Staples 2015 Annual Report Download - page 67

SHAREHOLDER PROPOSALS
www.staplesannualmeeting.com STAPLES 63
Board’s Statement in Opposition
The Board unanimously recommends that you vote AGAINST
this proposal because:
• Our existing equity award structure properly aligns the
interests of senior executives and shareholders.
• Our current practices are consistent with market
standards and allow us to attract and retain talent.
• Mandating changes to executive severance would be
highly disruptive.
Our existing equity award structure properly aligns the
interests of senior executives and shareholders. The
equity awards granted to our senior executives consist of
performance shares and restricted stock units, and these
equity awards together constitute the most significant
portion of their total compensation opportunity. The award
agreements governing performance shares and restricted
stock units provide for a “double trigger,” such that vesting
only accelerates if, within one year of a change in control:
• the executive’s employment is terminated by us without
cause (as defined in the award agreement), or
• the executive terminates his or her employment for good
reason (as defined in the award agreement).
In the case of performance shares, acceleration would only be
for the target number of shares unless performance goals in
excess of target were actually achieved for the corresponding
portion of the award.
Implementation of the proposal would eliminate the Board’s
ability to use our current double trigger award structure
in the future, and as a result, any executives terminated by
a new owner would be at risk of losing the most significant
portion of their compensation opportunity. The fear of that
loss could create a conflict of interest whereby the executives
are incentivized not to pursue or complete a change-in-
control transaction, even if it were in the best interests of
our shareholders, because of the uncertainty surrounding
their compensation. In addition, new owners often terminate
existing management, and without double trigger acceleration
existing management would have far less incentive to remain
with us through and following a change in control. A higher
likelihood that executives depart could negatively affect our
value to an acquirer, and reduce the price our shareholders
would receive in the transaction.
Appropriate acceleration of the vesting of equity awards in
the event a senior executive’s employment is terminated
in connection with a change in control serves to align the
interests of our executives with those of our stockholders, and
properly incentivizes the executives to remain objective and
stay focused on executing a strategic change that maximizes
stockholder value. The Board believes that our current double
trigger acceleration provisions correctly align the interests
of executives and shareholders in the context of a change
in control.
Our current practices are consistent with market
standards and allow us to attract and retain
talent. Implementation of the proposal could place us at a
disadvantage compared to other companies in the market
for executive talent. Nearly 3 out of 4 S&P 500 companies,
many of which we compete with for talent, grant both time-
based awards and performance-based awards. According
to the research that the proponent cites, as updated in
2015, over 90% of the largest 200 public companies do not
limit acceleration of time-based vesting in connection with
termination following a change in control. Over two-thirds
of such companies do not limit acceleration of performance
awards in connection with termination following a change
in control.
Offering equity awards in accordance with market practice
is important to maintain our competitiveness in securing the
executive talent we need to create long-term shareholder
value. Limited acceleration of vesting makes equity awards
less valuable to executives, and could require us to offer
additional compensation (for example, in the form of cash up
front) to make up for the possibility of lost value if there was a
change in control.
Mandating changes to executive severance would be
highly disruptive. In response to a shareholder proposal
at the 2015 Annual Meeting and after engaging with our
shareholders regarding that proposal, in October 2015
we adopted a policy limiting severance benefits under an
employment or severance agreement to 2.99 times the sum of
an executive’s salary and target annual cash incentive award. In
addition, in January 2015, we eliminated a legacy tax gross-up
provision in our CEO’s severance agreement. These changes
were made after taking into account shareholder feedback, as
described elsewhere in this proxy statement.
In the context of these recent changes to add limits on
severance benefits and the competitive market for executive
talent, we believe that our continued use of double trigger
acceleration of equity awards is critical to our ability to attract
and retain skilled senior executives. Moreover, in light of the
very recent changes we have made and the current dynamics
of our strategic environment, we believe it would be highly
disruptive to mandate further changes regarding severance or
change-in-control arrangements at this time.
For the reasons set forth above, the Board believes that
the proponent’s restrictions on acceleration provisions are
inappropriate when viewed in the context of our existing
executive compensation program, would not serve the
best interests of our shareholders, and would place us at
a competitive disadvantage to our peers. Any adjustment
to acceleration provisions would require a redesign of our
approach to granting equity awards and to severance benefits
as a whole, as equity awards are a fundamental piece of the
overall compensation package. In fact, they comprise 72% of
the total target compensation of our CEO.