you are an owner in street name, please follow the instructions that accompany your proxy materials.

 

 

 

 

Internet

You can also choose to vote your shares by the Internet. You will need the control number printed on your Notice, on your proxy card, or in the instructions that accompany your proxy materials, as applicable. The web site for Internet voting is listed on your Notice, proxy card, or in the instructions that accompany your proxy materials. Internet voting is available 24 hours a day and will be accessible until 1:00 A.M. Eastern Daylight Time on May 15, 2013. As with telephone voting, you will be able to confirm that the system has properly recorded your vote. If you vote via the Internet, you do NOT need to return a proxy card or voting instruction form.

 

 

 

 

Mail

If you are a holder of record and received printed copies of the materials by mail, you may choose to vote by mail. Simply mark your proxy card, date and sign it, and return it in the postage-paid envelope that we included with your materials. If you hold your shares through a bank or brokerage account, please complete and mail the voting instruction form in the envelope provided.

 

 

 

 

Ballot at the Annual Meeting

You may also vote by ballot at the Annual Meeting if you decide to attend in person. If your shares are held in the name of a bank, broker or other holder of record, you must obtain a proxy, executed in your favor, from the holder of record to be able to vote at the meeting.

All shares that have been properly voted and not revoked will be voted at the Annual Meeting. If you sign and return a proxy card but do not give voting instructions, the shares represented by that proxy card will be voted as recommended by the Board of Directors.

Can I change my mind after voting my shares?

You may revoke your proxy at any time before it is used by (i) sending a written notice to the Company at its corporate headquarters, (ii) delivering a valid proxy card with a later date, (iii) providing a later dated vote by telephone or Internet, or (iv) voting by ballot at the Annual Meeting.

Can I vote shares held in employee plans?

If you hold shares of Foot Locker Common Stock through the Foot Locker 401(k) Plan or the Foot Locker Puerto Rico 1165(e) Plan, your proxy card includes the number of shares allocated to your plan account. Your proxy card will serve as a voting instruction card for these shares for the plan trustee to vote the shares. The trustee will vote only those shares for which voting instructions have been given. To allow sufficient time for voting by the trustees of these plans, your voting instructions must be received by 1:00 A.M. Eastern Daylight Time on May 13, 2013.

Who pays the cost of this proxy solicitation?

We will pay for the cost of the solicitation of proxies, including the preparation, printing and mailing of the proxy materials.

4


Proxies may be solicited, without additional compensation, by our directors, officers, or employees by mail, telephone, fax, in person, or otherwise. We will request banks, brokers and other custodians, nominees and fiduciaries to deliver proxy materials to the beneficial owners of Foot Locker’s Common Stock and obtain their voting instructions, and we will reimburse those firms for their expenses under the rules of the Securities and Exchange Commission and The New York Stock Exchange. In addition, we have retained Innisfree M&A Incorporated to assist us in the solicitation of proxies for a fee of $12,500 plus out-of- pocket expenses.

5


BENEFICIAL OWNERSHIP OF THE COMPANY’S STOCK

Directors and Executive Officers

The following table shows the number of shares of Common Stock reported to us as beneficially owned by each of our directors and named executive officers as of March 18, 2013. The table also shows beneficial ownership by all directors, named executive officers, and executive officers as a group on that date, including shares of Common Stock that they have a right to acquire within 60 days after March 18, 2013 by the exercise of stock options.

Ken C. Hicks beneficially owned 1.21 percent of the total number of outstanding shares of Common Stock as of March 18, 2013. No other director, named executive officer, or executive officer beneficially owned one percent or more of the total number of outstanding shares as of that date. Each person has sole voting and investment power for the number of shares shown unless otherwise noted.

 

 

 

 

 

 

 

 

 

Amount and Nature of Beneficial Ownership

Name

 

Common Stock
Beneficially Owned
Excluding
Stock Options(a)

 

Stock Options
Exercisable Within
60 Days After
3/18/2013

 

RSUs and
Deferred
Stock Units(b)

 

Total

Gary M. Bahler

 

 

 

80,084

 

 

 

 

118,166

 

 

 

 

26,467

 

 

 

 

224,717

 

Maxine Clark

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nicholas DiPaolo

 

 

 

56,735

(c)

 

 

 

 

8,336

 

 

 

 

1,902

 

 

 

 

66,973

 

Alan D. Feldman

 

 

 

45,662

 

 

 

 

6,314

 

 

 

 

22,135

 

 

 

 

74,111

 

Jarobin Gilbert Jr.

 

 

 

41,052

 

 

 

 

8,336

 

 

 

 

1,902

 

 

 

 

51,290

 

Ken C. Hicks

 

 

 

355,017

 

 

 

 

1,333,333

 

 

 

 

127,484

 

 

 

 

1,815,834

 

Richard A. Johnson

 

 

 

219,093

 

 

 

 

264,666

 

 

 

 

35,652

 

 

 

 

519,411

 

Guillermo G. Marmol

 

 

 

15,929

 

 

 

 

 

 

 

 

1,902

 

 

 

 

17,831

 

Robert W. McHugh

 

 

 

161,193

 

 

 

 

267,999

 

 

 

 

29,802

 

 

 

 

458,994

 

Matthew M. McKenna

 

 

 

70,834

 

 

 

 

4,287

 

 

 

 

1,902

 

 

 

 

77,023

 

Lauren B. Peters

 

 

 

81,842

 

 

 

 

286,665

 

 

 

 

19,882

 

 

 

 

388,389

 

James E. Preston

 

 

 

58,902

 

 

 

 

8,336

 

 

 

 

1,902

 

 

 

 

69,140

 

Allen Questrom

 

 

 

4,327

 

 

 

 

 

 

 

 

5,557

 

 

 

 

9,884

 

David Y. Schwartz

 

 

 

45,916

 

 

 

 

8,336

 

 

 

 

33,628

 

 

 

 

87,880

 

Cheryl Nido Turpin

 

 

 

34,900

 

 

 

 

8,336

 

 

 

 

39,055

 

 

 

 

82,291

 

Dona D. Young

 

 

 

27,359

 

 

 

 

8,336

 

 

 

 

49,500

 

 

 

 

85,195

 

All 21 directors and executive officers as a group, including the named executive officers

 

 

 

1,494,500

 

 

 

 

2,930,709

 

 

 

 

484,845

 

 

 

 

4,910,054

(d)

 

Notes to Beneficial Ownership Table

 

(a)

 

 

 

This column includes shares held in the Company’s 401(k) Plan and, where applicable, executives’ unvested shares of restricted stock as listed below over which they have sole voting power but no investment power:

 

 

 

Name

 

Number of Unvested
Shares of Restricted
Stock

 

K. Hicks

 

50,000

 

R. McHugh

 

20,000

 

L. Peters

 

20,000

 

R. Johnson

 

120,000

 

(b)

 

 

 

This column includes (i) the number of deferred stock units credited as of March 18, 2013 to the account of the directors who elected to defer all or part of their annual retainer fee, (ii) time vested

6


 

 

 

 

restricted stock units (“RSUs”), and earned but unvested performance-based RSUs. The deferred stock units and RSUs do not have current voting or investment power.

 

(c)

 

 

 

Includes 1,050 shares held by his spouse.

 

(d)

 

 

 

This number represents approximately 3.3 percent of the shares of Common Stock outstanding at the close of business on March 18, 2013.

Persons Owning More Than Five Percent of the Company’s Stock

The following table provides information on shareholders who beneficially own more than five percent of our Common Stock according to reports filed with the Securities and Exchange Commission (“SEC”). To the best of our knowledge, there are no other shareholders who beneficially own more than five percent of a class of the Company’s voting securities.

 

 

 

 

 

Name and Address of
Beneficial Owner

 

Amount and
Nature of
Beneficial Ownership

 

Percent
of Class

BlackRock, Inc.

 

 

 

9,036,903(a)

 

 

 

 

6.00

%(a)

 

40 East 52nd Street

 

 

 

 

New York, NY 10022

 

 

 

 

FMR LLC.

 

 

 

12,023,668(b)

 

 

 

 

7.977

%(b)

 

82 Devonshire Street

 

 

 

 

Boston, MA 02109

 

 

 

 

The Vanguard Group

 

 

 

8,188,733(c)

 

 

 

 

5.43

%(c)

 

100 Vanguard Blvd.

 

 

 

 

Malvern, PA 19355

 

 

 

 

Notes to Table on Persons Owning More than Five Percent of the Company’s Stock

 

(a)

 

 

 

Reflects shares beneficially owned as of December 31, 2012 according to Amendment No. 3 to Schedule 13G filed with the SEC. As reported in this schedule, BlackRock, Inc., a parent holding company, holds sole voting and dispositive power with respect to 9,036,903 shares.

 

(b)

 

 

 

Reflects shares beneficially owned as of December 31, 2012 according to Schedule 13G filed with the SEC. As reported in this schedule, (1) Fidelity Management & Research Company (“Fidelity”), a wholly owned subsidiary of FMR LLC and an investment adviser, is the beneficial owner of 11,205,719 shares as a result of acting as investment adviser to various investment companies. Edward C. Johnson 3d and FMR LLC, through its control of Fidelity, and the funds each has sole power to dispose of the 11,205,719 shares owned by the funds. Neither FMR LLC nor Edward C. Johnson 3d has the sole power to vote or direct the voting of the shares owned directly by the Fidelity Funds. (2) Strategic Advisers, Inc., a wholly owned subsidiary of FMR LLC and an investment adviser, provides investment advisory services to individuals. As such, FMR LLC’s beneficial ownership includes 224,377 shares beneficially owned through Strategic Advisers, Inc. (3) Pyramis Global Advisers, LLC (“PGALLC”), 900 Salem Street, Smithfield, Rhode Island 02917, an indirect wholly owned subsidiary of FMR LLC and an investment adviser, is the beneficial owner of 18,140 shares as a result of its serving as investment adviser to institutional accounts, non-U.S. mutual funds or investment companies owning the shares. Edward C. Johnson 3d and FMR LLC, through its control of PGALLC, each has sole dispositive power and sole power to vote or to direct the voting over the 18,140 shares. (4) Pyramis Global Advisors Trust Company (“PGATC”), 900 Salem Street, Smithfield, Rhode Island 02917, an indirect wholly owned subsidiary of FMR LLC and a bank, is the beneficial owner of 575,432 shares as a result of its serving as investment manager of institutional accounts owning the shares. Edward C. Johnson 3d and FMR LLC, through its control of PGATC, each has sole dispositive power and sole power to vote or to direct the voting of 575,432 shares owned by the institutional accounts managed by PGATC.

 

(c)

 

 

 

Reflects shares beneficially owned as of December 31, 2012 according to Amendment No. 1 to Schedule 13G filed with the SEC. As reported in this schedule, The Vanguard Group, an

7


 

 

 

 

investment adviser, holds sole voting power with respect to 110,634 shares, shared dispositive power with respect to 103,234 shares, and sole dispositive power with respect to 8,085,499 shares. Vanguard Fiduciary Trust Company, a wholly owned subsidiary of The Vanguard Group, Inc., is the beneficial owner of 103,234 shares as a result of its serving as investment manager of collective trust accounts. Vanguard Investments Australia, Ltd., a wholly owned subsidiary of The Vanguard Group, Inc., is the beneficial owner of 7,400 shares as a result of its serving as investment manager of Australian investment offerings.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934 requires that our directors and executive officers file with the Securities and Exchange Commission reports of ownership and changes in ownership of Foot Locker’s Common Stock. Based on our records and other information, we believe that during the 2012 fiscal year, the directors and executive officers complied with all applicable SEC filing requirements.

CORPORATE GOVERNANCE INFORMATION

The Board of Directors is committed to good corporate governance and has adopted Corporate Governance Guidelines and other policies and practices to guide the Board and senior management in this area. This section of the proxy statement summarizes our key corporate governance policies and practices.

Corporate Governance Guidelines

The Board of Directors has adopted Corporate Governance Guidelines. The Board periodically reviews the guidelines and may revise them when appropriate. The Corporate Governance Guidelines are available on the corporate governance section of the Company’s corporate web site at http://www.footlocker-inc.com/investors.cfm?page=corporate-governance. You may also obtain a printed copy of the guidelines by writing to the Corporate Secretary at the Company’s headquarters.

Committee Charters

The Board of Directors has adopted charters for the Audit Committee, the Compensation and Management Resources Committee, the Finance and Strategic Planning Committee, and the Nominating and Corporate Governance Committee. Copies of the charters for these committees are available on the corporate governance section of the Company’s corporate web site at http://www.footlocker-inc.com/
investors.cfm?page=corporate-governance
. You may also obtain printed copies of these charters by writing to the Corporate Secretary at the Company’s headquarters.

Policy on Voting for Directors

Our Corporate Governance Guidelines provide that if a nominee for director in an uncontested election receives more votes “withheld” from his or her election than votes “for” election (a “Majority Withheld Vote”), then the director must offer his or her resignation for consideration by the Nominating and Corporate Governance Committee (the “Nominating Committee”). The Nominating Committee will evaluate the resignation, weighing the best interests of the Company and its shareholders, and make a recommendation to the Board of Directors on the action to be taken. For example, the Nominating Committee may recommend (i) accepting the resignation, (ii) maintaining the director but addressing what the Nominating Committee believes to be the underlying cause of the withheld votes, (iii) resolving that the director will not be re-nominated in the future for election, or (iv) rejecting the resignation. When making its determination, the Nominating Committee will consider all factors that it deems relevant, including (i) any stated reasons why shareholders withheld votes from the director, (ii) any alternatives for curing the underlying cause of the withheld votes, (iii) the director’s tenure, (iv) the director’s qualifications, (v) the director’s past and expected future contributions to the Board and to the Company, and (vi) the overall composition of the Board, including whether accepting the resignation would cause the Company to fall below the minimum number of directors required under the Company’s By-laws or fail to meet any applicable Securities and

8


Exchange Commission or New York Stock Exchange requirements. We will promptly disclose the Board’s decision on whether or not to accept the director’s resignation, including, if applicable, the reasons for rejecting the offered resignation.

Director Independence

The Board believes that a significant majority of the members of the Board should be independent, as determined by the Board based on the criteria established by The New York Stock Exchange. Each year, the Nominating Committee reviews any relationships between outside directors and the Company that may affect independence. Currently, one of the twelve members of the Board of Directors serves as an officer of the Company, and the remaining eleven directors are independent under the criteria established by The New York Stock Exchange.

Committee Rotation

As a general principle, the Board believes that the periodic rotation of committee assignments on a staggered basis is desired and provides an opportunity to foster diverse perspective and develop breadth of knowledge within the Board.

Lead Director

We have had a lead director since 2004. The lead director’s responsibilities include reviewing and approving Board agendas; chairing executive sessions of the Board and meetings of the independent directors, both of which are held in conjunction with each quarterly Board meeting; leading the annual review of the Chief Executive Officer’s performance; attending meetings of Board committees; and serving as a liaison between the independent directors and the Chief Executive Officer. The Board of Directors considers the periodic rotation of the lead director from time to time, taking into account experience, continuity of leadership, and the best interests of the Company.

Nicholas DiPaolo currently serves as the lead director. The Board believes that Mr. DiPaolo is well-suited to serve as lead director, given his business and financial background and more than ten years of service on our Board.

Board Leadership Structure

The Board of Directors evaluates, from time to time as appropriate, whether the same person should serve as Chairman of the Board and Chief Executive Officer, or whether the positions should be split, in light of all relevant factors and circumstances, and what it considers to be in the best interests of the Company and its shareholders.

In recent years, the Board has utilized various leadership structures. For example, from 2001 to 2004, the positions were separated, with a previously independent director serving as Chairman of the Board. From 2004 to 2009, the positions of Chairman of the Board and Chief Executive Officer were held by the same person, with an independent member of the Board serving as lead director. From August 2009 to January 2010, the positions were again separated, with the former Chairman and Chief Executive Officer serving as Chairman of the Board and an independent member of the Board serving as lead director. Since January 2010, Mr. Hicks has served as Chairman of the Board and Chief Executive Officer. James Preston served as the independent lead director until May 2012 when Nicholas DiPaolo, an independent director, succeeded him. Mr. DiPaolo continues to serve as lead director.

The Board believes that the current leadership structure is appropriate for the Company in light of the Company’s and the Board’s history of operating effectively when these positions have been combined; the availability of directors such as Mr. DiPaolo to serve as a strong, independent lead director; the size of the Board, which allows a free flow of communication among its members and between the independent members and the Chairman; the important role played by our committee chairs; the independence of our directors; and Mr. Hicks’ background and experience.

9


Executive Sessions of Non-Management Directors

The Board of Directors holds regularly scheduled executive sessions of non-management directors in conjunction with each quarterly Board meeting. Nicholas DiPaolo, as lead director, presides at these executive sessions.

Board Members’ Attendance at Annual Meetings

Although we do not have a policy on our Board members’ attendance at annual shareholders’ meetings, we encourage each director to attend these important meetings. The annual meeting is normally scheduled on the same day as a quarterly Board of Directors’ meeting. In 2012, all of the directors attended the annual shareholders’ meeting.

Director Orientation and Education

We have an orientation program for new directors that is intended to educate a new director on the Company and the Board’s practices. At the orientation, the newly elected director generally meets with the Company’s Chief Executive Officer, the Chief Financial Officer, other senior financial officers of the Company, and the General Counsel and Secretary to review the business operations, financial matters, investor relations, corporate governance policies, and the composition of the Board and its committees. Additionally, he or she has the opportunity to visit our stores at the Company’s New York headquarters, or elsewhere, with a senior division officer for an introduction to store operations. We also provide the Board of Directors with educational training from time to time on subjects applicable to the Board and the Company, including with regard to retailing, accounting, financial reporting, and corporate governance, using both internal and external resources.

Payment of Directors Fees in Stock

The non-employee directors receive one-half of their annual retainer fees, including committee chair and lead director retainer fees, in shares of the Company’s Common Stock, with the balance payable in cash. Directors may elect to receive up to 100 percent of their fees in stock.

Director Retirement

The Board has established a policy in its Corporate Governance Guidelines that directors retire from the Board at the annual meeting of shareholders following the director’s 72nd birthday. As part of the Nominating Committee’s regular evaluation of the Company’s directors and the overall needs of the Board, the Nominating Committee may ask a director to remain on the Board for an additional period of time beyond age 72, or to stand for re-election after reaching age 72. For any director over age 72, the Nominating and Corporate Governance Committee evaluates that director each year in light of the retirement policy to determine his or her continued service on the Board.

Change in a Director’s Principal Employment

The Board has established a policy that any director whose principal employment changes is required to advise the Chair of the Nominating and Corporate Governance Committee of this change. If requested by the Chair of the Committee, after consultation with the members of the Committee, the director will submit a letter of resignation to the Chair of the Committee, and the Committee would then meet to consider whether to accept or reject the letter of resignation.

Risk Oversight

The Board of Directors has oversight responsibilities regarding risks that could affect the Company. This oversight is conducted primarily through the Audit Committee. The Audit Committee has established procedures for reviewing the Company’s risks. These procedures include regular risk monitoring by Foot Locker management to update current risks and identify potential new and emerging risks, quarterly risk reviews by management with the Audit Committee, and an annual risk report to the full Board of Directors. The Audit Committee Chair reports on the committee’s meetings,

10


considerations, and actions to the full Board at the next Board meeting following each committee meeting. In addition, the Compensation and Management Resources Committee considers risk in relation to the Company’s compensation policies and practices. The committee’s independent compensation consultant provides an annual report to the committee on risk relative to the Company’s compensation programs.

The Company believes that this process for risk oversight is appropriate in light of the nature of the Company’s business, its size, and the active participation of senior members of management, including the Chief Executive Officer, in managing risk and holding regular discussions on risk with the Audit Committee, the Compensation and Management Resources Committee, and the Board.

Stock Ownership Guidelines

The Board of Directors has adopted Stock Ownership Guidelines. The Guidelines were initially adopted in 2006 and were most recently amended as of the start of the 2012 fiscal year. These guidelines cover the Board of Directors, the Chief Executive Officer, and Other Principal Officers. The Guidelines are as follows:

 

 

 

Covered Position

 

Current Ownership Guidelines

 

Non-Employee Directors

 

4 x Annual Retainer Fee

 

Chief Executive Officer

 

6 x Annual Base Salary

 

Executive Vice Presidents

 

3 x Annual Base Salary

 

Senior Vice Presidents and CEOs of Operating Divisions

 

2 x Annual Base Salary

 

Managing Directors of Operating Divisions and
Corporate Vice Presidents

 

0.5 x Annual Base Salary

Shares of unvested restricted stock, unvested restricted stock units, and deferred stock units are counted towards beneficial ownership. Performance-based restricted stock units are counted once earned. Stock options and shares held through the Foot Locker 401(k) Plan are disregarded in calculating beneficial ownership.

Non-employee directors and executives who are covered by the guidelines are required to be in compliance within five years after the effective date of becoming subject to these guidelines. In the event of any later increase in the required ownership level, whether as a result of an increase in the annual retainer fee or base salary or an increase in the required ownership multiple, then the target date for compliance with the increased ownership guideline is five years after the effective date of such increase.

All non-employee directors and executives who were required to be in compliance as of the end of the 2012 fiscal year are in compliance. The Company measures compliance with the guidelines at the end of each fiscal year based on the market value of the Company’s stock, with the compliance determination at that point in time applying for the next fiscal year, regardless of fluctuations in the Company’s stock price.

If a director or covered executive fails to be in compliance by the required compliance date, then he or she must hold the net shares obtained through future stock option exercises and the vesting of restricted stock and restricted stock units, after payment of applicable taxes, until coming into compliance with the guidelines. In order to take into consideration fluctuations in the Company’s stock price, any person who has been in compliance with the guidelines as of the end of at least one of the two preceding fiscal years and who has not subsequently sold shares will not be subject to this holding requirement. For non- employee directors, the Nominating and Corporate Governance Committee will consider a director’s failure to comply with the Guidelines when considering that director for re-election to the Board of Directors.

11


Political Contributions

Our Code of Business Conduct prohibits making contributions on behalf of the Company to political parties, political action committees, political candidates, or holders of public office. The Company is a member of several trade associations which, as part of their overall activities, may engage in advocacy activities with regard to issues important to the retail industry or the business community generally.

Communications with the Board of Directors

The Board has established a procedure for shareholders and other interested parties to send communications to the non-management members of the Board of Directors. Shareholders and other interested parties who wish to communicate directly with the non-management directors of the Company should send a letter to:

Board of Directors
c/o Secretary, Foot Locker, Inc.
112 West 34th Street
New York, NY 10120

The Secretary will promptly send a copy of the communication to the lead director, who may direct the Secretary to send a copy of the communication to the other non-management directors and may determine whether a meeting of the non-management directors should be called to review the communication.

A copy of the Procedures for Communications with the Board of Directors is available on the corporate governance section of the Company’s corporate web site at http://www.footlocker-inc.com/investors.cfm?page=corporate-governance. You may obtain a printed copy of the procedures by writing to the Corporate Secretary at the Company’s headquarters.

Retention of Outside Advisors

The Board of Directors and all of its committees have authority to retain outside advisors and consultants that they consider necessary or appropriate in carrying out their respective responsibilities. The independent accountants are retained by the Audit Committee and report directly to the Audit Committee. In addition, the Committee is responsible for the selection, assessment, and termination of the internal auditors to which the Company has outsourced a portion of its internal audit function, which is ultimately accountable to the Audit Committee. Similarly, the consultant retained by the Compensation and Management Resources Committee to assist it in the evaluation of senior executive compensation reports directly to that committee.

Code of Business Conduct

The Company has adopted a Code of Business Conduct for directors, officers and employees, including our Chief Executive Officer, Chief Financial Officer, and Chief Accounting Officer. A copy of the Code of Business Conduct is available on the corporate governance section of the Company’s corporate web site at http://www.footlocker-inc.com/investors.cfm?page=corporate-governance. You may obtain a printed copy of the Code of Business Conduct by writing to the Corporate Secretary at the Company’s headquarters.

Any waivers of the Code of Business Conduct for directors and executive officers must be approved by the Audit Committee. We promptly disclose amendments to the Code of Business Conduct and any waivers of the Code for directors and executive officers on the corporate governance section of the Company’s corporate website at http://www.footlocker-inc.com/investors.cfm?page=corporate-governance.

12


BOARD OF DIRECTORS

Organization and Powers

The Board of Directors has responsibility for establishing broad corporate policies, reviewing significant developments affecting Foot Locker, and monitoring the general performance of the Company. Our By-laws provide for a Board of Directors consisting of between 7 and 13 directors. The exact number of directors is determined from time to time by the entire Board. Our Board currently has 12 members. James E. Preston, Allen Questrom, and David Y. Schwartz will be retiring from the Board in accordance with the directors’ retirement policy at the conclusion of the 2013 Annual Meeting. The Board has fixed the number of directors at 9, effective at the conclusion of the 2013 Annual Meeting.

The Board of Directors held five meetings during 2012. All of our directors attended at least 75 percent of the meetings of the Board and committees on which they served in 2012.

Director Qualifications

The Board of Directors, acting through the Nominating and Corporate Governance Committee, considers its members, including those directors being nominated for reelection to the Board at the 2013 annual meeting, to be qualified for service on the Board due to a variety of factors reflected in each director’s experience, education, areas of expertise, and experience serving on the boards of directors of other organizations. Generally, the Board seeks individuals of broad-based experience who have the background, judgment, independence, and integrity to represent the shareholders in overseeing the Company’s management in their operation of the business rather than specific, niche areas of expertise. Within this framework, specific items relevant to the Board’s determination for each director are listed in each director’s biographical information beginning on Page 69.

Directors’ Independence

A director is considered independent under the rules of the The New York Stock Exchange if he or she has no material or immaterial relationship to the Company that would impair his or her independence. In addition to the independence criteria established by The New York Stock Exchange, the Board of Directors has adopted categorical standards to assist it in making its independence determinations regarding individual members of the Board. These categorical standards are contained in the Corporate Governance Guidelines, which are posted on the Company’s corporate web site at http://www.footlocker-inc.com/investors.cfm?page=corporate-governance.

The Board of Directors has determined that the following categories of relationships are immaterial for purposes of determining whether a director is independent under the listing standards adopted by The New York Stock Exchange.

13


 

 

 

Categorical Relationship

 

Description

 

Investment Relationships with the Company

 

A director and any family member may own equities or other securities of the Company.

 

Relationships with Other Business Entities

 

A director and any family member may be a director, employee (other than an executive officer), or beneficial owner of less than 10 percent of the shares of a business entity with which the Company does business, provided that the aggregate amount involved in a fiscal year does not exceed the greater of $1,000,000 or 2 percent of either that entity’s or the Company’s annual consolidated gross revenue.

 

Relationships with Not-for-Profit Entities

 

A director and any family member may be a director or employee (other than an executive officer or the equivalent) of a not-for-profit organization to which the Company (including the Foot Locker Foundation) makes contributions, provided that the aggregate amount of the Company’s contributions in any fiscal year do not exceed the greater of $1,000,000 or 2 percent of the not-for-profit entity’s total annual receipts.

The Board of Directors, upon the recommendation of the Nominating and Corporate Governance Committee, has determined that the following directors are independent under the rules of The New York Stock Exchange because they have no material or immaterial relationship to the Company that would impair their independence:

 

 

 

 

 

Maxine Clark

 

James E. Preston

 

 

Nicholas DiPaolo

 

Allen Questrom

 

 

Alan D. Feldman

 

David Y. Schwartz

 

 

Jarobin Gilbert Jr.

 

Cheryl Nido Turpin

 

 

Guillermo G. Marmol

 

Dona D. Young

 

 

Matthew M. McKenna

 

 

 

 

In making its decisions on independence, the Board of Directors reviewed recommendations of the Nominating and Corporate Governance Committee and considered the following relationships between the Company and organizations with which the current members of our Board are affiliated:

 

 

 

 

David Y. Schwartz was a non-employee director during 2012 of a company with which Foot Locker does business. The Board has determined that this relationship meets the categorical standard for Relationships with Other Business Entities and is immaterial for determining independence.

 

 

 

 

Matthew M. McKenna is President and Chief Executive Officer of Keep America Beautiful, Inc., a not-for-profit organization to which the Company’s charitable foundation made a contribution of $15,000 in 2012. The Board has determined that Mr. McKenna’s relationship with Keep America Beautiful, Inc. is immaterial for determining independence.

 

 

 

 

The Board of Directors has determined that Ken C. Hicks is not independent because Mr. Hicks is an executive officer of the Company.

The Board of Directors has determined that all members of the Audit Committee, the Compensation and Management Resources Committee, and the Nominating and Corporate Governance Committee are independent as defined under the listing standards of The New York Stock Exchange and the director independence standards adopted by the Board.

14


Related Person Transactions

We individually inquire of each of our directors and executive officers about any transactions in which Foot Locker and any of these related persons or their immediate family members are participants. We also make inquiries within the Company’s records for information on any of these kinds of transactions. Once we gather the information, we then review all relationships and transactions in which Foot Locker and any of our directors, executive officers or their immediate family members are participants to determine, based on the facts and circumstances, whether the Company or the related persons have a direct or indirect material interest. The General Counsel’s office coordinates the related person review process. The Nominating and Corporate Governance Committee reviews any reported transactions involving directors and their immediate families in making its recommendation to the Board of Directors on the independence of the directors. The Company’s written policies and procedures for related person transactions are included within the Corporate Governance Guidelines and Foot Locker’s Code of Business Conduct. There were no related party transactions in 2012.

Committees of the Board of Directors

The Board has delegated certain duties to committees, which assist the Board in carrying out its responsibilities. There are five standing committees of the Board. Each director serves on at least one committee. The current committee memberships, the number of meetings held during 2012, and the functions of the committees are described below.

 

 

 

 

 

 

 

 

 

Audit
Committee

 

Compensation
and
Management
Resources
Committee

 

Finance and
Strategic
Planning
Committee

 

Nominating
and Corporate
Governance
Committee

 

Executive
Committee

 

G. Marmol, Chair

 

A. Feldman, Chair

 

D. Schwartz, Chair

 

D. Young, Chair

 

K. Hicks, Chair

N. DiPaolo

 

J. Preston

 

M. Clark

 

J. Gilbert Jr.

 

N. DiPaolo

J. Gilbert Jr.

 

A. Questrom

 

N. DiPaolo

 

J. Preston

 

A. Feldman

M. McKenna

 

C. Turpin

 

A. Feldman

 

A. Questrom

 

G. Marmol

D. Schwartz

 

D. Young

 

G. Marmol

 

C. Turpin

 

D. Schwartz

 

 

 

 

M. McKenna

 

 

 

D. Young

Audit Committee

The committee held eight meetings in 2012. The Audit Committee has a charter, which is available on the corporate governance section of our corporate web site at http://www.footlocker-inc.com/investors.
cfm?page=corporate-governance.
The report of the Audit Committee appears on Page 75.

This committee appoints the independent accountants and is responsible for approving the independent accountants’ compensation. This committee also assists the Board in fulfilling its oversight responsibilities in the following areas:

 

 

 

 

accounting policies and practices,

 

 

 

 

the integrity of the Company’s financial statements,

 

 

 

 

compliance with legal and regulatory requirements,

 

 

 

 

risk oversight,

 

 

 

 

the qualifications, independence, and performance of the independent accountants, and

 

 

 

 

the qualifications, performance and compensation of the internal auditors.

The Audit Committee has established procedures for the receipt, retention and treatment of complaints regarding accounting, internal accounting controls or auditing matters.

The Board of Directors has determined that the Company has at least one audit committee financial expert, as defined under the rules of the Securities Exchange Act of 1934, serving on the Audit Committee. David Y. Schwartz has been designated as the audit committee financial expert. Mr.

15


Schwartz is independent under the rules of The New York Stock Exchange and the Securities Exchange Act of 1934.

Compensation and Management Resources Committee

The Compensation and Management Resources Committee (the “Compensation Committee”) held six meetings in 2012. The committee has a charter, which is available on the corporate governance section of the Company’s corporate web site at http://www.footlocker-inc.com/investors.cfm?page=
corporate-governance.

The Compensation Committee determines the compensation of the Chief Executive Officer, reviews and approves all compensation for the Company’s executive management group, which consists of the executive officers and corporate officers, and determines significant elements of the compensation of the chief executive officers of our operating divisions. Decisions regarding equity compensation for other employees are also the Compensation Committee’s responsibility. Decisions regarding non-equity compensation of the Company’s other associates are made by the Company’s management. The committee also considers risk in relation to the Company’s compensation policies and practices.

The Compensation Committee also administers Foot Locker’s various compensation plans, including the incentive plans, the equity-based compensation plans, and the employees stock purchase plan. Other than the 2007 Stock Incentive Plan, committee members are not eligible to participate in these compensation plans. This committee also reviews and makes recommendations to the Board of Directors concerning executive development and succession, including for the position of Chief Executive Officer.

At the beginning of each year, the Compensation Committee holds a meeting with management, the Company’s compensation consultant, and the Committee’s independent compensation consultant to review the overall executive compensation environment, including recent developments in executive compensation, and the Company’s executive compensation program, including a historical view of the pay-for-performance correlation in the program and any changes to the program being recommended by management or either of the consultants.

The Committee then holds a second meeting, in March, after the financial results for the prior year have been finalized and audited, to review and approve bonus and incentive compensation payments for the prior year and to review and approve compensation arrangements—base salaries, stock awards, and incentive plan targets—for the upcoming year. The Committee meets privately with its independent consultant for the purpose of establishing the compensation of the Chief Executive Officer, including establishing target awards under the Annual Bonus Plan and the long-term incentive compensation program, and making stock awards to him. Except in the case of promotions or other unusual circumstances, the Compensation Committee considers stock awards only at its March meeting, which is normally held within a few weeks following the issuance of the Company’s full-year earnings release for the prior year.

The Committee may hold other meetings during the year to review specific issues related to executive compensation or new developments in executive compensation. It also has responsibility, along with the Nominating and Corporate Governance Committee, for annually reviewing compensation paid to non- employee directors.

The Compensation Committee has retained as its advisor a nationally recognized compensation consultant—Compensation Advisory Partners (“CAP”)—that is independent and performs no other work for the Company. CAP is retained directly by the Compensation Committee, reports to it directly, meets with the committee privately, without management present, and regularly communicates privately with the Chair of the committee. The Compensation Committee has assessed the independence of CAP and concluded that no conflict of interest exists that would prevent it from serving as an independent consultant to the committee. Each year, the committee’s compensation consultant reviews a report on risk in relation to the Company’s compensation policies and practices, provides a pay-for-performance analysis of our executive compensation program, reviews the Chief Executive Officer’s compensation and advises the committee on non-employee director compensation

16


matters, including payment levels and trends. Management utilizes the services of ClearBridge Compensation Group, a nationally recognized compensation consultant, to provide advice on the executive compensation program and plan design.

Management is involved in various aspects of developing the executive compensation program. Our Senior Vice President—Human Resources, Vice President—Human Resources, and staff in the Human Resources Department work with our Chief Executive Officer to develop compensation recommendations for all corporate officers other than the Chief Executive Officer. The Chief Executive Officer or the Senior Vice President—Human Resources reviews these proposals with the Chair of the Compensation Committee, and may make changes to the recommendations based upon his input, before the recommendations are forwarded to the Compensation Committee for review. Our Senior Vice President and General Counsel and Vice President and Associate General Counsel also attend meetings of the Compensation Committee and participate in some of these discussions and preparations.

The Compensation Committee has delegated authority to its Chair to approve stock option awards of up to 25,000 shares to any single employee other than a corporate officer. The Chair generally uses this authority to approve stock option grants made during the course of the year in connection with promotions or new hires.

Compensation Committee Interlocks and Insider Participation

Alan D. Feldman, James E. Preston, Allen Questrom, Cheryl Nido Turpin, and Dona D. Young served on the Compensation and Management Resources Committee during 2012. None of the committee members was an officer or employee of the Company or any of its subsidiaries, and there were no interlocks with other companies within the meaning of the SEC’s proxy rules.

Finance and Strategic Planning Committee

The Finance and Strategic Planning Committee held five meetings in 2012. This committee reviews the overall strategic and financial plans of the Company, including capital expenditure plans, proposed debt or equity issues of the Company, and the Company’s capital structure. The committee also considers and makes recommendations to the Board of Directors concerning dividend payments and share repurchases, and reviews acquisition and divestiture proposals.

Nominating and Corporate Governance Committee

The Nominating and Corporate Governance Committee held seven meetings in 2012. This committee has responsibility for overseeing corporate governance matters affecting the Company, including developing and recommending criteria and policies relating to service and tenure of directors. The committee is responsible for collecting the names of potential nominees to the Board, reviewing the background and qualifications of potential candidates for Board membership, and making recommendations to the Board for the nomination and election of directors. The committee reviews membership on the Board committees and, after consultation with the lead director and the Chief Executive Officer, makes recommendations to the Board regarding committee members and committee chair assignments annually. In addition, the committee meets jointly with the Compensation and Management Resources Committee to review directors’ compensation and make recommendations to the Board concerning the form and amount of directors’ compensation.

While the Nominating and Corporate Governance Committee does not have a formal policy regarding board diversity, the Foot Locker Board reflects diversity in terms of gender, experience and ethnicity. In selecting new directors and considering the re-nomination of existing directors, the Committee considers a variety of factors that it believes contribute to an individual’s ability to be an effective director, as well as the overall effectiveness of the Board. These include independence, integrity, high personal and professional ethics, sound business judgment, and the ability and willingness to devote sufficient time to Board responsibilities. The Committee also considers an individual’s understanding of business, finance, corporate governance, marketing, and other disciplines relevant to the oversight of a large publicly traded company; understanding of our industry; educational and

17


professional background; international experience; personal accomplishment; community involvement; and cultural and ethnic diversity. The Nominating and Corporate Governance Committee may establish criteria for candidates for Board membership. These criteria may include area of expertise, diversity of experience, independence, commitment to representing the long-term interests of the Company’s stakeholders, and other relevant factors, taking into consideration the needs of the Board and the Company and the mix of expertise and experience among current directors. From time to time the committee may retain the services of a third party search firm to identify potential director candidates.

The committee will consider nominees to the Board of Directors recommended by shareholders that comply with the provisions of the Company’s By-Laws and relevant law, regulation, and stock exchange rules. The procedures for shareholders to follow to propose a potential director candidate are described on Page 84.

After a potential nominee is identified, the Committee Chair will review his or her biographical information and discuss with the other members of the committee whether to request additional information about the individual or to schedule a meeting with the potential candidate. The committee’s screening process for director candidates is the same regardless of the source who identified the potential candidate. The committee’s determination on whether to proceed with a formal evaluation of a potential candidate is based on the person’s experience and qualifications, as well as the current composition of the Board and its anticipated future needs.

Executive Committee

The Executive Committee did not meet in 2012. Except for certain matters reserved to the Board, this committee has all of the powers of the Board in the management of the business of the Company during intervals between Board meetings.

DIRECTORS’ COMPENSATION AND BENEFITS

Non-employee directors are paid an annual retainer fee and meeting fees for attendance at each Board and committee meeting. The lead director and the committee chairs are paid an additional retainer fee for service in these capacities. We do not pay additional compensation to any director who is also an employee of the Company for service on the Board or any committee. The table below summarizes the fees paid to the non-employee directors in 2012.

18


Summary of Directors’ Compensation

 

 

 

Annual Retainer

 

$110,000. The annual retainer is payable 50 percent in cash and 50 percent in shares of our Common Stock. Directors may elect to receive up to 100 percent of their annual retainer, including committee chair retainer, in stock.

 

 

We calculate the number of shares paid to the directors for their annual retainer by dividing their retainer fee by the closing price of a share of our stock on the last business day preceding the July payment date.

 

Committee Chair Retainers

 

$25,000 Audit Committee

 

 

$25,000 Compensation and Management Resources Committee

 

 

$15,000 Finance and Strategic Planning Committee

 

 

$15,000 Nominating and Corporate Governance Committee

 

 

N/A:         Executive Committee

 

 

The committee chair retainers are paid in the same form as the annual retainer.

 

Lead Director Retainer

 

$50,000 payable in the same form as the annual retainer.

 

Meeting Fees

 

$2,000 for attendance at each Board and committee meeting

 

Restricted Stock Units

 

In fiscal 2012, the directors received a grant of 1,902 restricted stock units (“RSUs”). The number of RSUs granted was calculated by dividing $55,000 by the closing price of a share of our stock on the date of grant. The RSUs will vest one year following the date of grant—in May 2013. Each RSU represents the right to receive one share of the Company’s common stock on the vesting date.

Deferral Election

Non-employee directors may elect to receive all or a portion of the cash component of their annual retainer fee, including committee chair retainers, in the form of deferred stock units or to have these amounts placed in an interest account. Directors may also elect to receive all or part of the stock component of their annual retainer fee in the form of deferred stock units. The interest account is a hypothetical investment account bearing interest at the rate of 120 percent of the applicable federal long-term rate, compounded annually, and set as of the first day of each plan year. A stock unit is an accounting equivalent of one share of the Company’s Common Stock.

Miscellaneous

Directors and their immediate families are eligible to receive the same discount on purchases of merchandise from our stores, catalogs and Internet sites that is available to Company employees. The Company reimburses non-employee directors for their reasonable expenses in attending meetings of the Board and committees, including their transportation expenses to and from meetings, hotel accommodations, and meals.

19


Fiscal 2012 Director Compensation

The amounts paid to each non-employee director for fiscal 2012, including amounts deferred under the Company’s stock plan, and the RSUs granted to each director are reported in the tables below. Ms. Clark did not serve as a director during 2012, so no compensation is reported for her in the table.

DIRECTOR COMPENSATION

 

 

 

 

 

 

 

 

 

(a)

 

(b)

 

(c)

 

(d)

 

(e)

Name

 

Fees Earned
or Paid in Cash
($)

 

Stock
Awards
($)(1)(2)

 

Change in
Pension
Value and
Nonqualified
Deferred
Compensation
Earnings

 

Total
($)

M. Clark

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

N. DiPaolo

 

 

 

109,277

 

 

 

 

131,872

 

 

 

 

 

 

 

 

241,149

 

A. Feldman

 

 

 

32,000

 

 

 

 

203,451

(3)(4)

 

 

 

 

 

 

 

 

235,451

 

J. Gilbert Jr.

 

 

 

95,547

 

 

 

 

113,769

 

 

 

 

3,051

 

 

 

 

212,367

 

G. Marmol

 

 

 

92,696

 

 

 

 

116,246

 

 

 

 

 

 

 

 

208,942

 

M. McKenna

 

 

 

36,004

 

 

 

 

165,021

 

 

 

 

 

 

 

 

201,025

 

J. Preston

 

 

 

91,712

 

 

 

 

119,396

 

 

 

 

 

 

 

 

211,108

 

A. Questrom

 

 

 

34,000

 

 

 

 

166,978

(4)

 

 

 

 

 

 

 

 

200,978

 

D. Schwartz

 

 

 

93,292

 

 

 

 

139,700

(4)

 

 

 

 

 

 

 

 

232,992

 

C. Turpin

 

 

 

86,417

 

 

 

 

140,450

(3)(4)

 

 

 

 

 

 

 

 

226,867

 

D. Young

 

 

 

81,833

 

 

 

 

163,403

(4)

 

 

 

 

 

 

 

 

245,236

 

Notes to Director Compensation Table

 

(1)

 

 

 

Column (c) reflects the following three items:

 

 

 

 

Retainer fees paid in stock or deferred by the director. The fiscal 2012 grant date fair value for the portion of the annual retainer fees, including committee chair retainer fees and the lead director retainer fee, paid in shares of the Company’s common stock or deferred by the director, as shown in the following table.

- Stock portion of retainer fee: In 2012, we made the annual stock payment to each director on July 2. Under the terms of the 2007 Stock Incentive Plan, the stock payment was valued at the closing price of a share of the Company’s common stock on June 29, which was $30.58. The 2012 grant date fair value is equal to the number of shares received or deferred by the director multiplied by $30.58, calculated in accordance with stock-based compensation accounting rules (ASC Topic 718). Directors who deferred the stock portion of their annual retainer were credited with deferred stock units on the annual payment date valued at $30.58 per unit.

- Cash portion of retainer fee: For fiscal 2012, two directors deferred all or part of the cash portion of their annual retainer fees and were credited during the fiscal year with deferred stock units on the quarterly cash retainer payment dates, valued at the fair market value on the payment dates, as follows: January 3, 2012 ($23.99; pro rated for 2 months of fiscal year), April 2, 2012 ($31.12), July 2, 2012 ($30.74), October 1, 2012 ($35.24), and January 2, 2013 ($31.60; pro rated for 1 month of fiscal year). The 2012 grant date fair value is equal to the number of deferred stock units received multiplied by the fair market value on the payment dates, calculated in accordance with stock-based compensation accounting rules (ASC Topic 718).

20


Retainer Fees Paid in Stock or Deferred into Deferred Stock Units

 

 

 

 

 

 

 

Name

 

Number of
Shares

 

Number of
Deferred
Stock
Units

 

Grant Date
Fair Value
($)

M. Clark

 

 

 

 

 

 

 

 

 

 

 

 

N. DiPaolo

 

 

 

2,513

 

 

 

 

 

 

 

 

76,848

 

A. Feldman

 

 

 

 

 

 

 

4,424.3508

 

 

 

 

135,000

 

J. Gilbert Jr.

 

 

 

1,921

 

 

 

 

 

 

 

 

58,744

 

G. Marmol

 

 

 

2,002

 

 

 

 

 

 

 

 

61,221

 

M. McKenna

 

 

 

3,597

 

 

 

 

 

 

 

 

109,996

 

J. Preston

 

 

 

2,105

 

 

 

 

 

 

 

 

64,371

 

A. Questrom

 

 

 

 

 

 

 

3,597.1223

 

 

 

 

110,000

 

D. Schwartz

 

 

 

 

 

 

 

2,043.8195

 

 

 

 

62,500

 

C. Turpin

 

 

 

 

 

 

 

1,943.6034

 

 

 

 

59,583

 

D. Young

 

 

 

 

 

 

 

2,452.5834

 

 

 

 

75,000

 

 

 

 

 

Dividend equivalents. The fiscal 2012 grant date fair value for dividend equivalents credited in the form of additional stock units to five directors during the year on the quarterly dividend payment dates, valued at the fair market value of the Company’s common stock on the dividend payment dates, as shown in the following table.

 

 

 

 

 

 

 

 

 

Name

 

04/27/12
FMV:
$30.91

 

07/27/12
FMV:
$33.64

 

10/26/12
FMV:
$33.49

 

02/01/13
FMV:
$34.56

A. Feldman

 

 

 

93.5215

 

 

 

 

101.1806

 

 

 

 

104.7513

 

 

 

 

104.8351

 

D. Schwartz

 

 

 

168.9536

 

 

 

 

167.0825

 

 

 

 

168.7289

 

 

 

 

164.3837

 

A. Questrom

 

 

 

 

 

 

 

19.2474

 

 

 

 

19.437

 

 

 

 

18.9365

 

C. Turpin.

 

 

 

198.8074

 

 

 

 

193.3610

 

 

 

 

195.2663

 

 

 

 

192.5040

 

D. Young

 

 

 

257.0307

 

 

 

 

250.6703

 

 

 

 

253.1403

 

 

 

 

246.6214

 

The Total Number of Deferred Stock Units credited to directors’ accounts for fiscal 2012, including the dividend equivalents and the units credited representing 2012 retainer fees reported in the above two tables, and the total number of units held at the end of fiscal 2012, are reported in the following table:

 

 

 

 

 

Name

 

Total # of
Units
Credited for
2012

 

Total # of
Units
Held at
02/02/13

A. Feldman

 

 

 

4,828.6393

 

 

 

 

20,233.1709

 

D. Schwartz

 

 

 

2,712.9682

 

 

 

 

31,726.0606

 

A. Questrom

 

 

 

3,654.7432

 

 

 

 

3,654.7432

 

C. Turpin.

 

 

 

2,723.5421

 

 

 

 

37,153.2746

 

D. Young

 

 

 

3,460.0461

 

 

 

 

47,597.9234

 

 

 

 

 

Restricted Stock Units (“RSUs”). The fiscal 2012 grant date fair value for the RSUs granted to the nonemployee directors in 2012 is shown in the following table. The number of RSUs granted was calculated by dividing $55,000 by $28.93, which was the closing price of a share of our stock on the date of grant. The RSUs will vest in May 2013. As provided under the SEC’s rules, the amounts shown exclude the impact of estimated forfeitures related to service-based vesting conditions. For additional information on the valuation assumptions, please refer to Note 21 to the Company’s financial statements in our 2012 Form 10-K. The following table shows the aggregate number of RSUs granted in 2012 and the number of RSUs outstanding at the end of the 2012 fiscal year:

21


Restricted Stock Units

 

 

 

 

 

 

 

Name

 

Number of RSUs
Granted in 2012

 

Grant Date
Fair Value
($)

 

Number of RSUs
Outstanding on
2/2/2013

M. Clark

 

 

 

 

 

 

 

 

 

 

 

 

N. DiPaolo

 

 

 

1,902

 

 

 

 

55,025

 

 

 

 

1,902

 

A. Feldman

 

 

 

1,902

 

 

 

 

55,025

 

 

 

 

1,902

 

J. Gilbert Jr

 

 

 

1,902

 

 

 

 

55,025

 

 

 

 

1,902

 

G. Marmol

 

 

 

1,902

 

 

 

 

55,025

 

 

 

 

1,902

 

M. McKenna

 

 

 

1,902

 

 

 

 

55,025

 

 

 

 

1,902

 

J. Preston

 

 

 

1,902

 

 

 

 

55,025

 

 

 

 

1,902

 

A. Questrom

 

 

 

1,902

 

 

 

 

55,025

 

 

 

 

1,902

 

D. Schwartz

 

 

 

1,902

 

 

 

 

55,025

 

 

 

 

1,902

 

C. Turpin

 

 

 

1,902

 

 

 

 

55,025

 

 

 

 

1,902

 

D. Young

 

 

 

1,902

 

 

 

 

55,025

 

 

 

 

1,902

 

 

(2)

 

 

 

No stock options were granted to the nonemployee directors in 2012. The table below provides information on the number of stock options outstanding for each of the nonemployee directors at the end of the 2012 fiscal year, all of which are exercisable:

 

 

 

Name

 

Number of Stock Options
Outstanding on 2/2/2013

M. Clark

 

 

 

 

N. DiPaolo

 

 

 

8,336

 

A. Feldman

 

 

 

6,314

 

J. Gilbert Jr

 

 

 

8,336

 

G. Marmol.

 

 

 

 

M. McKenna

 

 

 

4,287

 

J. Preston

 

 

 

8,336

 

A. Questrom

 

 

 

 

D. Schwartz

 

 

 

8,336

 

C. Turpin

 

 

 

8,336

 

D. Young

 

 

 

8,336

 

 

(3)

 

 

 

Quarterly cash payments for all or part of fiscal 2012 deferred in the form of stock units under Foot Locker’s stock plan.

 

(4)

 

 

 

Stock payment deferred in the form of stock units under Foot Locker’s stock plan.

Directors’ Retirement Plan

The Directors’ Retirement Plan was frozen as of December 31, 1995. Consequently, only Jarobin Gilbert Jr. and James E. Preston are entitled to receive a benefit under this plan when their service as directors ends because they had completed at least five years of service as directors on December 31, 1995. Messrs. Gilbert and Preston will receive an annual retirement benefit of $24,000 for a period of 10 years after they leave the Board or until their death, if sooner.

Directors and Officers Indemnification and Insurance

We have purchased directors and officers liability and corporation reimbursement insurance from a group of insurers comprising ACE American Insurance Co., Zurich American Insurance Co., Arch Insurance Co., St. Paul Mercury Insurance Co., Axis Insurance Co., Federal Insurance Co., Navigators Insurance Co., Aspen American Insurance Co., XL Insurance Bermuda Ltd., Illinois National Insurance Co., and Berkley Insurance Co. These policies insure the Company and all of the Company’s wholly owned subsidiaries. They also insure all of the directors and officers of the Company and the covered subsidiaries. The policies were written for a term of 12 months, from October 12, 2012 until October 12,

22


2013. The total annual premium for these policies, including fees and taxes, is $1,076,280. Directors and officers of the Company, as well as all other employees with fiduciary responsibilities under the Employee Retirement Income Security Act of 1974, as amended, are insured under policies issued by a group of insurers comprising Arch Insurance Co., St. Paul Mercury Insurance Co., Federal Insurance Co., and Continental Casualty Co., which have a total premium, including fees and taxes, of $348,788 for the 12-month period ending October 12, 2013.

The Company has entered into indemnification agreements with its directors and officers, as approved by shareholders at the 1987 annual meeting.

EXECUTIVE COMPENSATION

Compensation and Risk

The Company has completed a risk-related review and assessment of our compensation program and considered whether our executive compensation is reasonably likely to result in a material adverse effect on the Company. As part of this review, the independent compensation consultant to the Compensation and Management Resources Committee reviewed risk in relation to the Company’s compensation policies and practices with the Company’s human resources executives directly involved in compensation matters. The consultant reviewed the compensation policies and practices in effect for corporate and division employees through the manager level, store managers, and store associates and reviewed the features we have built into the compensation programs to discourage excessive risk taking by employees, including a balance between different elements of compensation, differing time periods for different elements, consistent Company-wide programs, plan performance targets based on the corporate budgeting process, and stock ownership guidelines for senior management.

Compensation Discussion and Analysis

This section explains our executive compensation program as it relates to the following “named executive officers” whose compensation information is presented in the tables following this discussion and analysis:

 

 

 

Ken C. Hicks

 

Chairman of the Board, President and Chief Executive Officer

Lauren B. Peters

 

Executive Vice President and Chief Financial Officer

Richard A. Johnson

 

Executive Vice President and Chief Operating Officer

Robert W. McHugh

 

Executive Vice President—Operations Support

Gary M. Bahler

 

Senior Vice President, General Counsel and Secretary

Our executive compensation program is designed to attract, motivate, and retain talented retail company executives in order to maintain and enhance the Company’s performance and its return to shareholders. In order to accomplish this, we have a compensation program for our executives that ties pay closely to performance. A significant portion of the compensation of each of the named executive officers shown in this year’s summary compensation table on page 37 is based on the Company’s performance or the performance of our share price. The more senior an executive’s position, the greater the portion of his or her compensation that is tied to performance. The Compensation and Management Resources Committee (the “Compensation Committee”), composed of five independent directors, oversees the executive compensation program.

2012 Summary

Our 2012 Results. In 2012, we achieved record sales, earnings, earnings per share, and return-on-invested capital in our history as an athletic footwear and apparel company. Results included:

 

 

 

 

Net income, on a non-GAAP basis, of $380 million or earnings-per-share of $2.47, a 35.7 percent increase over 2011

 

 

 

 

End-of-year market capitalization of $5.2 billion, a 30 percent increase over year-end 2011

 

 

 

 

Total dividend payments to shareholders of $109 million

23


 

 

 

 

Total share repurchases of $129 million

 

 

 

 

Total shareholder return (stock price appreciation plus reinvested dividends) of 32 percent.

These results represent continued strong progress toward the long-term objectives contained in the updated long-range strategic plan that we adopted in early 2012, as shown in the following table:

 

 

 

 

 

 

 

Financial Metrics

 

2011

 

2012

 

Long-Term Objectives

 

Sales

 

$5,623 million

 

$6,101 million

 

$7,500 million

 

Sales per Gross Square Foot

 

$406

 

$443

 

$500

 

Earnings before Interest and Taxes (EBIT) margin

 

7.9%

 

9.9%

 

11%

 

Net Income Margin

 

5.0%

 

6.2%

 

7%

 

Return on Invested Capital (ROIC)

 

11.8%

 

14.2%

 

14%

The above table represents non-GAAP results. There is a reconciliation to GAAP on Pages 15-17 of our 2012 Form 10-K.

Base Salaries. The Chief Executive Officer’s base salary was unchanged in 2012 from 2011. As part of the Compensation Committee’s normal annual compensation review, the other named executive officers received base salary increases ranging from 0 to 6.25 percent, which were based on the executive’s performance and a position-oriented analysis of peer group salaries.

Annual Bonus. Both our annual bonus and long-term incentive programs are formula-driven, with targets established by the Compensation Committee based upon financial targets included in the business plan approved each year by our Finance and Strategic Planning Committee and Board of Directors. Our annual and long-term bonus programs for the named executive officers pay out based upon the Company’s results, without individual performance adjustments.

At the beginning of 2012, the Compensation Committee established a performance target under the Annual Incentive Compensation Plan (the “Annual Bonus Plan”) based on the Company achieving pre-tax income of $527.9 million, a 20 percent increase over 2011 pre-tax income. In 2012, the Company achieved pre-tax income of $623.8 million, a 43 percent increase over 2011, and 18 percent greater than the target, which resulted in annual cash bonuses of 209.9 percent of base salary for the Chief Executive Officer, 125.9 percent of base salary for the Chief Operating Officer, and 84.0 percent of base salary for the other named executive officers, slightly below the maximum payout.

Long-Term Incentive Programs. At the beginning of 2011, the Compensation Committee established performance targets for the 2011-12 performance period under the long-term incentive program. The amount earned for the two-year 2011-2012 performance period will not be paid to participants until 2014, following the completion of an additional one-year holding period. The targets that the Committee established were based on the Company achieving average annual net income of $217.4 million (which accounts for 70% of the payout) and ROIC of 9.8 percent (which accounts for 30% of the payout). For the period, the Company achieved average annual net income of $333.7 million and ROIC of 13.5 percent. As a result, the named executive officers earned a maximum payout for the performance period—for Mr. Hicks, 350 percent of initial base salary and for the other named executive officers, 150 percent of initial base salary. Payouts will be calculated and made one-half in cash and one-half in restricted stock units (“RSUs”).

In 2012, the Compensation Committee established long-term incentive performance targets for the 2012-2013 performance period based upon net income (70%) and ROIC (30%). The Committee will determine whether payouts have been earned for that performance period following the end of 2013. If payouts are earned, they will be calculated one-half in cash and one-half in RSUs, and payment will be made to participating executives in 2015 following an additional one-year holding period. In addition, the Compensation Committee established a “performance gate” so that no pay-outs will be made for the 2012-2013 performance period unless average annual after-tax income for the performance period equals or exceeds actual 2011 after-tax income.

In 2010, we made a change to our long-term incentive program. For years prior to 2010, the long-term incentive was determined based upon performance over a three-year performance measurement

24


period and was paid in cash. Beginning in 2010, the long-term incentive is determined based upon performance over a two-year performance measurement period, with an additional one-year holding period, and the award is denominated one-half in cash and one-half in RSUs. Consequently the Summary Compensation Table reflects two long-term incentives for 2011—the 2009-2011 three-year performance measurement period under the old program and the 2010-2011 performance measurement period under the new program.

Our annual bonus and long-term incentive programs are performance-based. When we meet or exceed our targets, as we did in 2012, payments are made to participants, including the named executive officers. When we do not, as was the case in 2009, no payments are made. Following is a four-year history of bonus payments to our named executive officers:

 

 

 

 

 

 

 

Annual Bonus Plan Payout

 

Long-Term Bonus Plan Pay-out

 

2012

 

Between Target and Maximum

 

2011-12: Maximum

 

2011

 

Maximum

 

2010-11: Maximum
2009-11: Maximum

 

2010

 

Maximum

 

2008-10: Between Threshold and Target

 

2009

 

No Payout

 

2007-09: No Payout

Stock Options. The Compensation Committee granted stock options to each of the named executive officers in 2012. As part of its normal annual compensation review, the Committee awarded options to purchase the number of shares of common stock to each of the named executive officers shown in the following chart:

 

 

 

 

 

Executive

 

Number of Options

 

Assumed Black-Scholes Value

 

Mr. Hicks

 

 

 

300,000

 

 

 

$

 

3,060,000

 

 

Mr. Johnson

 

 

 

49,000

 

 

 

$

 

500,000

 

 

Mr. McHugh and Ms. Peters

 

 

 

44,000

 

 

 

$

 

450,000

 

 

Mr. Bahler

 

 

 

22,000

 

 

 

$

 

225,000

 

When determining the number of stock options to grant, the Compensation Committee considered an assumed Black-Scholes value, shown in the chart, which was based on the closing price of a share of the Company’s common stock in the 20 trading day period ending 10 days prior to the date the Committee met to authorize these awards. The option exercise price, as well as the actual Black-Scholes value of the awards, is based upon the closing price of a share of the Company’s common stock on the grant date. All of the options granted have a three-year vesting schedule, with one-third of each option grant vesting on the first, second, and third anniversary of the grant date, subject to continuous service through each vesting date.

Key Compensation Policies. In addition to the specific compensation programs outlined above, the Company has adopted a number of other policies related to executive compensation:

Independent Consultant. With regard to executive compensation matters, our Compensation Committee directly retains, and is advised by, an independent compensation consultant who performs no other work for the Company.

No Gross-Ups. We do not provide a tax gross-up with regard to any compensation, benefit, or perquisite paid by the Company, other than our executive relocation program that is applicable to all executives. We also do not provide tax gross-ups for any amount paid to an executive upon termination of employment or a change-in-control.

Stock Ownership Guidelines. We have stock ownership guidelines for our senior executives. These are set at six times annual salary for the Chief Executive Officer, three times annual salary for executive vice presidents, two times annual salary for senior vice presidents and divisional chief executive officers, and one-half times annual salary for vice presidents and divisional managing directors. If an executive has not met the ownership requirements following a five-year phase-in period, the executive is required to hold 100 percent of net shares acquired from the vesting of

25


restricted stock or RSUs or the exercise of stock options until the stock ownership guidelines are achieved.

Long-Term Incentive Program Performance Gate. With regard to the long-term incentive program, the Compensation Committee has established a “performance gate” so that no amounts will be paid out under the program unless the Company’s average annual after-tax income for the performance period exceeds the Company’s after-tax income in the year prior to the commencement of the performance period.

2012 Say-on-Pay Vote. At our 2012 annual meeting, 98 percent of shareholders voting on the advisory vote on executive compensation supported the executive compensation program. The Compensation Committee considered the results of the 2012 say-on-pay vote and shareholders’ strong support of our executive compensation program in reviewing the executive compensation program for 2013. In light of this, the Compensation Committee decided to retain the general overall program design, which ties executive pay closely with Company performance. In the future, the Compensation Committee will continue to consider the executive compensation program in light of changing circumstances and shareholder feedback. Our say-on-pay vote is currently held on an annual basis, consistent with the views expressed by a majority of our shareholders at our 2011 annual meeting.

In the balance of this Compensation Discussion and Analysis, we provide greater detail about our compensation program for the named executive officers.

* * *

What are the objectives of our compensation program?

The objectives of our compensation program are to attract, motivate, and retain talented retail industry executives in order to maintain and enhance the Company’s performance and its return to shareholders.

What is our compensation program designed to reward?

We have designed our compensation program to align the financial interests of our executives, including the named executive officers, with those of our shareholders. It is designed to reward the overall effort and contribution of our executives as measured by the Company’s performance in relation to targets established by the Compensation Committee, more than individual performance. Key concepts underlying our program are:

 

 

 

 

Balance. Executive compensation should be balanced between annual and long-term compensation and between cash and equity-based compensation.

 

 

 

 

Align Interests of Executives and Shareholders. The compensation program should align the interests of executives with those of the Company’s shareholders by rewarding both increases in the Company’s share price and the achievement of performance goals that contribute to the Company’s long-term health and growth.

 

 

 

 

Strong Relationship to Company Performance. A substantial portion of the compensation of our executives, whether paid out currently or on a long-term basis, should depend on the Company’s performance.

 

 

 

 

The Compensation of Our Senior Executives Has Greater Risk. More-senior executives should have a greater portion of their compensation at risk, whether through performance-based incentive programs or through stock price appreciation.

What are our elements of compensation?

The elements of compensation for the named executive officers are:

 

 

 

 

base salary

 

 

 

 

performance-based annual cash bonus

 

 

 

 

performance-based long-term incentive, payable in a combination of cash and RSUs

 

 

 

 

long-term equity-based compensation (stock options and, in special situations, restricted stock)

26


 

 

 

 

retirement and other benefits

 

 

 

 

perquisites

Why do we pay each element of compensation and how do we determine the amount for each element of compensation, or the formula that determines the amount?

We have established benchmarks for base salary and total compensation for each named executive officer. These benchmarks are reviewed annually and are based upon compensation for comparable positions in a peer group consisting of 19 national retail companies with annual sales of approximately $1 billion to $10 billion. The Compensation Committee determined that these companies were the appropriate peer group for executive compensation purposes based upon the nature of their business, their revenues, and the pool from which they recruit their executives. The peer group used in 2012 was unchanged from that used in 2011 except that two companies—Borders Group, Inc. and Timberland Co.—that ceased to be publicly traded companies during 2011 were deleted from the group. The 19 companies included in the peer group were:

 

 

 

Abercrombie & Fitch.

 

Aeropostale, Inc.

American Eagle Outfitters Inc.

 

ANN INC.

Brown Shoe Company, Inc.

 

Charming Shoppes

Collective Brands Inc.

 

Dick’s Sporting Goods Inc.

Dillards Inc.

 

Family Dollar Stores

Finish Line Inc.

 

Genesco Inc.

Limited Brands Inc.

 

Pacific Sunwear of California Inc.

Quiksilver Inc.

 

Radioshack Corp.

Ross Stores

 

Saks Inc.

Talbots Inc

 

 

For its 2013 compensation review, the Compensation Committee made several changes to the peer group. It removed Collective Brands Inc., Charming Shoppes, Inc., and Talbots Inc. because they ceased to be publicly traded companies. It also removed Pacific Sunwear of California because its revenues continue to be less than $1 billion. Five companies were added to the group, all of which are specialty retail chains having sales in the $1 billion to $10 billion range: Ascena Retail Group, Inc., Bed, Bath & Beyond Inc., DSW Inc., GameStop Corp., and Williams-Sonoma, Inc.

The goal of the Compensation Committee is to provide competitive total compensation opportunities for the named executive officers that vary with Company performance. The Committee uses the peer group benchmark information as a reference point in evaluating executive compensation, but does not attempt to match the compensation of each executive position in the Company precisely with that of an equivalent position in the peer group. In general, the Committee attempts to position an executive’s total compensation between the median and 75th percentile of comparable positions at peer companies, consistent with the Company’s revenues in relation to the peer companies. The Committee also takes into consideration factors such as performance, responsibility, experience, and length of time an executive has served in a position.

Base Salaries

We pay base salaries to provide our named executive officers with current, regular compensation that is appropriate to their position, experience, and responsibilities. We pay higher base salaries to those named executive officers with greater overall responsibility. Other than Mr. Hicks and Mr. Bahler, whose base salaries did not change in 2012 from 2011, the other named executive officers received base salary increases in 2012 that ranged from 2.4 percent to 6.25 percent. These increases were determined based principally upon the executive’s performance and his or her salary as compared to salaries for comparable positions in the peer group. Mr. Johnson’s salary increase also took into consideration his promotion to Chief Operating Officer in May 2012.

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Performance-Based Annual Cash Bonus

We pay performance-based annual cash bonuses to our named executive officers under the Annual Bonus Plan in order to provide incentive for them to work toward the Company’s achievement of annual performance goals established by the Compensation Committee. Payments are calculated as a percentage of actual base salary earned by the executive during the year.

Our Annual Bonus Plan allows the Compensation Committee, in establishing performance targets under the plan, to choose one or more performance measures from a list of ten factors that have been approved by our shareholders. For 2012, for the named executive officers, the Compensation Committee established a performance target under the Annual Bonus Plan based upon the Company’s achievement of a prescribed level of pre-tax income. All bonus targets and calculations are based on the results of continuing operations. The performance targets established by the Compensation Committee are based upon the business plan and budget reviewed and approved each year by the Finance and Strategic Planning Committee and the Board of Directors.

The Annual Bonus Plan targets and the actual amount of adjusted pre-tax profit achieved for 2012 were as follows:

 

 

 

 

 

 

 

 

 

 

 

Threshold

 

Target

 

Maximum

 

Actual

 

Pre-tax profit

 

$475.1 million

 

$527.9 million

 

$633.5 million

 

$623.8 million

Bonus payouts are calculated on the basis of straight-line interpolation between the threshold, target, and maximum points.

Target payments under the Annual Bonus Plan for the named executive officers and actual payments for 2012 based upon the Company’s performance were as follows:

 

 

 

 

 

 

 

 

 

 

 

Target

 

Range

 

Actual 2012
Percentage

 

Actual 2012
Payout

 

Mr. Hicks

 

125% of Base Salary

 

31.25 % to 218.75% of Base Salary

 

209.9% of Base Salary

 

$2,308,625

 

Ms. Peters

 

50% of Base Salary

 

12.5% to 87.5% of Base Salary

 

84.0% of Base Salary

 

$414,503

 

Mr. Johnson

 

75% of Base Salary

 

18.75% to 131.25% of Base Salary

 

125.9% of Base Salary

 

$1,054,622

 

Mr. McHugh

 

50% of Base Salary

 

12.5% to 87.5% of Base Salary

 

84.0% of Base Salary

 

$529,934

 

Mr. Bahler

 

50% of Base Salary

 

12.5% to 87.5% of Base Salary

 

84.0% of Base Salary

 

$453,330

If the Company does not achieve threshold performance, then no annual bonus is paid. Executives who do not receive a “meets expectations” rating or higher in their annual performance review are normally ineligible to receive an annual bonus payment.

Performance-Based Long-Term Incentive Program

We pay performance-based long-term incentives to our named executive officers in order to provide incentive for them to work toward the Company’s achievement of performance goals established by the Compensation Committee for each performance period. The long-term incentive program is based on the following principles:

 

 

 

 

Balance between Cash and RSUs. Awards are denominated 50 percent in cash, payable under the Long-Term Incentive Plan, and 50 percent in RSUs, payable under the Stock Incentive Plan. The same performance target is established for both the cash and RSU portions of the award.

 

 

 

 

Two-year Performance Period and One-year Holding Period. The performance period is two years; however, while award payouts are calculated following the end of the two-year

28


 

 

 

 

performance period, payments require continued employment and are subject to forfeiture for another year—that is, payments are not made until the end of a three-year period.

 

 

 

 

Net Income and ROIC Targets. The performance target is based on net income (70 percent) and ROIC (30 percent).

 

 

 

 

Target Awards are Percentage of Base Salary. The target awards are expressed as a percentage of initial base salary—that is, the base salary paid to the executive following the salary adjustments that take place on May 1 of the first year of the performance period. The Chief Executive Officer’s target award is 175 percent of initial base salary; the Chief Operating Officer’s, 100 percent of initial base salary; and the other named executive officers’, 75 percent of initial base salary.

In 2011, the Compensation Committee established the net income and ROIC targets for the 2011-2012 performance period. These performance targets were based upon the business plan and budget for the two-year period reviewed and approved by the Finance and Strategic Planning Committee and the Board of Directors. The targets, along with the adjusted actual performance for the period, are shown in the table below:

 

 

 

 

 

 

 

 

 

 

 

Threshold

 

Target

 

Maximum

 

Actual

 

Average Annual Net Income

 

$173.9 million

 

$217.4 million

 

$260.9 million

 

$333.7 million

 

Two-year Average ROIC

 

8.5%

 

9.8%

 

11.1%

 

13.5%

The target payment level, possible range of payments, and actual payout, based on the Company’s actual performance measured against these performance goals were as follows:

 

 

 

 

 

 

 

 

 

Target

 

Range

 

Actual

 

Mr. Hicks

 

175% of Initial Base Salary

 

43.75% to 350% of Initial Base Salary

 

350% of Initial Base Salary

 

Other Named Executive Officers

 

75% of Initial Base Salary

 

18.75% to 150% of Initial Base Salary

 

150% of Initial Base Salary

The base salaries on which the awards were calculated were adjusted, on a pro rata basis, for the promotional salary increases received by Mr. Johnson in July 2011 and May 2012 and by Ms. Peters in July 2011.

As noted above, the awards are denominated one-half in cash and one-half in RSUs. There is a one-year holding period, so that the payouts will not be made to executives until 2014. The RSUs allocated to each executive were valued at the closing price on the date of grant. The actual cash and RSU calculations for each of the named executive officers for the 2011-12 performance period were as follows:

 

 

 

 

 

 

 

Cash

 

RSUs

 

Mr. Hicks

 

 

$

 

1,925,000

 

 

 

 

102,177

 

 

Ms. Peters

 

 

$

 

343,952

 

 

 

 

17,659

 

 

Mr. Johnson

 

 

$

 

604,888

 

 

 

 

31,444

 

 

Mr. McHugh

 

 

$

 

465,000

 

 

 

 

24,682

 

 

Mr. Bahler

 

 

$

 

405,000

 

 

 

 

21,497

 

Provisions Applicable to All Performance Periods

ROIC is a non-GAAP financial measure. For purposes of calculating the long-term bonus, we define ROIC as follows:

29


 

 

   

 

ROIC

 

=

 

Operating Profit after Taxes

 

 

   

Average Invested Capital

 

 

 

Operating Profit after Taxes (Numerator)=

 

Average Invested Capital (Denominator)=

 

Pre-tax income

 

Average total assets

 

+/- interest expense/income

 

- average cash, cash equivalents, and short-term investments

 

+ implied interest portion of operating lease payments

 

- average year-end inventory

 

+/- Unusual/non-recurring items

 

- non-interest-bearing current liabilities

 

+ Long-term bonus expense

 

+ 13-month average inventory

 

= Earnings before long-term bonus expense, interest and taxes

 

+ average estimated asset base of capitalized operating leases

 

- Estimated income tax expense

 

 

 

= Operating Profit after Taxes

 

= Average Invested Capital

Certain items used in the calculation of ROIC for bonus purposes, such as the implied interest portion of operating lease payments, certain unusual or non-recurring items, average estimated asset base of capitalized operating leases, and 13-month average inventory, while calculated from our financial records, cannot be calculated from our audited financial statements. Prior to the Compensation Committee’s determining whether bonus targets have been achieved, the Company’s independent registered public accounting firm, at the request, and for the restricted use, of the Compensation Committee, reviews the bonus calculations. There is a calculation of basic ROIC, which is not precisely the same as the calculation used for incentive compensation purposes because of the exclusion of certain extraordinary items (see discussion below of disregarded items), and a reconciliation to GAAP, on Pages 15-17 of our 2012 Form 10-K.

Clawback Policy

We do not have a formal policy with regard to the adjustment or recovery of bonus or incentive payments if it is determined, at a future date, that the relevant performance measures upon which the payments were based must be restated or adjusted. We do, however, have in place other established practices to address this. In particular, annual bonus payments are not made until after our independent auditors have completed their audit for the fiscal year to which the payments relate and presented the results of their audit to our Audit Committee; an executive who does not receive an annual performance review rating of “Meets Expectations” or above is ineligible to receive an annual bonus payment; there is a one-year holding period under the long-term incentive program so that cash payments and RSU distributions are not made until our independent auditors have completed their audit of both the performance period and the year following the performance period, and presented the results of their audits to our Audit Committee; and we have the ability to adjust future bonus, incentive, and equity grant opportunities downward to adjust for over-payments in prior years. We intend to establish a formal policy on clawbacks once the Securities and Exchange Commission has issued final clawback rules.

Items Disregarded for Annual and Long-Term Bonus Calculations

Under normal circumstances, the Compensation Committee has no discretion to increase annual bonus or long-term incentive payments, which are formula-driven based upon Company performance, and our program for the named executive officers does not provide for discretionary adjustments based upon individual performance. The Compensation Committee has not adjusted, either upward or downward, any of the annual bonus or long-term incentive payments to the named executive officers shown in the summary compensation table from payouts calculated based upon the applicable formula. When determining bonus and incentive payments, consistent with Section 162(m) of the Internal

30


Revenue Code, the Committee is required to disregard certain events that it determines to be unusual or non-recurring. When establishing the targets, the Committee normally specifies certain items that it considers to be unusual or non-recurring, and these events, if they occur, are automatically excluded when calculating payments. All of the references in this Compensation Discussion and Analysis to target and actual performance levels refer to amounts after taking into consideration these adjustments.

Long-Term Equity-Based Awards

A. Stock Options

We grant stock options to our named executive officers to align their interests more closely with those of our shareholders. Equity grants are the responsibility of the Compensation Committee, which is composed entirely of independent directors. The Committee awards stock options with exercise prices equal to the fair market value of our stock on the date of grant. Therefore, executives who receive stock options will only realize value if there is appreciation in the share price.

Stock option grants of the same size are normally made each year to executives holding comparable positions, with larger awards being made to those with greater responsibility. Beginning in 2012, the Compensation Committee determined the number of options granted on a fixed value basis, using assumed Black-Scholes values, rather than the fixed share basis used in prior years. Under the 2007 Stock Incentive Plan, fair market value is defined as the closing price on the grant date. The Compensation Committee has not granted options with an exercise price of less than the fair market value on the grant date. Options normally vest at the rate of one-third of the total grant per year over the first three years of the ten-year option term, subject to accelerated vesting in certain circumstances. The Compensation Committee does not normally consider an executive’s gains from prior stock awards in making new awards.

B. Restricted Stock Units

As noted above in our discussion of the Performance-Based Long-Term Bonus Incentives, one-half of the long-term incentive award is denominated in RSUs.

C. Restricted Stock

We normally make restricted stock awards only in special circumstances, such as related to promotions, special performance, or retention, rather than as part of an executive’s normal compensation package. In 2012, the Compensation Committee did not award restricted stock to any of the named executive officers.

D. Stock Ownership Guidelines

We have stock ownership guidelines for our senior executives. These are set at six times annual salary for the Chief Executive Officer, three times annual salary for executive vice presidents, two times annual salary for senior vice presidents and divisional chief executive officers, and one-half times annual salary for vice presidents and divisional managing directors. If an executive has not met the ownership requirements following a five-year phase-in period, the executive is required to hold 100 percent of net shares acquired from the vesting of restricted stock or RSUs or the exercise of stock options until the stock ownership guidelines are achieved.

We do not permit our executive officers to take short or long positions in our shares or to hedge their economic interest in their shares.

Retirement and Other Benefits

A. Retirement Plan and Excess Cash Balance Plan

All United States-based associates of the Company who meet the eligibility requirements are participants in the Foot Locker Retirement Plan. The Retirement Plan and the method of calculating benefits payable under it are described on page 64. All of the named executive officers are participants

31


in the Retirement Plan. The Internal Revenue Code limits the amount of compensation that may be taken into consideration in determining an individual’s retirement benefits. Therefore, those participants in the Retirement Plan, including the named executive officers, whose compensation exceeds the Internal Revenue Code limit are also participants in the Excess Cash Balance Plan, described on page 64, which provides a benefit equal to the difference between the amount a participant receives from the Retirement Plan and the amount the participant would have received were it not for the Internal Revenue Code limits.

B. 401(k) Plan

The Company maintains a 401(k) Plan for its eligible U.S. associates, and all of the named executive officers participate in it. The 401(k) Plan permits participants to contribute the lesser of 40 percent of eligible compensation or the limit prescribed by the Internal Revenue Code to the 401(k) Plan on a before- tax basis. The Company will match 25 percent of the first 4 percent of pay that is contributed to the 401(k) Plan, and the summary compensation table on page 37 includes, in All Other Compensation, the amount of the Company match for each of the named executive officers. The Company match is made in shares of Company stock, valued on the last trading day of the plan year. Participants in the 401(k) Plan may diversify their matching contributions at any time into any of the other investment options available under the plan.

C. Supplemental Executive Retirement Plan

The Company maintains a Supplemental Executive Retirement Plan (“SERP”), described on page 65, for certain senior officers of the Company and other key employees, including the named executive officers. The SERP is an unfunded plan that sets an annual target incentive award for each participant consisting of a percentage of base salary and annual bonus based on the Company’s performance against target. Contributions range from 4 percent to 12 percent of salary and annual bonus, depending on the Company’s performance against an established target, with an 8 percent contribution being made for target performance. The Compensation Committee establishes the SERP target each year, and it is normally the same as the performance target under the Annual Bonus Plan. Participant accounts accrue simple interest at the rate of 6 percent annually. The SERP also provides for the continuation of medical and dental insurance benefits to vested participants following their retirement.

Based upon the Company’s performance in 2012, a credit of 11.6 percent of 2012 base salary and annual bonus was made to the SERP for each of the named executive officers. As of the end of 2012, the account balances of the named executive officers ranged from approximately $613,000 for Mr. McHugh to $1.3 million for Mr. Hicks. Under the terms of the Supplemental Plan, executives are vested in their account balances based upon a combination of age and service. As of the end of 2012, all of the named executive officers were vested in the SERP other than Mr. Hicks, who had not yet met the plan’s age plus service vesting requirements.

The Retirement Plan takes into account only base salary and annual bonus in determining pension benefits. Credits to the SERP are based only on base salary and annual bonus. Therefore, long-term incentives, stock options, and stock awards have no effect on the calculation of benefits or payments under these plans.

Perquisites

We provide the named executive officers with certain perquisites, which the Compensation Committee believes to be reasonable and consistent with its overall objective of attracting and retaining talented retail industry executives. The Company provides the named executive officers with an automobile allowance, financial planning, medical expense reimbursement, annual physical, supplemental long-term disability insurance, and life insurance. In addition, the Company reimburses Mr. Hicks for the reasonable expenses of using a car service for transportation in the New York metropolitan area. We do not provide a gross-up to executives for the income tax liability they incur due to their receipt of these perquisites.

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How does each element of compensation fit into our overall compensation objectives? How does each element affect our decisions regarding other elements?

As stated at the beginning of this discussion and analysis, the objectives of our compensation program are to attract, motivate, and retain talented retail industry executives in order to maintain and enhance the Company’s performance and its return to shareholders.

 

 

 

 

Base salaries aid in attracting and retaining talented retail company executives by providing fixed pay commensurate with their position, experience and responsibilities.

 

 

 

 

The performance-based annual and long-term incentive plans are designed to reward executives for enhancing the Company’s performance through the achievement of performance targets.

 

 

 

 

Equity awards are designed to reward executives for increasing our return to our shareholders through increases in our stock price. Equity awards may, in addition, serve to help retain key executives.

Base salaries of named executive officers rarely change materially from year-to-year unless there has been a promotion, other change in responsibility, or other special factors apply. Bonus target pay-outs, both annual and long-term, are established by level of position. Mr. Hicks’ annual bonus target is specified in his employment agreement. In determining total compensation, stock options are valued using the Black-Scholes model. Awards of RSUs and restricted stock awards are valued based upon the share price at the time of grant. The goal of the Compensation Committee is to balance annual, mid-term, and long- term compensation opportunities, as well as balance the mix of cash and equity in the executive compensation program.

Compensation Plans and Risk

We believe that our compensation program encourages our named executive officers to take energetic action to improve the Company’s performance without encouraging them to take undue risk. The annual bonus and long-term incentive elements of the program are paid based upon performance as compared to the Company’s annual and two-year business plans, which are prepared each year by the Company’s management and reviewed and approved by the Finance and Strategic Planning Committee and the Board of Directors. While in some years these business plans have proven to be aggressive—as shown in hindsight when the plans are not achieved and bonuses are not paid—our history suggests that, on balance, they are reasonably achievable under normal business conditions. This encourages our executives to manage the business well without pressuring them to take undue risks in order to obtain a bonus payment.

Our equity-based compensation for the named executive officers is designed with a similar goal in mind. We believe that our equity grants are reasonable in relation to overall compensation. Stock options normally vest ratably over a three-year period and have a 10-year term, reducing the risk that an executive will take short-term action to inflate the price of the Company’s stock for a brief period.

Long-term incentive payouts are calculated at the conclusion of the two-year performance period, but not actually paid to the participant until an additional year has passed. In addition to serving as a retention vehicle, this also requires that the executive continue to have the value of the stock portion of his or her award at risk, dependent on fluctuations in stock price, for an additional year. It also allows a year to pass in which any issues concerning the Company’s operating or financial performance may come to light before payments are made.

In addition, there are certain other factors related to our compensation programs for the named executive officers that we believe help reduce the likelihood that our compensation programs will encourage our executives to take undue risk:

 

 

 

 

Bonus Targets Based on Business Plan. As the bonus targets are based on the business plan, any significant deviation from the plan undertaken by management during the course of the year must be reviewed and approved by the Board of Directors.

 

 

 

 

ROIC as Bonus Measurement. As a retail company, we believe that one of the more significant risks we run is that management will attempt to achieve profit targets without taking into account the capital used, particularly working capital invested in inventory. We have therefore

33


 

 

 

 

designed our long-term incentive plan for senior management, including the named executive officers, to take into account ROIC as well as net income in determining whether a bonus will be paid.

 

 

 

 

No Bonus Payments to Executives with Poor Performance Ratings. We have designed our plans so that executives who receive a “Not Meeting Expectations” or “Unsatisfactory” rating under the Company’s annual performance appraisal process are not eligible to receive an annual bonus payment. This helps prevent an individual executive from taking any action inconsistent with the business plan or otherwise exposing the Company to undue risk.

 

 

 

 

Incentive Payments Proportional to Base Salary. We believe that our cash incentive payments are not outsized in relation to base salary. At target, the Chief Executive Officer has the opportunity to earn 125 percent of his base salary in annual bonus and 175 percent of his base salary in long-term bonus. Comparable percentages for the Chief Operating Officer are 75 percent and 100 percent, and for the other named executive officers, 50 percent and 75 percent.

 

 

 

 

Bonus Caps. Annual cash bonus and the cash portion of the long-term incentive awards to executives are capped and do not include excessive leverage.

 

 

 

 

Balance Among Components. There is a balance between annual, mid-term, and long-term compensation plans for executives, as well as a balance between the use of cash and equity.

Please see page 23 of the proxy statement for a discussion of compensation and risk in our compensation plans more generally, and the procedures we followed to evaluate this.

Compensation Committee Procedure

At the beginning of each year, the Compensation Committee holds a meeting with management, the Company’s compensation consultant, and the Committee’s independent compensation consultant to review the overall executive compensation environment, including recent developments in executive compensation, and the Company’s executive compensation program, including a historical view of the pay-for-performance correlation in the program and any changes to the program being recommended by management or either of the consultants.

The Committee then holds a second meeting, in March, after the financial results for the prior year have been finalized and audited, to review and approve bonus and incentive compensation payments for the prior year and to review and approve compensation arrangements—base salaries, stock awards, and incentive plan targets—for the upcoming year. The Committee meets privately with its independent consultant for the purpose of establishing the compensation of the Chief Executive Officer, including establishing target awards under the Annual Bonus Plan and the long-term incentive compensation program, and making stock awards to him. Except in the case of promotions or other unusual circumstances, the Compensation Committee considers stock awards only at its March meeting, which is normally held within a few weeks following the issuance of the Company’s full-year earnings release for the prior year.

The Committee may hold other meetings during the year to review specific issues related to executive compensation or new developments in executive compensation. It also has responsibility, along with the Nominating and Corporate Governance Committee, for annually reviewing compensation paid to non- employee directors. In 2012, the Compensation Committee held a total of six meetings.

The Compensation Committee has retained as its advisor a nationally recognized executive compensation consultant—Compensation Advisory Partners—that is independent and performs no other work for the Company. Compensation Advisory Partners is retained directly by the Compensation Committee, reports to it directly, meets with the Committee privately, without management present, and regularly communicates privately with the Chair of the Committee. The Compensation Committee has assessed the independence of Compensation Advisory Partners and concluded that no conflict of interest exists that would prevent it from serving as an independent consultant to the Committee. Each year, the Committee’s compensation consultant reviews a report on risk in relation to the Company’s compensation policies and practices, provides a pay-for-performance analysis of our executive compensation program, and reviews the Chief Executive Officer’s compensation. Management utilizes the services of ClearBridge Compensation Group, a nationally

34


recognized compensation consultant to provide advice on the executive compensation program and plan design.

Management is involved in various aspects of developing the executive compensation program. Our Senior Vice President—Human Resources, Vice President—Human Resources, and staff in the Human Resources Department, work with our Chief Executive Officer to develop compensation recommendations for all corporate officers other than the Chief Executive Officer. The Chief Executive Officer or the Senior Vice President—Human Resources reviews these proposals with the Chair of the Compensation Committee, and may make changes to the recommendations based upon his input, before the recommendations are forwarded to the Compensation Committee for review. Our Senior Vice President and General Counsel and Vice President and Associate General Counsel also attend meetings of the Compensation Committee and participate in some of these discussions and preparations.

The Compensation Committee has delegated authority to its Chair to approve stock option awards of up to 25,000 shares to any single employee other than a corporate officer. The Chair generally uses this authority to approve stock option grants made during the course of the year in connection with promotions or new hires. In 2012, the Chair used this authority to approve grants of options to four executives, who were not named executive officers, to purchase a total of 3,800 shares. Those options are priced at fair market value on the date the Chair signs the approval. The Compensation Committee has not delegated authority to management to make stock option, restricted stock, or RSU awards.

Executive Employment Agreements

As more fully described on Pages 46 to 49, we have employment agreements with each of our named executive officers. Other than the agreement with Mr. Hicks, which was separately negotiated when he joined the Company in 2009, the agreements with the named executive officers are in the same form.

Our employment agreements with the named executive officers provide for severance payments to the executive if we terminate the executive’s employment without cause or if we give the executive good reason to terminate employment. These payments to the named executive officers, calculated as if termination of employment occurred at the end of our last fiscal year, are set out in the tables on Pages 50 to 63.

The named executive officers receive an enhanced severance payment if the executive’s employment is terminated without cause or if the executive terminates employment for good reason within two years following a change-in-control. For an executive to receive the enhanced severance payment, two events must occur: first, employment must be terminated for one of the specified reasons, and second, this termination must occur within two years following a change-in-control. We believe that these provisions, which we have had in place for a number of years, provide appropriate protection to our executives, comparable to that available at other publicly traded companies, and, with regard to the enhanced severance following a change-in-control, protect us from losing key executives during a period when a change-in-control may be threatened or pending. None of the named executive officers is entitled to a gross-up payment upon a change-in-control.

All of the named executive officers have agreed in their employment contracts not to compete with the Company for two years following the termination of employment and not to hire Company employees during that same period. This restriction does not apply following a change-in-control.

Accounting and Tax Considerations

While we review both the accounting and tax effects of various components of compensation, these effects are not a significant factor in the Compensation Committee’s allocation of compensation among the different components. In general, it is our position that compensation paid to executive officers should be fully deductible for U.S. tax purposes, and we have structured our bonus, long-term incentive, and stock option programs so that payments made under them are deductible. In certain instances, however, we believe that it is in the Company’s best interests, and that of its shareholders, to have the flexibility to pay compensation that is not deductible under the limitations of Section 162(m) of the

35


Internal Revenue Code in order to provide a compensation package consistent with our program and objectives. The portion of base salary paid to Mr. Hicks that exceeds $1,000,000, the value of time-based restricted stock awards made to him, and potentially a portion of the value of time-based restricted stock awards made to one or more of the other named executive officers, are not expected to be deductible.

Compensation Committee Report

The Compensation and Management Resources Committee of the Board of Directors has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management and, based on that review and discussion, has recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this proxy statement.

Alan D. Feldman, Chair
James E. Preston
Allen Questrom
Cheryl Nido Turpin
Dona D. Young

36


SUMMARY COMPENSATION TABLE

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(a)

 

(b)

 

(c)

 

(d)

 

(e)

 

(f)

 

(g)

 

(h)

 

(i)

 

(j)

Name and Principal Position (1)

 

Year

 

Salary
($)

 

Bonus
($)(2)

 

Stock
Awards
($)(3)(4)

 

Option
Awards
($)(3)

 

Non-Equity
Incentive Plan
Compensation($)(5)

 

Change
in Pension
Value and
Nonqualified
Deferred
Compensation
Earnings($)(6)

 

All Other
Compensation($)(7)

 

Total
($)

Ken C. Hicks

     

2012

       

1,100,000

       

       

1,925,017

       

3,040,800

       

4,233,625

       

504,007

       

247,120

       

11,050,569

 

Chairman, President

     

2011

       

1,100,000

       

500,000

       

2,867,015

       

2,878,750

       

5,954,052

       

520,474

       

238,856

       

14,059,147

 

and CEO

     

2010

       

1,100,000

       

500,000

       

1,741,431

       

1,339,500

       

2,776,881

       

428,331

       

174,648

       

8,060,791

 

Lauren B. Peters

 

 

 

2012

 

 

 

 

493,750

 

 

 

 

 

 

 

 

375,029

 

 

 

 

445,984

 

 

 

 

758,455

 

 

 

 

199,843

 

 

 

 

45,397

 

 

 

 

2,318,458

 

Executive VP and

 

 

 

2011

 

 

 

 

439,061

 

 

 

 

 

 

 

 

827,696

 

 

 

 

549,216

 

 

 

 

1,393,837

 

 

 

 

174,519

 

 

 

 

300,996

 

 

 

 

3,685,325

 

CFO

 

 

 

2010

 

 

 

 

380,414

 

 

 

 

 

 

 

 

260,619

 

 

 

 

178,600

 

 

 

 

588,810

 

 

 

 

126,894

 

 

 

 

210,980

 

 

 

 

1,746,317

 

Richard A. Johnson

     

2012

       

837,500

       

       

850,022

       

496,664

       

1,659,510

       

338,832

       

68,145

       

4,250,673

 

Executive VP and

     

2011

       

765,833

       

       

1,078,663

       

460,600

       

2,266,217

       

271,336

       

212,136

       

5,054,785

 

Chief Operating

     

2010

       

700,000

       

       

1,878,945

       

357,200

       

908,686

       

220,127

       

312,436

       

4,377,394

 

Officer

                                   

Robert W. McHugh

 

 

 

2012

 

 

 

 

631,250

 

 

 

 

 

 

 

 

476,261

 

 

 

 

445,984

 

 

 

 

994,934

 

 

 

 

231,482

 

 

 

 

58,598

 

 

 

 

2,838,509

 

Executive VP—

 

 

 

2011

 

 

 

 

615,000

 

 

 

 

 

 

 

 

960,009

 

 

 

 

460,600

 

 

 

 

2,023,125

 

 

 

 

220,847

 

 

 

 

202,093

 

 

 

 

4,481,674

 

Operations Support

 

 

 

2010

 

 

 

 

593,750

 

 

 

 

 

 

 

 

407,095

 

 

 

 

357,200

 

 

 

 

903,634

 

 

 

 

167,909

 

 

 

 

254,132

 

 

 

 

2,683,720

 

Gary M. Bahler

     

2012

       

540,000

       

       

405,021

       

222,992

       

858,330

       

316,778

       

71,538

       

2,414,659

 

Senior VP, General

     

2011

       

538,213

       

       

405,003

       

287,875

       

1,815,574

       

317,599

       

143,642

       

3,507,906

 

Counsel and

     

2010

       

530,881

       

       

361,539

       

178,600

       

828,346

       

239,847

       

50,820

       

2,190,033

 

Secretary

                                   

Notes to Summary Compensation Table

 

(1)

 

 

 

Lauren B. Peters has served as Executive Vice President and Chief Financial Officer since July 1, 2011. Prior to this, she served as Senior Vice President—Strategic Planning.

 

 

 

 

 

Richard A. Johnson has served as Executive Vice President and Chief Operating Officer since May 16, 2012. He served as Executive Vice President and Group President—Retail Stores from July 1, 2011 to May 16, 2012. He served as President and Chief Executive Officer of Foot Locker U.S., Lady Foot Locker, Kids Foot Locker, and Footaction from January 8, 2010 to June 30, 2011.

 

 

 

 

 

Robert W. McHugh has served as Executive Vice President—Operations Support since July 1, 2011. He previously served as Executive Vice President and Chief Financial Officer from May 1, 2009 to June 30, 2011.

 

(2)

 

 

 

This column reflects the sign-on bonus Mr. Hicks received in connection with the commencement of his employment in August 2009, a portion of which was paid on his employment commencement date in 2009, with the balance paid to him over a two-year period on the first and second anniversaries of his employment date.

 

(3)

 

 

 

The amounts in these columns reflect the stock and option awards granted in the designated years. The amounts represent the aggregate grant date fair value of the awards granted in each respective year calculated in accordance with stock-based compensation accounting rules (ASC Topic 718). A discussion of the assumptions used in computing the award values may be found in Note 21 to our financial statements in our Form 10-K for 2012. As provided under the SEC’s rules, the amounts shown exclude the impact of estimated forfeitures related to service-based vesting conditions and include for restricted stock awards expected dividend payments at the same rate as paid on our shares of Common Stock. Please see the Grants of Plan-Based Awards table on Page 39 for additional information on awards granted in 2012. The amounts shown in the table do not necessarily reflect the actual value that may be recognized by the named executives.

 

(4)

 

 

 

The amounts in column (e) include for all of the named executives the grant date fair value of performance-based restricted stock units (RSUs) granted in 2012 for the long-term performance measurement period of 2012-2013, in 2011 for the 2011-2012 long-term performance measurement period, and in 2010 for the long-term performance measurement period of 2010-2011, valued at grant date based upon the probable outcome of meeting the performance conditions. The amounts shown reflect the achievement of the maximum level performance, are consistent with the estimate of the aggregate compensation cost to be recognized over the service period determined at the

37


 

 

 

 

grant date under FASB ASC Topic 718, and exclude the effect of estimated forfeitures. For 2011, column (e) also includes for Messrs. Hicks, Johnson and McHugh, and Ms. Peters, their 2011 restricted stock awards and, for 2010, Mr. Johnson’s restricted stock award. Please see the Grants of Plan-Based Awards table on Page 39 for additional information on the awards granted in 2012.

 

(5)

 

 

 

For 2012, this column reflects the sum of the cash incentive payouts made in 2013 under the Annual Incentive Compensation Plan (“Annual Bonus Plan”) for 2012 and the cash portion of the earned payout under the Long-Term Incentive program (“LTI”) for the 2011-2012 performance measurement period that is payable in 2014 if the executive continues to be employed by us on the payment date, as shown in Table I below. For 2011, this column reflects the sum of the cash incentive payments made in 2012 under the Annual Bonus Plan for 2011 and the LTI payment for the 2009-2011 performance measurement period, and the cash portion of the earned LTI incentive for the 2010-2011 performance measurement period paid in 2013, as shown in Table II below.

I — Cash Incentive Payouts for 2012

 

 

 

 

 

 

 

 

 

Payout in 2013

 

Payout in 2014

 

 

 

 

 

 

 

Name

 

Annual Bonus Plan
Cash Payment for 2012

 

LTI
2011-2012 Performance Period
(Cash Payout Earned—Payable in 2014)

 

Total
As Shown in
Summary Compensation Table

 

K. Hicks

 

 

$

 

2,308,625

 

 

 

$

 

1,925,000

 

 

 

$

 

4,233,625

 

 

L. Peters

 

 

 

414,503

 

 

 

 

343,952

 

 

 

 

758,455

 

 

R. Johnson

 

 

 

1,054,622

 

 

 

 

604,888

 

 

 

 

1,659,510

 

 

R. McHugh

 

 

 

529,934

 

 

 

 

465,000

 

 

 

 

994,934

 

 

G. Bahler

 

 

 

453,330

 

 

 

 

405,000

 

 

 

 

858,330

 

II — Cash Incentive Payouts for 2011

 

 

 

 

 

 

 

 

 

 

 

 

 

Payouts in 2012

 

Payout in 2013

 

 

 

 

 

 

 

Name

 

Annual Bonus Plan
Cash Payment for
2011

 

LTI
2009-2011
Performance
Period
(Cash Payout)

 

Total Cash
Bonus Payments
Received in 2012

 

LTI
2010-2011
Performance
Period
(Cash Payout
Earned—
Payable in 2013)

 

Total as
Shown in
Summary
Compensation
Table

 

K. Hicks

 

 

$

 

2,406,250

 

 

 

$

 

1,622,802

 

 

 

$

 

4,029,052

 

 

 

$

 

1,925,000

 

 

 

$

 

5,954,052

 

 

L. Peters

 

 

 

384,179

 

 

 

 

701,726

 

 

 

 

1,085,905

 

 

 

 

307,932

 

 

 

 

1,393,837

 

 

R. Johnson

 

 

 

670,104

 

 

 

 

1,049,272

 

 

 

 

1,719,376

 

 

 

 

546,841

 

 

 

 

2,266,217

 

 

R. McHugh

 

 

 

538,125

 

 

 

 

1,035,000

 

 

 

 

1,573,125

 

 

 

 

450,000

 

 

 

 

2,023,125

 

 

G. Bahler

 

 

 

470,936

 

 

 

 

945,000

 

 

 

 

1,415,936

 

 

 

 

399,638

 

 

 

 

1,815,574

 

 

(6)

 

 

 

Amounts shown in column (h) represent the annual change in pension value during each of our last three fiscal years for each of the executives. Please see Page 66 for more information on 2012 pension benefits.

 

(7)

 

 

 

This column includes perquisites and other compensation, and the amounts attributable to the executives for 2012 are shown in the tables below. We valued these perquisites at the incremental cost to the Company of providing the personal benefits to the executives, which represents the actual cost attributable to providing these personal benefits. Please note:

 

 

 

 

The amounts shown for financial planning and medical expense reimbursement reflect amounts reimbursed in 2012, which may also include reimbursement of amounts submitted in 2012 for expenses incurred in 2011.

 

 

 

 

The amounts shown in the table under the 401(k) Match column represent the dollar value of the Company’s matching contribution under the Foot Locker 401(k) Plan made to the named executive’s account in shares of Common Stock. The shares of stock for the 2012 matching contribution were valued at $32.12 per share.

38


 

 

 

 

The amounts shown for spousal travel expense reimbursement reflect amounts reimbursed solely for spousal travel to attend the 2012 Summer Olympics and related vendor-sponsored events.

 

 

 

 

The amounts shown under the column Accrual for Post-Retirement Medical reflect the amounts accrued in 2012 for the actuarial present value of the future cost of providing this benefit to these individuals. As Mr. Hicks is the only named executive who is not fully eligible for this benefit, his benefit accrual reflects the fact that he is earning additional service credit towards benefit eligibility, resulting in a higher accrual amount than the other named executives who are already fully eligible for the benefit.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Name

 

Auto/Car Service
Allowances

 

Financial
Planning

 

Universal
Life
Insurance
Premium

 

Medical
Expense
Reimbursement

 

Executive
Physical

 

Supp. LTD
Insurance
Premiums

 

Accrual
for Post-
Retirement
Medical

 

Spousal
Travel Exp.
Reimb.

 

401(k)
Match

 

Total

K. Hicks

 

 

 

39,906

 

 

 

 

8,435

 

 

 

 

6,747

 

 

 

 

3,920

 

 

 

 

555

 

 

 

 

12,515

 

 

 

 

164,503

 

 

 

 

8,039

 

 

 

 

2,500

 

 

 

 

247,120

 

L. Peters

 

 

 

9,769

 

 

 

 

 

 

 

 

2,369

 

 

 

 

2,194

 

 

 

 

 

 

 

 

 

 

 

 

28,565

 

 

 

 

 

 

 

 

2,500

 

 

 

 

45,397

 

R. Johnson

 

 

 

 

 

 

 

8,435

 

 

 

 

4,586

 

 

 

 

3,701

 

 

 

 

555

 

 

 

 

6,075

 

 

 

 

33,881

 

 

 

 

8,412

 

 

 

 

2,500

 

 

 

 

68,145

 

R. McHugh

 

 

 

16,662

 

 

 

 

 

 

 

 

 

 

 

 

5,000

 

 

 

 

555

 

 

 

 

 

 

 

 

33,881

 

 

 

 

 

 

 

 

2,500

 

 

 

 

58,598

 

G. Bahler

 

 

 

14,670

 

 

 

 

8,435

 

 

 

 

2,139

 

 

 

 

5,344

 

 

 

 

 

 

 

 

5,565

 

 

 

 

32,885

 

 

 

 

 

 

 

 

2,500

 

 

 

 

71,538

 

The following Grants of Plan-Based Awards Table shows the awards made to the named executive officers in 2012 under the Annual Bonus Plan and the Long-Term Bonus Plan, as well as the restricted stock unit and stock option awards under the Company’s Stock Incentive Plan.

GRANTS OF PLAN-BASED AWARDS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(a)

 

(b)

 

Estimated Future Payouts
Under Non-Equity Incentive
Plan Awards

 

Estimated Future Payouts
Under Equity Incentive
Plan Awards

 

 

 

(j)

 

(k)

 

(l)

 

(c)

 

(d)

 

(e)

 

(f)

 

(g)

 

(h)

 

(i)

Name

 

Grant
Date

 

Threshold
($)

 

Target
($)

 

Maximum
($)

 

Threshold
(#)

 

Target
(#)

 

Maximum
(#)

 

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

 

All
Other
Option
Awards:
Number of
Securities
Under-
lying
Options
(#)

 

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

 

Grant
Date
Fair
Value of
Stock
and
Option
Awards(4)

K. Hicks

 

03/21/12(1)

 

 

 

343,750

 

 

 

 

1,375,000

 

 

 

 

2,406,250

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

03/21/12(2)

 

 

 

240,625

 

 

 

 

962,500

 

 

 

 

1,925,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

03/21/12(2)

 

 

 

 

 

 

 

 

 

7,783

 

 

 

 

31,129

 

 

 

 

62,258

 

 

 

 

 

 

 

 

 

 

1,925,017

 

 

 

03/21/12(3)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

300,000

 

 

 

 

30.92

 

 

 

 

3,040,800

 

 

L. Peters

 

03/21/12(1)

 

 

 

62,500

 

 

 

 

250,000

 

 

 

 

437,500

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

03/21/12(2)

 

 

 

46,875

 

 

 

 

187,500

 

 

 

 

375,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

03/21/12(2)

 

 

 

 

 

 

 

 

 

1,517

 

 

 

 

6,065

 

 

 

 

12,129

 

 

 

 

 

 

 

 

 

 

375,029

 

 

 

03/21/12(3)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

44,000

 

 

 

 

30.92

 

 

 

 

445,984

 

 

R. Johnson

 

03/21/12(1)

 

 

 

159,275

 

 

 

 

637,500

 

 

 

 

1,115,625

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

03/21/12(2)

 

 

 

106,250

 

 

 

 

425,000

 

 

 

 

850,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

03/21/12(2)

 

 

 

 

 

 

 

 

 

3,437

 

 

 

 

13,746

 

 

 

 

27,491

 

 

 

 

 

 

 

 

 

 

850,022

 

 

 

03/21/12(3)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

49,000

 

 

 

 

30.92

 

 

 

 

496,664

 

 

R. McHugh

 

03/21/12(1)

 

 

 

79,735

 

 

 

 

317,500

 

 

 

 

555,625

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

03/21/12(2)

 

 

 

59,531

 

 

 

 

238,125

 

 

 

 

476,250

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

03/21/12(2)

 

 

 

 

 

 

 

 

 

1,926

 

 

 

 

7,702

 

 

 

 

15,403

 

 

 

 

 

 

 

 

 

 

476,261

 

 

 

03/21/12(3)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

44,000

 

 

 

 

30.92

 

 

 

 

445,984

 

 

G. Bahler

 

03/21/12(1)

 

 

 

67,500

 

 

 

 

270,000

 

 

 

 

472,500

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

03/21/12(2)

 

 

 

50,625

 

 

 

 

202,500

 

 

 

 

405,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

03/21/12(2)

 

 

 

 

 

 

 

 

 

1,638

 

 

 

 

6,550

 

 

 

 

13,099

 

 

 

 

 

 

 

 

 

 

405,021

 

 

 

03/21/12(3)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

22,000

 

 

 

 

30.92

 

 

 

 

222,992

 

Notes to Grants of Plan-Based Awards Table

 

(1)

 

 

 

Annual Incentive Awards

 

 

 

 

 

Amounts shown reflect the payment levels at threshold, target, and maximum performance for the 2012 fiscal year under the Annual Bonus Plan and reflect the potential amounts that would be paid at the end of the period if the applicable performance goals were achieved. The estimated bonus

39


 

 

 

 

payouts are based on a percentage of the executive’s base salary. For Mr. Hicks, the threshold, target, and maximum amounts represent 31.25 percent, 125 percent, and 218.75 percent, respectively, of his annual base salary. For Mr. Johnson, the threshold, target, and maximum amounts represent 18.75 percent, 75 percent, and 131.25 percent, respectively, of his annual base salary. For the other named executives, the threshold, target, and maximum amounts represent 12.5 percent, 50 percent, and 87.5 percent, respectively, of each executive’s annual base salary. The annual bonus payments actually made to the named executives for 2012 are shown in Note 5 to the Summary Compensation Table on Page 37.

 

(2)

 

 

 

Long-Term Incentive Awards

 

 

 

 

 

Provided the performance goals for the 2012-2013 long-term performance measurement period are achieved, the payout structure of the executives’ awards is as follows: (a) 50 percent of the award would be payable in cash under the Long-Term Bonus Plan, (b) 50 percent of the award would be payable in restricted stock units under the 2007 Stock Incentive Plan, and (c) both the cash portion and the stock portion of the payout would be subject to a time-based, one-year holding period following the end of the performance measurement period before payout to the executives. The amounts shown in the table reflect the estimated payment levels in cash and number of restricted stock units at threshold, target, and maximum performance for the 2012-2013 performance measurement period. Columns (c), (d), and (e) show the estimated cash payments and columns (f), (g), and (h) show the number of restricted stock units that would be paid out at threshold, target and maximum performance if the applicable performance goals are achieved.

 

 

 

 

 

The threshold, target and maximum number of restricted stock units for each executive was calculated on the date of grant on the basis of that day’s closing stock price of a share of the Company’s Common Stock. The closing price on the grant date of March 21, 2012 was $30.92. Similarly, the grant date fair values of the restricted stock unit awards are based on the closing stock price on the grant date. The actual number of restricted stock units paid out will be based on the Company’s performance compared to targets. The value of the restricted stock units received by an executive will depend upon the Company’s stock price on the payment date in 2015. No dividends are paid or accrued for the restricted stock units.

 

 

 

 

 

For Mr. Hicks, the aggregate payout in cash and stock at threshold, target and maximum performance would be 43.75 percent, 175 percent and 350 percent, respectively, of his base salary in the first year of the performance period. For Mr. Johnson, the aggregate payout in cash and stock at threshold, target and maximum performance would be 25 percent, 100 percent and 200 percent, respectively, of his base salary in the first year of the performance period. For the other named executives, the aggregate payout at threshold, target and maximum performance would be 18.75 percent, 75 percent and 150 percent, respectively, of their base salaries in the first year of the performance period. No amounts would be paid to the executives under the long-term incentive awards unless the performance goals for the performance measurement period are achieved.

 

(3)

 

 

 

Stock Option Grants

 

 

 

 

 

The amounts in column (j) reflect the number of stock options granted in 2012 under the 2007 Stock Incentive Plan. The exercise price reflected in column (k) is equal to the closing price of a share of the Company’s Common Stock on the grant date. In general, no portion of any stock option may be exercised until the first anniversary of its date of grant. Vested options may be exercised for ten years following the date of grant, unless the option is cancelled or exercised sooner than this. If the executive retires, becomes disabled, or dies while employed by the Company or one of its subsidiaries, all unexercised options that are then exercisable, plus those options that would have become exercisable on the next anniversary of the grant date, will remain (or become) exercisable as of that date. Moreover, upon the occurrence of a Change in Control, all outstanding options will become immediately exercisable as of that date. In general, options may remain exercisable for up to three years following a participant’s retirement or termination due to disability, and for up to one year for any other termination of employment for reasons other than cause.

 

 

 

 

 

The vesting schedule for options granted to the executives in 2012 is shown below.

40


 

 

 

 

 

 

 

 

 

Name

 

Date of Grant

 

Number of Shares

 

Vesting Schedule

 

K. Hicks

 

 

 

03/21/12

 

 

 

 

300,000

 

 

 

 

03/21/13:

 

 

 

 

100,000 shares

 

 

 

 

 

 

 

 

 

03/21/14:

 

 

 

 

100,000 shares

 

 

 

 

 

 

 

 

 

03/21/15:

 

 

 

 

100,000 shares

 

 

L. Peters

 

 

 

03/21/12

 

 

 

 

44,000

 

 

 

 

03/21/13:

 

 

 

 

14,666 shares

 

 

 

 

 

 

 

 

 

03/21/14:

 

 

 

 

14,667 shares

 

 

 

 

 

 

 

 

 

03/21/15:

 

 

 

 

14,667 shares

 

 

R. Johnson

 

 

 

03/21/12

 

 

 

 

49,000

 

 

 

 

03/21/13:

 

 

 

 

16,333 shares

 

 

 

 

 

 

 

 

 

03/21/14:

 

 

 

 

16,333 shares

 

 

 

 

 

 

 

 

 

03/21/15:

 

 

 

 

16,334 shares

 

 

R. McHugh

 

 

 

03/21/12

 

 

 

 

44,000

 

 

 

 

03/21/13:

 

 

 

 

14,666 shares

 

 

 

 

 

 

 

 

 

03/21/14:

 

 

 

 

14,667 shares

 

 

 

 

 

 

 

 

 

03/21/15:

 

 

 

 

14,667 shares

 

 

G. Bahler

 

 

 

03/21/12

 

 

 

 

22,000

 

 

 

 

03/21/13:

 

 

 

 

7,333 shares

 

 

 

 

 

 

 

 

 

03/21/14:

 

 

 

 

7,333 shares

 

 

 

 

 

 

 

 

 

03/21/15:

 

 

 

 

7,334 shares

 

(4) Grant Date Fair Value

The amounts shown in column (l) reflect the aggregate grant date fair value of the restricted stock unit and stock option awards granted in 2012, calculated in accordance with stock-based compensation accounting rules (FASB ASC Topic 718). A discussion of the assumptions used in computing the award values may be found in Note 21 to our financial statements in our Form 10-K for 2012. As provided under the SEC’s rules, the amounts shown exclude the impact of estimated forfeitures related to service-based vesting conditions. For option awards, the value is calculated by multiplying the Black-Scholes value by the number of options granted. For the performance-based restricted stock units awarded under the 2007 Stock Incentive Plan in connection with the 2012-2013 long-term performance measurement period, the fair value is calculated based upon the probable outcome of meeting the performance conditions at the maximum performance level and multiplying the number of units that would be received at that level by the closing price of a share of our Common Stock on the grant date. This is consistent with the estimate of the aggregate compensation cost to be recognized over the service period determined at the grant date under FASB ASC Topic 718. All of these values are shown in the table below.

 

 

 

 

 

Name

 

Black-Scholes Value for Stock
Options Granted On
March 21, 2012

 

Performance-Based Restricted
Stock Unit Awards Granted on
March 21, 2012

 

K. Hicks

 

 

$

 

10.136

 

 

 

$

 

30.92

 

 

L. Peters

 

 

$

 

10.136

 

 

 

$

 

30.92

 

 

R. Johnson

 

 

$

 

10.136

 

 

 

$

 

30.92

 

 

R. McHugh

 

 

$

 

10.136

 

 

 

$

 

30.92

 

 

G. Bahler

 

 

$

 

10.136

 

 

 

$

 

30.92

 

Salary. The annual base salaries and cash bonuses earned by our named executives for 2012 are set forth in the Summary Compensation Table. Including the cash long-term incentive earned for the 2011-2012 performance period that is payable in 2014, these amounts represented the following percentages of the named executives’ total compensation for 2012: Mr. Hicks (48.3%), Ms. Peters (54%), Mr. Johnson (58.7%), Mr. McHugh (57.3%), and Mr. Bahler (57.9%). Information on the named executives’ employment agreements appears beginning on Page 46.

41


The following table, Outstanding Equity Awards at Fiscal Year-End shows the number of outstanding stock options, both vested and unvested, and the number of unvested shares of restricted stock or restricted stock units held by the named executives at the end of the 2012 fiscal year.

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(a)

 

Option Awards

 

Stock Awards

 

(b)

 

(c)

 

(d)

 

(e)

 

(f)

 

(g)

 

(h)

 

(i)

 

(j)

Name

 

Number of
Securities
Underlying
Unexercised
Options
(#)
Exercisable(1)

 

Number of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable(1)

 

Equity
Incentive
Plan Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options
(#)

 

Option
Exercise
Price
($)

 

Option
Expiration
Date

 

Number
of Shares
or Units
of Stock
That Have
Not Vested
(#)(2)

 

Market
Value of
Shares or
Units of
Stock
That Have
Not Vested
($)(3)

 

Equity Incentive
Plan Awards:
Number of
Unearned
Shares,
Units or
Other Rights
That Have
Not Vested
(#)(2)

 

Equity Incentive
Plan Awards:
Market or
Payout
Value of
Unearned
Shares, Units
or Other Rights
That Have
Not Vested
($)(3)

K. Hicks

     

600,000

       

0

       

       

10.10

       

08/25/2019

       

       

       

       

 

 

     

200,000

       

100,000

       

       

15.10

       

03/23/2020

       

       

       

       

 

 

     

166,666

       

333,334

       

       

18.84

       

03/23/2021

       

       

       

       

 

 

     

0

       

300,000

       

       

30.92

       

03/21/2022

       

50,000

       

1,728,000

       

       

 

 

     

       

       

       

       

       

127,484

       

4,405,847

       

       

 

 

     

       

       

       

       

       

       

       

102,177

       

3,531,237

 

 

     

       

       

       

       

       

       

       

7,783

       

268,980

 

L. Peters

 

 

 

40,000

 

 

 

 

0

 

 

 

 

 

 

 

 

10.245

 

 

 

 

04/16/2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

32,000

 

 

 

 

0

 

 

 

 

 

 

 

 

25.385

 

 

 

 

04/01/2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

25,000

 

 

 

 

0

 

 

 

 

 

 

 

 

28.155

 

 

 

 

03/23/2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

25,000

 

 

 

 

0

 

 

 

 

 

 

 

 

23.92

 

 

 

 

03/22/2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

20,000

 

 

 

 

0

 

 

 

 

 

 

 

 

23.42

 

 

 

 

03/28/2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

25,000

 

 

 

 

0

 

 

 

 

 

 

 

 

11.66

 

 

 

 

03/26/2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

25,000

 

 

 

 

0

 

 

 

 

 

 

 

 

9.93

 

 

 

 

03/25/2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

26,666

 

 

 

 

13,334

 

 

 

 

 

 

 

 

15.10

 

 

 

 

03/23/2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

13,333

 

 

 

 

26,667

 

 

 

 

 

 

 

 

18.84

 

 

 

 

03/23/2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

13,333

 

 

 

 

26,667

 

 

 

 

 

 

 

 

24.75

 

 

 

 

05/26/2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

0

 

 

 

 

44,000

 

 

 

 

 

 

 

 

30.92

 

 

 

 

03/21/2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

20,000

 

 

 

 

691,200

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

19,882

 

 

 

 

687,122

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

17,659

 

 

 

 

610,295

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,517

 

 

 

 

52,428

 

R. Johnson

     

20,000

       

0

       

       

28.155

       

03/23/2015

       

       

       

       

 

 

     

20,000

       

0

       

       

23.92

       

03/22/2016

       

       

       

       

 

 

     

20,000

       

0

       

       

23.42

       

03/28/2017

       

       

       

       

 

 

     

20,000

       

0

       

       

18.80

       

07/30/2017

       

       

       

       

 

 

     

10,000

       

0

       

       

11.66

       

03/26/2018

       

       

       

       

 

 

     

25,000

       

0

       

       

9.93

       

03/25/2019

       

       

       

       

 

 

     

53,333

       

26,667

       

       

15.10

       

03/23/2020

       

       

       

       

 

 

     

26,666

       

53,334

       

       

18.84

       

03/23/2021

       

       

       

       

 

 

     

0

       

49,000

       

       

30.92

       

03/21/2022

       

       

       

       

 

 

     

       

       

       

       

       

120,000

       

4,147,200

       

       

 

 

     

       

       

       

       

       

35,652

       

1,232,133

       

       

 

 

     

       

       

       

       

       

       

       

31,444

       

1,086,705

 

 

     

       

       

       

       

       

       

       

3,437

       

118,783

 

R. McHugh

 

 

 

5,000

 

 

 

 

0

 

 

 

 

 

 

 

 

10.245

 

 

 

 

04/16/2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

20,000

 

 

 

 

0

 

 

 

 

 

 

 

 

25.385

 

 

 

 

04/01/2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

20,000

 

 

 

 

0

 

 

 

 

 

 

 

 

28.155

 

 

 

 

03/23/2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

30,000

 

 

 

 

0

 

 

 

 

 

 

 

 

21.48

 

 

 

 

11/21/2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

20,000

 

 

 

 

0

 

 

 

 

 

 

 

 

23.42

 

 

 

 

03/28/2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

25,000

 

 

 

 

0

 

 

 

 

 

 

 

 

11.66

 

 

 

 

03/26/2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

53,333

 

 

 

 

26,667

 

 

 

 

 

 

 

 

15.10

 

 

 

 

03/23/2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

26,666

 

 

 

 

53,334

 

 

 

 

 

 

 

 

18.84

 

 

 

 

03/23/2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

0

 

 

 

 

44,000

 

 

 

 

 

 

 

 

30.92

 

 

 

 

03/21/2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

20,000

 

 

 

 

691,200

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

29,802

 

 

 

 

1,029,957

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

24,682

 

 

 

 

853,010

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,926

 

 

 

 

66,563

 

G. Bahler

     

25,000

       

0

       

       

28.155

       

03/23/2015

       

       

       

       

 

 

     

12,500

       

0

       

       

9.93

       

03/25/2019

       

       

       

       

 

 

     

26,666

       

13,334

       

       

15.10

       

03/23/2020

       

       

       

       

 

 

     

16,666

       

33,334

       

       

18.84

       

03/23/2021

       

       

       

       

 

 

     

0

       

22,000

       

       

30.92

       

03/21/2022

       

       

       

       

 

 

     

       

       

       

       

       

26,467

       

914,700

       

       

 

 

     

       

       

       

       

       

       

       

21,497

       

742,936

 

 

     

       

       

       

       

       

       

       

1,638

       

56,609

 

42


Notes to Table on Outstanding Equity Awards at Fiscal Year-End

 

(1)

 

 

 

The Vesting Schedules for the options shown in columns (b) and (c) are as follows:

 

 

 

 

 

 

 

 

 

 

 

Name

 

Total Number of
Securities Underlying
Unexercised Options

 

Date of Grant

 

Vesting Date for 1/3
of Total Grant

 

Vesting Date for 1/3
of Total Grant

 

Vesting Date for 1/3
of Total Grant

K. Hicks

     

300,000

       

08/25/2009

       

08/25/2010

       

08/25/2011

       

08/25/2012

 

 

     

300,000

       

08/25/2009

       

02/25/2010

*

       

08/25/2010

*

       

 

     

300,000

       

03/23/2010

       

03/23/2011

       

03/23/2012

       

03/23/2013

 

 

     

500,000

       

03/23/2011

       

03/23/2012

       

03/23/2013

       

03/23/2014

 

     

300,000

       

03/21/2012

       

03/21/2013

       

03/21/2014

       

03/21/2015

 

 

 

 

               

 

     

1,700,000

                 

L. Peters

 

 

 

40,000

 

 

 

 

04/16/2003

 

 

 

 

04/16/2004

 

 

 

 

04/16/2005

 

 

 

 

04/16/2006

 

 

 

 

 

32,000

 

 

 

 

04/01/2004

 

 

 

 

04/01/2005

 

 

 

 

04/01/2006

 

 

 

 

04/01/2007

 

 

 

 

25,000

 

 

 

 

03/23/2005

 

 

 

 

03/23/2006

 

 

 

 

03/23/2007

 

 

 

 

03/23/2008

 

 

 

 

 

25,000

 

 

 

 

03/22/2006

 

 

 

 

03/22/2007

 

 

 

 

03/22/2008

 

 

 

 

03/22/2009

 

 

 

 

20,000

 

 

 

 

03/28/2007

 

 

 

 

03/28/2008

 

 

 

 

03/28/2009

 

 

 

 

03/28/2010

 

 

 

 

 

25,000

 

 

 

 

03/26/2008

 

 

 

 

03/26/2009

 

 

 

 

03/26/2010

 

 

 

 

03/26/2011

 

 

 

 

25,000

 

 

 

 

03/25/2009

 

 

 

 

03/25/2010

 

 

 

 

03/25/2011

 

 

 

 

03/25/2012

 

 

 

 

 

40,000

 

 

 

 

03/23/2010

 

 

 

 

03/23/2011

 

 

 

 

03/23/2012

 

 

 

 

03/23/2013

 

 

 

 

40,000

 

 

 

 

03/23/2011

 

 

 

 

03/23/2012

 

 

 

 

03/23/2013

 

 

 

 

03/23/2014

 

 

 

 

 

40,000

 

 

 

 

05/26/2011

 

 

 

 

05/26/2012

 

 

 

 

05/26/2013

 

 

 

 

05/26/2014

 

 

 

 

44,000

 

 

 

 

03/21/2012

 

 

 

 

03/21/2013

 

 

 

 

03/21/2014

 

 

 

 

03/21/2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

356,000

 

 

 

 

 

 

 

 

 

R. Johnson

     

20,000

       

03/23/2005

       

03/23/2006

       

03/23/2007

       

03/23/2008

 

 

     

20,000

       

03/22/2006

       

03/22/2007

       

03/22/2008

       

03/22/2009

 

     

20,000

       

03/28/2007

       

03/28/2008

       

03/28/2009

       

03/28/2010

 

 

     

20,000

       

07/30/2007

       

07/30/2008

       

07/30/2009

       

07/30/2010

 

     

10,000

       

03/26/2008

       

03/26/2009

       

03/26/2010

       

03/26/2011

 

 

     

25,000

       

03/25/2009

       

03/25/2010

       

03/25/2011

       

03/25/2012

 

     

80,000

       

03/23/2010

       

03/23/2011

       

03/23/2012

       

03/23/2013

 

 

     

80,000

       

03/23/2011

       

03/23/2012

       

03/23/2013

       

03/23/2014

 

     

49,000

       

03/21/2012

       

03/21/2013

       

03/21/2014

       

03/21/2015

 

 

 

 

               

 

     

324,000

                 

R. McHugh

 

 

 

5,000

 

 

 

 

04/16/2003

 

 

 

 

04/16/2004

 

 

 

 

04/16/2005

 

 

 

 

04/16/2006

 

 

 

 

 

20,000

 

 

 

 

04/01/2004

 

 

 

 

04/01/2005

 

 

 

 

04/01/2006

 

 

 

 

04/01/2007

 

 

 

 

20,000

 

 

 

 

03/23/2005

 

 

 

 

03/23/2006

 

 

 

 

03/23/2007

 

 

 

 

03/23/2008

 

 

 

 

 

30,000

 

 

 

 

11/21/2005

 

 

 

 

11/21/2006

 

 

 

 

11/21/2007

 

 

 

 

11/21/2008

 

 

 

 

20,000

 

 

 

 

03/28/2007

 

 

 

 

03/28/2008

 

 

 

 

03/28/2009

 

 

 

 

03/28/2010

 

 

 

 

 

25,000

 

 

 

 

03/26/2008

 

 

 

 

03/26/2009

 

 

 

 

03/26/2010

 

 

 

 

03/26/2011

 

 

 

 

80,000

 

 

 

 

03/23/2010

 

 

 

 

03/23/2011

 

 

 

 

03/23/2012

 

 

 

 

03/23/2013

 

 

 

 

 

80,000

 

 

 

 

03/23/2011

 

 

 

 

03/23/2012

 

 

 

 

03/23/2013

 

 

 

 

03/23/2014

 

 

 

 

44,000

 

 

 

 

03/21/2012

 

 

 

 

03/21/2013

 

 

 

 

03/21/2014

 

 

 

 

03/21/2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

324,000

 

 

 

 

 

 

 

 

 

G. Bahler

     

25,000

       

03/23/2005

       

03/23/2006

       

03/23/2007

       

03/23/2008

 

 

     

12,500

       

03/25/2009

       

03/25/2010

       

03/25/2011

       

03/25/2012

 

     

40,000

       

03/23/2010

       

03/23/2011

       

03/23/2012

       

03/23/2013

 

 

     

50,000

       

03/23/2011

       

03/23/2012

       

03/23/2013

       

03/23/2014

 

     

22,000

       

03/21/2012

       

03/21/2013

       

03/21/2014

       

03/21/2015

 

 

 

 

               

 

     

149,500

                 

 

*

 

 

 

50 percent of grant vested six months following grant date and 50 percent vested one year following grant date.

 

(2)

 

 

 

The vesting dates for the restricted stock and restricted stock unit awards shown in column (g) and (i) are set forth in the following table. The awards shown in column (g) granted in 2010 were earned following the end of the 2011 fiscal year when the Compensation and Management Resources Committee certified the achievement of the performance goals at the maximum level for the 2010-2011 long-term performance measurement period and vested in March 2013; the awards shown in column (i) granted in 2011 were earned following the end of the 2012 fiscal year when the Compensation and Management Resources Committee certified the achievement of the performance goals at the maximum level for the 2011-2012 long-term performance measurement period and will vest in 2014, and the awards shown in column (i) granted in 2012 will be earned only

43


 

 

 

 

if the threshold performance goals for the 2012-2013 performance measurement period are achieved and, if earned, will vest in 2015.

 

 

 

 

 

 

 

Name

 

Date of Grant

 

Number of Shares/Units

 

Vesting Date

K. Hicks

     

03/23/2011

       

50,000

       

03/23/2014

 

 

     

03/23/2010

       

127,484

       

03/23/2013

 

     

03/23/2011

       

102,177

       

03/23/2014

 

 

     

03/21/2012

       

7,783

       

03/21/2015

 

L. Peters

 

 

 

05/26/2011

 

 

 

 

20,000

 

 

 

 

06/30/2014

 

 

 

 

 

03/23/2010

 

 

 

 

19,079

 

 

 

 

03/23/2013

 

 

 

 

05/26/2011

 

 

 

 

803

 

 

 

 

03/23/2013

 

 

 

 

 

03/23/2011

 

 

 

 

15,753

 

 

 

 

03/23/2014

 

 

 

 

05/26/2011

 

 

 

 

1,906

 

 

 

 

03/23/2014

 

 

 

 

 

03/21/2012

 

 

 

 

1,517

 

 

 

 

03/21/2015

 

R. Johnson

     

05/25/2010

       

100,000

       

05/25/2013

 

 

     

05/26/2011

       

20,000

       

06/30/2014

 

     

03/23/2010

       

34,769

       

03/23/2013

 

 

     

05/26/2011

       

883

       

03/23/2013

 

     

03/23/2011

       

29,658

       

03/23/2014

 

 

     

05/26/2011

       

1,322

       

03/23/2014

 

     

05/16/2012

       

464

       

03/23/2014

 

 

     

03/21/2012

       

3,437

       

03/21/2015

 

R. McHugh

 

 

 

05/26/2011

 

 

 

 

20,000

 

 

 

 

06/30/2014

 

 

 

 

 

03/23/2010

 

 

 

 

29,802

 

 

 

 

03/23/2013

 

 

 

 

03/23/2011

 

 

 

 

24,682

 

 

 

 

03/23/2014

 

 

 

 

 

03/21/2012

 

 

 

 

1,926

 

 

 

 

03/21/2015

 

G. Bahler

     

03/23/2010

       

26,467

       

03/23/2013

 

 

     

03/23/2011

       

21,497

       

03/23/2014

 

     

03/21/2012

       

1,638

       

03/21/2015

 

 

(3)

 

 

 

Value calculated by multiplying the number of unvested shares or units by the closing price of $34.56 on February 1, 2013, which was the last business day of the 2012 fiscal year. The values shown in column (h) and (j) for the restricted stock units are based on:

 

 

 

 

the number of restricted stock units at maximum performance earned for the 2010-2011 performance period, which vested in March 2013;

 

 

 

 

the number of restricted stock units at maximum performance earned for the 2011-2012 performance period, which will vest in March 2014; and

 

 

 

 

the number of restricted stock units that may be earned at threshold performance for the 2012-2013 long-term performance period. If target or maximum performance is achieved for this performance period, the respective number of units earned and their value, based on the $34.56 closing price, would be:

 

 

 

 

 

 

 

 

 

Name

 

Target

 

Maximum

 

Number of Units

 

$ Value

 

Number of Units

 

$ Value

K. Hicks

 

 

 

31,129

 

 

 

 

1,075,818

 

 

 

 

62,258

 

 

 

 

2,151,636

 

L. Peters

 

 

 

6,065

 

 

 

 

209,606

 

 

 

 

12,129

 

 

 

 

419,178

 

R. Johnson

 

 

 

13,746

 

 

 

 

475,062

 

 

 

 

27,491

 

 

 

 

950,089

 

R. McHugh

 

 

 

7,702

 

 

 

 

266,181

 

 

 

 

15,403

 

 

 

 

532,328

 

G. Bahler

 

 

 

6,550

 

 

 

 

226,368

 

 

 

 

13,099

 

 

 

 

452,701

 

44


The following table, Option Exercises and Stock Vested, provides information on the stock options exercised by the named executives during 2012 and restricted stock awards that vested during the year.

OPTION EXERCISES AND STOCK VESTED

 

 

 

 

 

 

 

 

 

(a)

 

Option Awards

 

Stock Awards

 

(b)

 

(c)

 

(d)

 

(e)

Name

 

Number of Shares
Acquired on Exercise(#)

 

Value Realized
on Exercise($)

 

Number of Shares
Acquired on Vesting(#)

 

Value Realized
on Vesting($)

K. Hicks

 

 

 

 

 

 

 

 

 

 

 

400,000

 

 

 

 

12,929,000

 

L. Peters

 

 

 

47,500

 

 

 

 

664,763

 

 

 

 

25,000

 

 

 

 

774,500

 

R. Johnson

 

 

 

60,000

 

 

 

 

885,300

 

 

 

 

25,000

 

 

 

 

774,500

 

R. McHugh

 

 

 

40,000

 

 

 

 

944,366

 

 

 

 

25,000

 

 

 

 

774,500

 

G. Bahler

 

 

 

114,500

 

 

 

 

1,437,361

 

 

 

 

25,000

 

 

 

 

774,500

 

45


EMPLOYMENT AGREEMENTS

We have employment agreements with each of the named executive officers, and we describe the material terms of each of these agreements below. Information on potential payments and benefits on termination of the agreements is described under the section “Potential Payments upon Termination or Change in Control,” beginning on Page 50.

Ken C. Hicks

 

 

 

 

Position. We entered into an employment agreement with Mr. Hicks in June 2009 in connection with our recruiting and hiring him to serve as our Chief Executive Officer.

 

 

 

 

Term. The term of this agreement began on August 17, 2009 and ends on January 31, 2015. The agreement contains an “evergreen” renewal provision that provides for additional one-year renewals of the employment term unless either party gives notice of non-renewal one year prior to the end of the then- current term.

 

 

 

 

Base Salary and Bonus. We pay Mr. Hicks an annual base salary of not less than $1.1 million during the term of the agreement. For fiscal years after 2009, Mr. Hicks’ annual bonus at target is 125 percent of his base salary. Mr. Hicks participates in the long-term bonus plan and, for the 2008-2010 and 2009-2011 performance periods, he participated on a pro rata basis with an annual bonus at target of 90 percent of his base salary at the time he began employment with the Company. For the 2010-2011, 2011-2012, and 2012-2013 performance periods, his bonus at target is 175 percent of his base salary.

 

 

 

 

Sign-on Bonus. Mr. Hicks’ agreement provided for a sign-on bonus payment of $2 million, payable as follows: (a) $1 million within 30 days of August 17, 2009 and (b) $500,000 each on August 17, 2010 and August 17, 2011, provided he continued to be employed by the Company as our Chief Executive Officer through theses dates.

 

 

 

 

Stock Awards. (i) Mr. Hicks’ agreement provided for the following stock awards to be made within 30 days of his employment commencement date, with vesting subject to his continued employment as Chief Executive Officer of the Company:

 

 

 

 

 

Type of Award

 

Number of Shares

 

Vesting

 

Restricted Stock

 

100,000

 

January 31, 2013

 

Stock Option

 

300,000

 

Three equal annual installments, beginning on the first anniversary of thedate of grant

(ii) In addition, as a bonus in connection with executing his employment agreement and as an inducement to commence employment, the agreement provided for the following stock awards to be made within 30 days of his employment commencement date, with vesting subject to his continued employment as Chief Executive Officer of the Company:

 

 

 

 

 

Type of Award

 

Number of Shares

 

Vesting

 

Restricted Stock

 

400,000

 

January 31, 2011: 100,000

 

 

 

 

January 31, 2012: 100,000

 

 

 

 

January 31, 2013: 200,000

 

 

 

 

Vesting is subject to continued employment as CEO

 

Stock Option

 

300,000

 

Six months following date of grant: 150,000 One year following date of grant: 150,000

 

 

 

 

Vesting is subject to continued employment as CEO

 

 

 

 

Relocation. The agreement provided for reimbursement of relocation expenses for Mr. Hicks to relocate to the New York metropolitan area.

46


 

 

 

 

Benefit Plans and Perquisites. Mr. Hicks is entitled to participate in all bonus, incentive, and equity plans offered to senior executives. He is also eligible to participate in all pension, welfare, and fringe benefit plans and perquisites offered to senior executives. The benefits and perquisites available to Mr. Hicks include:

 

 

 

 

Company-paid life insurance in the amount of his annual base salary;

 

 

 

 

Long-term disability insurance coverage of $25,000 per month;

 

 

 

 

Annual out-of-pocket medical expense reimbursement of up to $7,500;

 

 

 

 

Financial planning expenses of up to $15,000 during the first year of employment and $7,500 annually thereafter, as adjusted for adviser fee increases;

 

 

 

 

Reimbursement of up to $15,000 for legal fees in connection with his employment agreement; and

 

 

 

 

Automobile expense reimbursement for up to $40,000 annually and reimbursement of reasonable expenses for car service for transportation within the New York metropolitan area.

 

 

 

 

Non-Compete Provision. Mr. Hicks’ agreement provides that he may not compete with Foot Locker or solicit our employees for two years following the termination of his employment agreement.

 

 

 

 

Certain Defined Terms in the Agreement:

“Cause” means with regard to Mr. Hicks:

 

 

 

 

his refusal or willful failure to substantially perform his duties;

 

 

 

 

his dishonesty, willful misconduct, misappropriation, breach of fiduciary duty or fraud with regard to the Company, its business or assets;

 

 

 

 

his willful breach of any material provision of the agreement, which is not cured;

 

 

 

 

his conviction of a felony (other than a traffic violation) or any other crime involving moral turpitude; or

 

 

 

 

his willful failure to take lawful and reasonable directions from the Board.

“Change in Control” means any of the following:

 

 

 

 

the Company merges with another company or sells all (or substantially all) of its assets. This event would exclude, for example, mergers (or similar transactions) in which shareholders of the Company prior to the transaction continue to represent a majority of the stock outstanding after the transaction;

 

 

 

 

the acquisition of 35 percent or more of the outstanding stock; or

 

 

 

 

during any period of not more than 12 months, the directors at the start of the period, plus any new director whose election or nomination for election was approved by at least two-thirds of the directors then remaining on the Board who either were directors at the beginning of the period or whose election or nomination was approved in this manner, do not comprise at least a majority of the Board.

“Good Reason” means, following a Change in Control,

 

 

 

 

a material demotion or reduction in Mr. Hicks’ authority or responsibility (except in connection with a termination for Cause or disability or temporarily because of illness or other absence);

 

 

 

 

a reduction in his base salary rate;

 

 

 

 

a reduction in his annual bonus classification level;

 

 

 

 

failure to continue the benefit plans and programs that apply to him, or the reduction of his benefits, without providing substitute comparable plans, programs and benefits;

 

 

 

 

failure by a successor company to assume in writing the Company’s obligations under the agreement; or

 

 

 

 

the Company breaches a material provision of the agreement and does not correct the breach.

47


Lauren B. Peters, Richard A. Johnson, Robert W. McHugh, and Gary M. Bahler

 

 

 

 

Position/Term/Base Salary. We have substantially identical employment agreements with these executives in their current positions, as follows:

 

 

 

 

 

 

 

Name

 

Position

 

Term of Agreement

 

2012 Base Salary Rate

 

L. Peters

 

Executive VP and CFO

 

1/1/2009—1/31/2014

 

$500,000

 

R. Johnson

 

Executive VP and Chief Operating Officer

 

1/8/2010—1/31/2014

 

$850,000

 

R. McHugh

 

Executive VP—Operations Support

 

1/1/2009—1/31/2014

 

$635,000

 

G. Bahler

 

Senior VP, General Counsel and Secretary

 

1/1/2009—1/31/2014

 

$540,000

 

 

 

 

Term. The terms of the agreements will automatically be extended for another year unless notice of non-renewal is given by the October 31 prior to the expiration of the term.

 

 

 

 

Base Salary. We pay these executives annual base salaries at rates not less than their salaries at the start of their agreements. The executives’ base salaries for 2012 are shown in the table.

 

 

 

 

Benefit Plans and Perquisites. These executives are entitled to participate in all benefit plans and arrangements in effect at the start of the agreement, including retirement plans, annual and long-term bonus plans, medical, dental, and disability plans, and any other plans subsequently offered to our senior executives.

 

 

 

 

Non-Compete Provision. The executives’ agreements provide that they may not compete with Foot Locker or solicit our employees for two years following the termination of their employment agreements.

 

 

 

 

Certain Defined Terms in the Agreement:

“Cause” means the executive’s:

 

 

 

 

refusal or willful failure to subs