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TABLE OF CONTENTS
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy
Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
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| DOLLAR TREE, INC. | ||||
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LETTER FROM OUR
LEAD INDEPENDENT DIRECTOR
Dear Fellow Shareholders,
As Lead Independent Director, I am writing to share the Board's perspective on Dollar Tree's performance over the last year, why we are confident in our strategy going forward and recent governance developments that we believe will enhance our long-term performance.
As a Board, we are pleased with the Company's progress on multiple fronts. In a continually-evolving retail environment, the Company again delivered solid topline results. The Dollar Tree banner has now delivered 44 consecutive quarters of same store sales growth at industry-leading margins—an exceptional record. We accelerated our Family Dollar store optimization program and other initiatives in the fourth quarter. Although 2019 is an investment year, we expect that Family Dollar will demonstrate its potential in the second half of 2019.
The integration of Family Dollar is substantially complete, with the successful consolidation of most systems, functions and departments. With the campus consolidation in July 2019, we are in the best position to effectively and efficiently optimize Family Dollar. We have already realized significantly more synergies than initially targeted and we expect those synergies to increase. A significant portion of the synergies have benefitted the Dollar Tree banner and the merger has been good for its bottom line. We have reduced debt by over $4 billion since completing the acquisition, and returned to investment grade status. We have achieved our first goals of reducing risk to the combined enterprise and making sure the Dollar Tree banner did not miss a beat. We expect that our cash flow in 2019 will exceed our capital investments by a significant sum.
We will look for innovation—we always have. The Dollar Tree brand has built a loyal customer base through the simple, resonant value proposition that "everything is $1." However, one of Dollar Tree's seven core principles is that we must "Reinvent Ourselves Continuously." As the Board assesses opportunities to create more shareholder value, we have asked management to test how we can become even more appealing to our customers. We announced earlier this year that we will be conducting another test of multi-price point strategies which leverages Family Dollar merchandising and our joint Dollar Tree/Family Dollar distribution infrastructure. This will be conducted in a thoughtful and meaningful manner that will not risk our loyal customer base and industry-leading margins. We continue to believe, however, that the low hanging fruit is our H2 initiative at Family Dollar and the introduction of Dollar Tree $1.00 product in the Family Dollar H2 stores.
Effective oversight of management and the business also requires the Board continually review its own governance and composition. We believe the Company benefits from a diversity of perspectives amid a demonstrably independent Board, whose skills and experience are "fit for purpose" in overseeing the Company's progress and unique challenges, as well as its evolution over the coming years. As part of our refreshment, the Board has added five highly qualified independent directors, two of them women, since 2016. In the last four months, we have added Thomas Dickson and Carrie Wheeler, who bring a wealth of highly relevant and complimentary experience and help to satisfy the two biggest identified needs on the skills matrix our Nominating and Corporate Governance Committee uses to evaluate the composition and skills of the Board. Thomas served as
the Chief Executive Officer of a large public supermarket retailer, Harris Teeter. Carrie has a wealth of experience as a former partner and head of consumer and retail investing at TPG Capital, a large private equity firm. Both Thomas and Carrie have also served on the boards of other public retailers, where they had substantial engagement with long-term institutional shareholders and hedge funds alike.
Five new directors in three years represents a significant change in Board composition over a short period. It is the result of a thoughtful, evolutionary process led by Bob Sasser and Tom Saunders which sought to balance our continual need for fresh perspectives and additional relevant skillsets with the institutional and industry knowledge of our seasoned directors. Significantly, the average director tenure on this refreshed Board is below that of the S&P 500.
The tenure profile of our Board currently resembles a barbell, with five directors having two years or less in tenure, six directors with over ten years and only two directors in between. With five relatively new directors learning a complicated and unique business like Dollar Tree as well as a challenging and high-potential business like Family Dollar, our Board consulted with SpencerStuart, a leading board consulting and director search firm. The Board concluded that now was not the time to lose additional experienced directors. Instead, we adopted a waterfall strategy: each year beginning in 2020, as our newer members continue to gain needed experience, we expect to engage thoughtfully in additional Board refreshment. Our goal is to reach and thereafter maintain a relatively balanced mix of short, medium and long-term tenured directors.
We have also rotated our leadership to leverage our Board refreshment process. I will chair the Compensation Committee and serve as Lead Independent Director with expanded responsibilities, and Stephanie Stahl will chair the Nominating and Corporate Governance Committee. Many more enhancements are described in this proxy statement.
As I begin my new role as Lead Independent Director, I want to take a moment to express the entire Board's deep thanks to Bob Sasser and Thomas A. Saunders III, who set a stellar example of clear, long-sighted leadership. The positive changes noted above are all due to their leadership. We value their continued service.
I also want to thank all of you for your confidence in the Board as we continue to execute our strategy for long-term value creation. We look forward to engaging with you in the months and years ahead.
Sincerely yours,
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Greg Bridgeford
The following charts provide quick information about Dollar Tree's 2019 annual meeting and our corporate governance and executive compensation practices. These charts do not contain all of the information provided elsewhere in the proxy statement; therefore, you should read the entire proxy statement carefully before voting.
| Annual Meeting Information | ||||
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DATE & TIME |
LOCATION |
RECORD DATE |
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Thursday, June 13, 2019 at 8:00 a.m., local time |
Hilton Norfolk The Main 100 East Main Street Norfolk, Virginia 23510 |
April 9, 2019 | ||
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| Proposals That Require Your Vote | ||||||
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| Proposal | Voting Options | Board Recommendations |
More Information |
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Proposal No. 1 Election of Directors |
FOR, AGAINST, or ABSTAIN for each Director Nominee | FOR each Nominee on the proxy card | Page 95 | |||
| Proposal No. 2 Advisory Vote on NEO Compensation |
FOR, AGAINST, or ABSTAIN | FOR | Page 96 | |||
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Proposal No. 3 Ratification of Appointment of Independent Auditors |
FOR, AGAINST, or ABSTAIN | FOR | Page 97 | |||
See "Information About the Annual Meeting and Voting" beginning on page 91 for the various ways available for submitting your vote.
Corporate Governance & Compensation Quick Facts
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| Governance or Compensation Item | Dollar Tree's Practice | |||
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| Board Composition, Leadership and Operations | ||||
| Current number of directors | 13 | |||
| Director independence | 85% | |||
| Standing Board committee independence | 100% | |||
| Separate Chairman of Board and Chief Executive Officer | Yes | |||
| Independent Lead Director | Yes | |||
| Robust responsibilities assigned to Lead Director | Yes | |||
| Voting standard in director elections | Majority with plurality carve-out for contested elections | |||
| Board oversight of company strategy and risks | Yes | |||
| Resignation policy | Yes | |||
| Non-Classified Board | Yes | |||
| Average director age | 65 | |||
| Average director tenure | 8.3 | |||
| Directors attending fewer than 75% of meetings | None | |||
| Annual Board, committee and individual director self-evaluation process | Yes | |||
| Independent directors meet without management present | Yes | |||
| Number of Board meetings held in 2018 | 8 | |||
| Total number of Board and committee meetings held in 2018 | 27 | |||
| Sustainability and Other Governance Practices | ||||
| Oversight of sustainability | Yes | |||
| Codes of conduct for directors, officers and associates | Yes | |||
| Vendor code of conduct | Yes | |||
| Shareholder engagement policy | Yes | |||
| Anti-hedging policy | Yes | |||
| Robust stock ownership policies | Yes | |||
| Shares pledged by officers and directors | None | |||
| Material related party transactions with directors | None | |||
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| Governance or Compensation Item | Dollar Tree's Practice | |||
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| Family relationships | None | |||
| Independent auditor | KPMG LLP | |||
| Compensation Practices | ||||
| Executive compensation programs designed to reward performance, incentivize growth and drive long-term shareholder value | Yes | |||
| Claw-back policy requiring mandatory reimbursement of excess incentive compensation from an executive officer if the Company's financial statements are restated due to material noncompliance with SEC financial reporting requirements | Yes | |||
| Employment agreements for executive officers | No | |||
| Incentive awards based on challenging performance targets | Yes | |||
| Percentage of incentive compensation at risk | 100% | |||
| Annual risk assessment of compensation policies and practices | Yes | |||
| Frequency of say on pay advisory vote | Annual | |||
| Shareholder votes in favor of say on pay proposal in 2018 | 97.7% | |||
| Independent compensation consultant | Aon Consulting, Inc. | |||
| Double-trigger change-in-control provisions | Yes | |||
| Policy for timing of annual grant of incentive awards | Yes | |||
| Repricing of underwater options | No | |||
| Excessive perks | No | |||
DOLLAR TREE, INC.
500 Volvo Parkway
Chesapeake, Virginia 23320
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
to be held on
Thursday, June 13, 2019
We will hold the annual meeting of shareholders of Dollar Tree, Inc. (the "Company", "us", "our" or "we") at the Hilton Norfolk The Main, 100 East Main Street, Norfolk, Virginia 23510, on Thursday, June 13, 2019 at 8:00 a.m. local time, for the following purposes:
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- To elect thirteen director nominees to the Company's Board of Directors ("Board") as identified in the attached proxy statement, each to serve
as a director for a one-year term;
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- To approve, by a non-binding advisory vote, the compensation of the Company's named executive officers;
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- To ratify the selection of KPMG LLP as the Company's independent registered public accounting firm for the fiscal year 2019; and
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- To act upon any other business that may properly come before the meeting or any adjournments or postponements thereof.
Shareholders of record at the close of business on April 9, 2019 will receive notice of and be allowed to vote at the meeting.
We have elected to distribute our proxy materials primarily over the Internet rather than mailing paper copies of those materials to each shareholder. We believe this will increase shareholder value by decreasing our printing and distribution costs, reducing the potential for environmental impact by conserving natural resources, and allowing for convenient access to and delivery of materials in an easily searchable format. If you would prefer to receive paper copies of our proxy materials, please follow the instructions included in the Notice of Internet Availability of Proxy Materials that is being mailed to our shareholders on or about April 29, 2019.
Your vote is important to us. We encourage you to read the proxy statement and then vote by Internet, by phone or by signing, dating and returning your proxy card (if you request a paper copy) at your earliest convenience. Sending in your proxy card will not prevent you from voting your shares at the meeting, if you desire to do so.
| By Order of the Board of Directors | ||
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WILLIAM A. OLD, JR. Corporate Secretary |
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Chesapeake, Virginia April 22, 2019 |
IMPORTANT NOTICE ABOUT THE AVAILABILITY OF PROXY MATERIALS FOR THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON JUNE 13, 2019
The Company's proxy statement and annual report to shareholders for the fiscal year ended February 2, 2019 are available at https://www.dollartreeinfo.com/investors/financial/annuals.
OUR BOARD AND CORPORATE GOVERNANCE
Our Board of Directors is highly engaged and focused on strategy and the best use of capital to maximize shareholder value. It has the right mix of experience, skills and perspectives to accomplish that goal. In the last twelve months, the Board met nine (9) times, the Nominating and Corporate Governance Committee met nine (9) times, the Audit Committee met nine (9) times and the Compensation Committee met five (5) times.
Each year, strategy and capital allocation are a primary focus of the Board. In the last year, the Board asked J.P.Morgan, The Boston Consulting Group and Dollar Tree's Strategy Department to undertake a comprehensive strategic review, with J.P.Morgan presenting at the October 2018, December 2018 and February 2019 Board meetings. The Board reviewed a wide array of strategic choices at the December Board meeting and concluded that the Company's strategic plan provided the best option for maximizing shareholder value. The strategic plan was outlined in the March 2019 earnings release and the related materials and was well-received by shareholders.
Board Self-Assessment and Skills Matrix
The Board is committed to ensuring it has a relevant diversity of skills and experience to oversee the Company, its management, its strategic plan and the execution of that plan. Expertise in retail investments, retail operations, retail merchandising, retail supply chain, change and risk management, capital markets, finance, accounting, technology, marketing, human resource and talent development are important to our Board oversight. This expertise can be gained in a variety of ways, such as being the chief executive officer of a public retailer, serving as a member of the board or in the "C" suite, or managing private equity investments. We regularly evaluate candidates that can provide new voices and additional perspectives which will be relevant to the Company as its strategic plan continues to evolve.
The Board's annual self-evaluation led by the Nominating and Corporate Governance Committee is the foundation of our skills assessment process. Through the evaluation, the Board assesses its composition, processes, committee structure and composition, meetings and overall effectiveness. The directors provide feedback on the Board and its committees through questionnaires, and the results were discussed at the March 2019 Committee and Board meetings. This year, SpencerStuart, a leading board consulting and director search firm, was engaged by the Nominating and Corporate Governance Committee to review the questionnaire results, interview each Board member, and provide an updated skills matrix and Board analysis. SpencerStuart then met with the Committee and Board in March 2019.
Director Refreshment and Tenure
As a result of its assessment, the Board has determined that our director nominees exhibit an effective mix of skills, experiences, diversity and fresh perspectives. As the chart below summarizes, our Board members' skills and experiences cover the areas we believe are most important to sustaining our success. In addition, our Board has been steadily refreshed over the last four years.
1
In 2018, the Board identified several needs: directors with deep and relevant experience as a public company retail Chief Executive Officer and as a partner in a large private equity firm with extensive retail investments. We were also targeting directors with a diverse perspective. As a result, we added Thomas Dickson to our Board on December 31, 2018, who served as Chief Executive Officer of Harris Teeter, has import and other merchandise experience and M&A experience, and has served on other public retail boards with the support of long-term shareholders as well as activist shareholders. In the next twelve months, we expect to add one more director with experience as a Chief Executive Officer of a public retailer. In March 2019, we satisfied our other top need by adding Carrie Wheeler to the Board. Ms. Wheeler was a former partner in TPG and headed their retail and consumer group, with an extensive retail investment track record, relevant retail board experience and significant M&A experience. Two of the last four directors added to our Board are women. We expect to improve our Board diversity further within the next twelve months.
The tenure profile of our Board currently resembles a barbell, with five (5) directors having two (2) years or less in tenure, six (6) with over ten years and only two (2) directors in between. With five (5) relatively new directors learning a complicated and unique business like Dollar Tree as well as a challenging and high-potential business like Family Dollar, our Board consulted with SpencerStuart. The Board concluded that now was not the time to lose additional experienced directors. Instead, we adopted a waterfall strategy: each year beginning in 2020, as our newer members continue to gain needed experience, we expect to engage thoughtfully in additional Board refreshment. Our goal is to reach and thereafter maintain a relatively balanced mix of short, medium and long-term tenured directors.
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SKILLS AND EXPERIENCE |
DIRECTOR TENURE |
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| Independent | §§§§§§§§§§§ | >10 years | §§§§§§ | |||
| 6-10 years | § | |||||
| Leadership |
3-5 years | § | ||||
| Public company boards | §§§§§§§§§ | 0-2 years | §§§§§ | |||
| Senior public company executive experience | §§§§§§§§§ | |||||
| Public company CEO experience | §§§ | Average tenure | 8.3 years | |||
Financial Expertise |
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| Inv. banking / PE / M&A / capital markets | §§§§§§ | |||||
| CFO / audit / accounting | §§§§§ | DIVERSE DIRECTORS |
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| Public company CFO experience | §§ | |||||
Other professional expertise |
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| Consumer / retail industry | §§§§§§§§§ | DIRECTOR AVERAGE AGE |
65 | |||
| Marketing / advertising / communications | §§§§§§ | |||||
| Strategic planning | §§§§§§§§§§§ | |||||
| Operations | §§§§§§§ | |||||
| Human resources | §§§§§ | |||||
| Information technology | §§§ | |||||
| Risk management | §§§ | |||||
| Global sourcing / supply chain | §§§§ |
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PATH TO ENHANCED GOVERNANCE AND BOARD REFRESHMENT
2015 â |
Adopted Majority Voting Standard For uncontested director elections |
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| Howard Levine leaves Board Non-independent Director Former Chairman & CEO of Family Dollar J. Douglas Perry leaves Board Non-independent Director Former Chairman, founder of Dollar Tree, 30 years on Board |
2016 â |
Gregory Bridgeford appointed to Board Independent Director |
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| Macon Brock leaves Board Non-independent Director Former Chairman, founder of Dollar Tree, 31 years on Board |
2017 â |
Adopted Proxy Access Bylaw Facilitates shareholder nominations Gary Philbin appointed CEO & Director Completed long-planned executive succession Bob Sasser becomes Executive Chairman Stephanie Stahl appointed to Board Independent Director |
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| H. Ray Compton leaves Board Non-independent Director Founder of Dollar Tree, 32 years on Board Mary Ann Citrino leaves Board Independent Director 14 years on Board |
2018 â |
Jeffrey Naylor appointed to Board Independent Director Thomas Dickson appointed to Board Independent Director |
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| Tom Saunders steps down as Lead Director and NCG Committee Chair 1% beneficial owner of Dollar Tree, served 12 years as Lead Director Arnold Barron steps down as Compensation Committee Chair Served 8 years in the role |
2019 â |
Carrie Wheeler appointed to Board Independent Director Gregory Bridgeford elected as new Lead Director and Compensation Committee Chair Stephanie Stahl elected as NCG Committee Chair Enhanced Corporate Governance Guidelines adopted Executive compensation program revised Augmenting performance metrics and emphasizing at-risk elements of compensation Enhanced long-standing commitment to Sustainability |
3
CORPORATE GOVERNANCE HIGHLIGHTS
As the Company grows and evolves, our Board of Directors is engaged in a multi-year effort to enhance its membership and refine its governance policies and practices. The Board seeks to further increase its effectiveness as well as its alignment with and transparency to shareholders. These changes include:
►- Board refreshment. Just since the end of 2018, two new members, Mr. Dickson and Ms. Wheeler, have joined the Board, where they will apply their deep experience in fields critical to the needs of the Company. They represent the latest additions to a "fit for purpose" Board of Directors. Over several years, the Board has thoughtfully increased the diversity of perspectives and voices within the boardroom, ensuring the Board has the right skills and experience to guide Dollar Tree through its next phase of development. Since 2015:
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- Five (5) independent directors have joined the Board,
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- Five (5) directors have left the Board, four (4) of them non-independent, including the three Dollar Tree co-founders Macon F. Brock, Jr., H. Ray Compton and J. Douglas Perry,
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- Two (2) women have joined the Board (with one prior director, Mary Anne Citrino, retiring on December 31, 2018),
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- Gary M. Philbin, our Chief Executive Officer, was appointed to the Board, and
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- Bob Sasser became Executive Chairman, replacing founder Macon Brock.
►- New Board leadership. Led by its independent members, in 2019 the Board:
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- Elected a new Lead Independent Director, Gregory M. Bridgeford, who has robust authority to oversee the Board's operations and relationship with management, and
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- Appointed Gregory M. Bridgeford as Chair of our Compensation Committee and appointed Stephanie Stahl as Chair of our Nominating and Corporate Governance Committee.
►- Enhanced governance best practices. The Board previously adopted best practices such as a declassified board, a majority voting standard for uncontested elections of directors and proxy access, which are intended to increase accountability to shareholders. Building on these actions, the Board recently:
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- Formalized an enhanced Shareholder Engagement Policy with guidelines promoting direct interactions between independent directors and shareholders,
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- Determined to set Board tenure goals with a waterfall approach annually to foster an on-going mix of directors with short-, medium- and longer-term tenures,
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- Engaged independent outside consultants to evaluate the performance of the Board and make recommendations with respect to Board governance and composition, and
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- Enhanced already robust Corporate Governance Guidelines.
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Biographical and other information for our directors is provided below.
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DIRECTOR SINCE MARCH 2008 AGE: 71 BOARD COMMITTEES: Compensation Committee |
Mr. Barron served as the Senior Executive Vice President, Group President of The TJX Companies, Inc. from 2004 until his retirement in January 2009. His employment with The TJX Companies began in 1979. PREVIOUS WORK AND BOARD EXPERIENCE
• 2000 to 2004: Executive Vice President, Chief Operating Officer, The Marmaxx Group (the combined entity of T.J. Maxx and Marshalls) • 1996 to 2000: Senior Vice President, Group Executive, The TJX Companies • 1993 to 1996: Senior Vice President, General Merchandising Manager, T.J. Maxx • 1979 to 1993: held several other executive positions within The TJX Companies, Inc. • 2009 to 2013: served as a director on the Board of rue21 (Chair of the Compensation Committee, Chair of the Corporate Governance and Nominating Committee) EDUCATION
• Received a B.A. in Mathematics from Boston University. EXPERTISE
• With more than thirty years of retail experience in senior management, operations, merchandising, supply chain, strategic planning, human resources and systems in the United States, Canada, United Kingdom and Europe, Mr. Barron brings a combination of skills and experience spanning areas key to our business. |
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DIRECTOR SINCE MAY 2016 AGE: 64 LEAD INDEPENDENT DIRECTOR BOARD COMMITTEES: Compensation Committee, Chair Nominating and Corporate Governance Committee |
Mr. Bridgeford served as the Chief Customer Officer of Lowe's Companies, Inc. from 2012 to 2014 until his retirement. His employment with Lowe's began in 1982 where he held various senior level positions. PREVIOUS WORK AND BOARD EXPERIENCE
• 2004 to 2012: Executive Vice President of Strategy and Business Development, Lowe's • 1999 to 2004: Senior Vice President of Strategy and Business Development, Lowe's • 1998 to 1999: Senior Vice President of Marketing, Lowe's • 1994 to 1998: Senior Vice President and General Merchandising Manager, Lowe's • 1989 to 1994: Vice President of Merchandising, Lowe's • 1986 to 1989: Vice President of Corporate Development, Lowe's • 1982 to 1986: Director of Corporate Development, Lowe's EDUCATION
• Graduated with a B.A. from the University of Virginia and received a MBA from Wake Forest University. EXPERTISE
• Mr. Bridgeford brings to our Board more than thirty years of retail experience in the areas of customer experience, merchandising, real estate, international, marketing, advertising and communications, strategic planning and business process improvement. |
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DIRECTOR SINCE DECEMBER 2018 AGE: 63 BOARD COMMITTEES: Compensation Committee |
Mr. Dickson served as the Chief Executive Officer of Harris Teeter Supermarkets, Inc., a leading regional supermarket chain located primarily in the Southeastern and Mid-Atlantic United States, from February 1997
until his retirement in January 2014. He currently serves on the Board of Brixmor Property Group, Inc. where he is a member of the Compensation Committee. PREVIOUS WORK AND BOARD EXPERIENCE
• February 1996 to February 1997: Executive Vice President, Harris Teeter • February 1994 to February 1996: President of American & Efird, Inc., a wholly-owned subsidiary of Harris Teeter • February 1991 to February 1994: Executive Vice President, American & Efird, Inc. • 1989 to 1991: Senior Vice President, Marketing and International, American & Efird, Inc. • 1987 to 1989: Vice President, International Operations, American & Efird, Inc. • December 2016 to September 2018: Board of Directors of Conagra Brands, Inc. (Nominating, Governance and Public Affairs Committee) • March 2016 to June 2017: Board of Directors of CST Brands, Inc. (Nominating and Corporate Governance) • April 2014 to March 2015: Chair of the Board of The Pantry, Inc. • March 2006 to January 2014: Chair of the Board of Harris Teeter EDUCATION
• Mr. Dickson graduated with a B.A. from the University of Virginia and an MBA from the University of Virginia Darden School of Business. EXPERTISE
• Mr. Dickson brings to our Board more than thirty years of executive leadership with extensive experience in the retail and consumer products industries, a broad real estate knowledge, and substantial public board experience. He also brings extensive knowledge in strategic planning and international experience in managing foreign operations and sourcing. |
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DIRECTOR SINCE JANUARY 2010 AGE: 75 BOARD COMMITTEES: Audit Committee Nominating and Corporate Governance Committee |
Mr. Hall served as the President and Chief Executive Officer of Dominion Enterprises, a leading media and marketing information services company from 2006 until his retirement in January 2009, after nearly forty years in
the broadcasting, news and information industry. He currently serves on the Board of Landmark Media Enterprises, LLC. PREVIOUS WORK AND BOARD EXPERIENCE
• April 1991 to 2006: President and Chief Executive Officer of Trader Publishing Company • 1989 to 1991: President of Landmark Target Media, Inc. • 1985 to 1989: Executive Vice President and Chief Financial Officer of Landmark Communications, Inc. Held various senior positions since 1970, including Vice President of The Virginian-Pilot and The Ledger-Star division of Landmark from 1977 to 1981. • 2006 to 2009: Director, Board of Dominion Enterprises and Landmark Communications, Inc. • 1991 to 2006: Director, Board of Trader Publishing Company EDUCATION
• Mr. Hall graduated with a BS in Engineering from the Virginia Military Institute and an MBA from the University of Virginia Darden School of Business. EXPERTISE
• Mr. Hall's experience as a former Chief Executive Officer and his demonstrated success in new business development is of immense value to the Board, especially as we continue to evaluate growth opportunities. He also brings to the Board more than thirty years of operational expertise, extensive experience in information technology, strategic planning and human resources, and a solid financial background. |
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DIRECTOR SINCE JULY 2007 AGE: 72 BOARD COMMITTEES: Audit Committee |
Mr. Lewis served as the Executive Vice President and Chief Financial Officer of Landmark Communications, Inc. from 2000 until his retirement in 2006. He currently serves on the Board of Directors of Markel
Corporation (Audit Committee, Chair), and Owens & Minor, Inc. (Audit Committee Chair) PREVIOUS WORK AND BOARD EXPERIENCE
• 1981 to 2000: held various senior level positions, including President of The News Channel 5 Network from 1992 to 1999, and President of KLAS TV from 1986 to 1990 • 2008 to 2010: Chair of the Board of the Federal Reserve Bank of Richmond • 2005 to 2008: Chair of the Audit Committee for the Federal Reserve Bank of Richmond • 2006 to 2008: Director, Board of Landmark Communications • 2002 to 2006: Director, Board of The Weather Network EDUCATION
• Mr. Lewis graduated with a B.A. in Economics from the University of Virginia and an MBA from the University of Virginia Darden School of Business. EXPERTISE
• Mr. Lewis brings to the Board many years of experience in accounting, finance, human resources, marketing, mergers and acquisitions and business unit operations. The Board also benefits from his valuable financial experience as a former Chief Financial Officer and his service on other Boards. In addition, our Board has determined that Mr. Lewis qualifies as an Audit Committee financial expert. |
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DIRECTOR SINCE MARCH 2018 AGE: 60 BOARD COMMITTEES: Audit Committee Nominating and Corporate Governance Committee |
Mr. Naylor is a former Chief Financial Officer and Senior Executive of The TJX Companies. He is the Managing Director of his consulting firm, Topaz Consulting LLC, where he advises private equity firms on potential
transactions and provides services in the area of strategy and finance. In addition, he currently serves on the Board of Directors of Synchrony Financial (Chair, Audit Committee; Compensation Committee), Emerald Expositions Events, Inc. (Chair,
Nominating and Corporate Governance Committee; Compensation Committee), and Wayfair, Inc. (Audit Committee), as well as two private companies (Save-a-Lot and Bargain Hunt). PREVIOUS WORK AND BOARD EXPERIENCE
• February 2013 to April 2014: Senior Corporate Advisor, TJX Companies, Inc. • January 2012 to February 2013: Senior Executive Vice President and Chief Administrative Officer, TJX Companies, Inc. • February 2009 to January 2012: Senior Executive Vice President, Chief Financial and Administrative Officer, TJX Companies, Inc. • June 2007 to February 2009: Senior Executive Vice President, Chief Administrative and Business Development Officer, TJX Companies, Inc. • September 2006 to June 2007: Senior Executive Vice President, Chief Financial and Administrative Officer, TJX Companies, Inc. • February 2004 to September 2006: Chief Financial Officer, TJX Companies, Inc. • 2001 to 2004: Chief Financial Officer, Big Lots, Inc. • Held senior level positions with Limited Brands, Sears, Roebuck and Co., and Kraft Foods, Inc. • Mr. Naylor began his career as a Certified Public Accountant with Deloitte Haskins & Sells. • 2010 to 2016: Board Member (Audit Committee), Fresh Market, Inc. EDUCATION
• Mr. Naylor graduated with a B.A. in Economics from Northwestern University and a MBA from J.L. Kellogg School of Management. EXPERTISE
• Mr. Naylor brings to our Board an extensive financial and accounting background as well as significant leadership and retail experience. In addition, our Board has determined that Mr. Naylor qualifies as an Audit Committee financial expert. |
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| 10 | ||
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President and Chief Executive Officer
DIRECTOR SINCE SEPTEMBER 2017 AGE: 62 |
Mr. Philbin has been the President and Chief Executive Officer of Dollar Tree since September 2017, and has more than forty years of progressive retail experience. PREVIOUS WORK AND BOARD EXPERIENCE
• December 2016 to September 2017: Enterprise President, Dollar Tree • July 2015 to December 2016: President and Chief Operating Officer, Family Dollar Stores • June 2013 to July 2015: President and Chief Operating Officer, Dollar Tree • March 2007 to June 2013: Chief Operating Officer, Dollar Tree • December 2001 to March 2007: Senior Vice President of Stores, Dollar Tree • 1997 to 2001: held several executive level positions, including Chief Executive Officer of Grand Union, prior to the company's sale • 1996 to 1997: Executive Vice President of Operations and Merchandising for Cub Foods, a division of SuperValu • 1993 to 1996: Senior Vice President of Merchandising for Walbaum's, a division of A&P • 1973 to 1993: held increasing positions of responsibility in Store Operations and Merchandising, Kroger Company EDUCATION
• Mr. Philbin graduated with a BS in Accounting from Miami University and received an MBA from Xavier University. EXPERTISE
• Mr. Philbin's forty plus year career in retail spans store operations and merchandising, including executive leadership across multiple formats in the grocery industry. His business acumen has driven development of private brands, customer research and marketing, and operational excellence into store focused initiatives. He has been deeply involved in the evolution of the Dollar Tree store format and business model over the past eighteen years. His work with the Family Dollar team has led to the H2 format initiative. His work across both banners brings a broad knowledge base to the Board. |
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| 11 | ||
| | | |
Executive Chairman
DIRECTOR SINCE JUNE 2004 AGE: 67 |
Mr. Sasser is the Executive Chairman of Dollar Tree Board of Directors. He previously served as the Chief Executive Officer of Dollar Tree from 2004 to September 2017. PREVIOUS WORK AND BOARD EXPERIENCE
• 2004 to 2017: Chief Executive Officer, Dollar Tree • 2004 to 2013: President and Chief Executive Officer, Dollar Tree • 2001 to 2003: President and Chief Operating Officer, Dollar Tree • 1999 to 2000: Chief Operating Officer, Dollar Tree • 1997 to 1998: Senior Vice President, Merchandise and Marketing, Roses Stores, Inc. • 1994 to 1996: Vice President, General Merchandise Manager, Michaels Stores, Inc. • Prior to 1994: Managed areas of increasing responsibility, primarily at Roses Stores, Inc. in field operations, corporate sales promotion and marketing, buying, global sourcing, merchandising and executive management. • 2012 to 2016: Board Member (Audit Committee), Fresh Market, Inc. EDUCATION
• Mr. Sasser graduated with a BS in Marketing from Florida State University. EXPERTISE
• Mr. Sasser's demonstration of outstanding leadership skills, business acumen, commitment to excellence, and his major contributions to the Company's growth and success as the former Chief Executive Officer of Dollar Tree provides essential insight and guidance to our Board. During his thirteen year tenure as Chief Executive Officer, shareholder value increased 733%, as compared to the S&P 500 increase of 125% during the same timeframe. In addition, the Board benefits from Mr. Sasser's forty-six years of discount retail leadership experience across all areas of corporate and field operations, including merchandising, marketing, sales promotion, advertising, branding, and customer engagement. He brings to the Board expertise in the areas of merchandising, global sourcing, supply chain, buying, allocation and replenishment, real estate and retail technology. |
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| 12 | ||
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DIRECTOR SINCE 1993 AGE: 82 BOARD COMMITTEES: Nominating and Corporate Governance Committee |
Mr. Saunders is the CEO of Ivor & Co., LLC, a private investment firm. He is a founder of Saunders Karp & Megrue, a private equity firm that owned 50% of Dollar Tree at the time of its IPO and
whose retail companies included Ollie's Bargain Outlet, Bob's Discount Furniture, Marie Callender's, Café Rio, Mimi's Café, Miller's Ale House, Children's Place, rue21, Charlotte Russe, Tommy Bahama, Hat World, Targus and Norcraft
Companies. He is a Senior Advisor to numerous private equity firms and serves as Trustee and Chairman of the Finance Committee of the New York Historical Society, Trustee of the Marine Corps University Foundation, and Trustee of Cold Spring Harbor
Laboratory. PREVIOUS WORK AND BOARD EXPERIENCE
• 2013 to Present: Lead Director and Chairman of the Nominating and Corporate Governance Committee of VitalConnect • 1996 to 2016: Director for Hibbett Sports serving on the Audit, Nominating and Corporate Governance, and Compensation Committees • 2005 to 2018: Trustee and Chairman of the Heritage Foundation • 2011 to 2012: Chairman of the Nominating and Corporate Governance Committee for Teavana Holdings • 2001 to 2005: Member of the Board of Visitors of the University of Virginia; Chairman of the Finance Committee • 1974 to 1989: Managing Director of Morgan Stanley & Co., leading its Capital Markets Group, managing its Syndicate Department and serving as Chairman of its Leveraged Equity Fund II ("MSLEF II") • 2007 to 2019: Lead Independent Director, Dollar Tree • 2001 to 2019: Nominating and Corporate Governance Committee, and Chair from 2001 to 2007 and 2009 to 2019, Dollar Tree • 2001 to 2007: Chair of the Audit Committee, Dollar Tree EDUCATION
• Mr. Saunders holds a BSEE from Virginia Military Institute and an MBA from the University of Virginia Darden School of Business. EXPERTISE
• Mr. Saunders is a financial expert with preeminent experience in investment banking and domestic and global capital markets. He worked closely with Morgan Stanley clients managing IPOs, equity and debt financings and advising on capital structures. His innovation led to the implementation of new public offering techniques still used in today's equity markets. Mr. Saunders has extensive experience with retail company strategy, operations and corporate governance. He drove investment and valuation analysis to maximize equity value across a portfolio of over 50 retail, industrial and healthcare companies, and he has a deep understanding of the Dollar Tree business. |
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| 13 | ||
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DIRECTOR SINCE JANUARY 2018 AGE: 52 BOARD COMMITTEES: Nominating and Corporate Governance Committee, Chair Compensation Committee |
Ms. Stahl owns and operates Studio Pegasus, LLC, an investment and advisory company focused on consumer sector digital start-ups, which she founded in 2015. She currently serves on the Board of Directors of Knoll,
Inc. (Nominating and Corporate Governance; Audit Committee), and Chopt Creative Salad Company. PREVIOUS WORK AND BOARD EXPERIENCE
• 2012 to 2015: Executive Vice President, Global Marketing & Strategy, Coach, Inc. • 2010 to 2011: Chief Executive Officer, Tracy Anderson Mind & Body, LLC • 2003 to 2006: Executive Vice President, Chief Marketing Officer, Revlon, Inc. • 1998 to 2003: Partner and Managing Director, The Boston Consulting Group, Inc. • 1997: Vice President, Strategy & New Business Development, Toys "R" Us, Inc. • Ms. Stahl began her career as a Financial Analyst for Morgan Stanley & Co. EDUCATION
• Ms. Stahl graduated with a B.S. in Quantitative Economics from Stanford University and an MBA (with distinction) from Harvard University. EXPERTISE
• Ms. Stahl brings to our Board significant experience in marketing, digital, brand building and strategic development. Ms. Stahl has spent her career focused on the retail/consumer sector with extensive experience in developing, executing and optimizing major change initiatives including mergers and acquisitions, post-merger integration and fundamental strategic redirection. |
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| 14 | ||
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DIRECTOR SINCE MARCH 2019 AGE: 47 BOARD COMMITTEES: Audit Committee |
Ms. Wheeler is a former Partner and Head of Consumer and Retail Investing at TPG Global, a global private equity firm. She currently serves on the Board of Directors of J. Crew Group, where she is the Chair of the Audit
and Compensation Committees. PREVIOUS WORK AND BOARD EXPERIENCE
• 1996 to 2017: Various roles of increasing responsibility over 21 years of service; former Partner and Head of Consumer and Retail Investing, TPG Global • 1993 to 1996: Analyst, Goldman, Sachs & Co. • 2013 to 2017: Director, Board of Gelson's (Compensation Committee Chair) • 2012 to 2016: Director, Board of Savers Inc. (Compensation) • 2006 to 2015: Director, Board of PETCO Animal Supplies (Audit Chair) • 2005 to 2013: Director, Board of Neiman Marcus Group (Audit) • 2000 to 2004; Director, Board of Denbury Resources EDUCATION
• Ms. Wheeler graduated with a Bachelor of Commerce (Honors), from Queens University. EXPERTISE
• Ms. Wheeler is an accomplished Wall Street leader with significant investment and board experience. She brings to our Board broad experience evaluating, valuing and managing investments with a focus on retail and consumer sectors. She has substantial experience in business assessment, evaluating and executing major acquisitions, structuring debt financing, raising private capital and guiding IPO and public market transactions. In addition, our Board has determined that Ms. Wheeler qualifies as an Audit Committee financial expert. |
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| 15 | ||
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DIRECTOR SINCE DECEMBER 2003 AGE: 66 BOARD COMMITTEES: Audit Committee, Chair Nominating and Corporate Governance Committee |
Mr. Whiddon retired from Berkshire Partners, LLC as an Advisory Director in 2005. He currently serves on the Board of Directors of Sonoco Products Company, Inc., (Audit Committee Chair, Corporate Governance and
Nominating Committee, Executive Compensation Committee, Financial Policy Committee) and Carter's Inc. (Audit Committee, Nominating and Corporate Governance Committee). PREVIOUS WORK AND BOARD EXPERIENCE
• 2004 to 2013: Advisory Director, Berkshire Partners, LLC • 2004 to 2006: Interim Executive Operating Roles, Berkshire Partners, LLC • 2000 to 2003: Executive Vice President of Logistics and Technology, Lowe's Companies, Inc. • 1996 to 2000: Executive Vice President, and Chief Financial Officer, Lowe's Companies, Inc. • 1994 to 1996: Chief Financial Officer and Treasurer, Zale Corporation • 1986 to 1993: Treasurer, Eckerd Corporation • 1984 to 1986: Tax Partner, KPMG EDUCATION
• Mr. Whiddon graduated with a BS from the University of Alabama. EXPERTISE
• Having served as Chief Financial Officer and Treasurer of successful large public retail companies, coupled with his many years of experience in public accounting, Mr. Whiddon brings to our Board extensive financial expertise. In addition, our Board has determined that Mr. Whiddon qualifies as an Audit Committee financial expert. His service on the Board and a number of Committees of Carter's Inc. and Sonoco Products Company, Inc. further enhances his contributions to our Board. He also brings a fresh perspective to Dollar Tree's logistics and technology focus. |
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| 16 | ||
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DIRECTOR SINCE JULY 2007 AGE: 69 BOARD COMMITTEES: Compensation Committee |
Dr. Zeithaml is the Dean of the McIntire School of Commerce at the University of Virginia. Over the past 20 years, Dean Zeithaml led the implementation of McIntire's strategy to achieve a position of global
preeminence in business education. He is also a Professor in the Management Area specializing in strategic management, and marketing. PREVIOUS WORK AND BOARD EXPERIENCE
• 1986 to 1997: Faculty, Kenan-Flagler Business School at the University of North Carolina-Chapel Hill. EDUCATION
• Dr. Zeithaml graduated with a B.A. in Economics from University of Notre Dame, a MBA in Health and Hospital Management from University of Florida, and a Doctor of Business Administration in Strategic Management from University of Maryland. EXPERTISE
• Dr. Zeithaml provides the Board with expertise in strategic management, executive leadership, and marketing, with an emphasis on competitive strategy, corporate governance and global strategy. He brings to the Board extensive educational experience and a strong understanding of change management and risk management. |
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| 17 | ||
The Board of Directors has three standing committees, each comprised solely of independent directors: the Audit Committee, the Compensation Committee and the Nominating and Corporate Governance Committee.
The charters of our Board committees are available on our corporate website, www.dollartreeinfo.com/investors/corporate.
Current committee assignments are as follows:
| | | | | | | | | | | | | |
|
Director |
Independent Director(1) |
Audit Committee(2) |
Compensation Committee |
NCG Committee |
||||||||
Arnold S. Barron |
■ |
|
■ |
|
||||||||
Gregory M. Bridgeford |
LD |
C |
■ |
|||||||||
|
Thomas W. Dickson |
■ |
|
■ |
|
|||||||
Conrad M. Hall |
■ |
■ |
■ |
|||||||||
|
Lemuel E. Lewis |
■ |
■ |
|
|
|||||||
Jeffrey G. Naylor |
■ |
■ |
■ |
|||||||||
|
Gary Philbin |
|
|
|
|
|||||||
Bob Sasser |
||||||||||||
|
Thomas A. Saunders III |
■ |
|
|
■ |
|||||||
Stephanie P. Stahl |
■ |
■ |
C |
|||||||||
|
Carrie A. Wheeler |
■ |
■ |
|
|
|||||||
Thomas E. Whiddon |
■ |
C |
■ |
|||||||||
|
Carl P. Zeithaml |
■ |
|
■ |
|
- LD
- Lead
Director
- C
- Committee
chair
- (1)
- Our
Board reviewed the composition of each committee and determined that the independence and other qualifications of its members meet the listing
standards of the NASDAQ Stock Market and SEC regulations.
- (2)
- The Board, after review of each individual's employment experience and other relevant factors, has determined that Lemuel Lewis, Jeffrey Naylor, Carrie Wheeler and Thomas Whiddon are qualified as audit committee financial experts within the meaning of SEC regulations.
At each regular meeting, the Audit Committee meets in executive sessions with the Company's independent auditors, Chief Legal Officer, Vice President—Internal Audit, Chief Financial Officer and Senior Vice President—Principal Accounting Officer to discuss accounting principles, financial and accounting controls, the scope of the annual audit, internal controls, regulatory compliance and other matters. The independent auditors have complete access to the Audit Committee without management present to discuss the results of their audits and their opinions on the adequacy of internal controls, quality of financial reporting and other accounting and auditing matters.
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Key functions of this committee include:
- •
- reviewing management's assessment of our internal control over the financial reporting process;
- •
- reviewing results of internal control testing related to Section 404 of the Sarbanes-Oxley Act of 2002;
- •
- reviewing our quarterly and annual financial statements;
- •
- reviewing the audit efforts of our independent auditors and internal audit department;
- •
- reviewing related party transactions; and
- •
- selecting the independent auditors and any independent counsel or other advisers it deems necessary.
The Audit Committee met nine (9) times in 2018. In addition, the Chair of the Committee conducted periodic updates with the independent auditors and/or financial management.
All members of the Audit Committee during 2018 met the independence requirements and of the NASDAQ Stock Market and regulations of the Securities and Exchange Commission. The report of the Committee can be found beginning on page 98.
The Compensation Committee sets all elements of compensation for our named executive officers based upon consideration of their contributions to the development and operating performance of the Company, and is primarily responsible for monitoring risks relating to the Company's compensation policies and practices to determine whether they create risks that are reasonably likely to have a material adverse effect on the Company.
Key functions of this Committee include:
- •
- overseeing our compensation and benefit practices;
- •
- establishing the compensation arrangements for our executive officers;
- •
- administering our executive compensation plans and Employee Stock Purchase Plan;
- •
- administering and considering awards under our equity-based compensation plans; and
- •
- reviewing annually executives' stock ownership levels to ensure compliance with the Company's executive ownership policy.
The Compensation Committee met four (4) times in 2018. In addition, the Chair separately engaged in numerous in-depth discussions with members of management.
All members of the Compensation Committee during 2018 met the independence requirements of the NASDAQ Stock Market and regulations of the Securities and Exchange Commission. The report of the Committee, together with our Compensation Discussion and Analysis and information regarding executive compensation, can be found beginning on page 39.
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Nominating and Corporate Governance Committee
The purpose of the Nominating and Corporate Governance Committee is to advise the Board of Directors on the composition, organization and effectiveness of the Board and its committees and on other issues relating to the corporate governance of the Company. The Committee's primary duties and responsibilities include:
- •
- recommending candidates to be nominated by the Board, including the re-nomination of any currently serving director, to be placed on the ballot
for shareholders to consider at the annual shareholders' meeting;
- •
- if the Chairman of the Board is not independent, recommending an independent director to be elected as Lead Director;
- •
- recommending nominees to be appointed by the Board to fill interim director vacancies;
- •
- reviewing periodically the membership and Chair of each committee of the Board and recommending committee assignments to the Board, including
rotation or reassignment of any Chair or committee member;
- •
- reviewing and resolving requests for waivers from directors of any provision of the Company's Code of Conduct;
- •
- monitoring current developments in regulations and best practices concerning corporate governance and the duties and responsibilities of each
director;
- •
- reviewing and assessing the adequacy of our Corporate Governance Guidelines and recommend changes to the Board;
- •
- conducting an annual performance self-evaluation of the corporate governance and nominating functions of the Committee, establishing criteria
and processes for, and leading the Board in, the Board's annual performance self-evaluation, and conducting an annual review of each of the directors on the Board;
- •
- overseeing and reviewing the Shareholder Engagement Policy and reporting and recommending any proposed changes to such policy to the Board for
approval, monitoring the process for shareholders to communicate with the Board, and assessing and recommending action on any matters raised in such communications relating to governance topics;
- •
- overseeing the Company's strategy on social responsibility and sustainability and developing and recommending to the Board policies and
procedures relating to the Company's corporate social responsibility and sustainability activities;
- •
- reviewing and overseeing our governance structure and other facets of the Company's corporate governance, including the structure of the Board, provisions of the Company's articles and bylaws, arrangements containing provisions that become operative in the event of a change in control of the Company and other documents, policies and procedures in the governance framework;
20
- •
- recommending policies for compensation and equity ownership guidelines for Board members who are not executive officers, as well as expense
reimbursement policies;
- •
- reviewing annually the directors' stock ownership levels to ensure compliance with our director target ownership policy; and
- •
- monitoring annually the education of Board members on matters related to their service on the Board.
The Nominating and Corporate Governance Committee met on six (6) occasions in 2018, and met nine (9) times in the last twelve months. During 2018 and into 2019, the Committee continued to review potential candidates for Board seats in order to further enhance the Board's effectiveness, and two new directors were appointed during this period. Two new Chairs were appointed as well as a new Lead Director. For further information on the Committee, please see "How Nominees to our Board are Selected" beginning on page 32.
Meetings of the Board of Directors
The Board of Directors has scheduled four regular meetings in 2019 and will hold special meetings when Company business requires. During 2018, the Board held eight (8) meetings. Informational update calls are periodically conducted during the year. Each member of the Board attended more than 75% of all Board meetings and meetings of committees of which he or she was a member.
21
Our Board operates within a strong set of governance principles and practices, including:
| | | | | | | | | |
| Governance Practice | Dollar Tree's Governance Policies and Actions | |||||||
All directors elected annually upon majority vote, except where contested |
YES |
Our Board is not classified, and in uncontested elections our directors are elected by the vote of a majority of the votes cast. See "Proposal No. 1-Election of Directors" on page 95. |
||||||
Independent Lead Director with robust powers |
YES |
When our Board Chairman is not independent, a Lead Director is elected from among the independent directors. Our Corporate Governance Guidelines enumerate the robust authority and responsibilities of the Lead Director in managing Board matters. See "Board Leadership Structure" on page 23. |
||||||
Enhanced director stock ownership guidelines |
YES |
Increased the director stock ownership requirement so that each director must hold Dollar Tree stock worth no less than four times the annual cash retainer. See "Director Stock Holding Requirements" on page 24. |
||||||
Enhanced shareholder engagement program |
YES |
We formalized our policy to facilitate shareholder access to senior management and independent directors. See "Engagement with Shareholders" on page 26. |
||||||
A strong corporate commitment to sustainability |
YES |
Dollar Tree has made a commitment to good corporate stewardship. We strongly support policies that benefit our customers, our associates, our communities and our environment. See "Sustainability" on page 25. |
||||||
Thoughtful approaches to director tenure and board diversity |
YES |
We endeavor to include women and minority candidates in the pool from which Board nominees are chosen and to consider diverse directors for leadership positions on the Board. While directors have no term limit, the Board finds benefit in having Board members represent an on-going mix of short-, medium- and longer-term tenures. See "Board Diversity" and "Board Tenure" on page 32 and page 33, respectively. |
||||||
| | | | | | | | | |
Dollar Tree is committed to principles of good corporate governance and the independence of a majority of our Board of Directors from the management of our Company. The following eleven directors have been determined by our Board to be independent directors within the applicable listing standards of the NASDAQ Stock Market throughout 2018 (or since Board appointment in the case of
22
Mr. Dickson and Ms. Wheeler): Arnold S. Barron, Gregory M. Bridgeford, Thomas W. Dickson, Conrad M. Hall, Lemuel E. Lewis, Jeffrey G. Naylor, Thomas A. Saunders III, Stephanie P. Stahl, Carrie A. Wheeler, Thomas E. Whiddon and Carl P. Zeithaml.
All members of our Audit Committee, our Compensation Committee and our Nominating and Corporate Governance Committee are independent under NASDAQ listing standards. Our Board has reviewed the various relationships between members of our Board and the Company and has affirmatively determined that none of our directors or nominees has material relationships with Dollar Tree, other than Messrs. Philbin and Sasser, who are members of management. See "Certain Relationships and Related Transactions" on page 87 for further information.
If the slate of directors proposed to be elected at the 2019 annual meeting of shareholders is elected, all committees of our Board will continue to be comprised solely of independent directors. The basis for an independence determination by our Board is either that the director has no business relationship other than his or her service on our Board, or that while a director may have some involvement with a Company or firm with which we do business, our Board has determined that such involvement is not material and does not violate any part of the definition of "independent director" under NASDAQ listing standards. None of our current executives sit on any of our committees.
At the regular meetings of our Board of Directors, a private session, without management present, is conducted by the non-management members of our Board.
As we have successfully done in the past, our executive leadership succession plan calls for the former Chief Executive Officer to spend a period as Chairman, supporting and guiding the new Chief Executive Officer. Because our Executive Chairman is thus not independent, our independent directors elect an independent Lead Director, as required under our Corporate Governance Guidelines. Thomas Saunders held the position from 2007 until March 2019, when Gregory M. Bridgeford was elected by the independent directors. Under our guidelines, the Lead Director has clearly defined and robust leadership authority and responsibilities, including:
- •
- conferring regularly with the Chief Executive Officer and Executive Chairman;
- •
- supporting a strong Board culture and encouraging director participation by fostering an environment of open dialogue and constructive feedback
among the directors and facilitating communication across Board committees and among the Executive Chairman, the Chief Executive Officer, the Board as a whole and Board committees;
- •
- communicating feedback from the Board regarding the Chief Executive Officer's performance;
- •
- setting the agenda for and presiding over executive sessions of solely independent directors, and with the power to call meetings of the independent directors, with the expectation that the Lead Director will also coordinate feedback and follow-up as appropriate with the Executive Chairman and Chief Executive Officer, the chairpersons of relevant Board committees and other directors, as appropriate, concerning matters discussed among the independent directors;
23
- •
- advising the Executive Chairman and Chief Executive Officer as to the Board's information needs and work with the Executive Chairman and Chief
Executive Officer as needed to coordinate and provide direction, feedback, changes, input and approval regarding Board meeting agendas, schedules and materials in order to support Board deliberations
and enable sufficient time for discussion of all agenda items;
- •
- assisting the Chief Executive Officer and Executive Chairman with issues that concern the Board;
- •
- remaining well-informed about senior management and succession plans;
- •
- facilitating director input and discussion regarding the Company's strategy, performance and risks to the business;
- •
- facilitating as appropriate the responsibilities of the Board, the committees of the Board and senior management, and
- •
- being available, consistent with the Shareholder Engagement Policy described beginning on page 26, for consultation and direct communication with shareholders when appropriate.
After careful consideration, the Board determined that its current leadership structure is the most appropriate for Dollar Tree and its shareholders. As part of the Company's ongoing commitment to corporate governance, the Board periodically considers its leadership structure and the role of the Lead Director.
Director Stock Holding Requirements
In March 2019, the Board enhanced its stock ownership guidelines to require that each director should hold Dollar Tree stock worth no less than four (4) times the annual cash retainer paid to directors, valued on the date such director acquired the stock. Vested stock or stock units beneficially owned by the director, including stock or stock units held in the 2013 Director Deferred Compensation Plan, are counted in meeting the guidelines.
As of April 2019, all of our directors owned shares in excess of the amount required by the new guidelines, with the exception of our newest members: Gregory M. Bridgeford, Thomas W. Dickson, Jeffrey G. Naylor, Stephanie P. Stahl and Carrie A. Wheeler. Under our policy, each director has a grace period to meet the director stock holding requirements. Consistent with prior years, despite the directors owning shares in excess of this guideline, a majority of the directors have consistently chosen to defer a meaningful portion of their annual cash retainer as shares of common stock or as options, ranging from 60% to 100% of total compensation for participating directors during 2018.
Majority Voting in Uncontested Election of Directors
In 2015, the Board of Directors adopted amendments to our bylaws to implement a majority voting standard in uncontested director elections. Consequently, a director-nominee will be elected by a majority of votes cast in uncontested director elections and by the plurality in contested elections.
24
In addition, our Corporate Governance Guidelines also set forth our procedure if a director-nominee does not receive a majority of the votes cast in an uncontested election. Prior to an election, each director-nominee submits a resignation letter, contingent upon such individual failing to receive more than 50% of the votes cast in an uncontested election. In such event, the resignation would be considered by the Nominating and Corporate Governance Committee, which would recommend to the Board what action to take with respect to the resignation.
Board's Role in Risk Oversight
The Board of Directors is actively involved in overseeing enterprise risk, primarily through the assistance of its Audit Committee whose charter requires that its members be knowledgeable of and inquire about risk related to the Company's business. The Company's Internal Audit Department conducts an annual investigation and evaluation of enterprise risk, which focuses on areas that are essential to the successful operation of the Company, and reports its findings to the Audit Committee. The Audit Committee also engages in dialogue and receives updates at or between its meetings from the Vice President of Internal Audit, the Chief Financial Officer, Chief Legal Officer and the Chief Executive Officer on matters related to risk. The Audit Committee shares appropriate information with the Board, either at its next meeting or by other more immediate communication.
In addition, to more effectively prevent, detect and respond to information security threats, the Company has a dedicated Chief Information Security Officer whose team is responsible for leading enterprise-wide information security and risk mitigation. The Audit Committee and the Board receive regular reports on, among other things, the Company's cyber risks and threats, the status of projects to strengthen the Company's information security systems, assessments of the Company's security program and the emerging threat landscape.
In addition, the Company's Disclosure Committee meets at least quarterly and monitors internal controls over financial reporting and ensures that the Company's public filings contain discussions about risks our business faces, all of which is reported to the Board. In addition to the Audit Committee, other committees of the Board consider risk within their areas of responsibility. In setting executive compensation, the Compensation Committee considers risks that may be implicated by our compensation programs and endeavors to set executive compensation at a level that creates incentives to achieve long-term shareholder value without encouraging excessive risk-taking to achieve short-term results. The Nominating and Corporate Governance Committee annually reviews the Company's Corporate Governance Guidelines and their implementation. Each committee reports its findings to the full Board.
Dollar Tree is committed to product safety and sustainability and continues to enhance its efforts in these areas. From its beginning over thirty years ago, Dollar Tree has operated its business with integrity and concern for others. The Company is focused each day on promoting a welcoming and safe environment for its customers and its associates. The principles that guide Dollar Tree are ingrained in its people and its operations. From the safety of the products it sells to its concern for the individuals who make them, Dollar Tree strives to stay focused on these values.
Under its charter, the Nominating and Corporate Governance Committee has the lead role in overseeing the Company's strategy on social responsibility and sustainability and develop and recommend to the Board policies and procedures relating to the Company's corporate social responsibility and sustainability activities.
25
Dollar Tree audits its suppliers' factories overseas to assure compliance with labor, health and safety, human trafficking, discrimination and other legal requirements. Dollar Tree will not do business with factories that do not respect basic human rights.
The Company continues to make measurable improvements to its facilities and equipment to help protect and sustain the environment. We recycle materials, have converted to LED lighting and use efficient transportation systems. Locally, we have worked on efforts to restore wetlands and protect our shorelines.
For product safety, Dollar Tree utilizes independent and certified companies to test products that it imports to assure that they meet or exceed all regulatory, legal or industry standards. It has one of the most robust testing programs for children's products, assuring that testing is done using random sample collection, often multiple times on each production run. Dollar Tree utilizes the services of the WERCSmart® program by Underwriters Laboratory to help the Company manage ingredient formulations for chemical containing products purchased. The Company has recently broadened and strengthened its efforts to eliminate chemicals of concern in its products by taking part in a program called the Chemical Footprint Project. This will allow the Company to identify opportunities for improvement, measure its progress and reduce chemical risk.
Our Board has adopted a Code of Ethics for all our employees, officers and directors, including our Chief Executive Officer and senior financial officers, which was recently reviewed and approved by the Board on December 6, 2018. A copy of this code may be viewed at our corporate website, www.dollartreeinfo.com/investors/corporate. In addition, a printed copy of our Code of Ethics will be provided to any shareholder upon request submitted to the Corporate Secretary at the address on page 91.
Dollar Tree believes that effective corporate governance includes regular, constructive conversations with our shareholders. We strive for a collaborative approach to shareholder outreach and value the variety of investors' perspectives received, which helps deepen our understanding of their interests and priorities. Throughout the year, we seek opportunities to connect with our investors to gain and share valuable insights and receive feedback on the matters most important to them. The insights and feedback we receive is shared with the Board and its relevant committees.
During 2018, we continued our outreach to shareholders to understand their views on issues important to them. The Vice President, Corporate Governance together with the office of the Corporate Secretary leads this shareholder engagement process on matters of corporate governance, incorporating other executives and members of the Board where appropriate or as requested by individual shareholders. We contacted holders of approximately 53% of outstanding shares to invite them into the process. A number of those we contacted indicated they did not feel an engagement call was necessary in 2018, given their comfort with the evidence of the Board's attentiveness and stewardship. Some shareholders indicated that while they appreciated the Company's outreach and valued the opportunity to engage, they did not feel there were issues with the Company's governance or the Board's oversight which would necessitate their engagement annually.
Consistent with that feedback, every director received shareholder support of at least 95.8% of votes cast at our 2018 annual meeting, and the advisory vote on our executive compensation
26
program ("Say on Pay") received support from 97.7% of votes cast. In our 2018 shareholder outreach, no shareholders expressed concerns about executive compensation.
To further our commitment to shareholder engagement, in March 2019 the Board of Directors adopted an enhanced Shareholder Engagement Policy. The Board believes that fostering long-term, open and institution-wide relationships with shareholders and maintaining their trust and goodwill is a core objective of our shareholder outreach program. Under the policy, our senior executive officers and the investor relations department are primarily responsible for our communications and engagement with shareholders and the investment community. Management is responsible for promptly reporting to the Board all material shareholder comments and feedback it receives.
Our Corporate Secretary and our Vice President, Corporate Governance serve as liaisons with our shareholders on governance matters. We authorized these positions to provide a more direct channel for communications with shareholders, to ensure an open dialogue on an ongoing basis and to promote increased understanding of industry standards for best practices in corporate governance as they evolve.
Although shareholder outreach is primarily a function of management, our Board also believes that in appropriate cases, Board-level participation in dialogue with shareholders on matters of significance can be an effective means of promoting mutual understanding and enabling the Board to be informed as to shareholder perspectives. In addition to the engagement that is expected to occur by the Chief Executive Officer and the Executive Chairman, the Board expects that the Lead Director will generally be the primary independent director who would participate in such discussions, with the understanding that on certain matters, the Chairs of relevant Board committees or in certain cases other directors may also be asked by the Executive Chairman, the Lead Director or the Board to participate. Accordingly, directors may also from time to time participate in an organized and coordinated manner with management in one-on-one meetings or investor events to elicit shareholder views.
Shareholders may direct a request for a meeting with independent directors to the attention of the Lead Director who will consider such request, in consultation with the Corporate Secretary. The request should:
- •
- Explain whether the person(s) making the request is (are) a shareholder or a representative of the Company's shareholders and the level of
shareholdings held or represented;
- •
- Identify the persons wishing to attend the meeting;
- •
- Provide a description of the topics to be discussed; and
- •
- Describe any intention or arrangements for communicating the nature and results of the meeting to other persons, recognizing that private, constructive dialogues are most conducive to productive discussion.
The Board has the right to decline requests for any meetings requested by shareholders for any reason it deems appropriate, including where the proposed topics are not appropriate and in order to limit the number of such meeting requests to a reasonable level and prioritize acceptances based on the interests of all shareholders.
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Where a meeting request is granted, the Corporate Secretary will either directly contact the person(s) making the request to confirm arrangements for the meeting or be informed of the arrangements by the Lead Director of the Board. The Company's Chief Legal Officer or the Investor Relations Department may be asked to attend the meeting in order to confirm compliance with the Company's obligations respecting fair disclosure and the maintenance and assessment of disclosure controls and procedures. In certain cases, directors (and management) may adopt primarily a "listen-only" approach at meetings, and shareholders should recognize that in addition to Board input, the input of management will often be sought as to matters discussed with shareholders.
COMMUNICATING WITH OUR BOARD MEMBERS
Our shareholders may communicate directly with our Board of Directors. You may contact any member of our Board, any Board committee or any chair of any such committee by mail. To do so, correspondence may be addressed to any individual director, the non-management directors as a group, any Board committee or any committee chair by either name or title. Shareholders should direct a request for a meeting with independent directors to the attention of the Lead Director. All such mailings are to be sent in care of "Corporate Secretary" at our corporate headquarters address, which is 500 Volvo Parkway, Chesapeake, VA 23320. To communicate with our directors electronically, emails may be sent to CorpSecy@DollarTree.com.
Mail received as set forth in the preceding paragraph may be examined by the Corporate Secretary for security purposes and for the purpose of determining whether the contents actually represent messages from shareholders to our directors. Depending upon the facts and circumstances outlined in the correspondence, the Corporate Secretary will forward the communication to the Board, or any director or directors, provided that the contents are not in the nature of advertising, promotions of a product or service, or patently offensive material.
In addition, any person who desires to communicate financial reporting or accounting matters specifically to our Audit Committee may contact the Audit Committee by addressing a letter to the Chair of the Audit Committee at our corporate headquarters address, noted above, or electronically to AuditChair@DollarTree.com. Communications to our Audit Committee may be submitted anonymously, if sent by mail, addressed to the Audit Committee Chair. All correspondence will be examined by the Corporate Secretary and/or Internal Audit from the standpoint of security and depending upon the facts and circumstances outlined in the correspondence, the communications will be forwarded to our Audit Committee or Audit Committee Chair for review and follow-up action as deemed appropriate.
We expect each of our directors to attend the annual meeting of our shareholders. All of the then incumbent directors were in attendance at the 2018 annual meeting of our shareholders.
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Director compensation is established by the Board of Directors and periodically reviewed. The Board determined that each non-employee director (i.e. all directors except for Bob Sasser and Gary Philbin) will receive an annual cash retainer of $180,000. In addition, the Audit Committee chair will receive $30,000 and Audit Committee members will receive $20,000; the Compensation Committee chair will receive $30,000 and Compensation Committee members will receive $15,000; the Nominating and Corporate Governance Committee chair will receive $20,000 and the Nominating and Corporate Governance Committee members will receive $10,000. The Lead Director will receive an additional $35,000. The Board approved in fiscal 2016 an annual equity grant with a value of $75,000 to be paid annually to each non-employee director in the form of shares of Dollar Tree common stock. The Board may also authorize additional fees for ad hoc committees, if any. Fees are paid quarterly in advance. We do not offer non-equity incentives or pension plans to non-employee directors.
Under our shareholder-approved 2013 Director Deferred Compensation Plan, directors may elect to defer receipt of all or a portion of their Board and committee fees to be paid at a future date in either cash or shares of common stock, or to defer all or a portion of their fees into non-statutory stock options. Deferral elections must be made by December 31 for the deferral of fees in the next calendar year and must state the amount or portion of fees to be deferred; whether and to what extent fees are to be deferred in cash or shares or paid in the form of options; in the case of deferral into cash or shares, whether the payout shall be in installments or lump sum; and the date on which such payout will commence. In the case of deferrals into options, the number of options to be credited is calculated by dividing the deferred fees by 33% of the closing price on the first day of each calendar quarter, which is the date of grant. The options bear an exercise price equal to the closing price on the date of grant and are immediately exercisable. Deferrals into cash or stock are recorded in unfunded and unsecured book-entry accounts. Deferred shares to be credited are calculated by dividing the deferred fees by the closing price on the first day of each calendar quarter. If cash dividends are declared, deferred share accounts are credited with a corresponding number of deferred shares, based on the market price on the dividend date. In the case of deferrals into a deferred cash account, interest is credited to the account at the beginning of each quarter based on the 30-year Treasury Bond rate then in effect. See the Director's Compensation Table below for a description of deferrals in the current fiscal year.
Our former director Mr. Compton, who retired as a full-time employee in 2002 and as a part-time employee in 2004, had a post-retirement benefit agreement that provides for $30,000 to be paid to him annually and allowed him to participate in our group health plans at his cost.
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The following table shows compensation paid to each person who served as a director during fiscal year 2018 (compensation information for Bob Sasser and Gary Philbin can be found beginning on page 70).
Name |
|
Fees Earned or Paid in Cash ($)(1) |
|
Stock Awards ($)(2) |
|
All Other Compensation ($)(3) |
|
Total ($) |
|||||
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
Arnold S. Barron |
$ | 210,000 | $ | 75,000 | $ | — | $ | 285,000 | |||||
Gregory M. Bridgeford |
195,000 | 75,000 | — | 270,000 | |||||||||
Mary Anne Citrino |
| 157,500 | | 75,000 | | — | | 232,500 | |||||
H. Ray Compton |
47,500 | — | 30,000 | 77,500 | |||||||||
Thomas W. Dickson |
| 45,000 | | — | | — | | 45,000 | |||||
Conrad M. Hall |
211,031 | 75,000 | — | 286,031 | |||||||||
Lemuel E. Lewis |
| 200,000 | | 75,000 | | — | | 275,000 | |||||
Jeffrey G. Naylor |
203,493 | 75,000 | — | 278,493 | |||||||||
Thomas A. Saunders III |
| 235,000 | | 75,000 | | — | | 310,000 | |||||
Stephanie P. Stahl |
227,414 | 75,000 | — | 302,414 | |||||||||
Thomas E. Whiddon |
| 210,000 | | 75,000 | | — | | 285,000 | |||||
Carl P. Zeithaml |
195,000 | 75,000 | — | 270,000 |
- (1)
- This
column shows amounts earned for retainers and fees, including fees paid for service on standing and ad hoc committees, not reduced for deferrals.
- (2)
- This
column includes the grant date fair value of shares granted to non-employee directors on July 1, 2018. The number of shares were determined by dividing
the value of the equity award by the Company's closing share price of $85.00 on the date of grant, resulting in 882 shares of common stock for each of the non-employee directors.
- (3)
- This column includes post-retirement benefits paid to Mr. Compton, as more fully described in the narrative accompanying this table. Mr. Compton retired from the Board in June 2018.
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The following table shows, for each of our non-employee directors, amounts deferred in fiscal year 2018 under our 2013 Director Deferred Compensation Plan, the number of shares underlying those deferrals and the aggregate number, as of February 2, 2019, of outstanding stock options, including options obtained through deferral of fees (all of which are fully vested), and deferred shares:
Name |
Amounts Deferred in 2018 ($)(1) |
Shares Underlying Amounts Deferred in 2018 (#)(2) |
Total Deferred Shares (#) |
Options Outstanding, including Options acquired through Deferral of Fees (#) |
Total Shares Underlying Options and Deferred Amounts (#) |
| ||||||||||
| | | | | | | | | | | | | |||||
Arnold S. Barron |
| $ | 264,000 | | 3,040 | | 23,913 | | — | | 23,913 | | ||||
Gregory M. Bridgeford |
| 270,000 | | 3,102 | | 8,531 | | — | | 8,531 | | |||||
Mary Anne Citrino |
| 232,500 | | 2,691 | | 31,285 | | — | | 67,145 | | |||||
H. Ray Compton |
| — | | — | | — | | — | | — | | |||||
Thomas W. Dickson |
| — | | — | | — | | — | | — | | |||||
Conrad M. Hall |
| 286,031 | | 3,283 | | 28,383 | | — | | 28,383 | | |||||
Lemuel E. Lewis |
| 275,000 | | 3,159 | | 53,828 | | — | | 53,828 | | |||||
Jeffrey G. Naylor |
| 222,647 | | 2,004 | | 2,004 | | 1,699 | | 3,703 | | |||||
Thomas A. Saunders III |
| 235,000 | | 8,105 | | — | | 29,210 | | 29,210 | | |||||
Stephanie P. Stahl |
| 277,414 | | 3,167 | | 3,167 | | — | | 3,167 | | |||||
Thomas E. Whiddon |
| — | | — | | — | | — | | — | | |||||
Carl P. Zeithaml |
| 192,000 | | 2,214 | | 27,795 | | — | | 27,795 | | |||||
- (1)
- This
column shows the dollar amount of retainers and fees deferred in 2018 under the 2013 Director Deferred Compensation Plan. Directors may choose to defer a
portion or all of their fees into a deferred cash account, common stock equivalents (which we call "deferred shares") or options, as more fully described in the narrative in this section.
- (2)
- Shares in this column represent deferred shares and in the case of Mr. Saunders, deferral into options. Based on Mr. Naylor's deferral election, his account was credited with 2,004 shares of common stock and 1,699 stock options. Compensation expense related to these options, valued by the same method as that used for option grants to employees, is recorded upon grant; $73,395 and $359,883 was recorded in 2018 for Mr. Naylor and Mr. Saunders, respectively.
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HOW NOMINEES TO OUR BOARD ARE SELECTED
Candidates for election to our Board of Directors are recommended by our Nominating and Corporate Governance Committee and ratified by our full Board of Directors for consideration by the shareholders. The Nominating and Corporate Governance Committee operates under a charter, which is available on our corporate website at https://www.dollartreeinfo.com/investors/corporate. A copy of the charter is also available to all shareholders upon request, addressed to our Corporate Secretary at the address on page 91. All members of the Committee are independent under the standards established by the NASDAQ Stock Market.
In addition, our bylaws enable eligible shareholders to have their own qualifying director nominee(s) included in the Company's proxy materials, along with candidates nominated by our Board of Directors, as described in further detail under "Proxy Access" on page 34.
Our Nominating and Corporate Governance Committee also considers candidates recommended by shareholders. Shareholders may recommend candidates for Nominating and Corporate Governance Committee consideration by submitting such recommendation using the methods described under the "Shareholder Nominations for Election of Directors" section on page 33 and "Communicating with our Board Members" on page 28. In making recommendations, shareholders should be mindful of the discussion of minimum qualifications set forth in the following paragraph. Although a recommended individual may meet the minimum qualification standards, it does not imply that the Nominating and Corporate Governance Committee necessarily will nominate the person so recommended by a shareholder.
In evaluating candidates for election to the Board, our Nominating and Corporate Governance Committee takes into account the qualifications of the individual candidate as well as the composition of the Board as a whole.
Among other things, the Committee considers:
- •
- the candidate's ability to help the Board create shareholder value,
- •
- the candidate's ability to represent the interests of shareholders,
- •
- the personal qualities of leadership, character and business judgment of the candidate,
- •
- the need of the Board for directors having relevant knowledge, diversity of background and experience in areas including operations, finance,
accounting, technology, marketing, human capital management and talent development and,
- •
- whether the candidate is free of conflicts and has the time required for preparation, participation and attendance at meetings.
The Board values diversity, in its broadest sense, reflecting, but not limited to, geography, gender, ethnicity and life experience and is committed to a policy of inclusiveness. The Nominating and Corporate Governance Committee endeavors to include women and minority candidates in the qualified pool from which Board candidates are chosen and, when nominated and elected, to consider such directors for leadership positions on the Board and its committees. Two of the last four directors added to our Board are women.
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The Board does not believe it should formally limit the number of terms for which an individual may serve as a director at the outset of a director appointment. Directors who have served on the Board for an extended period of time can provide valuable insight into the operations and future of the Company and matters of Board oversight based on their experience with and understanding of the Company's history, policies and objectives. Nevertheless, the Board strongly values fresh insight and novel approaches provided by new or recently appointed directors. The Board therefore believes that, as an alternative to term limits, it should endeavor to nominate Board candidates representing an on-going mix of short-, medium- and longer-term tenures.
The tenure profile of our Board currently resembles a barbell, with five (5) directors having two (2) years or less in tenure, six (6) with over ten years and only two (2) directors in between. With five (5) relatively new directors learning a complicated and unique business like Dollar Tree as well as a challenging and high-potential business like Family Dollar, our Board consulted with SpencerStuart, a leading board consulting and director search firm. The Board concluded that now was not the time to lose additional experienced directors. Instead, we adopted a waterfall strategy: each year beginning in 2020, as our newer members continue to gain needed experience, we expect to engage thoughtfully in additional Board refreshment. Our goal is to reach and thereafter maintain a relatively balanced mix of short, medium and long-term tenured directors.
The Nominating and Corporate Governance Committee from time to time engages search firms to assist the Committee in identifying potential Board nominees, and we pay such firms a fee for conducting such searches. With the assistance of independent third-party consultants, the Nominating and Corporate Governance Committee conducts significant amounts of due diligence to ensure that a nominee possesses the qualifications, qualities and skills outlined above.
Shareholder Nominations for Election of Directors
Shareholders generally can nominate persons to be directors by following the procedures set forth in our bylaws. In short, these procedures require the shareholder to deliver a written notice containing certain required information in a timely manner to our Corporate Secretary at the address on page 91. To be timely, the notice must be sent either by personal delivery or by United States certified mail, postage prepaid, and received no later than 120 days and no sooner than 150 days in advance of the anniversary date of the proxy statement for the previous year's annual meeting. If no annual meeting was held in the previous year, or the date of the applicable annual meeting has been changed by more than 30 days from the date contemplated at the time of the previous year's proxy statement, notice must be sent not less than 90 days before the date of the applicable annual meeting. The notice must contain the information required by our bylaws about the shareholder proposing the nominee and about the nominee. A copy of our bylaws can be found online at https://www.dollartreeinfo.com/investors/corporate.
Each shareholder's notice to the Corporate Secretary must include, among other things:
- •
- the name and address of record of the shareholder who intends to make the nomination;
- •
- a representation that the shareholder is a shareholder of record of our Company's capital stock and intends to appear in person or by proxy at such meeting to nominate the person or persons specified in the notice;
33
- •
- the class and number of shares of our capital stock beneficially owned by the shareholder; and
- •
- a description of all arrangements or understandings between such shareholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by such shareholder.
For each person nominated, the notice to the Corporate Secretary must also include, among other things:
- •
- the name, age, business address and, if known, residence address, of the nominee;
- •
- his or her principal occupation or employment;
- •
- the class and number of shares of our capital stock beneficially owned by such person;
- •
- any other information relating to such person that is required to be disclosed in solicitations of proxies for election of directors or is
otherwise required by the rules and regulations of the Securities and Exchange Commission promulgated under the Securities Exchange Act of 1934, as amended; and
- •
- the written consent of such person to be named in the proxy statement as a nominee and to serve as a director if elected.
Under the Company's proxy access bylaw, a shareholder, or a group of up to 20 shareholders, owning at least three percent (3%) of the Company's outstanding common stock continuously for at least three years, may nominate and include in our proxy materials director nominees not to exceed the greater of two (2) directors or twenty percent (20%) of the Board (rounded down), provided that the shareholders and nominees have complied with the requirements to be set forth in our bylaws and applicable law. Among other things, shareholders who wish to include director nominations in our proxy statement must follow the instructions in our bylaws as described in the "Shareholder Nominations for Election of Directors" section above.
34
Our executive officers as of April 1, 2019 are as follows:
|
NAME |
AGE |
POSITION | ||||
| | Bob Sasser | 67 | Executive Chairman | |||
| Gary M. Philbin | 62 | President & Chief Executive Officer | ||||
| | Betty Click | 56 | Chief Human Resources Officer | |||
| David Jacobs | 50 | Chief Strategy Officer | ||||
| | Joshua Jewett | 49 | Chief Information Officer | |||
| Duncan Mac Naughton | 57 | President of Family Dollar Stores | ||||
| | Gary A. Maxwell | 57 | Chief Supply Chain Officer | |||
| Thomas R. O'Boyle, Jr. | 49 | Chief Operating Officer of Family Dollar Stores | ||||
| | William A. Old, Jr. | 65 | Chief Legal Officer, Corporate Secretary | |||
| Robert H. Rudman | 68 | Chief Global Products Officer | ||||
| | Kevin S. Wampler | 56 | Chief Financial Officer | |||
| Michael A. Witynski | 56 | President and Chief Operating Officer of Dollar Tree Stores | ||||
Our executive officers are appointed by the Board and serve at the discretion of the Board. Although we do not have employment agreements with our executive officers, we have entered into change in control Retention Agreements and Executive Agreements with certain of our executive officers by which, in consideration for certain restrictive covenants, including a covenant not to compete, the Company has agreed to provide payments and benefits under certain circumstances following termination of employment. See "Termination or Change in Control Arrangements" and "Potential Payments upon Termination or Change in Control" beginning on pages 68 and 78, respectively.
Biographical information for Mr. Sasser and Mr. Philbin is provided in the "Director Biographies" section beginning on page 5. Biographical information for our other executive officers is provided below.
| | | |
| BETTY CLICK Chief Human Resources Officer Dollar Tree, Inc. |
Ms. Click, age 56, has served as the Chief Human Resources Officer of Dollar Tree since June 2017. Ms. Click is responsible for all Human Resource departments for Dollar Tree, Family Dollar and Dollar Tree Canada. Prior to joining Dollar Tree, Ms. Click spent fifteen years (2002 to 2017) in Senior Management Positions (approximately nine of those years as the Senior Vice President of Human Resources for Payless ShoeSource Holdings and Collective Brands, a footwear retailer with multiple brands and thousands of stores). Prior to Collective Brands, Ms. Click served in multiple Human Resources leadership roles at Verizon and GTE from 1981 to 2002. | |
| | | |
35
| | | |
| DAVID JACOBS Chief Strategy Officer Dollar Tree, Inc. |
Mr. Jacobs, age 50, has been the Chief Strategy Officer of Dollar Tree since 2012. He was the Senior Vice President of Strategic Planning from 2009 to 2012, and Vice President of Strategic Planning from 2006 to 2009. From 1996 to 2006, he held a number of positions with The Boston Consulting Group, a leading global strategic management consulting firm, including Partner from 2003 to 2006. From 1994 to 1996, he was an attorney at Weil, Gotshal & Manges, LLC. | |
| | | |
| JOSHUA JEWETT Chief Information Officer Dollar Tree, Inc. |
Mr. Jewett, age 49, has been the Chief Information Officer of Dollar Tree since March 2016 and has strategic and operational responsibility for all aspects of Information Technology. From August 2002 to February 2016, he served as the Senior Vice President-Chief Information Officer of Family Dollar Stores, Inc. Prior to his employment with Family Dollar, he served as the Senior Director for Answerthink, Inc., an international management consulting firm. | |
| | | |
| DUNCAN MAC NAUGHTON President Family Dollar Stores, Inc. |
Mr. Mac Naughton, age 57, has served as the President of Family Dollar Stores since December 2016. From December 2016 to October 2017, he served as the President and Chief Operating Officer. Prior to joining Family Dollar, he served as the Chief Executive Officer and President of Mills Fleet Farm, LLC from March 2016 to December 2016. He also held numerous senior leadership roles at Wal-Mart Stores, Inc., including Chief Merchandising and Marketing Officer from 2011 to 2014, Executive Vice President of Consumables Health and Wellness from 2010 to 2011 and Chief Merchandising Officer of Walmart Canada from 2009 to 2010. From 2006 to 2009, he served as the Executive Vice President, Merchandising and Marketing for Supervalu, Inc., including serving as the Head of the Health and Wellness Division. Prior to Supervalu, Mr. Mac Naughton held several leadership roles at Albertsons, Inc.'s, H. E. Butt Grocery Company and Kraft Foods Group, Inc. | |
| | | |
36
| | | |
| GARY A. MAXWELL Chief Supply Chain Officer Dollar Tree, Inc. |
Mr. Maxwell, age 57, joined Dollar Tree in 2015 as the Chief Supply Chain Officer. From 2013 to 2015, he was the President and Founder of Maxwell Value Chain, Inc., a company that provided replenishment services and supply chain improvement consultation to retail suppliers. He joined Dollar Tree after a 14-year career at Walmart Stores, Inc. where he held various senior level positions. This included serving as the Senior Vice President of the Global Business Process Team from 2012 to 2013. From 2007 to 2011, he held the position of Senior Vice President of International Supply Chain. From 2003 to 2006, he was the Senior Vice President of U.S. Merchandise Replenishment and the Vice President of U.S. Logistics Engineering from 2001 to 2002. From 1999 to 2000, he served as the Vice President of Sam's Club Logistics. Prior to Walmart, he worked for Caldors from 1993 to 1999 as the Senior Vice President of Merchandise Distribution and Replenishment. Throughout his career, he gained expertise in global supply chain management, international logistics, merchandise distribution and replenishment, inventory management, process improvement and strategic planning. | |
| | | |
| THOMAS R. O'BOYLE, JR. Chief Operating Officer Family Dollar Stores, Inc. |
Mr. O'Boyle, age 49, has served as the Chief Operating Officer of Family Dollar since October 2017. Mr. O'Boyle is a broad-based retail executive with substantial leadership experience, supplemented with functional experience in operations, merchandising, marketing, supply chain and logistics. Prior to joining Family Dollar, Mr. O'Boyle served as Chief Executive Officer of Marsh Supermarkets for five years and prior to that time served as President of the Food, Drug and Pharmacy business at Sears/Kmart. Mr. O'Boyle spent the first 22 years of his career in many executive leadership positions at Albertsons/American Stores (Jewel-Osco). | |
| | | |
| WILLIAM A. OLD, JR. Chief Legal Officer Dollar Tree, Inc. |
Mr. Old, age 65, joined Dollar Tree as the Chief Legal Officer in 2013. Prior to joining Dollar Tree, he was the Vice President and Director at Williams Mullen, P.C. from 2004 to 2013 representing public companies in mergers and acquisitions, corporate governance and securities matters. He previously represented Dollar Tree as its primary outside counsel since 1985. | |
| | | |
37
| | | |
| ROBERT H. RUDMAN Chief Global Products Officer Dollar Tree, Inc. |
Mr. Rudman, age 68, has been the Chief Global Products Officer since April 2017. He previously served as the Chief Merchandising Officer of Dollar Tree from June 2003 to March 2017. Prior to joining Dollar Tree, he served as President/Chief Executive Officer and minority shareholder of Horizon Group USA from 2000 to June 2003. From 1996 to 2000, Mr. Rudman was President/CEO of his own consulting company, VQ International Inc. From 1991 until 1996, Mr. Rudman was Executive Vice President/Chief Merchandise Officer of Michaels Stores. Prior to joining Michaels, Mr. Rudman served in a number of positions in a wide variety of retail formats, gaining the majority of his experience in merchandise and marketing. | |
| | | |
| KEVIN S. WAMPLER Chief Financial Officer Dollar Tree, Inc. |
Mr. Wampler, age 56, has been the Chief Financial Officer of Dollar Tree since December 2008. Prior to joining Dollar Tree, he served as Executive Vice President, Chief Financial Officer and Assistant Secretary for The Finish Line, Inc. from October 2003 to November 2008. Mr. Wampler held various other senior positions during his fifteen-year career at The Finish Line, including Senior Vice President, Chief Accounting Officer and Assistant Secretary from 2001 to 2003. Mr. Wampler, a Certified Public Accountant, was employed by Ernst and Young LLP from 1986 to 1993. | |
| | | |
| MICHAEL A. WITYNSKI President and Chief Operating Officer Dollar Tree Stores, Inc. |
Mr. Witynski, age 56, has been the President and Chief Operating Officer of Dollar Tree Stores since June 2017. He previously served as the Chief Operating Officer from July 2015 to June 2017. He served as the Senior Vice President of Stores from August 2010 to July 2015. Prior to joining Dollar Tree, he held senior leadership roles in Merchandising, Marketing, Private Brands and Operations at Shaw's Supermarkets and Supervalu, Inc. during his 29-year career in the grocery industry. | |
| | | |
38
COMPENSATION OF EXECUTIVE OFFICERS
Compensation Committee Report on Executive Compensation
The Compensation Committee of our Board of Directors is responsible for developing, overseeing and implementing our pay-for-performance compensation program for executive officers. In carrying out its responsibilities, each year the Compensation Committee reviews, determines and recommends to the independent members of the Board the approval of the compensation of our Chief Executive Officer. The Committee also approves the compensation of our other executive officers, including the Executive Chairman.
The Compensation Committee is committed to structuring compensation for our executives that rewards actions that support the Company's focus on annual and long-term growth and sustainable long-term shareholder value. To achieve this objective, we conducted a review of our compensation programs in 2018 with the assistance of Aon Consulting, Inc., our independent compensation consultant, to ensure that those programs incentivize growth and drive long-term shareholder value. During this process, we listened to feedback from our executives and shareholders.
Our review of the Company's executive compensation programs in 2018 focused on determining the appropriate level and mix of compensation to motivate and incentivize our executives to achieve our growth and performance goals and be accountable for the results. As a result of this process, we provided a mix of annual and long-term compensation that was designed to align the short and long-term interests of our executives with those of our shareholders. Specifically, the Compensation Committee reviewed and established base salaries, approved targets and awards under our annual cash incentive plan and made long-term incentive awards, the vesting of which are subject to our achieving a specified level of corporate performance.
A further discussion of the principles, objectives, components and determinations of the Compensation Committee is included in the Compensation Discussion and Analysis that follows this Compensation Committee report. The specific decisions of the Compensation Committee regarding the compensation of named executive officers are reflected in the compensation tables and narrative that follow the Compensation Discussion and Analysis.
The Compensation Committee has reviewed the Compensation Discussion and Analysis and discussed it with our management. Based on this review and discussion, the Compensation Committee recommended that the Compensation Discussion and Analysis be included in the Company's proxy statement for the 2019 annual meeting of shareholders.
SUBMITTED BY THE COMPENSATION COMMITTEE
Arnold S. Barron Gregory M. Bridgeford Thomas W. Dickson Stephanie P. Stahl Carl P. Zeithaml
Compensation Committee Interlocks and Insider Participation
No member of the Compensation Committee is a former officer of Dollar Tree or any of our subsidiaries. In addition, none of the members of the Compensation Committee has or had any relationship with the Company during fiscal 2018 that requires disclosure in accordance with the applicable rules of the Securities and Exchange Commission relating to compensation committee interlocks and insider participation.
39
COMPENSATION DISCUSSION AND ANALYSIS
The following Compensation Discussion and Analysis ("CD&A") describes our executive compensation program and philosophy, our compensation-setting process, the elements of our executive compensation program, the compensation decisions made in 2018 and certain changes we have made to our compensation program for 2019. This CD&A should be read together with the compensation tables and related disclosures that immediately follow, which provide further historical compensation information for our Named Executive Officers ("NEOs") as identified below.
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Name |
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Title |
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| | Gary Philbin | | President and Chief Executive Officer | |||
Kevin Wampler |
Chief Financial Officer |
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Bob Sasser |
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Executive Chairman |
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Duncan Mac Naughton |
President, Family Dollar Stores |
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Michael Witynski |
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President and COO, Dollar Tree Stores |
Highlights for Fiscal Year 2018
Dollar Tree is North America's leading operator of discount variety stores, operating more than 15,000 discount variety retail stores under the names of Dollar Tree, Family Dollar and Dollar Tree Canada. Highlights for fiscal 2018 include:
►- Consolidated net sales for the 52-week fiscal 2018 increased 2.6% to $22.82 billion from $22.25 billion in the 53-week fiscal 2017. Excluding $406.6 million of sales from the prior year's 53rd week, consolidated net sales increased 4.5%. Enterprise same-store sales increased 1.7%. Same-store sales for the Dollar Tree banner increased 3.3%. Same-store sales for the Family Dollar banner increased 0.1%.
►- Adjusted operating income targets for fiscal 2018 were $2,063.3 million for the combined enterprise, $1,471.0 million for the Dollar Tree US banner and $587.0 million for the Family Dollar banner. For 2018, the enterprise achieved 87.29% of its adjusted operating income target, the Dollar Tree US banner achieved 99.2% of its target and the Family Dollar banner achieved 56.87% of its target. For a description of the adjustments to GAAP operating income that were used by the Company for purposes of the 2018 performance targets, please see page 57 below.
►- The Company opened 546 new stores during fiscal 2018, ending the fiscal year with 15,237 stores.
►- Nearly all systems, functions and departments at Family Dollar and Dollar Tree were substantially integrated in fiscal 2018, with the exceptions of merchandising, store operations and loss prevention, resulting in annual savings to date exceeding $50.0 million.
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►- The Company substantially completed the development and testing in 2018 of its new H2 store optimization model for both new and renovated Family Dollar stores, which in test stores produced increased traffic, provided an average comparable store sales lift in excess of 10% over control stores and significantly improved merchandise offerings, including Dollar Tree $1.00 merchandise sections, throughout the stores. The Company plans to renovate at least 1,000 Family Dollar stores to the new H2 model in fiscal 2019.
►- The Company began the consolidation of store support centers in Matthews, North Carolina and Chesapeake, Virginia to optimize operational efficiencies, an initiative that is expected to be completed in the middle of 2019. The Company utilizes a shared services model, leveraging its back office functions to support both the Dollar Tree and Family Dollar banners.
To continue our success going forward, it is critical that we motivate and retain our highly talented executive team to execute our corporate strategic vision, business plans and initiatives. To do so, our Compensation Committee has thoughtfully developed incentive programs to reward executives for superior performance versus goals that align the interests of executives with the interests of our long-term shareholders.
We seek to align our executives' interests with those of our long-term shareholders and to follow sound corporate governance practices.
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Compensation Practice |
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Dollar Tree's Compensation Policies and Actions |
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Pay for Performance |
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YES |
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A significant portion of targeted direct compensation is linked to the financial performance of key metrics. Approximately 87% of our Chief Executive Officer's pay in 2018 was variable and at risk. In 2019, we changed the performance metric of our LTPP awards from adjusted operating income to adjusted EBITDA to provide a second performance metric, and increased the performance thresholds for vesting of our long-term incentive awards. We also revised our annual incentive bonus program to increase the corporate performance component from 85% to 100%. As a result, beginning in 2019, 100% of our annual bonus compensation and equity incentive compensation is based on corporate performance. See "Compensation Updates for 2019" "Target Pay Mix" and "Alignment of Pay for Performance." |
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Compensation Practice |
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Dollar Tree's Compensation Policies and Actions |
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Clawback policy |
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YES |
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In 2018, the Board adopted a more robust clawback policy that requires mandatory reimbursement of excess incentive compensation from any executive officer if the Company's financial statements are restated due to material noncompliance with financial reporting requirements under the securities laws. This policy is in addition to our existing clawback policy covering the Company's Chief Executive Officer and Chief Financial Officer under the Omnibus Incentive Plan. See "Recoupment ("Clawback") Policy." |
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Robust stock ownership guidelines |
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YES |
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Our executive stock ownership guidelines were revised in 2017 to increase the number of shares to be held by executives so as to create further alignment with shareholders' long-term interests. See "Executive Stock Ownership Guidelines." |
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No hedging or pledging of Dollar Tree securities or holding Dollar Tree securities in margin accounts |
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YES |
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Our policy prohibits executive officers and Board members from hedging their ownership of our stock and holding our stock in a margin account. None of our executive officers and directors engaged in transactions involving the pledging of Company stock during fiscal 2018. See "Policy Against Hedging of Company Stock" and "No Pledges of Company Stock." |
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No excise tax gross-ups |
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YES |
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We do not provide excise tax gross-up payments. |
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Double-trigger provisions |
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YES |
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Equity awards under our equity incentive plan and all change in control Retention Agreements with executive officers include a "double-trigger" vesting provision upon a change in control. See "Termination or Change in Control Arrangements." |
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No repricing or cash buyout of underwater stock options without shareholder approval |
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YES |
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Our equity incentive plan prohibits modifications to stock options and stock appreciation rights to reduce the exercise price of the awards, or replacing awards with cash or another award type, without shareholder approval. |
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In March 2019, the Compensation Committee approved changes to our annual and long-term incentive compensation program for executive officers, including our NEOs. As described below, the Committee eliminated the consideration of individual performance goals for purposes of our annual cash bonus incentive awards, increased the performance metric thresholds for vesting of long-term awards and began the use of two performance metrics, adjusted operating income and adjusted EBITDA, for long-term awards.
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2018 Performance Program |
2019 Changes |
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| Annual Cash Bonus Incentives | • Annual cash bonus dependent on achievement of at least 85% of the corporate adjusted operating income target with a steep performance payout curve
• Bonuses weighted 85% to adjusted operating income target and 15% to individual performance goals |
• Based on feedback from shareholders, we eliminated the individual performance component for purposes of calculating the annual bonus; bonuses are now weighted 100% on a corporate adjusted operating income target in order to completely align the cash bonus of our named executive officers with an objective measure of Company performance |
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| Performance-Based Restricted Stock Unit Awards (RSUs and PSUs) | • Performance-based restricted stock units ("RSUs") vest after first year achievement of at least 80% of adjusted operating income target, with time-based vesting of one-third of the award on the first three anniversaries of the grant date
• Amount of payout does not vary providing the target is met
• RSUs settled in stock |
• The minimum level of adjusted operating income performance required to earn a payout was raised from 80% to 85%; if performance does not reach 85%, there is no payout
• The adjusted operating income performance that can earn a payout ranges from 85% up to a maximum of 115%
• In order to increase the at-risk elements of the award, the percentage of a targeted award that may be earned by an executive ranges from 75% of the award for performance of 85% up to a cap of 150% of the award for performance of 115%
• The purpose of the change was to decrease compensation if 100% of the target was not met, but provide an incentive by increasing compensation if more than 100% of the target was achieved
• Awards are designated as performance stock units ("PSUs") and settled in stock |
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2018 Performance Program |
2019 Changes |
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| Long-Term Performance Plan Awards ("LTPP") | • Performance-based vesting on three-year cumulative achievement of at least 83% of target adjusted operating income
• The percentage of a targeted award that may be earned by an executive ranges from 25% of the award for performance of 83% of target adjusted operating income up to a cap of 200% of the award for performance of 125% of target adjusted operating income
• Award is paid 50% in cash and 50% in grant date RSUs settled in stock |
• Based on comments we received from shareholders, we changed the performance metric for LTPP awards from adjusted operating income to adjusted EBITDA to give us a second performance metric; we also believe that adjusted EBITDA can be forecast more fairly over a three year period than adjusted operating income
• The minimum level of three year cumulative performance required to earn a payout was raised to 85% |
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Note: To evaluate performance in a manner consistent with how management evaluates our operating results, the financial metrics in our annual and long-term incentive plans are measured on a non-GAAP basis. |
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In March 2019, the Compensation Committee also determined that, notwithstanding Mr. Sasser's continued responsibilities as Executive Chairman, a reduction in Mr. Sasser's compensation for 2019 would be appropriate. This reduction in compensation was made in accordance with the Compensation Committee's longstanding transition plan. As a result, Mr. Sasser's base salary will decrease from $1.7 million in 2018 to $1.0 million in 2019, and he will no longer participate in our annual incentive bonus plan or receive LTPP incentive awards. Mr. Sasser will continue to receive a performance-based RSU award (now called "PSU"), but the target amount to be earned will decrease from $7.0 million in 2018 to $5.5 million in 2019. Mr. Sasser's total target compensation decreased 48.3% as a result of the changes described above. For additional information on Mr. Sasser's role, responsibilities and compensation, please see "Executive Compensation Principles."
2018 Executive Compensation Overview
We are committed to an executive compensation program that ties pay to performance. The program is also designed to focus executives on the long-term growth and profitability of our business, without encouraging excessive risk-taking. A significant portion of pay is performance-based and therefore, variable and at risk. In determining the components of compensation, we seek to appropriately balance fixed and variable, short- and long-term and cash and equity components of the program, and to mitigate risks in the program with stock ownership guidelines that apply to our executive officers. Our compensation program is designed to reward our executive officers for achieving performance goals, which included both Company and individual goals in 2018. When we do not achieve the performance goals, our executive officers' compensation reflects that performance.
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Key 2018 Compensation Decisions
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Base Salaries |
The Compensation Committee made adjustments to base salaries based on various factors, including job performance and the salaries of executives in similar positions at peer companies. | ||
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Consistent with our desire to align pay and performance, our Compensation Committee takes our primary pay elements (base salary, annual incentives and long-term incentives) and develops a target pay package for each executive that is more heavily weighted towards variable or at-risk pay. Although our Compensation Committee does not target a specific allocation for each pay element, the Committee is nevertheless cognizant of delivering an appropriate balance between fixed and variable elements, as well as short- and long-term incentives, as evidenced here in the following 2018 target pay mix allocation charts:
Our pay-for-performance philosophy and compensation practices provide an appropriate framework for our executives to achieve our financial and strategic goals without encouraging them to take excessive risks in their business decisions. Some of our core practices include:
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Alignment of Pay and Performance
Our compensation program is grounded in a pay-for-performance philosophy. Performance goals in both our short- and long-term incentive plans are set at challenging levels, with the ultimate goal that achievement will drive long-term, sustainable shareholder value growth. When financial targets and performance goals are not met, pay outcomes for our executives should reflect this reality.
Our analysis of the link between pay and performance indicates that when performance goes up, pay rises. Conversely, when performance goals are not achieved, pay declines. While there are certainly other factors to consider, including a lag effect due to the timing of award grants, a snapshot of our Chief Executive Officer's pay (as reported in the Summary Compensation Table) over the past five years is indicative of this directional pay and performance alignment.
Note: Due to the Chief Executive Officer transition in September 2017, total pay for the two Chief Executive Officers was prorated and summed based on days serving as CEO during the fiscal year.
At our 2018 annual shareholders' meeting, our annual non-binding advisory vote on executive compensation was overwhelmingly approved by our shareholders, receiving approximately 98% support. The Compensation Committee reviewed these final vote results, which we believe reinforce shareholder support for our pay for performance philosophy and the appropriateness of our compensation structure. The Compensation Committee determined that the structure of our executive compensation program continues to be appropriately aligned to the achievement of Company goals and objectives and in the best interests of our shareholders.
The Compensation Committee regularly reviews the executive compensation program to determine if adjustments are needed to remain competitive and aligned with our shareholders' interests. Further, the Compensation Committee and management recognize the value of engaging in a dialogue with our shareholders and receiving feedback on an ongoing basis to ensure alignment between our executive officers' compensation, our business objectives and the interests of our shareholders. In 2018, we contacted holders of approximately 53% of our outstanding shares concerning executive compensation or governance matters to invite them into the process.
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In response to feedback received from our shareholders in 2018, the Compensation Committee approved the use of an additional performance metric for our incentive plans in March 2019. The performance metric for the LTPP was changed from adjusted operating income to adjusted EBITDA while we continue to use adjusted operating income as the performance metric for annual cash incentive bonus and non-LTPP performance awards. We also eliminated the individual performance component of the annual cash incentive bonus calculation, which is now based 100% on adjusted operating income as a performance metric. In addition, we increased the thresholds for vesting of our LTPP and non-LTPP awards to 85% of the applicable target performance goal.
Executive Compensation Setting Process
Our Compensation Program Philosophy and Objectives
The Compensation Committee has adopted a pay-for-performance policy for executive officers that balances each executive's total compensation between cash and non-cash, and current and long-term, components. The principal objectives of our compensation policies are to:
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- align executive pay with shareholders' interests with a dominant pay-for-performance design;
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- provide executive pay that is competitive among our peer group;
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- recognize and reward achievement of corporate performance goals;
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- attract, motivate and retain highly qualified executives; and
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- unite the executive management team to a common objective.
The Compensation Committee begins its work each year with the determination of the peer group. The goal is to select as many as 20 public retailers with revenues, market capitalization and qualitative factors similar to Dollar Tree. When we are unable to identify a sufficient number of retailers that satisfy our requirements, we expand our pool to include retail-related public companies. For example, in 2018 Sysco Corporation and Aramark Corporation were included in the peer group as retail-related public companies.
Although the Compensation Committee does not mandate a specific percentile of the peer group for total direct compensation of any executive, to ensure our compensation is competitive among our peer group, we use the 50th percentile as a point of reference in setting total direct compensation. To align pay with shareholder interests, we target the Chief Executive Officer's at-risk compensation to be more than 85% of his total compensation (87% in 2018), and the other named executive officer's at more than 80% (81% in 2018). To further align compensation with long-term shareholder value, we also believe that the Chief Executive Officer's long-term incentive compensation should be a substantial majority of his total at-risk pool (69% of total compensation in 2018), and a slightly higher percentage than the other named executive officers (63% of total compensation in 2018).
To unite the executive management team in pursuit of a common objective, we chose to use adjusted operating income in 2018 as the performance metric for at-risk compensation. We have used other metrics in the past, but believe that adjusted operating income is the best objective metric to align performance with shareholder value.
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We believe that the adjusted operating income goal for the cash bonus and RSU (now PSU) grant should be difficult but not impossible to achieve. For example, in 2018, a strong performance year, the Dollar Tree US banner achieved 99.2% of its adjusted operating income target for a 96.01% of target payout for our annual cash bonus awards. The Family Dollar banner did not achieve 85% of its adjusted operating income target, which was the threshold to earn a bonus, so its payout was 0.00%. The enterprise (which is both banners) achieved 87.29% of its target adjusted operating income so the payout was 36.44%. Because it is much more difficult to forecast the performance of a retailer over three years because of factors beyond management's control (the economy, weather, trade wars, etc.), we try to set the three-year adjusted operating income target for our LTPP awards at a more realistic level. We also believe that the pay and performance curve for the annual cash bonus and LTPP awards should be relatively steep, giving the executives meaningful downside risk and upside benefit if performance falls short of or exceeds the target. This approach again aligns the executive's pay with shareholder return. In 2019, we adopted this approach for the PSU grant as well.
The Compensation Committee, with the assistance of Aon Consulting, Inc. ("Aon Consulting"), approved a new peer group of 19 companies that we believe are similarly situated to Dollar Tree and are representative of the markets in which we compete for executive talent.
The peer group was developed based primarily upon Dollar Tree's industry and size. Revenue growth and market capitalization were selected as the appropriate size filters. The Committee also considered qualitative factors such as retail presence, price points and/or customer base. Aon Consulting assisted the Compensation Committee with identifying executive positions comparable to those of our named executive officers and providing the Committee with benchmarking data for both total direct compensation and each element of total direct compensation within the peer group. This analysis provided the Committee with a perspective on Dollar Tree's pay-for-performance relationship relative to its peers.
Using these criteria, the Compensation Committee determined that 17 companies from the 2017 peer group would continue to be included in the 2018 peer group. Two companies, Staples, Inc. and YUM! Brands, Inc., were removed from the peer group because Staples is no longer a public company for which reliable compensation information is available and YUM! Brands did not meet the Committee's revenue criteria. The two companies removed from the peer group were replaced with Aramark, a global provider of food, facilities and uniform services to clients in various industries, and Tractor Supply Company, a large rural lifestyle retailer in the United States,
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following a review of the annual revenue, market capitalization and qualitative factors of each company. As a result, the following 19 companies constituted our peer group for 2018:
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Aramark Corporation |
Macy's Inc. |
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| Bed Bath & Beyond, Inc. | McDonalds Corporation | |
| Best Buy Co. Inc. | Nordstrom, Inc. | |
| CarMax, Inc. | Rite Aid Corporation | |
| Dollar General Corporation | Ross Stores, Inc. | |
| Gap, Inc. | Starbucks Corporation | |
| Genuine Parts Company | Sysco Corporation | |
| Kohl's Corporation | TJX Companies, Inc. | |
| L Brands, Inc. | Tractor Supply Company | |
| Lowe's Companies, Inc. | ||
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The Committee does not target a specific market data percentile for total direct compensation or individual components of compensation but rather reviews data from the peer group companies as a point of reference to help ensure that our overall compensation remains competitive.
Executive Compensation Principles
We selected the components of compensation to achieve our stated executive compensation objectives. Our executive compensation program consists of base salaries, annual cash incentives and long-term incentives generally in the form of cash and RSUs. These components of executive compensation are used together to strike an appropriate balance between cash and stock compensation and between short-term and long-term incentives. We expect a significant portion of an executive's total compensation to be at risk, tied both to our annual and long-term performance as well as to the creation of sustainable shareholder value. In particular, we believe that both short-term and long-term incentive compensation should be tied directly to the achievement of corporate performance goals. In addition, we believe that long-term incentive compensation should reward an executive for his or her contribution to our long-term corporate performance and shareholder value creation. Under our policy, performance above the targeted goal results in increased total compensation, and performance below the targeted goal results in decreased total compensation.
We differentiate compensation to executives based on the principle that total compensation should be commensurate with an executive's position and responsibility, while at the same time, a greater percentage of total compensation should be tied to corporate performance, and therefore be at risk, as position and responsibility increases. Thus, executives with greater roles and responsibilities associated with achieving our performance targets should bear a greater proportion of the risk if those goals are not achieved and should receive a greater proportion of the reward if our performance targets are met or surpassed. In addition, as an executive's position and responsibility increase, the use of long-term incentive compensation should increase as a percentage of total compensation because our senior executives have the greatest influence on our strategic performance over time.
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The compensation of our named executive officers in 2018 was based on the application of the executive compensation principles described above in light of their respective roles and responsibilities in the Company. The compensation of our President and Chief Executive Officer, Mr. Philbin, is based on his primary responsibility as the principal executive officer overseeing the business, management and operations of the Company. Mr. Philbin has a unique role as primary architect of the Company's strategic vision and is responsible for the planning and implementation of the Company's strategic and operational initiatives and goals.
Mr. Sasser serves as our Executive Chairman with primary responsibilities for Board leadership and engagement with our management team. As the former Chief Executive Officer of the Company, Mr. Sasser is uniquely qualified to serve in these capacities. Mr. Sasser's Board leadership responsibilities include, among other things, mentoring the Chief Executive Officer, developing the new store support center and assisting in integration, overseeing the general functioning of the Board and its committees, assessing the composition of the Board, recruiting potential candidates for the Board as necessary, consulting regularly with the Lead Director to discuss matters that concern the Board, leading the Board's annual review of the Company's business strategy, financial plans and capital resources, and leading the Board's role in succession planning for executive officers.
Mr. Sasser's management responsibilities include providing advice and support to the President and Chief Executive Officer on critical Company initiatives and shareholder communications, the perpetuation of the Company's successful business culture and the maintenance of market and customer relevance through development of long-term strategic plans. In addition, Mr. Sasser is responsible for challenging and holding management accountable, as appropriate, and transferring his institutional knowledge and principles to the organization. As liaison between the Board and management, Mr. Sasser is responsible for providing opportunities for the Board and management to engage in open discussions of strategic initiatives, opportunities and industry outlook, for ensuring that management understands and carries out the Board's decisions and for helping the Board remain connected to the individual managers who are executing the Company's business plans.
As Executive Chairman, Mr. Sasser does not receive director compensation for carrying out his duties under the Company's bylaws. Such duties include presiding at meetings of the shareholders and of the Board of Directors, managing the business and affairs of the Company as directed from time to time by the Board of Directors and seeing that all orders and resolutions of the Board are carried into effect.
In 2018, in comparison to our other executive officers, our President and Chief Executive Officer and Executive Chairman received higher base salaries, higher annual bonus incentives and higher long-term equity incentives as a result of their greater authority, responsibility and oversight. As noted above, Mr. Sasser's compensation has been significantly reduced for 2019 in light of his changing role at the Company.
Role of the Compensation Committee
The Compensation Committee consists entirely of non-employee, independent members of our Board of Directors and operates under a written charter approved by the Board. The Compensation Committee has the direct responsibility to review and determine the compensation of all named executive officers, including the determination of performance metrics and goals and the achievement of performance goals.
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The Compensation Committee considers shareholder feedback and other factors as it seeks to align the objectives and operation of our executive compensation program with the interests of our shareholders. The Compensation Committee has historically consulted, and expects to continue to consult, with the Chief Executive Officer and senior management, as well as an independent external compensation consultant retained by the Compensation Committee when deemed appropriate, in the exercise of its duties. Notwithstanding such consultation, the Compensation Committee retains absolute discretion over all compensation decisions with respect to the named executive officers.
In determining the compensation of our executive officers, the Compensation Committee evaluates total overall compensation, as well as the mix of salary, cash bonus incentives and equity incentives, using a number of factors including:
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- our financial and operating performance, measured by attainment of specific strategic objectives and operating results;
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- the compensation practices of our peer group; and
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- our historical cash and equity compensation levels.
Role of the Chief Executive Officer in Compensation Decision-Making
In general, at the Compensation Committee's request, our Chief Executive Officer may review and recommend to the Compensation Committee or its consultants the compensation structure and awards for the other named executive officers. The Chief Executive Officer participates in the development of business plans and annual budgets, and corresponding performance metric goals. The Chief Executive Officer also provides information to the Compensation Committee and its consultants regarding the job performance and overall responsibilities of the other named executive officers. He makes no recommendations concerning his own compensation to the Compensation Committee or its consultants. The Chief Executive Officer does not vote on executive compensation matters nor is he present when his compensation is being discussed or approved.
Role of the Compensation Consultant
Pursuant to its written Charter, the Compensation Committee has the authority to engage the services of outside independent advisers. Aon Consulting was retained beginning in the spring of 2010 to assist the Compensation Committee in determining the appropriateness and competitiveness of our executive compensation program. The Compensation Committee continues to engage Aon Consulting on an ad hoc basis for executive compensation consulting services. No executive officer had the authority to direct the work of Aon Consulting with regards to its work with the Compensation Committee. The Compensation Committee bears ultimate responsibility for approving the compensation of all named executive officers.
In fiscal 2018, the Compensation Committee engaged Aon Consulting to provide executive compensation consulting services. The Company paid $81,460 to Aon Consulting for these services. With respect to additional services, Aon Risk Services, Inc. ("Aon Risk"), an affiliate of Aon Consulting, provided insurance brokerage services to the Company for which it received commissions. The Company paid $1,376,898 for the insurance brokerage services in fiscal 2018.
The decision to engage Aon Risk for these additional services to the Company was made by management and the approval of the Compensation Committee or Board of Directors was not
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required or requested. However, the Compensation Committee has reviewed its relationship with the consultant, taking into consideration the six independence factors set forth in Rule 10C-1 under the Securities Exchange Act of 1934. The Committee also reviewed the internal guidelines adopted by Aon Consulting to guard against any potential conflict of interest and ensure its consultants provide only independent advice, regardless of fees paid to the firm. Based on its review, the Compensation Committee has identified no conflicts of interest and believes the additional services provided to management by Aon Risk do not impair the objectivity of the advice rendered by Aon Consulting to the Compensation Committee on executive compensation matters.
The Compensation Committee has responsibility for establishing our compensation philosophy and objectives, determining the structure, components and other elements of our programs and reviewing and approving the compensation of our NEOs. In addition, an important objective of our overall executive compensation program is to reduce any incentives that may influence executives to take imprudent risks that might harm the Company or our shareholders. At least annually, the Compensation Committee assesses the risk of our compensation program. The Compensation Committee has overseen the establishment of a number of controls that address compensation-related risk and serve to mitigate such risk, including stock ownership guidelines for executive officers and maintaining prohibitions on the hedging of Dollar Tree stock or holding Company stock in a margin account. As a result, we have reviewed our compensation policies and practices for all employees and concluded that such policies and practices are not reasonably likely to have a material adverse effect on our Company.
Components of Executive Compensation
The executive compensation program consists of three principal components: base salary, annual cash bonus incentives and long-term incentives. The Compensation Committee considers these components individually and reviews the overall distribution between them but does not target specific allocation percentages or amounts.
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Element |
Term |
Strategic Role |
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Base Salary |
Short Term |
• Helps attract and retain
executives through market-competitive base pay • Based on individual performance,
experience and scope of responsibility |
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| Annual Cash Bonus Incentive | Short Term (cash) | • Encourages achievement of
short-term strategic and financial performance metrics that create shareholder value • In 2018, cash bonus incentives
were based 85% on adjusted operating income goals and 15% on individual performance; in 2019, cash bonus incentives are based 100% on adjusted operating income goals |
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| Long-Term Incentive Awards | Long Term (equity and cash) | • Aligns executives'
interests with those of shareholders • Motivates executives to deliver
long-term sustained performance • Creates a retention incentive
through multi-year vesting and robust stock ownership guidelines • In 2018, long-term awards
consisted of performance-based RSUs and cash awards and were 100% based on Company performance goals |
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In addition, we also provide our executives with the benefits that are commonly available to our full-time associates, including participation in our retirement savings plan, employee stock purchase plan, health, dental and vision plans and various insurance plans, including disability and life insurance.
Our base salary philosophy is to provide reasonable current income to our named executive officers in amounts that will attract and retain individuals with a broad, proven track record of performance. To accomplish this objective, we provide base salaries that are intended to be competitive relative to similar positions at comparable companies. Base salaries are reviewed annually and adjustments are made as required to recognize outstanding individual performance, expanded duties or changes in the competitive marketplace.
The Compensation Committee, with the assistance of Aon Consulting, determined during its March 2018 meeting that certain of our named executive officers would receive annual base salary increases in order to keep salaries at competitive levels. In determining the base salaries for 2018, the Compensation Committee reviewed market data from its peer group, Aon Consulting's data on salary increases for executives and other relevant internal factors such as individual performance and internal pay equity.
Executive |
2017 Base Salary |
2018 Base Salary |
Year over Year Change |
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Gary Philbin |
| $1,400,000 |
* |
$1,400,000 |
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0% |
Kevin Wampler |
| $750,000 |
| $800,000 |
| 6.6% |
Bob Sasser |
| $1,700,000 |
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$1,700,000 |
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0% |
Duncan Mac Naughton |
| $1,000,000 |
| $1,050,000 |
| 5% |
Michael Witynski |
| $600,000 |
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$700,000 |
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16.7% |
*Reflects Mr. Philbin's base salary upon his appointment as Chief Executive Officer.
We provide our executive officers, including the named executive officers, with the opportunity to annually earn cash incentives under the Management Incentive Compensation Plan ("MICP"). These incentives are designed to encourage the achievement of corporate and individual objectives and to reward those individuals who significantly impact our corporate results.
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2018 Bonus Opportunities
Executive bonus opportunities are set as a percentage of salary. For 2018, the executive bonus opportunities were as follows:
Executive |
Bonus Incentive Opportunity (as a % of base salary) |
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Gary Philbin |
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140 |
% |
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Kevin Wampler |
| | 70 |
% |
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Bob Sasser |
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140 |
% |
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Duncan Mac Naughton |
| | 100 |
% |
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Michael Witynski |
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100 |
% |
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At the executive level, annual incentives are weighted more heavily toward the achievement of corporate performance measures, thereby more closely aligning executives' interests with the interests of shareholders. The 2018 incentive targets, as in prior years, were set using the market data provided from the peer group and our assessment of appropriate targets within our management structure.
The Company performance goals are generally derived from operating income targets defined by the annual budget as approved by the Board of Directors at the beginning of the fiscal year. Thus, these performance goals are consistent with the Board's overall outlook of the Company's potential performance over a one year horizon. For executive compensation purposes, the Compensation Committee adjusts the operating income targets for the enterprise and the Dollar Tree and Family Dollar banners to exclude, among other things, items such as currency fluctuations, various expenses and non-cash goodwill and intangible impairment charges. In addition to adjusted operating income, the Compensation Committee considers alternative metrics for corporate performance as well as the use of multiple metrics in the design of the Company's compensation program.
In March 2018, the Compensation Committee determined that the use of adjusted operating income as the sole performance metric in fiscal 2018 for the annual and long-term incentive plans was appropriate because it encourages achievement of strategic and financial performance metrics that create sustainable shareholder value, it is something over which executive officers have control and it is an important metric for evaluating the performance of retail companies. The performance targets are intended to be challenging but achievable, and serve to focus our management team on a common goal while aligning efforts with shareholder interests.
For 2018, the Compensation Committee determined that executives' bonuses would be linked 85% to an adjusted operating income target for fiscal 2018 and 15% to individual performance. In order for an executive to receive any bonus, however, we must achieve at least
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85% of the adjusted operating income target. Annual incentive awards in 2018 were determined as follows:
2018 Corporate Performance Metrics
The Compensation Committee establishes the MICP corporate performance target, which is derived from the annual budget approved by the Board of Directors at the beginning of the fiscal year. For 2018, the corporate performance target was determined to be adjusted operating income, with a target set at $2,063.3 million for the combined enterprise, $1,471.0 million for the Dollar Tree US banner and $587.0 million for the Family Dollar banner. These targets reflect the adjusted operating income underlying the annual budget approved by the Board of Directors.
The Compensation Committee used 2018 adjusted operating income as the performance metric because it encourages achievement of strategic and financial performance metrics that create sustainable shareholder value, it is something over which executive officers have control and it is an important metric for evaluating the performance of retail companies.
Corporate Performance Goals for NEOs
The corporate performance measure for Messrs. Philbin, Wampler and Sasser relates to the adjusted operating income target for the combined corporate enterprise which was set at $2,063.3 million in 2018. The performance measure for Mr. Witynski relates to the adjusted operating income target for the Dollar Tree US banner which was set at $1,471.0 million.
The following table summarizes the potential earned awards based on the percentage of the applicable corporate performance target attained.
|
% of Corporate Performance Target Attained |
Portion of Executive's Corporate Performance Bonus Deemed Earned |
|||||
Below 85.0% |
|
|
0 |
% |
|
|
| 85% | | | 25 | % | | |
| 90% | | | 50 | % | | |
| 95% | | | 75 | % | | |
| 100% | | | 100 | % | | |
| 105% | | | 137.50 | % | | |
| 110% | | | 175 | % | | |
| 115.0% or above | | | 212.50 | % | | |
| | | | | |||
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The corporate performance measure for Mr. Mac Naughton, as President of Family Dollar Stores, relates to the adjusted operating income target for that banner. Maximum bonus for the corporate performance component is earned with performance achieved at 145% of target for the Family Dollar banner. For 2018, the adjusted operating income target was set at $587.0 million for the Family Dollar banner, which reflected our strategic plan.
The following table illustrates Mr. Mac Naughton's potential payouts:
|
% of Corporate Performance Target Attained |
Portion of Executive's Corporate Performance Bonus Deemed Earned |
|||||
| Below 85.0% | | | 0 | % | | |
| 85% | | | 25 | % | | |
| 90% | | | 50 | % | | |
| 100% | | | 100 | % | | |
| 110% | | | 125 | % | | |
| 120% | | | 150 | % | | |
| 130% | | | 175 | % | | |
| 140% | | | 200 | % | | |
| 145.0% or above | | | 212.50 | % | | |
| | | | | |||
The MICP bonuses relating to performance in a given fiscal year are paid in the following year when annual results are available, upon approval by the Compensation Committee, generally in March or April. The Compensation Committee may revise the target amount to account for unusual factors. Any modification is carefully considered by the Committee and applied only in special circumstances that warrant the modification. The Compensation Committee did not exercise such discretion with respect to the 2018 bonus payments.
The definition of adjusted operating income approved by the Compensation Committee for purposes of measuring the 2018 target performance under the MICP excluded the effects relating to or resulting from: (i) Canadian currency fluctuations; (ii) severance, relocation and reduction in workforce expenses and other expenses incurred to consolidate workforces; (iii) changes in accounting policies, practices and pronouncements; (iv) unreimbursed costs for unwinding the arrangement with Sycamore Partners (Dollar Express) for the divested stores; (v) non-cash goodwill and intangible impairment charges; (vi) expenses incurred with respect to future mergers, acquisitions, or divestitures; and (vii) any loss, cost or expense due to Family Dollar litigation filed prior to the merger date that was not included in the 2018 Fiscal Budget; and (viii) changes in the manner shared services are allocated based upon the methodology used in the 2018 fiscal budget approved by the Board of Directors.
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2018 Individual Performance Goals
As described earlier, 85% of the annual incentive bonus is based on corporate performance while 15% of the annual incentive bonus is based on individual performance. At the beginning of each fiscal year, individual goals are established and approved for each named executive officer.
| Role |
| Individual Performance Goals |
|---|---|---|
|
||
| President and Chief Executive Officer | | Primary responsibility for executive management of the Company and achievement of the Company's strategic and operational goals, including developing and implementing strategies and initiatives for improving the sales, operating income and margins of the Family Dollar banner, driving the Company's initiative to develop the new H2 store model for both new and renovated Family Dollar stores, implementing new methods to manage and reduce shrink, increasing incremental sales through installation in stores of additional Snack Zones, reducing store manager turnover, planning, managing and executing the Company's campus consolidation initiative with a minimum of business interruption, planning and executing the future organization design and developing and implementing an efficient alignment of resources between shared services and each of the banners. |
Chief Financial Officer |
|
Primary responsibility for oversight of financial management, including improving the Company's financial reporting processes, reviewing SG&A expenses to assess potential cost savings and evaluating the Company's capital structure. |
Executive Chairman |
|
Primary responsibility for Board leadership and engagement with management, including mentoring the Chief Executive Officer, developing the new store support center and assisting in integration, overseeing the general functioning of the Board and its committees, assessing the composition of the Board, recruiting potential candidates for the Board as necessary, consulting regularly with the Lead Director to discuss matters that concern the Board, leading the Board's annual review of the Company's business strategy, financial plans and capital resources, leading the Board's role in succession planning for senior executive officers, providing advice and support to the President and Chief Executive Officer on critical Company initiatives and shareholder communications, perpetuating the Company's successful business culture, maintaining market and customer relevance through development of long-term strategic plans, challenging management and holding them accountable as appropriate, transferring his institutional knowledge and principles to the organization, providing opportunities for the Board and management to engage in open discussions on strategic initiatives, opportunities and industry outlook, ensuring that management understands and carries out the Board's decisions and helping the Board remain connected to the individual managers who are executing the Company's business plans. |
President of Family Dollar |
|
Primary responsibility for executive management of the Family Dollar banner, including driving comparable store sales growth, total sales growth and operating margin to reach specified target percentages, improving personnel planning and talent development, delivering on strategic initiatives to improve performance of the Family Dollar banner, completing 500 renovations of Family Dollar stores, lowering cost of goods sold and improving gross margin. |
President and Chief Operating Officer of Dollar Tree Stores |
|
Primary responsibility for executive management of the Dollar Tree banner, including driving comparable store sales growth, total sales growth and operating margin to reach specified target percentages, improving personnel planning and talent development and improving the operations of shared services. |
58
2018 Earned Awards
During its March 2019 meeting, the Compensation Committee certified the following Company and banner performance for fiscal 2018:
|
Metric |
2018 Target |
2018 Achievement |
% of Target |
Payout % |
|||||||||||||||
| Enterprise adjusted operating income | | $2,063.3 million | | | $1,801.0 million | | | | 87.29 | % | | | 36.44 | % | | ||||
| Dollar Tree adjusted operating income | | $1,471.0 million | | | $1,459.3 million | | | | 99.2 | % | | | 96.01 | % | | ||||
| Family Dollar adjusted operating income | | $587.0 million | | | $333.8 million | | | | 56.87 | % | | | 0 | % | | ||||
In March 2019, individual performance evaluations for each executive were reviewed and accepted by the Compensation Committee, with input from the Chief Executive Officer. Based upon the performance calculation described above, the Compensation Committee authorized payouts for the executives as follows:
|
Executive |
Bonus Target as % of Base Salary |
Total Amount Available for Bonus (1) |
Amount Allocated to Corporate Performance (85% of Total) |
Corporate Performance Bonus Earned (2) |
Amount Allocated to Individual Performance (15% of Total) |
Individual Performance Bonus Earned (3) |
Total Incentive Award Earned for 2018 |
|||||||||||||||||||||||||||
| Gary Philbin | | | 140 | % | | $1,960,000 | | | $1,666,000 | | | | $607,090 | | | | $294,000 | | | | $220,500 | | | | $827,590 | | | |||||||
| Kevin Wampler | | | 70 | % | | $560,000 | | | $476,000 | | | | $173,454 | | | | $84,000 | | | | $69,720 | | | | $243,174 | | | |||||||
| Bob Sasser | | | 140 | % | | $2,380,000 | | | $2,023,000 | | | | $737,181 | | | | $357,000 | | | | $303,450 | | | | $1,040,631 | | | |||||||
| Duncan Mac Naughton (4) | | | 100 | % | | $1,050,000 | | | $892,500 | | | | $0 | | | | $157,500 | | | | $0 | | | | $0 | | | |||||||
| Michael Witynski | | | 100 | % | | $700,000 | | | $595,000 | | | | $571,260 | | | | $105,000 | | | | $86,100 | | | | $657,360 | | | |||||||
- (1)
- Represents
the base salary of the named executive officer multiplied by the target percentage of base salary.
- (2)
- Represents
the amount allocated to corporate performance multiplied by the applicable payout percentage from the previous table. The applicable payout percentage in
2018 was 36.44% for Messrs. Philbin, Wampler and Sasser, 96.01% for Mr. Witynski and 0% for Mr. Mac Naughton.
- (3)
- Represents
the amount allocated to individual performance multiplied by a percentage derived from the individual performance evaluations.
- (4)
- Mr. Mac Naughton did not receive a cash incentive bonus for fiscal 2018 because the performance for the Family Dollar banner fell below the threshold level of adjusted operating income.
In March 2019, the Compensation Committee determined that future annual incentive bonus awards would be based 100% on corporate performance beginning in fiscal 2019. As described above, the Compensation Committee in the past had determined that 85% of the annual incentive bonus would be based on corporate performance while 15% of the annual incentive bonus would be based on individual performance. The Compensation Committee believes that the change to providing annual incentive bonus awards based solely on corporate performance will assist in driving improved corporate performance and better align the interests of executives with those of shareholders.
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The largest component of our executive compensation program has been long-term incentive awards in the form of performance-based RSU awards and performance-based LTPP awards (50% in RSUs and 50% in cash) pursuant to our 2011 Omnibus Incentive Plan. We believe that long-term performance-based equity and cash incentives provide our executives with a strong link to our long-term performance and create an ownership culture to help align the interests of our executives with those of our shareholders. The Committee structured the long-term performance-based equity and cash incentives portion of executive officer compensation to be "at risk" in order to directly align our executives with the interests of shareholders. The long-term incentive awards are set at levels generally at market based upon the peer data.
The Compensation Committee's objective in granting long-term performance-based equity and cash incentives as part of the overall compensation for executives is to achieve alignment with shareholder interests through stock ownership while also focusing on retention. Restricted stock and RSUs provide more immediate value to executives, even in advance of stock price appreciation, with the opportunity for increased value as the stock price increases. In addition, we believe that long-term performance-based equity and cash awards that vest over multiple years focus executives on consistent long-term growth in shareholder value and promote executive retention because the executives will only realize the value of the equity or cash if they remain in our employment during the vesting period. Multiple year performance goals also promote consistent growth in shareholder value across a longer time horizon.
The Compensation Committee generally has approved two distinct types of long-term incentive awards. The first type of award has been a performance-based RSU that vests after achievement of a percentage of a target performance metric in the first year after grant, with time-based vesting of one-third of the award on successive anniversaries of the grant date. Once the performance threshold has been met, the amount of the payout typically has not increased to correspond with increasing levels of corporate performance. These awards are settled in stock and there is no cash component. The second type of award has been a combination of performance-based RSUs and a performance cash bonus award made under our three-year LTPP program. The program provides for vesting upon the achievement of a cumulative performance goal that is measured over a three-year performance period. Once the performance threshold has been met, the LTPP award is settled in both stock and cash. The Committee has historically used Company adjusted operating income as its performance metric for both types of awards because it encourages achievement of strategic and financial performance metrics that create sustainable shareholder value, it is something over which executive officers have control and it is an important metric for evaluating the performance of retail companies.
The Compensation Committee generally grants equity-based awards and long-term cash on an annual basis, and at other times as the Committee deems appropriate, including for newly hired or promoted executive officers or due to special retention needs. The Compensation Committee determines the aggregate monetary grant value of executive officers' equity-based awards taking into account, among other things, our pay mix targets, the desired mix of equity-based vehicles, the executive officer's contribution to Company performance, competitive compensation levels and dilution or pool limits. The target number of RSUs is determined by dividing the target RSU award value by the fair market value of a share of Dollar Tree stock on the date of grant.
In 2018, the Compensation Committee made awards of performance-based RSUs with vesting upon achievement of at least 80% of target adjusted operating income for fiscal 2018, coupled with time-based vesting of one-third of the award on each successive anniversary of the
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grant date. In addition, the Committee made awards of performance-based RSUs and performance cash bonus awards under the LTPP with vesting based on a three-year cumulative achievement of at least 83% of target adjusted operating income.
In March 2019, the Compensation Committee approved changes to our long-term incentive compensation program for executive officers, including our NEOs. Beginning in 2019, LTPP awards will vest based on the three-year cumulative achievement of at least 85% of target adjusted EBITDA (a change from the three-year cumulative achievement of at least 83% of target adjusted operating income). Non-LTPP awards will vest upon achievement of at least 85% of target adjusted operating income (an increase from 80%) during a one year performance period, coupled with time-based vesting of one-third of the award on each successive anniversary of the grant date. All non-LTPP awards will be designated as performance stock units ("PSUs") beginning in 2019. The Committee also changed the design of non-LTPP awards to incorporate a "payout curve" that determines the amount of the award from threshold achievement of target adjusted operating income (75% payout) to target goal (100% payout) to maximum award (150% payout). The payout curve was added to the non-LTPP awards to incentivize performance above the threshold level of performance. The prior design of the non-LTPP awards provided a payout upon reaching the threshold level of performance, but the payout amount did not vary based on increasing levels of performance exceeding the threshold. As a result of these changes by the Committee, our long-term performance-based incentive program for executive officers now features increased vesting thresholds to 85% of the target corporate performance metric and different performance metrics (adjusted EBITDA for the LTPP and adjusted operating income for non-LTPP awards). Within this long-term incentive framework, the Committee also reviewed the relative weightings of the LTPP and non-LTPP awards and determined that it should move toward an increase in the LTPP awards relative to the non-LTPP awards in the future in order to focus compensation on sustained long-term growth.
2018 Performance-Based Restricted Stock Units
In 2018, the Compensation Committee made awards of performance-based RSUs with vesting upon achievement of at least 80% of target adjusted operating income for fiscal 2018, coupled with time-based vesting of one-third of the award on each successive anniversary of the grant date.
|
|
Executive |
Target RSUs (#) |
Grant Date Fair Value |
| ||||||||
| | |||||||||||||
|
|
|
| | | | | | | ||||
|
| Gary Philbin |
| | 63,220 | | | | $5,999,578 | | | ||
|
|
|
| | | | | | | ||||
|
|
|
| | | | | | | ||||
|
| Kevin Wampler |
| | 13,695 | | | | $1,299,656 | | | ||
|
|
|
| | | | | | | ||||
|
|
|
| | | | | | | ||||
|
| Bob Sasser |
| | 73,760 | | | | $6,999,824 | | | ||
|
|
|
| | | | | | | ||||
|
|
|
| | | | | | | ||||
|
| Duncan Mac Naughton |
| | 23,180 | | | | $2,199,782 | | | ||
|
|
|
| | | | | | | ||||
|
|
|
| | | | | | | ||||
|
| Michael Witynski |
| | 12,640 | | | | $1,199,536 | | | ||
|
|
|
| | | | | | | ||||
Performance Metric. The Compensation Committee used 2018 adjusted operating income as the performance metric because it encourages achievement of strategic and financial performance metrics that create sustainable shareholder value, it is something over which executive officers have control and it is an important metric for evaluating the performance of retail companies.
For purposes of the 2018 performance-based RSU grants, adjusted operating income excludes the effects relating to or resulting from: (i) Canadian currency fluctuations; (ii) severance, relocation and reduction in workforce expenses and other expenses incurred to consolidate
61
workforces; (iii) changes in accounting policies, practices and pronouncements; (iv) unreimbursed costs for unwinding the arrangement with Sycamore Partners (Dollar Express) for the divested stores; (v) non-cash goodwill and intangible impairment charges; (vi) expenses incurred with respect to future mergers, acquisitions, or divestitures; (vii) any loss, cost or expense due to Family Dollar litigation filed prior to the merger date that is not included in the 2018 Fiscal Budget; and (viii) changes in the manner shared services are allocated based upon methodology used in 2018 Fiscal Budget previously approved by the Board of Directors.
Performance Goal. The Compensation Committee set separate target levels of 2018 adjusted operating income for the Company as a combined enterprise, the Dollar Tree banner and the Family Dollar banner. The target levels were intended to be rigorous and challenging, based on a review of the 2018 business plan and taking into account the market environment, past and expected future performance of peer companies and various risks. The Compensation Committee also set the threshold level of performance at 80% of the applicable target. Performance above the threshold level did not result in an increased payout.
| | ||||||||||||||||||
| |
Performance Metric |
Threshold Amount at 80% of Target ($ in millions) |
Actual Results ($ in millions) |
Performance Metric Achieved |
| |||||||||||||
| | ||||||||||||||||||
| | | | | | | | | | | | ||||||||
| | | 2018 Enterprise adjusted operating income | | | $1,650.6 | | | | $1,801.0 | | | | Yes | | | |||
| | | | | | | | | | | | ||||||||
| | 2018 Dollar Tree adjusted operating income | | | $1,176.8 | | | | $1,459.3 | | | | Yes | | | ||||
| | | | | | | | | | | | ||||||||
| | | | | | | | | | | | ||||||||
| | | 2018 Family Dollar adjusted operating income | | | $469.6 | | | | $333.8 | | | | No | | | |||
| | | | | | | | | | | | ||||||||
Performance-Based RSUs Earned. The Compensation Committee certified in March 2019 that the performance goal established for the performance-based RSUs granted to each of our named executive officers was met with the exception of Mr. Mac Naughton.
| | ||||||||
| |
Executive |
RSUs Earned (#) | | |||||
| | ||||||||
| | | | | | ||||
| | | Gary Philbin | | | 63,220 | | | |
| | | | | | ||||
| | | | | | ||||
| | Kevin Wampler | | | 13,695 | | | ||
| | | | | | ||||
| | | | | | ||||
| | | Bob Sasser | | | 73,760 | | | |
| | | | | | ||||
| | | | | | ||||
| | Duncan Mac Naughton | | | 0 | | | ||
| | | | | | ||||
| | | | | | ||||
| | | Michael Wytinski | | | 12,640 | | | |
| | | | | | ||||
2018 LTPP Performance-Based RSUs and Cash
In addition, the Compensation Committee made grants of performance-based RSUs under the LTPP. The Compensation Committee established the target value of the LTPP opportunity for each of our named executive officers. The target value of the award was divided between a potential cash amount and a target number of RSUs. The target number of RSUs was determined by dividing
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the target RSU award value (which represents fifty percent of the total target award value) by the fair market value of a share of Dollar Tree stock on the date of grant.
| |
Executive |
Target RSUs ($) |
Target RSUs (#) |
Target Long-Term Cash Opportunity ($) |
Total ($) |
| |||||||||||||||||
| | | | | | | | | | | | | | | ||||||||||
| | | Gary Philbin | | | $750,000 | | | | 7,903 | | | | $750,000 | | | | $1,500,000 | | | ||||
| | | | | | | | | | | | | | | ||||||||||
| | | | | | | | | | | | | | | ||||||||||
| | Kevin Wampler | | | $450,000 | | | | 4,741 | | | | $450,000 | | | | $900,000 | | | |||||
| | | | | | | | | | | | | | | ||||||||||
| | | | | | | | | | | | | | | ||||||||||
| | | Bob Sasser | | | $750,000 | | | | 7,903 | | | | $750,000 | | | | $1,500,000 | | | ||||
| | | | | | | | | | | | | | | ||||||||||
| | | | | | | | | | | | | | | ||||||||||
| | Duncan Mac Naughton | | | $500,000 | | | | 5,268 | | | | $500,000 | | | | $1,000,000 | | | |||||
| | | | | | | | | | | | | | | ||||||||||
| | | | | | | | | | | | | | | ||||||||||
| | | Michael Wytinski | | | $375,000 | | | | 3,951 | | | | $375,000 | | | | $750,000 | | | ||||
| | | | | | | | | | | | | | | ||||||||||
Target Opportunities. The Compensation Committee defined a payout curve which determines the amount to be paid depending on actual performance. The Compensation Committee set the payout for achieving the threshold level of performance at 25%, with the payout increasing from 25% for threshold performance to 100% of the target opportunity for achieving target performance. Similarly, the payout for achieving between target and maximum performance ranges from 100% of the target opportunity to 200% of the target opportunity, also with the payout increasing in a straight-line manner.
Performance Metric. The Compensation Committee used three-year cumulative adjusted operating income (2018-2020) as the performance metric because it is a long-term goal and for the reasons set forth above.
Performance Goal. The Compensation Committee set the three-year cumulative adjusted operating income target at a level requiring significant effort, based on the Company's annual budget and long-term plan. The Compensation Committee also set the threshold level at 83% of the target. This award will not vest, if at all, until the completion of the 2020 fiscal year.
2016 LTPP Performance-Based RSUs and Cash
In 2016, the Compensation Committee made grants of performance-based RSUs and cash opportunity awards under the LTPP. The target values of the awards were divided between a target number of RSUs and a potential cash amount. The targe