Staples 2015 Annual Report Download - page 36

EXECUTIVE COMPENSATION AND COMPENSATION DISCUSSION AND ANALYSIS
32 STAPLES Notice of Annual Meeting of Stockholders
his current severance agreement to be governed by the
new policy as another positive example of the Board’s
responsiveness to the shareholder proposal, which only
requested prospective implementation.
Goal Rigor: In the past, some of our shareholders have
voiced concerns that certain targets in the incentive plans
have decreased year-over-year, while payout opportunities
have remained unchanged. The Committee understands
these concerns and balances them with the need to set
challenging yet achievable goals in the context of repositioning
the business in a rapidly evolving competitive environment.
In response, our Compensation Committee ensured that
our performance goals either remained challenging or were
more rigorous in 2015 and 2016, and were in line with our
business objectives.
Annual Cash Incentive Plan
In 2015, we introduced a new Gross Margin Dollar metric to
replace the Total Company Sales metric, in direct response
to shareholder feedback that there was too much emphasis
on sales metrics in the annual cash incentive plan. The
remaining two metrics in the 2015 annual cash incentive plan
were Beyond Office Supplies Sales Growth and Earnings per
Share. In 2014, the target goal for Beyond Office Supplies
Sales growth was $200 million. In 2015, the target goal was
more rigorous at $300 million. In 2014, the target goal for
Earnings per Share was $1.01. In 2015, the target goal for
Earnings per Share was $0.98. While this reflected a three
percent reduction in the Earnings per Share target from 2014,
the primary driver of this reduction was the negative impact
from the stronger U.S. dollar on the earnings the company
generates outside of the United States, which we believe
is out of management’s control and should not influence
management’s pay opportunity. Based on the rigorous
goals that were set for the 2015 annual cash incentive plan,
management achieved a payout of 33.1% of target.
In 2016, we replaced the Gross Margin Dollars metric with
Gross Profit Dollars. Gross profit includes distribution, delivery,
rent and other occupancy expense. We believe this is a more
appropriate metric given our initiatives to reduce cost and
improve efficiency in our supply chain and retail store network.
We also replaced the Beyond Office Supplies Sales Growth
metric with Total Sales to better align with our 2016 business
objectives of growing mid-market sales in our delivery
business, and driving traffic in stores and online across all
categories. Earnings per share remains a metric in the annual
cash incentive plan for 2016. For each of the metrics in the
2016 Annual Cash Incentive Plan, the Committee considered
what the achievement level would have been based on our
2015 financial results. The Committee set target goals for
EPS and Gross Profit Dollars that were higher than the 2015
achievement levels. The Committee also considered that the
continued strength of the U.S. dollar, as well as our plans to
continue aggressively right-sizing our retail store network in
response to changing customer needs by closing 50 stores,
would have an unfavorable impact on Total Sales in 2016. When
the unfavorable impacts are excluded, the 2016 target for total
company sales is more rigorous than the 2015 achievement
level. No portion of any bonus is payable in the event the
company fails to achieve the threshold EPS.
Annual Incentive Plan Metrics
2015 Weight 2016 Weight
Earnings Per Share 50% Earnings Per Share 50%
Gross Margin $ 25% Gross Profit $ 25%
Beyond Office Supplies Sales Growth 25% Total Sales 25%
Long-Term Incentive Plan
The long-term incentive plan includes two metrics which were
used in both 2014 and 2015. In 2014, the target goal for
Return on Net Assets % was 8.90%. In 2015, the target goal
was more rigorous at 9.16%. In 2014, the target goal for Sales
Growth % was 2.29%. In 2015, the target goal was 1.2%. The
2015 target goal for Sales Growth % excluded the negative
impact from the stronger U.S. dollar on sales the company
generates outside of the United States, but it did not exclude
the more pronounced negative year-over-year impact in 2015
related to our store closure program in North America. This
headwind was a key driver of the modest reduction in targeted
Sales Growth % in 2015 versus 2014. Based on the rigorous
goals that were set for the 2015 period of the 2013 - 2015
long-term incentive plan, management achieved a payout of
53.9% of target.
In 2016, we replaced the Sales Growth % metric with Operating
Income Dollar Growth to include our initiatives related to sales
growth and operating efficiency in our long-term incentive plan.
In addition, in direct response to shareholder feedback the
Committee discontinued the practice of setting annual goals in
favor of cumulative goals covering the 2016-2018 performance
period. The plan continues to include an adjustment feature for
cumulative relative total shareholder return as compared to the
S&P 500 over the three-year performance period.
Long-Term Incentive Plan Metrics
2015 Weight 2016 Weight
Return on Net Assets % 50% Return on Net Assets % 50%
Sales Growth % 50% Operating Income $ Growth 50%