Staples 2015 Annual Report Download - page 35

EXECUTIVE COMPENSATION AND COMPENSATION DISCUSSION AND ANALYSIS
www.staplesannualmeeting.com STAPLES 31
our corporate governance outreach efforts to make sure that
we fully understood the shareholder concerns that led to
these results.
In the fall of 2015, we expanded our corporate governance
outreach efforts to contact all institutional shareholders,
representing 90% of shares outstanding. We provided
shareholders and proxy advisory firms with an update on
Staples corporate governance and compensation practices
and invited them to engage in a governance dialogue
with management. We ultimately held discussions with
institutional shareholders representing nearly half of our shares
outstanding. The Chair of our Compensation Committee
and the Chair of our Nominating and Corporate Governance
Committee play an important role in our governance outreach
program by meeting with some of our shareholders and proxy
advisory firms.
Shareholder Feedback and Board Response
A summary of shareholder’s perspectives related to executive compensation and the Board’s response is provided below. Our
other robust corporate governance practices that have been developed in response to shareholder feedback are described
elsewhere in this proxy statement.
Shareholder Feedback Board Response
Implement cumulative goals in long-term equity incentive
program Removed annual goals and implemented cumulative three- year goals for 2016 Performance Share Awards
Concerned with goal rigor in the annual incentive plan For each 2016 performance metric, set target goal that
requires improvements from 2015 financial results
Adopt a policy limiting executive severance benefits Adopted a policy limiting executive severance benefits in
October 2015
Peer group includes some companies that are not appropriate
given their revenue and market capitalization are significantly
greater than Staples
Modified peer group to remove larger companies
Adoption of Cumulative Goals in 2016: Over the past
few years, shareholders have expressed a preference for
cumulative performance goals in the long-term equity incentive
plan. Setting cumulative goals has been difficult as a practical
matter, due to our reinvention program to respond to rapid
market evolution and the changing needs of our customers,
and more recently the proposed Office Depot acquisition. The
long-term business and financial impact of these changes has
been difficult to predict. As a result, the Board through 2015
maintained its practice of setting annual performance goals
within our long-term equity incentive program.
However, in direct response to shareholder feedback received
in 2014 and 2015, we have modified our long-term equity
incentive program for 2016 by implementing cumulative
three-year goals to further enhance alignment of pay
and performance.
Concurrent with the implementation of cumulative goals, the
Committee decided to alter the pay mix to be more in line with
typical practice among our peer group and the broader market.
Among the top Fortune 250 companies (based on market
capitalization) offering equity compensation programs, 71%
offer a mix of performance-based and time-based awards.
The Committee determined that the long-term incentive mix
should be comprised of two-thirds performance shares and
one-third time based restricted stock units vesting over the
three-year performance period. Going forward, a minimum of
two-thirds of the long-term incentive award will be performance
based and will continue to be subject to adjustment based
on total shareholder return over the three-year performance
period relative to the S&P 500. The Committee based its
determination on feedback from shareholders, consultations
with its independent compensation consultant, the need to
remain competitive in the marketplace in recruiting top talent
and other factors relating to each equity vehicle’s impact on
both the participants and the company.
The outcome of the proposed Office Depot acquisition was
still unknown at the time the Committee set the cumulative
three-year goals on a standalone basis in 2016. In the event
the merger is completed, the Committee expects to revise the
goals for the remainder of the performance period, to reflect
the combined company.
Policy Limiting Executive Severance: At the 2015 Annual
Meeting of Shareholders, a shareholder proposal urging
the Board to seek shareholder approval of future severance
agreements that provide benefits in an amount exceeding
2.99 times the sum of the executive’s base salary plus bonus
passed with majority support. The proposal included equity
awards as benefits which should be limited. During the 2015
Annual Meeting season, we engaged with shareholders
representing more than 40% of our outstanding shares and
most shareholders we spoke with indicated that they liked the
principle of the proposal but did not agree with all aspects
of the proposal, such as the inclusion of equity awards. The
Board carefully considered shareholder feedback and the
voting results to develop its policy limiting executive severance
benefits, adopted in October 2015.
Under the new policy, Staples will not pay any severance
benefits under any existing or future employment agreement
or severance agreement with an executive officer that exceeds
2.99 times the sum of the executive’s base salary plus target
annual cash incentive award, without seeking shareholder
approval. The new policy excludes equity awards.
After adopting the policy, we again engaged with shareholders
representing nearly half of our outstanding shares to
receive their feedback on the new policy. The shareholders
overwhelmingly responded favorably and expressed that the
Board’s action was responsive to the shareholder proposal.
Additionally, several shareholders viewed including existing
agreements in the policy and the CEO’s election to amend