Document
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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o | | Preliminary Proxy Statement |
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o | | Soliciting Material Pursuant to §240.14a-12 |
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CarMax, Inc. |
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Dear Fellow CarMax Shareholders:
I am pleased to invite you to attend the 2018 annual meeting of CarMax, Inc. shareholders, which will be held on Tuesday, June 26, 2018, in Richmond, Virginia. The attached notice of annual shareholders meeting and proxy statement are your guides to the meeting.
We are committed to maintaining an independent, thoughtful, and strategic Board of Directors. This year, several new directors are being nominated for the first time and several directors with distinguished service to the Company are retiring.
You will have the opportunity to vote on three new independent directors at the annual shareholders meeting: Peter J. Bensen, Robert J. Hombach, and David W. McCreight. Their experiences will bring valuable insights to our business and support our strong commitment to growth and the CarMax customer experience. At the same time, four of our directors are not standing for re-election. Alan B. Colberg, Jeffrey E. Garten, W. Robert Grafton, and Edgar H. Grubb have all made significant contributions to CarMax over the years and the Board is deeply appreciative for their service.
Our proxy statement includes more information about Mr. Bensen, Mr. Hombach, and Mr. McCreight, as well as our continuing directors nominated for election at the 2018 annual shareholders meeting.
We are once again providing live audio coverage of the annual shareholders meeting from the CarMax investor relations website at investors.carmax.com. A replay of the annual shareholders meeting will be available on this website after the meeting. We also are pleased to furnish proxy materials to shareholders primarily over the internet. On or about May 4, 2018, we mailed our shareholders a Notice of Internet Availability of Proxy Materials containing instructions on how to access our proxy statement and annual report and to vote online. Internet distribution of our proxy materials expedites receipt by shareholders, lowers the cost of the annual shareholders meeting, and conserves natural resources. However, 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.
Whether or not you will be attending the annual shareholders meeting, your vote is very important to us. I encourage you to cast your ballot by internet, by telephone, by mail (if you request a paper copy) or in person at the annual shareholders meeting.
On behalf of the Board of Directors, I would like to thank you for your continued trust in CarMax.
Sincerely,
Thomas J. Folliard
Chair of the Board of Directors
May 4, 2018
NOTICE OF 2018 ANNUAL MEETING OF SHAREHOLDERS
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When: | | Tuesday, June 26, 2018, at 1:00 p.m. Eastern Time |
Where: | | Hilton Richmond Hotel, Short Pump 12042 West Broad Street Richmond, VA 23233 |
Items of Business: | | (1) | | To elect the eleven directors named in the proxy statement to our Board of Directors. |
| | (2) | | To ratify the appointment of KPMG LLP as our independent registered public accounting firm. |
| | (3) | | To vote on an advisory resolution to approve the compensation of our named executive officers. |
| | (4) | | To vote on the shareholder proposal for a report on political contributions, if properly presented at the meeting. |
| | (5) | | To transact any other business that may properly come before the annual shareholders meeting or any postponements or adjournments thereof. |
Who May Vote: | | You may vote if you owned CarMax common stock at the close of business on April 20, 2018. |
By order of the Board of Directors,
Eric M. Margolin
Executive Vice President,
General Counsel and Corporate Secretary
May 4, 2018
This summary highlights information contained elsewhere in this proxy statement. For more complete information, please review this entire proxy statement and CarMax’s Annual Report on Form 10-K for the fiscal year ended February 28, 2018.
Fiscal 2018 Highlights
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Market Share Growth | We estimate that our share of the 0- to 10-year old used vehicle market increased almost 7% in our television markets in calendar 2017. |
Store Growth | We opened 15 stores in fiscal 2018. We currently plan to open 15 stores in fiscal 2019 and between 13 and 16 stores in fiscal 2020. |
Revenues/Earnings | We achieved top and bottom-line growth. Net sales and operating revenues increased 7.8% to $17.12 billion, while net earnings rose 5.9% to $664.1 million and net earnings per diluted share increased 10.4% to $3.60. |
Units | Total used unit sales increased 7.5% and comparable store used unit sales increased 2.0%. Total wholesale unit sales increased 4.3%. |
CarMax Auto Finance | CarMax Auto Finance (“CAF”) finished the year with income of $421.2 million, an increase of 14.1% over the prior year. |
Share Repurchases | We continued our share repurchase program in fiscal 2018, buying back 8.9 million shares with a market value of $573.5 million. |
Fourteenth Year on Fortune “Best Companies” List | We were named by Fortune magazine as one of its “100 Best Companies to Work For” for the fourteenth year in a row. |
Corporate Governance Highlights
BOARD REFRESHMENT
This year our shareholders will have an opportunity to vote on three director nominees for the first time. Peter Bensen and Robert Hombach joined the Board in April and sit on the Audit Committee. David McCreight will join the Board and the Audit Committee following the annual shareholders meeting if he is elected at the meeting. These nominees bring a wealth of experience, expertise, and new perspectives to the Board. A full description of their backgrounds and qualifications can be found beginning on page 7. Following the annual shareholders meeting, six of our eleven directors will have joined the Board since 2015.
While we have three new director nominees this year, we also have four directors not standing for re-election. As previously disclosed, Robert Grafton and Edgar Grubb are not re-nominated this year under the terms of our director retirement policy. Jeffrey Garten, who has served as a director since 2002, also informed the Board in January that he would not stand for election this year. Finally, Alan Colberg has not been nominated for re-election in anticipation of a proposed merger between Assurant, Inc., where he is chief executive officer, and The Warranty Group, a current CarMax service provider. Messrs. Garten, Grafton, and Grubb have been three of our longest serving directors and each of our retiring directors made significant contributions to CarMax throughout their tenures.
To ensure a smooth transition for the Board and our new directors, the Board waived the application of the director retirement policy to William Tiefel for one year, as permitted by CarMax’s Governance Guidelines. If elected to another term, Mr. Tiefel will also continue to serve as the Board’s lead independent director. Additional information about our Board leadership structure can be found on page 15.
KEY GOVERNANCE POLICIES
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l Annual election of all directors | l Majority voting for directors |
l Substantial majority of director nominees are independent (9 of 11) | l Proxy access adopted in 2015 |
l Five new independent directors since 2015 | l Annual “say on pay” vote |
l Shareholder rights plan expired in 2012 and was not renewed
| l Board oversight of risk management program |
Annual Meeting of Shareholders
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When | Tuesday, June 26, 2018, at 1:00 p.m., Eastern Time |
Where | Hilton Richmond Hotel, Short Pump 12042 West Broad Street Richmond, VA 23233 |
Who May Attend | All shareholders as of the record date may attend the meeting. |
Record Date | April 20, 2018 |
Live Audio Webcast | Available at investors.carmax.com |
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Voting Matters and Board Recommendations
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Agenda Item
| Board Recommendation | Page of Proxy Statement |
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1. | Election of Eleven Directors | FOR each Director nominee | 6 |
2. | Ratification of Auditors | FOR | 22 |
3. | Advisory Approval of Executive Compensation | FOR | 25 |
4. | Shareholder Proposal for a Report on Political Contributions | AGAINST | 57 |
Proposal One:
Election of Directors
We are asking you to vote “FOR” the following candidates for election to our Board of Directors.
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Nominee | | Age | | Director Since | | Independent | | Principal Occupation | | Expected Committee Membership |
Peter J. Bensen |
| 55 |
| 2018 |
| Yes |
| Retired Chief Administrative Officer and Corporate Executive Vice President and Chief Financial Officer of McDonald's Corporation |
| Audit |
Ronald E. Blaylock |
| 58 |
| 2007 |
| Yes |
| Founder and Managing Partner of GenNx360 Capital Partners, a private-equity buyout fund |
| Compensation and Personnel |
Sona Chawla |
| 50 |
| 2017 |
| Yes |
| Chief Operating Officer and President-Elect of Kohl's Corporation |
| Compensation and Personnel |
Thomas J. Folliard |
| 53 |
| 2006 |
| No |
| Non-Executive Chair of the Board, CarMax, Inc. and Retired President and Chief Executive Officer of CarMax, Inc. |
| N/A |
Shira Goodman |
| 57 |
| 2007 |
| Yes |
| Retired Chief Executive Officer of Staples, Inc. |
| Nominating and Governance |
Robert J. Hombach |
| 52 |
| 2018 |
| Yes |
| Retired Executive Vice President, Chief Financial Officer and Chief Operations Officer of Baxalta Incorporated, a biopharmaceutical company |
| Audit |
David W. McCreight |
| 55 |
| 2018 |
| Yes |
| Retired President of Urban Outfitters, Inc., an international consumer products retailer and wholesaler, and Chief Executive Officer of its Anthropologie Group |
| Audit |
William D. Nash |
| 49 |
| 2016 |
| No |
| President and Chief Executive Officer of CarMax, Inc. |
| N/A |
Marcella Shinder |
| 51 |
| 2015 |
| Yes |
| Global Head of Marketing at WeWork Companies Inc., a technologically driven global provider of shared working spaces |
| Nominating and Governance |
Mitchell D. Steenrod |
| 51 |
| 2011 |
| Yes |
| Senior Vice President and Chief Financial Officer of Pilot Travel Centers LLC, the nation’s largest operator of travel centers and truck stops |
| Audit |
William R. Tiefel |
| 84 |
| 2002 |
| Yes |
| Lead Independent Director of CarMax, Inc., retired Vice Chairman of Marriott International, Inc. and Chairman Emeritus of The Ritz-Carlton Hotel Company, LLC |
| Compensation and Personnel |
Proposal Two:
Ratification of Auditors
We are asking you to ratify the appointment by the Audit Committee of KPMG LLP (“KPMG”) as our independent auditors for fiscal 2019. The following table summarizes the fees billed by KPMG for fiscal 2018 and 2017.
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| Audit Fees |
| Audit-Related Fees |
| Tax Fees |
| Total Fees |
Fiscal 2018 |
| $1,969,125 |
| $547,000 |
| $130,002 |
| $2,646,127 |
Fiscal 2017 |
| $1,726,450 |
| $440,000 |
| $155,350 |
| $2,321,800 |
Proposal Three:
Executive Compensation
We are asking you to approve, on an advisory basis, the compensation of our named executive officers as disclosed in this proxy statement. At our last two annual shareholders meetings, a significant majority of our shareholders supported our executive compensation program, with more than 87% and 96% of votes cast in 2017 and 2016, respectively, voting in favor of our program.
We design our compensation plans to tie pay to performance. The following chart illustrates the relationship over the last three fiscal years between our net earnings and the total direct compensation (base salary, annual incentive bonus and long-term equity grants) paid to our Chief Executive Officer (“CEO”). The total direct compensation shown below for fiscal 2016 is the total direct compensation paid to our former CEO, Mr. Folliard. For purposes of this comparison, the fiscal 2017 compensation below represents the annual base salary and target annual incentive bonus approved for Mr. Nash on his promotion in September 2016, as well as all long-term equity grants to Mr. Nash during fiscal 2017. Mr. Nash’s actual total direct compensation for fiscal 2017 equaled $6,344,501.
Net Earnings and CEO Total Direct Compensation
You will find additional information on our executive compensation program beginning on page 26.
Proposal Four:
Shareholder Proposal for a Report on Political Contributions
The Board recommends a vote against this proposal, which would require that CarMax make certain political contribution disclosures. CarMax’s political contributions, while purposeful, are limited in amount; subject to the CarMax Corporate Political Contribution Policy and Board oversight; and already disclosed as required under state contribution disclosure laws. Shareholders did not approve almost identical proposals at the 2016 and 2017 annual shareholders meetings. The Board continues to believe that adoption of the shareholder proposal is both unnecessary and not in the best interest of shareholders.
Next Year’s Annual Shareholders Meeting
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Expected Date of 2019 Annual Shareholders Meeting | June 25, 2019 |
Deadline for Shareholder Proposals | January 4, 2019 |
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PROPOSAL ONE: ELECTION OF DIRECTORS
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We are asking you to vote for the election of the eleven director nominees listed on the following pages. Our Board has nominated these individuals at the recommendation of our independent Nominating and Governance Committee. The Committee based its recommendation on, among other things, the results of an annual Board and peer evaluation process, as well as the integrity, experience and skills of each nominee.
This year the Board focused on the refreshment and composition of its membership. Of the eleven nominees, eight are current directors who were elected at our 2017 annual shareholders meeting. Three nominees are being voted on by shareholders for the first time. Messrs. Bensen and Hombach joined the Board in April 2018 and Mr. McCreight will join the Board in June 2018 if elected at the annual shareholders meeting.
We appointed Messrs. Bensen and Hombach to the Board after conducting an extensive search for directors with, among other qualities, financial expertise and executive experience. Mr. McCreight is nominated for election following an extensive search for a director nominee with, among other qualities, executive retail experience. Each search was led by our Nominating and Governance Committee with the assistance of an outside search firm.
In addition to the three new nominees, five directors who were elected at the 2017 annual shareholders meeting are not standing for election at the 2018 annual shareholders meeting. Messrs. Grafton and Grubb, directors since 2003 and 2007, respectively, were not re-nominated to the Board under the terms of our director retirement policy. Mr. Garten, a director since 2002, has decided not to stand for re-election. Mr. Colberg, a director since 2015, was not nominated for re-election in anticipation of a proposed merger between Assurant, Inc., where he is chief executive officer, and The Warranty Group, a current CarMax service provider. John Standley, a director since 2016, retired from the board in January 2018.
To ensure a smooth transition for the Board and our new directors, the Board waived the application of our director retirement policy to William Tiefel for one year, as permitted by CarMax’s Corporate Governance Guidelines. If elected to another term at the 2018 annual shareholders meeting, Mr. Tiefel will also continue to serve as the Board’s lead independent director.
Our Board is declassified. Accordingly, each director nominee is standing for election to hold office until our 2019 annual meeting of shareholders.
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Each nominee must receive a majority of the votes cast. | CarMax uses a majority vote standard for the election of directors. This means that to be elected in uncontested elections, each nominee must be approved by the affirmative vote of a majority of the votes cast. |
Each nominee has consented to being named in this proxy statement and to serve if elected. If any nominee is not available to serve—for reasons such as death or disability—your proxy will be voted for a substitute nominee if the Board nominates one.
The following pages include information about the nominees. This information includes a summary of the specific experience, qualifications, attributes or skills that led to the conclusion that each person should serve as a CarMax director.
The Board recommends a vote FOR each of the nominees.
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| PETER J. BENSEN
Mr. Bensen retired from McDonald’s Corporation, following a 20-year career, in 2016. He served as McDonald’s Chief Administrative Officer from 2015 to 2016. Before that he served as McDonald’s Corporate Executive Vice President and Chief Financial Officer from 2008 to 2014, when he was promoted to Corporate Senior Executive Vice President and Chief Financial Officer, a position he held until 2015. Before joining McDonald’s in 1996, Mr. Bensen was a senior manager at Ernst & Young LLP. |
Director since: 2018 Age: 55 Independent | Other Current Directorships
Lamb Weston Holdings, Inc. |
Other Directorships within Past 5 Years
Catamaran Corporation (2011-2015) |
Qualifications
Mr. Bensen’s long-standing service as the chief financial officer, and in other administrative, financial and accounting roles, at a global, iconic company qualify him to serve on our Board. He brings to our Board extensive management experience and financial expertise, as well as his background as a key executive helping to shape McDonald’s strategic response to a changing market environment.
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| RONALD E. BLAYLOCK
Mr. Blaylock is the founder and Managing Partner of GenNx360 Capital Partners, a private-equity buyout fund focused on industrial business-to-business companies. Prior to founding GenNx360 in 2006, Mr. Blaylock was Chief Executive Officer of Blaylock & Company, a full-service investment banking firm that he founded in 1993. Previously, Mr. Blaylock held senior management positions with PaineWebber and Citigroup.
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Director since: 2007 Age: 58 Independent | Other Current Directorships
Pfizer Inc., Urban One, Inc. and W. R. Berkley Corporation. |
Other Directorships within Past 5 Years
None. |
Qualifications
Mr. Blaylock’s experience managing two successful investment enterprises, as well as his considerable finance experience, qualify him to serve on our Board. Mr. Blaylock’s years of relevant experience growing companies and serving on other public company boards enable him to provide additional insight to our Board.
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| SONA CHAWLA
Ms. Chawla is the Chief Operating Officer and President-Elect of Kohl's Corporation, a position she has held since September 2017. Kohl’s has announced that Ms. Chawla will become its President at the conclusion of its annual shareholder meeting on May 16, 2018. Ms. Chawla joined Kohl’s in November 2015, serving as Chief Operating Officer until September 2017. Before joining Kohl’s, Ms. Chawla served at Walgreens as its President of Digital and Chief Marketing Officer from February 2014 to November 2015 and as its President, E-commerce from January 2011 to February 2014. Ms. Chawla has 17 years of experience in digital and retail. |
Director since: 2017 Age: 50
Independent
| Other Current Directorships
None. |
Other Directorships within Past 5 Years
Express, Inc. (2012-2015) |
Qualifications
Ms. Chawla’s executive, strategic, operational and digital expertise qualify her to serve on our Board. Her background and operating experience in retail, including e-commerce, omni-channel strategy, store operations, logistics, information and digital technology strengthen the business and strategic insight of our Board.
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| THOMAS J. FOLLIARD
Mr. Folliard has been the Non-Executive Chair of the Board of CarMax since August 2016. He joined CarMax in 1993 as senior buyer and became Director of Purchasing in 1994. He was promoted to Vice President of Merchandising in 1996, Senior Vice President of Store Operations in 2000 and Executive Vice President of Store Operations in 2001. Mr. Folliard served as President and Chief Executive Officer of CarMax from 2006 to February 2016 and retired as Chief Executive Officer in August 2016. |
Director since: 2006 Age: 53
Non-Executive Chair of the Board
| Other Current Directorships
PulteGroup, Inc. |
Other Directorships within Past 5 Years
DAVIDsTEA, Inc. (2014-2017) |
Qualifications
During his ten years as CEO, Mr. Folliard successfully led CarMax through the company’s establishment as a national brand and a time of significant growth, during which its store base and total revenues more than doubled and its net income quadrupled. With his long tenure at CarMax, Mr. Folliard brings to the board significant executive experience and in-depth knowledge of our company and the auto retail industry. |
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| SHIRA GOODMAN
Ms. Goodman is the retired Chief Executive Officer of Staples, Inc. Ms. Goodman joined Staples in 1992 and held a variety of positions of increasing responsibility in general management, marketing and human resources, including serving as Executive Vice President, Marketing from 2001 to 2009, Executive Vice President, Human Resources from 2009 to 2012, Executive Vice President, Global Growth from 2012 to 2014, President, North American Commercial from 2014 to 2016, President, North American Operations from February to June 2016, Interim Chief Executive Officer from June to September 2016, and Chief Executive Officer from September 2016 to January 2018. From 1986 to 1992, Ms. Goodman worked at Bain & Company in project design, client relationships and case team management and helped develop the initial business plan for the Staples B2B delivery service.
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Director since: 2007 Age: 57
Independent
| Other Current Directorships
Nominated to serve as a director of Henry Schein, Inc. if approved by shareholders at their annual meeting on May 31, 2018. |
Other Directorships within Past 5 Years
Staples, Inc. |
Qualifications
Ms. Goodman has proven business acumen, having served as the chief executive and in various other leadership positions at an internationally renowned retailer. Ms. Goodman’s experiences in operations, retail marketing, sales force management, human resources, and business growth at Staples all qualify her to serve on our Board. |
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| ROBERT J. HOMBACH
Mr. Hombach is the retired Executive Vice President, Chief Financial Officer and Chief Operations Officer of Baxalta, a biopharmaceutical company, a position he held from 2015 until the acquisition of Baxalta by Shire PLC in 2016. Baxalta was spun off from its parent, Baxter, in 2015, where Mr. Hombach served as Vice President and Chief Financial Officer from 2010 until the Baxalta spin off. Mr. Hombach began his career at Baxter, a global healthcare company, in 1989 and served in a number of roles there, including as Vice President of Finance EMEA from 2004 to 2007 and Treasurer from 2007 to 2010. |
Director since: 2018 Age: 52
Independent
| Other Current Directorships
BioMarin Pharmaceutical Inc. |
Other Directorships within Past 5 Years
None. |
Qualifications
Mr. Hombach’s considerable executive and financial experience qualify him to serve on our Board. His background as an executive at large, multi-national corporations undertaking complex strategic and transactional transitions, in addition to his operational and financial expertise, strengthen the business and strategic insight of our Board. |
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| DAVID W. MCCREIGHT
Mr. McCreight is the retired President of Urban Outfitters, Inc., an international consumer products retailer and wholesaler, and Chief Executive Officer of its Anthropologie Group. Mr. McCreight served as Chief Executive Officer of Anthropologie from 2011 to 2018 and as President of Urban Outfitters from 2016 to 2018. Previously, Mr. McCreight served as President of Under Armour from 2008 until 2010 and he was President, from 2005 to 2008, and Senior Vice President, from 2003 to 2005, of Lands’ End. |
Director nominee Age: 55
Independent
| Other Current Directorships
None. |
Other Directorships within Past 5 Years
DAVIDsTEA, Inc. (2014-2018) |
Qualifications
Mr. McCreight’s extensive experience as a retail executive qualifies him to serve on our Board. His background as a leader at high profile retail brands executing omni-channel strategies in a fast-evolving market environment will allow him to contribute key strategic insights to our Board.
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| WILLIAM D. NASH
Mr. Nash has been the President and Chief Executive Officer of CarMax since September 2016. He was promoted to President in February 2016. In 2012, he assumed the role of Executive Vice President, Human Resources and Administrative Services, where he oversaw human resources, information technology, procurement, loss prevention, employee health & safety and construction & facilities. In 2011, Mr. Nash was promoted to Senior Vice President, Human Resources and Administrative Services. Previously, he served as Vice President and Senior Vice President of Merchandising, after serving as Vice President of Auction Services. Mr. Nash joined CarMax in 1997 as auction manager. |
Director since: 2016 Age: 49
President and Chief Executive Officer
| Other Current Directorships
None. |
Other Directorships within Past 5 Years
None. |
Qualifications
As the chief executive officer of CarMax, Mr. Nash leads the Company’s day-to-day operations and is responsible for establishing and executing the Company’s strategic plans. His significant experience in the auto retail industry, his tenure with CarMax and his motivational leadership of more than 25,000 CarMax associates qualify him to serve on our Board.
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| MARCELLA SHINDER
Ms. Shinder serves as the Global Head of Marketing at WeWork Companies Inc., a technologically driven global provider of shared working spaces. Prior to joining WeWork, Ms. Shinder was Chief Marketing Officer at WorkMarket, a leading provider of advanced labor automation technology, from May 2016 until March 2018. Before that, Ms. Shinder was Chief Marketing Officer of Nielsen Holdings plc, the world’s leading consumer data and information company from 2011 to 2016. Prior to joining Nielsen, Ms. Shinder was with American Express, serving in a variety of executive roles spanning general management and marketing including, most recently, as General Manager of the American Express OPEN charge card portfolio.
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Director since: 2015 Age: 51
Independent
| Other Current Directorships
None. |
Other Directorships within Past 5 Years
None. |
Qualifications
Ms. Shinder’s experiences as the lead marketing officer of innovative venture capital backed technology companies, as a senior executive at a leading information management company, and at a large consumer financial services organization focused on consumer lending, qualify her to serve on our Board. Further, Ms. Shinder’s deep experience with big data and analytics, machine learning and advanced technologies, cybersecurity, social media, digital marketing and branding enable her to provide additional insight to our Board and its committees.
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| MITCHELL D. STEENROD
Mr. Steenrod has been the Senior Vice President and Chief Financial Officer of Pilot Travel Centers LLC, the nation’s largest operator of travel centers and truck stops, since 2004. Mr. Steenrod joined Pilot Travel Centers in 2001 as Controller and Treasurer. In 2004, he was promoted to Senior Vice President and Chief Financial Officer. Previously, he spent 12 years with Marathon Oil Company and Marathon Ashland Petroleum LLC in a variety of positions of increasing responsibility in accounting, general management and marketing.
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Director since: 2011 Age: 51
Independent
| Other Current Directorships
None. |
Other Directorships within Past 5 Years
None. |
Qualifications
Mr. Steenrod’s extensive retail industry and operational experience as well as his experience implementing successful growth strategies, including growing Pilot Travel Centers from more than 200 travel centers to over 650 branded locations over a span of 16 years, qualify him to serve on our Board. Additionally, Mr. Steenrod’s extensive financial and accounting experience, including his years of experience as a chief financial officer, strengthens our Board through his understanding of accounting principles, financial reporting rules and regulations, and internal controls.
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| WILLIAM R. TIEFEL
Mr. Tiefel is Lead Independent Director of CarMax and served as Chair of the Board from 2007 to 2016. He is also the retired Vice Chairman of Marriott International, Inc. and Chairman Emeritus of The Ritz-Carlton Hotel Company, LLC since 2002. He joined Marriott Corporation in 1961. He was named President of Marriott Hotels and Resorts in 1989, President of Marriott Lodging in 1992 and Vice Chairman of Marriott International and Chairman of The Ritz-Carlton Hotel Company in 1998.
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Director since: 2002 Age: 84
Lead Independent Director
| Other Current Directorships
None. |
Other Directorships within Past 5 Years
None. |
Qualifications
Mr. Tiefel’s vast leadership experience with a customer-focused, service-oriented lodging and hospitality enterprise qualifies him to serve on our Board. His considerable management roles have been valuable to the Board not only as a director, but also as the Board’s chair and lead independent director. His steady leadership and his tenure as a director, chair of the Board and lead independent director provide continuity and value to our Board.
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CarMax is committed to good corporate governance. In this section of the proxy statement we describe our governance policies and practices and the role our Board plays in shaping them.
Overview
Our business and affairs are managed under the direction of the Board in accordance with the Virginia Stock Corporation Act, our articles of incorporation and our bylaws. The standing committees of the Board are the Audit Committee, the Compensation and Personnel Committee, and the Nominating and Governance Committee.
The Board and its committees direct our governance practices. The Board has made significant changes to those practices in recent years in response to shareholder feedback and based on evolving practices and the Board’s independent judgment. Demonstrating its continued interest in adopting meaningful shareholder focused changes, since 2011 the Board has:
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• | approved a majority vote standard for the election of directors, |
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• | allowed CarMax’s shareholder rights plan to expire without renewal, |
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• | established annual elections for all directors, |
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• | adopted a mandatory director retirement policy providing that directors, with limited exceptions, may not stand for reelection after reaching age 76, and |
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• | adopted a proxy access right for eligible CarMax shareholders. |
These changes supplement longstanding good governance practices, such as maintaining a largely independent Board (9 of 11 director nominees) and appointing a lead independent director to lead meetings of the independent directors and work alongside
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Five of our 9 independent director nominees have joined the Board since April 2015. | the chair.
As part of its commitment to board refreshment and seeking diverse perspectives and skills in new directors, in recent years the Board has added five independent directors (Ms. Shinder in 2015, Ms. Chawla in 2017, and Mr. Bensen, Mr. Hombach and, if elected, |
Mr. McCreight in 2018). In addition to the skills and experiences our new directors bring to the Board, they have allowed us to reduce the average age (from 62 to 56) and average tenure (from 8.1 years to 5.7 years) of our directors since 2014, while preserving continuity with our continuing directors.
Additional information concerning the Board’s director selection process and refreshment can be found beginning on page 17.
The Board has approved documents that memorialize our governance standards and practices. These documents include our bylaws, our corporate governance guidelines and a code of business conduct. These documents, each of which is described below, are available under the “Corporate Governance” link at investors.carmax.com.
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Bylaws | Our bylaws regulate the corporate affairs of CarMax. They include provisions relating to shareholder meetings, voting, the nomination of directors and the proxy access right. |
Corporate Governance Guidelines | Our Corporate Governance Guidelines set forth the Board’s practices with respect to its responsibilities, qualifications, performance, access to management and independent advisors, compensation, continuing education, and management evaluation and succession. The guidelines also include director stock ownership requirements. |
Code of Business Conduct | Our code of business conduct is the cornerstone of our compliance and ethics program. It applies to all CarMax associates and Board members. It includes provisions relating to honest and ethical conduct, compliance with laws, the handling of confidential information and diversity. It explains how to use our associate help line and related website, both of which allow associates to report misconduct anonymously. It also describes our zero-tolerance policy on retaliation for making such reports. Any amendment to, or waiver from, a provision of this code for our directors or executive officers will be promptly disclosed under the “Corporate Governance” link at investors.carmax.com. |
We will send you a printed copy of any of these documents, without charge, upon written request to our Corporate Secretary at CarMax, Inc., 12800 Tuckahoe Creek Parkway, Richmond, Virginia 23238.
Independence
Our Board, in consultation with the Nominating and Governance Committee, evaluates the independence of our directors and director nominees at least annually. The most recent evaluation took place in April 2018. During this evaluation, the Board considered transactions between the directors (and their immediate family members) and the Company and its affiliates. The Board determined that the following directors and director nominee (Mses. Chawla, Goodman, and Shinder and Messrs. Bensen, Blaylock, Colberg, Garten, Grafton, Grubb, Hombach, McCreight, Steenrod, and Tiefel) are independent under the listing standards of the New York Stock Exchange (“NYSE”). The Board had determined that Messrs. Gangwal and Standley were independent under NYSE listing standards while they served during fiscal 2018. Mr. Folliard is not independent because he was an executive officer of CarMax until 2016, and Mr. Nash is not independent because he is currently an executive officer of CarMax.
In assessing independence, the Board considered transactions not just between CarMax and the individual directors themselves (and their immediate family members), but also between CarMax and entities associated with the directors or their immediate family members. The Board’s review included the following transactions:
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▪ | Ms. Goodman was an officer and a director of Staples, Inc. until January 2018. CarMax purchased goods and services from Staples in the ordinary course of business in fiscal 2018. The amount that CarMax paid to Staples in each of the last three fiscal years did not exceed the greater of $1 million or 2% of the total revenue of Staples in each year. |
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▪ | Mr. Colberg is an officer and director of Assurant, Inc. Assurant has announced a proposed merger with The Warranty Group, a current CarMax service provider. |
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▪ | Mr. Garten is a non-employee director of Aetna Inc., which did business with CarMax in fiscal 2018. The business relationship between CarMax and Aetna involved the supply of services to CarMax in the ordinary course of business. |
The Board determined that none of the relationships it considered impaired the independence of the non-employee directors.
Board Leadership Structure
CarMax has historically split the roles of CEO and Board chair. Mr. Folliard was our CEO from 2006 until his retirement in 2016, at which time the Board appointed Mr. Nash as CEO and Mr. Folliard as non-executive chair. The Board determined that Mr. Folliard’s long history of leading the Company uniquely positions him to serve as non-executive chair.
As non-executive chair of our Board, Mr. Folliard is responsible for chairing Board meetings and meetings of shareholders, attending meetings of the Board’s committees with the approval of the respective committee, and assisting management in representing CarMax to external groups as needed and as determined by the Board. The Board elects its chair annually.
Mr. Nash oversees the day-to-day affairs of CarMax and directs the formulation and implementation of our strategic plans. We believe that this leadership structure is currently the most appropriate for CarMax because it allows our CEO to focus primarily on our business strategy and operations while leveraging the experience of our chair to direct the business of the Board.
Mr. Tiefel, a director since 2002, served as the independent chair of the Board from 2007 until 2016, when he was appointed lead independent director. As lead independent director, Mr. Tiefel serves as the principal liaison between the independent, non-management directors and the CEO, and is responsible for setting the agendas for Board meetings, presiding over executive sessions of the independent directors, coordinating feedback from directors in connection with the evaluations of the CEO and each director, and acting as chair of any Board meeting when the non-executive chair is not present. The Board elects its lead independent director annually.
Our Board periodically reviews this structure and recognizes that, depending on the circumstances, a different leadership model might be appropriate. The Board has no fixed policy on whether the roles of chair and CEO should be separate or combined, which maintains flexibility based on CarMax’s needs and the Board’s assessment of the Company’s leadership. Our corporate governance guidelines do provide that the Board appoint a lead independent director in the event the CEO is elected chair or the chair otherwise does not qualify as independent.
Board Committees
The Board has three standing committees: Audit, Compensation and Personnel, and Nominating and Governance. Each committee is composed solely of independent directors as that term is defined in applicable rules of the U.S. Securities and Exchange Commission (“SEC”) and the NYSE.
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Each committee is composed solely of independent directors. | In addition, all members of the Compensation and Personnel Committee qualify as “outside directors” within the meaning of Section 162(m) of the Internal Revenue Code and “non-employee directors” as defined by Rule 16b-3 under the Securities Exchange Act of 1934. Each committee has a charter that describes the committee’s responsibilities. These charters are available under the “Corporate Governance” link at investors.carmax.com or upon written request to our Corporate |
Secretary at CarMax, Inc., 12800 Tuckahoe Creek Parkway, Richmond, Virginia 23238.
The table below lists the members and summarizes the responsibilities of the three committees. Membership of the committees is expected to change as shown below following the annual shareholders meeting due to the changes in the composition of the Board discussed on page 6. |
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Committee | Current Members | Expected Members After the Annual Shareholders Meeting | Responsibilities |
Audit | Mitchell D. Steenrod (Chair)
Peter J. Bensen Sona Chawla Robert J. Hombach Marcella Shinder
| Mitchell D. Steenrod (Chair)
Peter J. Bensen Robert J. Hombach David W. McCreight
| The Audit Committee assists in the Board’s oversight of: § the integrity of our financial statements; § our compliance with legal and regulatory requirements; § the independent auditors’ qualifications, performance and independence; and § the performance of our internal audit function. The Audit Committee retains and approves all fees paid to the independent auditors, who report directly to the Committee. Each member of the Audit Committee is financially literate, with Mr. Bensen, Mr. Hombach, and Mr. Steenrod considered audit committee financial experts under the standards of the NYSE and the SEC. The Audit Committee’s report to shareholders can be found on page 23. |
Compensation and Personnel | Ronald E. Blaylock (Chair)
W. Robert Grafton Shira Goodman William R. Tiefel | Ronald E. Blaylock (Chair)
Sona Chawla William R. Tiefel | The Compensation and Personnel Committee assists in the Board’s oversight of: § our executive compensation philosophy; § our executive and director compensation programs, including related risks; § salaries, short- and long-term incentives and other benefits and perquisites for our CEO and other executive officers, including any severance agreements; and § the administration of our incentive compensation plans and all equity-based plans. The Compensation and Personnel Committee has sole authority to retain and terminate its independent compensation consultant, as well as to approve the consultant’s fees. The Compensation and Personnel Committee’s report to shareholders can be found on page 40. |
Nominating and Governance | Alan B. Colberg (Chair)
Edgar H. Grubb Jeffrey E. Garten | Shira Goodman (Chair)
Marcella Shinder | The Nominating and Governance Committee assists in the Board’s oversight of: § Board organization and membership, including by identifying individuals qualified to become members of the Board, considering director nominees submitted by shareholders, and recommending director nominees to the Board; § management succession planning, including for our CEO; and § our corporate governance guidelines. |
Board and Committee Meetings
During fiscal 2018, our Board met four times and our Board committees met a combined 22 times. Each incumbent director attended 90% or more of the total number of meetings of the Board and the committees on which he or she served. The average attendance of all of our incumbent directors in fiscal 2018 was 99%. We expect our directors to attend the annual meeting of shareholders and all of our incumbent directors did so.
Our independent directors meet in executive session, without management present, at least once during each regularly scheduled Board meeting. As lead independent director, Mr. Tiefel presides over these executive sessions. In addition, our non-management directors meet in executive session, also without management present, at least once during each regularly scheduled Board meeting. As chair, Mr. Folliard presides over these executive sessions.
The table below lists the number of Board and committee meetings in fiscal 2018 and discloses each director’s attendance.
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Director(a) | Board | | Audit | | Compensation and Personnel | | Nominating and Governance |
Ronald E. Blaylock(b) | 4 |
| — |
| 6* |
| — |
Sona Chawla(c) | 4 |
| 10 |
| — |
| — |
Alan B. Colberg(d) | 4 |
| 2 |
| — |
| 4* |
Thomas J. Folliard | 4* |
| — |
| — |
| — |
Jeffrey E. Garten(e) | 4 |
| — |
| — |
| 4 |
Shira Goodman | 4 |
| — |
| 5 |
| — |
W. Robert Grafton(e) | 4 |
| — |
| 6* |
| — |
Edgar H. Grubb(e) | 4 |
| — |
| — |
| 4* |
William D. Nash | 4 |
| — |
| — |
| — |
Marcella Shinder | 4 |
| 12 |
| — |
| — |
John T. Standley(f) | 3 |
| 10 |
| — |
| — |
Mitchell D. Steenrod | 4 |
| 12* |
| — |
| — |
William R. Tiefel(g) | 4 |
| — |
| 6 |
| — |
TOTAL MEETINGS | 4 |
| 12 |
| 6 |
| 4 |
* Chair
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(a) | Messrs. Bensen, Hombach, and McCreight were not nominated to the Board until after the end of fiscal 2018 and therefore did not attend any meetings during fiscal 2018. Rakesh Gangwal did not stand for re-election at our 2017 annual shareholders meeting and did not attend any meetings during fiscal 2018. |
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(b) | Mr. Blaylock was named chair of the Compensation and Personnel Committee on October 1, 2017. |
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(c) | Ms. Chawla was elected to the Board and appointed to the Audit Committee on April 24, 2017. |
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(d) | Mr. Colberg was appointed to the Nominating and Governance Committee on April 24, 2017 and concurrently stepped down from the Audit Committee. He was named chair of the Nominating and Governance Committee on October 1, 2017. Mr. Colberg is not standing for re-election at the 2018 annual shareholders meeting. |
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(e) | Mr. Garten, Mr. Grafton, and Mr. Grubb are not standing for re-election at the 2018 annual shareholders meeting. |
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(f) | Mr. Standley retired from the Board on January 29, 2018 and therefore is not standing for re-election at the 2018 annual shareholders meeting. |
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(g) | Mr. Tiefel is lead independent director of the Board. |
Selection of Directors
CRITERIA
The Board and the Nominating and Governance Committee believe that the Board should include directors with diverse backgrounds and that directors should have, at a minimum, high integrity, sound judgment and significant experience or skills that will benefit the Company. |
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We believe our Board should include directors with diverse backgrounds. | In addition, the Committee takes into account a number of factors in assessing director nominees, including the current size of the Board, the particular challenges facing CarMax, the Board’s need for specific skills or perspectives, and the nominee’s character, reputation, experience, independence from management and ability to devote the requisite time. |
Although we do not have a written policy with respect to the consideration of diversity in identifying director nominees, we consider and value diversity in our director selection process. Our code of business conduct defines diversity as the celebration
of all people and their individual talents and the embracing of new ideas and new ways of thinking to maximize the potential of the overall organization. Through its consideration of the factors listed above, the Nominating and Governance Committee seeks directors with diverse backgrounds to maximize the potential of the Board. We believe that the diverse backgrounds and experiences of our current directors demonstrate the Committee’s success.
PROCESS
The Nominating and Governance Committee screens and recommends candidates for nomination by the Board. The Committee may consider input from several sources, including Board members, shareholders, outside search firms, and management. The Committee evaluates candidates in the same manner regardless of the source of the recommendation, using the criteria summarized above. Shareholders may send their recommendations for director candidates to the attention of our Corporate Secretary at CarMax, Inc., 12800 Tuckahoe Creek Parkway, Richmond, Virginia 23238.
Our bylaws include proxy access provisions, which enable eligible CarMax shareholders to have their own director nominee included in the Company’s proxy materials along with candidates nominated by our Board. Our proxy access right permits an eligible shareholder, or a group of up to 20 shareholders, to nominate and include in CarMax’s proxy materials directors constituting up to 20% of the Board of Directors. To be eligible, the shareholder or shareholder group must have owned 3% or more of our outstanding capital stock continuously for at least three years and satisfy certain notice and other requirements set forth in our bylaws. Shareholders who wish to include director nominations in our proxy statement or nominate directors directly at an annual shareholders meeting must follow the instructions under “Shareholder Proposal Information” on page 66.
EVALUATION AND REFRESHMENT
In connection with the annual election of directors and at other times throughout the year, the Nominating and Governance Committee considers whether our Board has the right mix of skills and experience to meet the challenges facing CarMax. One of the processes that assists the Committee in its consideration is our Board’s annual evaluation process. The Board and each of its committees conducts a self-evaluation. In addition, the chair, lead independent director and Committee preside over a peer evaluation process in which each individual director evaluates each other director. The results of these evaluations assist the Committee in determining both whether to nominate incumbent directors for reelection and whether to search for additional directors.
As part of its consideration, the Committee reviews both the age and tenure of incumbent directors. Following the annual meeting, assuming all our director nominees are elected, the average age of our directors will be 56, and their average tenure on our Board will be 5.7 years. In fiscal 2015, the Board adopted a mandatory director retirement policy providing that directors may not stand for re-election after reaching age 76. The Board may waive this limitation in appropriate circumstances.
Under our retirement policy, Mr. Grafton and Mr. Grubb were not nominated for re-election at the 2018 annual shareholders meeting. Mr. Colberg and Mr. Garten are also not standing for re-election. Accordingly, the Board has recently added three directors, Mr. Bensen, Ms. Chawla, and Mr. Hombach, and has nominated Mr. McCreight for election to the Board. Each of the recently added directors and the new director nominee are independent and highly qualified to serve on the Board.
To ensure a smooth transition for the Board and our new directors, the Board waived the application of the director retirement policy to Mr. Tiefel for one year so he could continue on the Board and as lead independent director.
The fresh perspectives and diversity of skills of our new directors, coupled with the institutional knowledge of the continuing independent directors, will provide the Board with ample experience and leadership.
Board’s Role in Succession Planning
The Board oversees the recruitment, development and retention of executive talent. As part of its oversight, the Board regularly reviews short- and long-term succession plans for the Chief Executive Officer and other senior management positions. In assessing possible CEO candidates, the independent directors identify the skills, experience and other attributes they believe are required to be an effective CEO in light of CarMax’s business strategies, opportunities and challenges.
The Board also considers its own succession. In doing so, the Nominating and Governance Committee and the Board take into account, among other things, the needs of the Board and the Company in light of the overall composition of the Board with a view to achieving a balance of skills, experience and attributes that would be beneficial to the Board’s oversight role.
Board’s Role in Strategic Planning
While the formulation and implementation of CarMax’s strategic plan is primarily the responsibility of management, the Board plays an active role with respect to the Company’s strategy. This includes not only monitoring progress made in executing the strategic plan, but also regularly evaluating the strategy in light of evolving operating and economic conditions. The Board carries out its role primarily through regular reviews of the Company’s strategic plan and discussions with management, which include both broad-based presentations and more in-depth analyses and discussions of specific areas of focus. In addition, regular Board meetings throughout the year include presentations and discussions with management on significant initiatives implementing the strategic plan; developments affecting an area of the Company’s business; and on trends, competition, and emerging challenges and opportunities. The Board also reviews the strategic plan, including actions taken and planned to implement the strategy, as part of its review and approval of the annual budget.
The Board’s oversight of risk management enhances the directors’ understanding of the risks associated with the Company’s strategic plan and its ability to provide guidance to and oversight of senior management in executing the Company’s strategy.
Board’s Role in Risk Oversight
Our Board undertakes its responsibility to oversee risks to CarMax through a risk governance framework designed to:
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▪ | identify critical risks; |
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▪ | allocate responsibilities for overseeing those risks to the Board and its committees; and |
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▪ | evaluate the Company’s risk management processes. |
The Board does not view risk in isolation. Rather, it considers risks in its business decisions and as part of CarMax’s business strategy. This consideration occurs in the ordinary course of the Board’s business and is not tied to any of the formal processes described below, although it is enhanced by those processes.
The following table describes the components of CarMax’s risk governance framework.
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Assignment of Risk Categories to Board and its Committees | The Board has assigned oversight of certain key risk categories to either the full Board or one of its committees. For each category, management reports regularly to the Board or the assigned committee, as appropriate, describing CarMax’s strategies for monitoring, managing and mitigating risks that fall within that category. Examples of the risk categories assigned to each committee and the full Board are described below. This list is not comprehensive and is subject to change: |
| § | Audit Committee: oversees risks related to financial reporting, compliance and ethics, information technology and cybersecurity, and legal and regulatory issues. |
| § | Compensation and Personnel Committee: oversees risks related to human resources and compensation practices. |
| § | Nominating and Governance Committee: oversees risks related to government affairs and CarMax’s reputation. |
| § | Board: oversees risks related to the economy, competition, finance and strategy. |
Enterprise Risk Management | Risk Committee: We have a management-level Risk Committee, which is chaired by Thomas W. Reedy, our Executive Vice President and Chief Financial Officer (“CFO”), and includes as members more than ten other associates from across CarMax. The Risk Committee meets periodically to identify and discuss the risks facing CarMax. |
| Board Reporting: The Risk Committee delivers biannual reports to the Board identifying the most significant risks facing the Company. |
| Board Oversight: On an annual basis, Mr. Reedy, on behalf of the Risk Committee, discusses our procedures for identifying significant risks with the Audit Committee. |
Other Processes that Support Risk Oversight and Management | The Board oversees other processes that are not intended primarily to support enterprise risk management, but that assist the Company in identifying and controlling risk. These processes include our compliance and ethics program, our internal audit function, pre-filing review of SEC filings by our management-level disclosure committee, and the work of our independent auditors. |
We believe that our Board leadership structure, discussed in detail beginning on page 15, supports the Board’s risk oversight function. Our chair, lead independent director and committee chairs set agendas and lead meetings to ensure strong risk oversight, while our CEO and his management team are charged with managing risk.
Related Person Transactions
Our Board has adopted a written Related Person Transactions Policy that applies to any transaction in which:
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• | CarMax or one of its affiliates is a participant; |
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• | the amount involved exceeds $120,000; and |
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• | the related person involved in the transaction (whether a director, executive officer, owner of more than 5% of our common stock, or an immediate family member of any such person) has a direct or indirect material interest. |
A copy of our policy is available under the “Corporate Governance” link at investors.carmax.com. The Audit Committee is responsible for overseeing the Company’s policy and reviewing any related person transaction that is required to be disclosed pursuant to SEC rules.
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We did not have any related person transactions in fiscal 2018. | In reviewing related person transactions, the Audit Committee considers, among other things: • the related person’s relationship to CarMax; • the facts and circumstances of the proposed transaction; |
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• | the aggregate dollar amount involved in the transaction; |
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• | the related person’s interest in the transaction, including his or her position or relationship with, or ownership in, an entity that is a party to, or has an interest in, the transaction; and |
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• | the benefits to CarMax of the proposed transaction and, if applicable, the terms and availability of comparable products and services from unrelated third parties. |
The Audit Committee will approve or ratify a related person transaction only if it determines that: (i) the transaction serves the best interests of CarMax and its shareholders; or (ii) the transaction is on terms reasonably comparable to those that could be obtained in arm’s length dealings with an unrelated third party.
We did not have any related person transactions in fiscal 2018.
Shareholder Communication with Directors
Shareholders or other interested parties wishing to contact the Board or any individual director may send correspondence to CarMax, Inc., c/o Corporate Secretary, 12800 Tuckahoe Creek Parkway, Richmond, Virginia 23238, or may send an e-mail to chair@carmax.com, which is monitored by Eric M. Margolin, our Corporate Secretary. Mr. Margolin will forward to the Board or appropriate Board member any correspondence that deals with the functions of the Board or its committees or any other matter that would be of interest to the Board. If the correspondence is unrelated to Board or shareholder matters, it will be forwarded to the appropriate department within the Company for further handling.
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PROPOSAL TWO: RATIFICATION OF THE APPOINTMENT OF THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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We are asking you to ratify the Audit Committee’s appointment of KPMG LLP (“KPMG”) as CarMax’s independent registered public accounting firm for fiscal 2019. KPMG has served as our independent registered public accounting firm continuously since our separation from Circuit City Stores, Inc. (“Circuit City”) in fiscal 2003, and also served as Circuit City’s independent registered public accounting firm from the incorporation of CarMax, Inc. in 1996 through the separation. KPMG has been appointed by the Audit Committee to continue as CarMax’s independent registered public accounting firm for fiscal 2019. The members of the Audit Committee and the Board believe that the continued retention of KPMG to serve as CarMax’s independent registered public accounting firm is in the best interests of CarMax and its shareholders.
The Audit Committee is directly responsible for the appointment, compensation, retention, evaluation, and oversight of the independent registered public accounting firm retained to audit CarMax’s financial statements. The Audit Committee is also responsible for the audit fee negotiations associated with CarMax’s retention of KPMG. In accordance with the SEC-mandated rotation of the audit firm’s lead engagement partner, the Audit Committee and its chairperson are directly involved in the selection of KPMG’s lead engagement partner and were directly involved in the selection of KPMG’s current lead engagement partner, whose period of service began in fiscal 2016. Furthermore, in order to ensure continuing auditor independence, the Audit Committee periodically considers whether there should be a regular rotation of the independent registered public accounting firm.
Although we are not required to seek shareholder ratification, we are doing so as a matter of good corporate governance. If the shareholders do not ratify the appointment of KPMG, the Audit Committee will reconsider its decision. Even if the appointment is ratified, the Audit Committee, in its discretion, may change the appointment at any time during the year if it determines that a change would be in the best interests of CarMax and its shareholders.
We expect that representatives of KPMG will attend the annual shareholders meeting. They will be given the opportunity to make a statement if they desire to do so and to respond to appropriate questions.
The Board recommends a vote FOR Proposal Two.
The Audit Committee reports to and acts on behalf of CarMax’s Board of Directors by providing oversight of the integrity of the Company’s financial statements, the Company’s independent and internal auditors, and the Company’s compliance with legal and regulatory requirements. The Audit Committee operates under a written charter adopted by the Board, which is reviewed annually and is available under the “Corporate Governance” link at investors.carmax.com. The members of the Audit Committee meet the independence and financial literacy requirements of the NYSE and the SEC.
Management is responsible for the preparation, presentation and integrity of the Company’s financial statements and the establishment of effective internal control over financial reporting. KPMG, the Company’s independent registered public accounting firm, is responsible for auditing those financial statements in accordance with the standards of the Public Company Accounting Oversight Board (“PCAOB”) and expressing an opinion on the conformity of CarMax’s audited financial statements with generally accepted accounting principles and on the effectiveness of CarMax’s internal controls over financial reporting. In this context, the Audit Committee has met and held discussions with management, KPMG and the Company’s internal auditors, meeting 12 times in fiscal 2018.
Management represented to the Committee that the Company’s fiscal 2018 consolidated financial statements were prepared in accordance with generally accepted accounting principles, and the Committee reviewed and discussed the fiscal 2018 consolidated financial statements with management and KPMG.
The Committee has discussed with KPMG the matters required to be discussed by applicable auditing standards, including significant accounting policies and the quality, not just the acceptability, of the accounting principles utilized. The Committee has also received from KPMG the written disclosures and the letter required by applicable requirements of the PCAOB regarding the independent auditor’s communications with the Audit Committee regarding independence, and the Audit Committee has discussed with KPMG the firm’s independence. The Audit Committee concluded that KPMG is independent from the Company and management.
In reliance on these reviews and discussions, the Committee recommended to the Board of Directors that the audited consolidated financial statements be included in the Company’s Annual Report on Form 10-K for the fiscal year ended February 28, 2018, for filing with the SEC.
AUDIT COMMITTEE
Mitchell D. Steenrod, Chair
Sona Chawla
Marcella Shinder
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AUDITOR FEES AND PRE-APPROVAL POLICY
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Auditor Fees and Services
The following table sets forth fees billed by KPMG for fiscal 2018 and 2017.
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| | | | | | | |
| Years Ended February 28 |
Type of Fee | 2018 |
| 2017 |
Audit Fees(a) | $ | 1,969,125 |
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| $ | 1,726,450 |
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Audit-Related Fees(b) | 547,000 |
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| 440,000 |
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Tax Fees(c) | 130,002 |
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| 155,350 |
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TOTAL FEES | $ | 2,646,127 |
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| $ | 2,321,800 |
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(a) | This category includes fees associated with the annual audit of CarMax’s consolidated financial statements and the audit of CarMax’s internal control over financial reporting. It also includes fees associated with quarterly reviews of CarMax’s unaudited consolidated financial statements. |
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(b) | This category includes fees associated with agreed-upon procedures and attestation services related to our securitization program. |
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(c) | This category includes fees associated with tax compliance, consultation and planning services. |
Approval of Auditor Fees and Services
The Audit Committee’s charter provides for pre-approval of audit and non-audit services to be performed by the independent auditors. The Committee typically pre-approves specific types of audit, audit-related and tax services, together with related fee estimates, on an annual basis. The Committee pre-approves all other services on an individual basis throughout the year as the need arises. The Committee has delegated to its chair the authority to pre-approve independent auditor engagements in an amount not to exceed $50,000 per engagement. Any such pre-approvals are reported to and ratified by the entire Committee at its next regular meeting.
All audit, audit-related and tax services in fiscal 2018 were pre-approved by the Audit Committee or pre-approved by the chair pursuant to his delegated authority and subsequently ratified by the Audit Committee. In all cases, the Audit Committee concluded that the provision of such services by KPMG was compatible with the maintenance of KPMG’s independence.
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PROPOSAL THREE: ADVISORY RESOLUTION TO APPROVE EXECUTIVE COMPENSATION
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We are asking you to approve an advisory resolution approving the compensation of our named executive officers as disclosed in this proxy statement. This vote is commonly referred to as a “Say on Pay” vote and is required by Section 14A of the Securities Exchange Act of 1934. Although this resolution is not binding, we value your opinion and our Compensation and Personnel Committee will consider the outcome of this vote when making future decisions.
We believe our executive compensation program promotes the achievement of positive results for our shareholders, aligns pay and performance, and allows us to attract and retain the talented executives that drive our long-term financial success. We urge you to read the “Compensation Discussion and Analysis” section of this proxy statement beginning on page 26, which describes in more detail how our executive compensation program operates and how it is designed to achieve our compensation objectives. We also encourage you to review the “Summary Compensation Table” and other compensation tables and narratives, found on pages 41 through 54.
We have adopted a policy providing for an annual “Say on Pay” vote. Accordingly, the next advisory vote on the compensation of our named executive officers will occur in 2019.
Our Board recommends that, on an advisory basis, shareholders vote in favor of the following resolution:
RESOLVED, that the compensation of the named executive officers of CarMax, Inc. (the “Company”), as disclosed in the Company’s 2018 Proxy Statement pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including the Compensation Discussion and Analysis, compensation tables and the narrative discussion that accompanies the compensation tables, is hereby APPROVED.
The Board recommends a vote FOR Proposal Three.
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COMPENSATION DISCUSSION AND ANALYSIS
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Overview
The Compensation and Personnel Committee oversees an executive compensation program that is intended to drive the creation of long-term shareholder value. This section describes that program and details the compensation earned by our CEO, CFO, and our three other most highly compensated executive officers. We refer to these five individuals, listed below, as our “named executive officers” or “NEOs”:
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William D. Nash | President and Chief Executive Officer. Mr. Nash joined CarMax in 1997 and was promoted to his current position in September 2016. Mr. Nash is also a member of our Board. |
Thomas W. Reedy | Executive Vice President and Chief Financial Officer. Mr. Reedy joined CarMax in 2003 and was promoted to his current position in 2012. |
William C. Wood | Executive Vice President and Chief Operating Officer. Mr. Wood joined CarMax in 1993 and was promoted to his current position in February 2016. As previously announced, Mr. Wood intends to retire from his position by the end of Summer 2018. |
Edwin J. Hill | Executive Vice President, Strategy and Business Transformation. Mr. Hill joined CarMax in 1995 and was promoted to his current position in March 2016. As previously announced, Mr. Hill will succeed Mr. Wood as Chief Operating Officer following Mr. Wood’s retirement. |
Eric M. Margolin | Executive Vice President, General Counsel and Corporate Secretary. Mr. Margolin joined CarMax in 2007 and was promoted to his current position in April 2016. |
Executive Summary
FISCAL 2018 HIGHLIGHTS
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Market Share Growth | We estimate that our share of the 0- to 10-year old used vehicle market increased almost 7% in our television markets in calendar 2017. |
Store Growth | We opened 15 stores in fiscal 2018. We currently plan to open 15 stores in fiscal 2019 and between 13 and 16 stores in fiscal 2020. |
Revenues/Earnings | We achieved top and bottom-line growth. Net sales and operating revenues increased 7.8% to $17.12 billion, while net earnings rose 5.9% to $664.1 million and net earnings per diluted share increased 10.4% to $3.60. |
Units | Total used unit sales increased 7.5% and comparable store used unit sales increased 2.0%. Total wholesale unit sales increased 4.3%. |
CarMax Auto Finance | CarMax Auto Finance (“CAF”) finished the year with income of $421.2 million, an increase of 14.1% over the prior year. |
Share Repurchases | We continued our share repurchase program in fiscal 2018, buying back 8.9 million shares with a market value of $573.5 million. |
Fourteenth Year on Fortune “Best Companies” List | We were named by Fortune magazine as one of its “100 Best Companies to Work For” for the fourteenth year in a row. |
SUMMARY OF FISCAL 2018 COMPENSATION CHANGES FOR OUR NAMED EXECUTIVE OFFICERS
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Compensation Category | Changes We Made in Fiscal 2018 | Why We Made These Changes |
Base Salary | 3.25% increase for each of our named executive officers. | Same increase given to salaried associates throughout the Company in recognition of successful performance. The Committee determined that the performance of our named executive officers warranted this increase. See pages 30 to 31 for more detail. |
Annual Incentive Bonus | 109.7% payout versus an 42.2% payout in fiscal 2017.
Adjusted pre-tax income used as the bonus performance measure. | Based on Company performance measured against the pre-determined adjusted pre-tax income target set at the beginning of fiscal 2018. See pages 31 to 32 for more detail.
The Committee changed the bonus performance measure to better align bonus performance with factors within the control of our NEOs. See page 32 for more detail. |
Long-Term Equity Award | No change in the annual awards to our named executive officers.
Diluted earnings per share, adjusted to exclude income tax, used as the performance measure for performance stock unit (“PSU”) grants. | The annual awards to our named executive officers were maintained at prior year levels, which the Committee believed continued to provide competitive pay opportunities for them.
The Committee changed the PSU performance measure to better align PSU performance with factors within the control of our NEOs. See page 34 for more detail. |
Following the federal corporate tax law changes enacted at the end of 2017, CarMax paid a “thank you” bonus to employees who were not otherwise bonus eligible. The “thank you” bonus was a one-time payment, totaling $8.0 million, made to 20,207 employees. Relatedly, the Company made a one-time discretionary payment to each of the 1,291 employees in the CarMax annual bonus program, including our NEOs, to offset the impact the “thank you” bonus had on the fiscal 2018 bonus performance measure. The one-time bonus payment to NEOs was approved by the Committee and is discussed in more detail on page 33.
CarMax believes strongly in its pay-for-performance philosophy. In fiscal 2018, an average of 81% of the target total direct compensation of our named executive officers was attributable to annual incentive bonus and long-term equity award compensation and therefore directly tied to CarMax performance. Compensation mix is discussed in more detail on page 35.
How We Make Compensation Decisions
The Compensation and Personnel Committee oversees our executive and director compensation programs and determines all executive officer and director compensation.
COMPENSATION PHILOSOPHY AND OBJECTIVES
CarMax has a pay-for-performance philosophy. The Committee believes that the best way to implement this philosophy is by tying a significant portion of our executives’ total direct compensation to the attainment of both annual financial goals and multi-year stock price appreciation.
The Committee has established the following objectives for our executive compensation program:
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▪ | Align the interests of executive officers with the financial interests of our shareholders. |
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▪ | Encourage the achievement of our key strategic, operational and financial goals. |
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▪ | Link incentive compensation to Company and stock price performance, which the Committee believes promotes a unified vision for senior management and creates common motivation among our executives. |
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▪ | Attract, retain and motivate executives with the talent necessary to drive our long-term success. |
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▪ | Provide the Committee the flexibility to respond to the continually changing environment in which we operate. |
The key elements of our executive compensation program are base salaries, annual incentive bonuses and long-term equity awards. The Committee generally makes determinations regarding long-term equity awards, base salaries and annual incentive bonuses at its March and April meetings. The Committee makes decisions regarding each element of pay to further the objectives described above. The specific ways in which each element of compensation supports these objectives are described beginning on page 30.
The Committee recognizes the impact that an adjustment to one element of compensation may have on other elements. For example, an increase in an officer’s base salary will result in a larger target annual incentive amount since that amount is determined as a percentage of base salary. Although the Committee considers these relationships between the various elements of compensation - and also considers each executive officer’s total compensation - decisions regarding any one element of compensation are not determinative of decisions regarding other elements.
The Committee generally considers the value of stock-based compensation as an element of our executive compensation program at the time of grant of an equity award, not at the time of exercise or vesting. Accordingly, the Committee does not consider the realized value of long-term equity compensation when designing and evaluating our executive compensation program.
COMPENSATION CONSULTANT
The Committee engages a compensation consultant, which it uses to obtain access to independent compensation data, analysis and advice. The Committee retained Frederic W. Cook & Co., Inc. (“FWC”) to assist it while making decisions regarding the compensation of our executive officers for fiscal 2018. In May 2017, the Committee engaged Semler Brossy Consulting Group, LLC (“SBCG”) as its compensation consultant, replacing FWC. Under its charter, the Committee has the sole authority to hire, oversee and terminate compensation consultants, as well as to approve compensation consultant fees and any other terms of the engagement. |
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The Committee has retained an independent compensation consultant. | Committee members have direct access to the compensation consultant without going through management. Neither FWC nor SBCG provided services to CarMax other than those it provided to the Committee.
The Committee assesses its compensation consultant’s independence annually. It assessed FWC’s independence in April 2016 and 2017, under SEC and NYSE standards and concluded that FWC was independent.
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In June 2017, at its first meeting following the engagement of SBCG, the Committee assessed SBCG’s independence under SEC and NYSE standards and concluded that it was independent.
The Committee considers, among other factors:
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▪ | whether the consultant provided other services to CarMax; |
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▪ | the amount of fees paid by CarMax to the consultant as a percentage of the consultant’s total revenue; |
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▪ | the consultant’s policies and procedures designed to prevent conflicts of interest; |
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▪ | any business or personal relationship between the individuals advising the Committee and any Committee member; |
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▪ | any CarMax stock owned by the individuals advising the Committee; and |
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▪ | any business or personal relationship between the individuals advising the Committee, or the consultant itself, and an executive officer of CarMax. |
The Committee’s compensation consultant frequently attends Committee meetings and provides analysis and recommendations that inform the Committee’s decisions. FWC assisted the Committee in fiscal 2018 by analyzing and providing recommendations with regard to total direct compensation for the Company’s CEO and executive and senior vice presidents.
FWC also assisted the Committee in setting appropriate performance criteria for the Company’s equity and bonus programs and by providing general compensation advice. Following its engagement, SBCG provided general compensation advice throughout the remainder of fiscal 2018, including analysis related to the composition of our peer group and non-employee director pay.
MANAGEMENT’S ROLE
Although management does not have any decision-making authority regarding executive compensation, management assists the Committee by recommending base salary levels, annual incentive bonus objectives and targets, and individual long-term equity awards for executives other than the CEO. Management also assists the Committee with the preparation of meeting agendas and prepares materials for those meetings as directed by the Committee.
The Committee has not delegated any authority with respect to the compensation of our executive officers and directors. The Committee, however, has delegated limited authority to our CEO and CFO to grant long-term equity awards to our non-executive officers between regularly scheduled Committee meetings in an amount not to exceed 75,000 shares or units. These awards are subject to our Employee Equity Grant Policy, which is available under the “Corporate Governance” link at investors.carmax.com. The Committee’s practice is to review and ratify any such grant at its next regularly scheduled meeting.
Notwithstanding the Committee’s use of outside advisers and management’s participation in the executive compensation process, the Committee makes all executive compensation decisions using its own independent judgment.
CONSIDERATION OF THE MOST RECENT ADVISORY “SAY-ON-PAY” VOTE
At the 2017 annual shareholders meeting, our shareholders approved our executive compensation program, with more than 87% of the votes cast in favor of the program. This represented a significant majority of our shareholders and the Committee was pleased with the response. However, the vote was somewhat lower than in recent years (96%, 97%, and 91% in 2016, 2015, and 2014, respectively). The Committee has not materially changed the structure of our executive compensation program as a consequence of this vote, but continues to actively monitor shareholder feedback and support of the Company’s pay practices.
PEER GROUP
Each year, the Committee reviews market compensation data provided by its independent consultant to determine whether the compensation opportunities of the named executive officers are appropriate and competitive.
The Committee used the following peer group of companies to benchmark the fiscal 2018 compensation disclosed in this proxy statement. The Committee selected this peer group in June 2016 based on an analysis by FWC and the Committee’s independent judgment. These peers fell within a reasonable range (both above and below CarMax) of comparative factors such as revenue, market capitalization, net income, revenue growth, assets and one- and three-year total shareholder return. These peers are generally “big box” retailers, specialty auto retailers or direct competitors.
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Advance Auto Parts, Inc. | Hertz Global Holdings, Inc. |
AutoNation, Inc. | Kohl’s Corporation |
AutoZone, Inc. | Lowe’s Companies, Inc. |
Avis Budget Group, Inc. | Macy’s, Inc. |
Dick’s Sporting Goods, Inc. | Ross Stores, Inc. |
Dollar General Corporation | The Sherwin-Williams Company |
eBay Inc. | Southwest Airlines Co. |
The Gap, Inc. | Staples, Inc. |
Genuine Parts Company | Tractor Supply Company |
As noted in our fiscal 2017 proxy, the Committee removed Family Dollar Stores from the Company’s peer group in June 2016 based on the acquisition of Family Dollar Stores by Dollar Tree, Inc. Otherwise, the peer group selected in June 2016 was the same as the peer group specified above.
In preparation for fiscal 2019 compensation decisions, the Committee re-evaluated this peer group in October 2017 based on an analysis by SBCG and the Committee’s independent judgment. With some exceptions, the Committee determined that the peer
group remained appropriate, with the peers continuing to fall within a reasonable range (both above and below CarMax) of comparative factors such as revenue, market capitalization, net income, revenue growth, assets and one- and three-year total shareholder return. However, the Committee removed Avis Budget Group, Inc. and Hertz Global Holdings, Inc. because significant market capitalization declines diminished their comparability to CarMax. Staples, Inc. was also removed from the peer group following its acquisition by a private equity group. To replace these peers, the Committee added Best Buy Co., Inc., The TJX Companies, Inc., Dollar Tree, Inc., and L Brands, Inc. to its peer group. Like the other companies in our peer group, each of these new peer group members falls within a reasonable range (both above and below CarMax) of the comparative factors noted above. The Committee will use this revised peer group to benchmark compensation practices for fiscal year 2019.
In addition to the peer group, the Committee uses broader survey data to benchmark compensation practices. In fiscal 2018, the Committee considered three national surveys produced by Equilar, Towers Watson and Mercer with a focus on executives within the retail/wholesale and automotive industries.
The Committee considers a blend of peer group data and broader survey data in benchmarking compensation. The Committee believes that this mix of data provides the most comprehensive view of executive compensation practices at companies against whom we compete for talent and allows the Committee to ensure that CarMax continues to provide appropriate and competitive compensation. This mix of data also allows the Committee to obtain broader market context with regard to certain positions that may not exist in a comparable form at every company in our peer group or that may not be classified as a named executive officer at every company in our peer group.
The Committee generally uses the 50th percentile of the blended peer/survey data as a reference in setting the base salaries and target annual incentive bonus opportunities of our named executive officers. The Committee uses long-term equity awards that are tied to objective performance metrics to further reward executive officers when CarMax performs well. If the Company delivers sustained performance gains, these long-term equity awards are targeted to provide an opportunity for total direct compensation beyond the median of the blended peer/survey data.
The Committee uses peer group and broader survey data as one of many factors in making compensation decisions. Other factors include individual performance, Company performance, tenure, internal pay equity and succession planning.
What We Pay and Why: Elements of Compensation
The key elements of compensation for our named executive officers are base salary, an annual incentive bonus and long-term equity awards. Together, these elements, in addition to the one-time discretionary bonus payment (described on page 33), make up total direct compensation.
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Base Salary | + | Annual Incentive Bonus | + | Long-Term Equity Awards | = | Total Direct Compensation |
This section describes these elements and details the amounts of each earned by our named executive officers in fiscal 2018.
BASE SALARY
We pay competitive base salaries to retain key officers and attract the new talent necessary for our long-term success. An executive officer’s base salary generally reflects the officer’s responsibilities, tenure and job performance, as well as the market for the officer’s services. The Committee reviews officer base salaries every year, generally in March or April. When the Committee reviews base salaries, it considers the reports and advice provided by its independent compensation consultant and the peer group and survey data described above, as well as the recommendations provided by our CEO (except when setting the CEO’s base salary).
At the beginning of fiscal 2018, the Committee approved the following base salary adjustments.
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Name | Prior Base Salary ($) | | Fiscal 2018 Base Salary ($) | | Percentage Increase (%) |
William D. Nash(a) | 1,000,000 |
|
| 1,032,500 |
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| 3.25 |
|
Thomas W. Reedy | 700,000 |
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| 722,750 |
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| 3.25 |
|
William C. Wood | 700,000 |
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| 722,750 |
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| 3.25 |
|
Edwin J. Hill | 600,000 |
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| 619,500 |
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| 3.25 |
|
Eric M. Margolin | 575,000 |
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| 593,688 |
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| 3.25 |
|
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(a) | Mr. Nash’s prior base salary represents the base salary set by the Committee at the time of his promotion to CEO on September 1, 2016. For the portion of fiscal 2017 prior to his promotion to CEO, his base salary was $800,000. |
The Committee increased Mr. Nash’s salary by 3.25% and approved Mr. Nash’s recommendation to increase the base salaries for each of the other named executive officers by 3.25%. These increases were based on the individual contributions that each named executive officer made to CarMax’s performance in fiscal 2017 and were consistent with the base salary increases awarded generally to our salaried associates.
ANNUAL INCENTIVE BONUS
We pay annual incentive bonuses to drive the achievement of CarMax’s financial goals. The amount of the incentive bonus depends on our performance as measured against objective performance goals established by the Committee at the beginning of each fiscal year. Bonuses are not guaranteed.
We calculate bonuses using the following formula:
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Base Salary | x | Target Percentage of Base Salary | x | Performance Adjustment Factor | = | Annual Incentive Bonus |
Base salaries, which are the first component of this formula, are discussed above. The “target percentage of base salary” is an individual’s incentive bonus target expressed as a percentage of base salary. This percentage differs among our named executive officers depending on their level of responsibility and is set forth in a written agreement between each officer and the Company. Each named executive officer’s target percentage is listed in the table on page 32.
The last component of the bonus formula – the “performance adjustment factor” – is a percentage representing the Company’s success in meeting the performance goals set by the Committee at the beginning of each fiscal year.
The following chart describes how the Committee applied this formula in fiscal 2018.
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Step One: Select Performance Measure | The Committee determined in April 2017 that the performance goals for fiscal 2018 would be based on our fiscal 2018 adjusted pre-tax income (i.e. earnings before the provision for income tax and interest expense). The Committee believes that this adjusted pre-tax income is a measure of performance that can be directly affected by management decisions and therefore tying performance goals to this adjusted pre-tax income expense aligns management and shareholder interests. |
Step Two: Select Performance Targets | The Committee then established the following adjusted pre-tax income targets for fiscal 2018: $1,062.8 million as the threshold goal; $1,123.4 million as the target goal; $1,179.7 million as the premium goal; and $1,222.2 million as the maximum goal. |
Step Three: Select Performance Adjustment Factors | The Committee then established the following performance adjustment factors for fiscal 2018: § 25% if the threshold goal of $1,062.8 million was achieved § 100% if the target goal of $1,123.4 million was achieved § 150% if the premium goal of $1,179.7 million was achieved § 200% if the maximum goal of $1,222.2 million was achieved
If the threshold performance goal was not achieved, no incentive bonus would be paid. The performance adjustment factors are determined using straight-line interpolation when our actual performance falls between two performance goals. |
Step Four: Assess Performance Against Targets and Determine Payouts | For fiscal 2018, the Company achieved $1,134.4 million in adjusted pre-tax income, which represents $664.1 million in net earnings less the effect of the $399.5 million income tax provision and $70.7 million in interest expense. The Committee certified CarMax’s adjusted pre-tax income amount in April 2018, yielding a performance adjustment factor of 109.7%. The Committee multiplied this percentage by each named executive officer’s target incentive amount to determine each executive officer’s fiscal 2018 bonus payout. |
The following table shows each named executive officer’s base salary, incentive target percentage of base salary, and target and maximum bonus amounts. The table also shows each officer’s actual fiscal 2018 bonus.
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Name | Base Salary ($) | | Incentive Target Percentage (%) | | Target Incentive Amount ($) | | Actual Fiscal 2018 Incentive Bonus | | Maximum Incentive Amount ($) |
William D. Nash | 1,032,500 |
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| 130 |
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| 1,342,250 |
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| 1,472,448 |
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| 2,684,500 |
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Thomas W. Reedy | 722,750 |
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| 75 |
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| 542,063 |
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| 594,643 |
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| 1,084,126 |
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William C. Wood | 722,750 |
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| 75 |
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| 542,063 |
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| 594,643 |
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| 1,084,126 |
|
Edwin J. Hill | 619,500 |
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| 75 |
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| 464,625 |
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| 509,694 |
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| 929,250 |
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Eric M. Margolin | 593,688 |
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| 75 |
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| 445,266 |
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| 488,457 |
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| 890,532 |
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The Committee sets robust performance targets for our annual incentive plan to drive achievement of CarMax’s financial goals. For the last five fiscal years, our average performance adjustment factor has been 103.9% (109.7%, 42.2%, 67.8%, 179.4%, and 120.6% for fiscal 2018, 2017, 2016, 2015, and 2014 ), meaning that, on average for the past five years, we have paid our named executive officers an annual incentive bonus of 103.9% of their respective target incentive amounts for achievement against the targets established by the Committee.
For fiscal 2018, the Committee determined that no change to the incentive target percentages of our named executive officers was required to maintain an appropriate incentive structure.
The Committee determines all incentive bonuses in accordance with the CarMax, Inc. Annual Performance-Based Bonus Plan (“Bonus Plan”). The Bonus Plan provides that the maximum amount payable to any one individual in any one fiscal year is $5 million. In fiscal 2018, however, the Committee limited the maximum performance adjustment factor to 200%, ensuring that Mr. Nash’s bonus could not exceed $2,684,500.
The Bonus Plan authorizes the Committee to reduce the amount of any bonus paid to a named executive officer below the amount that otherwise would be payable. The Committee may also decide not to pay a bonus even when performance goals have been satisfied. Under no circumstances, however, may the Committee increase the amount of any bonus payable under the Bonus Plan above the amount that would be payable to an executive upon application of the relevant performance adjustment factor.
ONE-TIME BONUS PAYMENT
Following the federal corporate tax changes enacted at the end of 2017, CarMax paid a “thank you” bonus to employees who were not otherwise bonus eligible. The “thank you” bonus was a one-time payment, totaling $8.0 million, made to 20,207 employees.
Relatedly, the Company made a one-time discretionary payment to each of the approximately 1,291 employees in the CarMax annual bonus program, including the NEOs, to offset the impact the “thank you” bonus had on the fiscal 2018 bonus performance measure. The Committee approved this one-time discretionary payment to the NEOs in order to align treatment of the NEOs with the other Company employees receiving an annual bonus for fiscal 2018, each of whom received this discretionary payment. The following table shows the discretionary bonus amount paid to each NEO.
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Name | One-Time Bonus ($) |
William D. Nash | 96,239 |
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Thomas W. Reedy | 38,866 |
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William C. Wood | 38,866 |
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Edwin J. Hill | 33,314 |
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Eric M. Margolin | 31,926 |
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LONG-TERM EQUITY AWARDS
We grant long-term equity awards to tie our executives’ long-term compensation directly to CarMax’s stock price and to drive the achievement of our strategic goals. We also believe that long-term equity awards are an important retention tool.
In fiscal 2018, we granted our named executive officers two kinds of long-term equity awards: stock options and performance stock units (“PSUs”). All of our long-term equity grants were made pursuant to the CarMax, Inc. 2002 Stock Incentive Plan (“Stock Incentive Plan”).
In determining the number of options and PSUs to award, the Committee considered the named executive officer’s role at CarMax; benchmarking data; our recent financial performance; the performance of our common stock; the fair market value, expense and dilutive effect of any potential award; succession planning; and the importance of retaining the officer’s services. The Committee solicits the advice of its independent compensation consultant and the opinion of the Company’s CEO except with respect to the awards to the CEO. The CEO generally gives the Committee an initial recommendation for annual long-term equity awards for the other named executive officers. The Committee reviews this recommendation and makes its own independent determination.
Stock Options
Each option represents the right to purchase one share of our common stock at the exercise, or “strike,” price. The strike price is equal to the volume-weighted average price of our common stock on the grant date. The Committee believes that the use of the volume-weighted average price, as opposed to the closing price, is more representative of the value of the common stock on the grant date because it incorporates all trades made on the grant date.
Our option awards generally vest in 25% increments over four years; that is, one quarter of the options granted vests on the first anniversary of the grant, another quarter vests on the second anniversary, and so forth. The awards expire on the seventh anniversary of the grant date.
We believe that granting stock options supports our pay-for-performance philosophy by aligning management and shareholder interests. If our stock price does not rise, the options have no value. In addition to promoting alignment of management and shareholder interests, the four-year vesting schedule and seven-year exercise term of our options ensures that our executives are appropriately focused on CarMax’s long-term strategic goals. This vesting schedule also operates as a retention tool.
Performance Stock Units
Fiscal 2018 PSU Terms
Depending on the Company’s achievement of performance goals over a three-year period, PSUs represent the right to receive between 0% and 200% of a targeted number of shares of our common stock. For the fiscal 2018 PSUs, the Committee used diluted earnings per share, adjusted to exclude income tax, as the PSU performance measure. The number of shares delivered to each PSU holder will be determined based upon actual three-year cumulative adjusted diluted earnings per share performance compared to pre-determined three-year adjusted diluted earnings per share goals. Specifically, each PSU is multiplied by a percentage that represents the Company’s success in meeting the adjusted diluted earnings per share goals set by the Committee. If the threshold adjusted diluted earnings per share goal is met, each PSU is multiplied by 25%. The target multiplier is 100% and the maximum multiplier is 200%. The multiplier is determined using straight-line interpolation for adjusted diluted earnings per share performance that falls between the threshold and the target or between the target and the maximum. If the threshold performance goal is not achieved, no shares will be paid. PSUs generally vest on the three-year anniversary of the grant date.
The Committee considered PSUs to be a key component of our pay-for-performance philosophy in fiscal 2018 because the PSUs directly tie equity payments to a measure of CarMax’s earnings growth that the Committee believes to be an appropriate reflection of the Company’s performance. In addition, similar to our stock options, a PSU’s multi-year vesting schedule operates as a retention tool and ensures that our executives are appropriately focused on CarMax’s long-term strategic and financial goals.
2015 PSU Performance Goal Achievement
In April 2018, the Committee certified a 46% performance multiplier for the PSUs granted to our NEOs in 2015. The Committee’s determination was based on CarMax’s achievement of adjusted pre-tax income equal to $3.24 billion for the three-year performance period ended February 28, 2018. Under the terms of the 2015 PSU awards, on vesting each NEO received a number of shares of common stock equal to the number of PSUs they held multiplied by 46%. As a result, on the vesting of the 2015 PSUs, Mr. Nash, Mr. Reedy, Mr. Wood, Mr. Hill, and Mr. Margolin were entitled to receive, respectively, 3,076, 3,076, 3,076, 2,287, and 2,287 shares of common stock.
The following table shows the performance metrics for the 2015 PSU awards.
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| Threshold | Actual | Target | Maximum |
FY16-FY18 Adjusted Pre-Tax Income (in thousands)(a) | $3,163,901 | $3,243,500 | $3,451,404 | $3,755,911 |
Performance Multiplier | 25 | % | 46 | % | 100 | % | 200% |
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(a) | Adjusted pre-tax income is equal to net earnings less the provision for income tax and interest expense. For fiscal 2016 through fiscal 2018, in the aggregate, $3,243.5 million in adjusted pre-tax income represented $1,914.5 million in net earnings less an income tax provision of $1,165.4 million and $163.5 million in interest expense. |
Fiscal 2018 Long-Term Equity Awards
In fiscal 2018, as noted below, the Committee approved stock option and PSU awards to our named executive officers as part of our annual long-term equity award process.
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| Options and PSUs Granted in Fiscal 2018 | | Options and PSUs Granted in Fiscal 2017 |
Name | Grant Date Fair Value of Stock Options ($)(a) | | Grant Date Fair Value of PSUs ($) | | Total Grant Date Fair Value ($) | | Grant Date Fair Value of Stock Options ($)(a) | | Grant Date Fair Value of PSUs ($) | | Total Grant Date Fair Value ($) |
William D. Nash | 3,750,005 |
|
| 1,249,974 |
|
| 4,999,979 |
|
| 4,249,983 |
|
| 749,977 |
|
| 4,999,960 |
|
Thomas W. Reedy | 1,455,925 |
|
| 485,313 |
|
| 1,941,238 |
|
| 1,455,917 |
|
| 485,322 |
|
| 1,941,239 |
|
William C. Wood | 1,455,925 |
|
| 485,313 |
|
| 1,941,238 |
|
| 1,455,917 |
|
| 485,322 |
|
| 1,941,239 |
|
Edwin J. Hill | 1,305,925 |
|
| 435,281 |
|
| 1,741,206 |
|
| 1,305,921 |
|
| 435,293 |
|
| 1,741,214 |
|
Eric M. Margolin | 1,305,925 |
|
| 435,281 |
|
| 1,741,206 |
|
| 1,380,365 |
|
| 360,894 |
|
| 1,741,259 |
|
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(a) | We grant limited stock appreciation rights (“SARs”) in tandem with each option. The SARs may be exercised only in the event of a change-in-control of the Company. Upon the exercise of the SAR and the surrender of the related option, the officer is entitled to receive an amount equal to the difference between the value of our common stock on the date of exercise and the exercise price of the underlying stock option. No free-standing SARs have been granted. |
The grant date fair value of the annual long-term equity awards provided to all of our named executive officers remained essentially unchanged in fiscal 2018, meaning that approximately the same target economic value was delivered in fiscal 2018 as was delivered in fiscal 2017. The Committee determined based on the blended peer/survey data and its own independent judgment that maintaining equity awards at prior year levels continued to provide competitive pay for our named executive officers. The Committee adjusted the relative proportion of options to PSUs granted to Messrs. Nash and Margolin in fiscal 2018 without changing the target economic value delivered. The resulting allocation, 75% options and 25% PSUs, aligns their fiscal 2018 grant allocation with that granted to the other named executive officers.
COMPENSATION MIX
As our executives assume more responsibility, we generally increase the percentage of their compensation that is performance-based. We do not have a pre-established policy or target for allocation between specific compensation components. The following charts, however, show that the majority of target annual total direct compensation for both our CEO and our other named executive officers as a group is determined by our performance. The following charts and tables reflect the target total direct compensation (base salary, target annual incentive bonus and long-term equity grants) set by the Committee.
The table below illustrates how the target total direct compensation set by the Committee for each of our continuing named executive officers was allocated between performance-based and fixed compensation for fiscal 2018, as well as the breakdown of performance-based compensation that was based on annual and long-term Company performance.
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| Percentage of Target Total Direct Compensation | | Percentage of Target Performance-Based Compensation |
| Performance- Based |
| Fixed |
| Annual |
| Long- Term |
William D. Nash | 86% |
| 14% |
| 21% |
| 79% |
Thomas W. Reedy | 77% |
| 23% |
| 22% |
| 78% |
William C. Wood | 77% |
| 23% |
| 22% |
| 78% |
Edwin J. Hill | 78% |
| 22% |
| 21% |
| 79% |
Eric M. Margolin | 79% |
| 21% |
| 20% |
| 80% |
ADDITIONAL ELEMENTS OF COMPENSATION
We provide our executive officers the benefits available to CarMax associates generally. We also provide the limited perquisites described below. These benefits and perquisites are intended to be part of a competitive compensation package.
Benefits Available to CarMax Associates Generally
Our executives and our full-time associates generally are eligible for health insurance coverage, life insurance, short- and long-term disability insurance, matching gifts to qualified charitable organizations, and a defined contribution, or 401(k), plan that we refer to as our Retirement Savings Plan.
In addition, executives and CarMax associates who satisfied certain criteria as of December 31, 2008, may be eligible for benefits under our frozen Pension Plan. Additional details regarding these frozen benefits can be found in the “Pension Benefits in Fiscal 2018” table on page 46.
Non-Qualified Retirement Plans
Our executives and other highly-compensated associates are eligible to participate in two non-qualified retirement plans: the Retirement Restoration Plan (“RRP”) and the Executive Deferred Compensation Plan (“EDCP”). A description of these plans can be found in the narrative discussion following the “Nonqualified Deferred Compensation” table on pages 48 and 49. Details regarding the fiscal 2018 contributions to each named executive officer’s RRP and EDCP accounts, as well as the earnings and aggregate balances for those accounts, can be found in the “Nonqualified Deferred Compensation” table on page 48.
In addition to the RRP and the EDCP, executives and other highly compensated CarMax associates who satisfied certain criteria as of December 31, 2008, may be eligible for benefits under our frozen Benefit Restoration Plan. Additional details regarding these frozen benefits can be found in the “Pension Benefits in Fiscal 2018” table on page 46.
Company Transportation
We provide the use of a CarMax-owned vehicle to each of our named executive officers and to certain other eligible associates. For associates using CarMax-owned vehicles, we bear certain maintenance and insurance costs. We treat the personal use of a Company-owned vehicle as income to the associate. The associate pays the related income taxes.
We encourage our executive officers to use our plane for business travel. Our plane is also available for personal use by Messrs. Nash, Reedy and Wood. Mr. Nash is required to reimburse CarMax for the incremental costs associated with his personal use to the extent that those costs exceed $125,000 in any fiscal year. Messrs. Reedy and Wood are required to reimburse CarMax for the incremental costs associated with their respective personal uses of the plane to the extent that those costs exceed $70,000 in any fiscal year. Our executives bear all income taxes associated with their personal use of the plane.
We do not provide tax gross-ups on any of these transportation benefits.
Tax and Financial Planning Services
We provide a tax and financial planning benefit to our named executive officers. This benefit was valued at $13,660 for fiscal 2018. Officers who forego this benefit may engage their own tax professional at the Company’s expense in an amount up to $10,000 per year. The Committee approved this benefit to reduce the amount of time and attention that our executive officers must spend on personal tax and financial planning, which permits them to focus on their responsibilities to CarMax, and to maximize the financial reward of the compensation that CarMax provides. Officers bear all income taxes associated with these tax and financial planning benefits. We do not provide tax gross-ups on these benefits.
Additional Information
SEVERANCE AGREEMENTS
We have severance agreements with each of our named executive officers. The Committee has determined that these agreements are beneficial to us because they contain restrictive covenants relating to confidential information, non-competition and non-solicitation of our associates. The Committee also believes that these agreements serve as a recruiting tool and better enable our current executives to focus on CarMax’s strategic and operating goals. The agreements provide for severance payments under certain circumstances, which are discussed in more detail under “Potential Payments Upon Termination or Change-in-Control” beginning on page 49. None of the severance agreements provide a guaranteed term of employment, nor do they provide tax gross-ups on any compensation or perquisite.
|
| |
Our severance agreements do not provide for a guaranteed term of employment or tax gross-ups.
| Under the terms of the severance agreements, the Committee establishes and approves each named executive officer’s annual base salary, which cannot be less than the minimum base salary set forth in each agreement unless across-the-board reductions in salary are implemented for all of our senior officers. Additionally, the Committee approves the performance measures and payment amounts that determine each named executive officer’s annual incentive bonus under the Bonus Plan. |
The agreements provide further that each named executive officer is eligible to participate in our Stock Incentive Plan and to participate in all other incentive, compensation, benefit and similar plans available to our other executive officers.
Clawback and Forfeiture Provisions
The severance agreements contain a clawback provision. If any named executive officer engages in conduct for which he could be terminated for cause, with certain limitations, and the conduct directly results in the filing of a restatement of any financial statement that was previously filed with the SEC, the named executive officer shall, upon demand by the Company, repay with interest all compensation that was expressly conditioned on the achievement of certain financial results if the restated financial statements would have resulted in a lesser amount being paid.
In addition, at our 2012 annual shareholders meeting, we asked our shareholders to approve amendments to add clawback provisions to both our Bonus Plan and Stock Incentive Plan. Our shareholders approved these provisions, which provide that any award that is subject to recovery under any law, including the Dodd-Frank Wall Street Reform and Consumer Protection Act, will be subject to a clawback as required by such law or any CarMax policy adopted pursuant to such law.
In addition to the clawback provisions discussed above, our equity award agreements contain a forfeiture provision. If a named executive officer is terminated for cause, the officer’s unexercised vested and unvested options, unvested MSUs and unvested PSUs will be forfeited.
Change-in-Control and Severance Benefits
Each severance agreement provides for payments and other benefits in certain circumstances involving a termination of employment, including a termination of employment in connection with a change-in-control. Payments in connection with a change-in-control are subject to a double trigger; that is, the executive is not entitled to payment unless there is both a change-in-control and the executive is subsequently terminated without cause (or resigns for good reason) within a two-year period following the change-in-control. Our executives are not entitled to any severance payments as a result of voluntary termination (outside of the retirement context) or if they are terminated for cause. Detailed information with respect to these payments and benefits can be found under the heading “Potential Payments Upon Termination or Change-in-Control” beginning on page 49.
The Committee believes that these severance benefits encourage the commitment of our named executive officers and ensure that they will be able to devote their full attention and energy to our affairs in the face of potentially disruptive and distracting circumstances. In the event of a potential change-in-control, our named executive officers will be able to analyze and evaluate proposals objectively with a view to the best interests of CarMax and its shareholders and to act as the Board may direct without fear of retribution if a change-in-control occurs. The Committee recognizes that the severance benefits may have the effect of discouraging takeovers and protecting our officers from removal because the severance benefits increase the cost that would be incurred by an acquiring company seeking to replace current management. The Committee believes, however, that the benefit to CarMax and its shareholders outweighs this concern.
RISK AND COMPENSATION POLICIES AND PRACTICES
The Compensation and Personnel Committee assesses CarMax’s compensation policies and practices each year to ensure that they do not create risks that are reasonably likely to have a material adverse effect on the Company. In fiscal 2018, management reviewed the compensation policies and practices for all CarMax associates (including store associates, store management, regional leadership teams, home office and CarMax Auto Finance associates, and executive officers). Management then presented a summary of its review at the Committee’s January 2018 meeting. The summary listed each compensation policy or practice applicable to the various groups of CarMax associates, including base salaries, annual incentive bonuses, long-term equity awards, sales bonuses, sales commissions and hourly pay. The summary also listed the potential risks associated with those policies or practices and the tools we employ to mitigate those risks, including the following:
| |
▪ | Annual Incentive Bonuses: payments made to senior management are: (i) subject to a clawback provision; (ii) capped at 200% of the target incentive bonus amount or at the $5 million plan maximum, whichever is lower; and (iii) only paid when CarMax satisfies the objective metrics determined at the beginning of the year by an independent committee of non-employee directors. |
| |
▪ | Long-Term Equity Awards: equity awards: (i) are approved by an independent committee of non-employee directors; (ii) contain three and four-year vesting provisions; and (iii) for senior management, must be held in compliance with CarMax’s executive stock ownership guidelines. |
| |
▪ | Sales Bonuses: sales bonuses are monitored to ensure that associates are not overpaid based on inflated sales figures. Monitoring tools include: (i) centralized assignment of sales targets; (ii) centralized and non-negotiable vehicle pricing; (iii) electronic reporting of sales from each store to the home office; and (iv) performance of a daily vehicle inventory at each store. |
| |
▪ | Hourly Pay: hourly pay is tracked and managed through a centralized time management and reporting system. |
Following discussion and a review of the summary noted above, the Committee determined that none of our compensation policies and practices create risks that are reasonably likely to have a material adverse effect on the Company.
STOCK OWNERSHIP GUIDELINES
To further align the long-term financial interests of our executives and our shareholders, the Committee has established the following stock ownership guidelines:
|
| |
Subject Officers | Required to Own the Lesser of: |
Chief Executive Officer | 6 x Base Salary or 300,000 shares |
Executive Vice President | 3 x Base Salary or 100,000 shares |
Senior Vice President | 2 x Base Salary or 50,000 shares |
Executives have five years from the date they first become subject to a particular level of stock ownership to meet the corresponding requirement. The Committee measures compliance on an annual basis at the end of each fiscal year. Acceptable forms of ownership include shares owned outright (by the executive or an immediate family member), vested stock options, PSUs and MSUs. Our stock ownership guidelines are available under the “Corporate Governance” link at investors.carmax.com.
As of February 28, 2018, all of our current named executive officers satisfied the ownership guidelines set forth above.
PROHIBITION ON HEDGING AND PLEDGING
We have a policy prohibiting all CarMax associates from engaging in any hedging or pledging transactions involving CarMax stock. This prohibition applies to both our named executive officers and our non-employee directors.
TAX AND ACCOUNTING CONSIDERATIONS
Historically, Section 162(m) of the Internal Revenue Code generally disallowed a tax deduction for compensation over $1 million paid in any fiscal year to the CEO or any of the three other highest paid executive officers (other than the CFO) unless that compensation was performance-based. As a result of the new tax legislation that went into effect on December 22, 2017, the exception for performance-based compensation will not be available for taxable years beginning after December 31, 2017, unless such compensation qualifies for certain transition relief.
The Committee and the Company have taken appropriate actions, to the extent feasible, in an effort to preserve the deductibility of awards previously granted to our executive officers that were designed and intended to be covered by Section 162(m). Despite these actions, certain compensation originally designed to qualify as performance-based under Section 162(m) may not be deductible.
Although the Committee will continue to analyze the impact that Section 162(m) and the potential lack of deduction associated with amounts paid in excess of the deduction limitation may have on the Company, the Committee continues to retain the flexibility to make decisions with respect to the Company’s compensation programs that are based on factors other than Section 162(m) and related tax consequences. The primary function of our executive compensation program is to drive the creation of long-term shareholder value.
Section 409A of the Internal Revenue Code imposes certain requirements on non-qualified deferred compensation, which can include long-term equity awards and severance. CarMax’s executive compensation programs generally are designed to comply with, or be exempt from, the requirements of that section so as to avoid potential adverse tax consequences that may result from non-compliance.
In developing CarMax’s executive compensation programs, the Committee also considers the accounting treatment of, and the expenses associated with, the Company’s long-term equity compensation practices.
|
|
COMPENSATION AND PERSONNEL COMMITTEE REPORT
|
The Compensation and Personnel Committee has reviewed and discussed the foregoing Compensation Discussion and Analysis with management. Based on this review and discussion, the Committee recommended to the CarMax, Inc. Board of Directors that the Compensation Discussion and Analysis be included in this proxy statement and incorporated by reference into CarMax’s Annual Report on Form 10-K for the fiscal year ended February 28, 2018.
THE COMPENSATION AND PERSONNEL COMMITTEE
Ronald E. Blaylock, Chair
Shira Goodman
W. Robert Grafton
William R. Tiefel
Summary Compensation Table for Fiscal 2018
The table below shows the compensation paid to or earned by our named executive officers in fiscal 2018, 2017 and 2016.
|
| | | | | | | | | | | | | | | | | |
Name and Principal Position | Fiscal Year | | Salary ($) | | Bonus(a) ($) | | Stock Awards(b) ($) | | Option Awards(b) ($) | | Non-Equity Incentive Plan Comp- ensation(c) ($) | | Change in Pension Value and Nonqualified Deferred Comp- ensation Earnings(d) ($) | | All Other Compen- sation(e) ($) | | Total ($) |
William D. Nash | 2018 |
| 1,031,721 |
| 96,239 |
| 1,249,974 |
| 3,750,005 |
| 1,472,448 |
| 24,797 |
| 190,068 |
| 7,815,252 |
President and Chief Executive Officer | 2017 |
| 902,308 |
| — |
| 749,977 |
| 4,249,983 |
| 442,233 |
| 30,536 |
| 163,355 |
| 6,538,392 |
2016 |
| 660,769 |
| — |
| 485,270 |
| 1,455,911 |
| 348,181 |
| — |
| 122,926 |
| 3,073,057 |
Thomas W. Reedy | 2018 |
| 722,205 |
| 38,866 |
| 485,313 |
| 1,455,925 |
| 594,643 |
| 22,219 |
| 132,390 |
| 3,451,561 |
Executive VP and Chief Financial Officer | 2017 |
| 699,039 |
| — |
| 485,322 |
| 1,455,917 |
| 221,550 |
| 26,964 |
| 123,664 |
| 3,012,456 |
2016 |
| 650,415 |
| — |
| 485,270 |
| 1,455,911 |
| 330,525 |
| — |
| 135,173 |
| 3,057,294 |
William C. Wood | 2018 |
| 722,205 |
| 38,866 |
| 485,313 |
| 1,455,925 |
| 594,643 |
| 53,697 |
| 155,853 |
| 3,506,502 |
Executive VP and Chief Operating Officer | 2017 |
| 699,039 |
| — |
| 1,485,343 |
| 2,455,919 |
| 221,550 |
| 65,617 |
| 121,334 |
| 5,048,802 |
2016 |
| 650,415 |
| — |
| 485,270 |
| 1,455,911 |
| 330,525 |
| — |
| 149,269 |
| 3,071,390 |
Edwin J. Hill | 2018 |
| 619,033 |
| 33,314 |
| 435,281 |
| 1,305,925 |
| 509,694 |
| 44,019 |
| 98,719 |
| 3,045,985 |
Executive VP, Strategy and Business Transformation | 2017 |
| 597,209 |
| — |
| 435,293 |
| 1,305,921 |
| 189,900 |
| 52,405 |
| 75,237 |
| 2,655,965 |
2016 |
| 531,289 |
| — |
| 360,868 |
| 1,082,685 |
| 179,745 |
| — |
| 87,806 |
| 2,242,393 |
Eric M. Margolin | 2018 |
| 590,240 |
| 31,926 |
| 435,281 |
| 1,305,925 |
| 488,457 |
| 3,511 |
| 77,436 |
| 2,932,776 |
Executive VP, General Counsel and Corporate Secretary | 2017 |
| 572,801 |
| — |
| 360,894 |
| 1,380,365 |
| 181,988 |
| 4,026 |
| 67,958 |
| 2,568,032 |
| |
(a) | Discretionary bonus paid to all employees in the CarMax annual bonus program. See page 33 for additional information. |
| |
(b) | Represents the aggregate grant date fair value of the awards made in each fiscal year as computed in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718 (“ASC Topic 718”). These amounts do not correspond to the actual value that may be realized by each NEO. Additional information regarding outstanding awards, including exercise prices, vesting schedules, and expiration dates, can be found in the “Outstanding Equity Awards at Fiscal 2018 Year End” table on pages 44 and 45. The assumptions used in determining the grant date fair values of the awards are disclosed in Note 12 to our consolidated financial statements, which are included in our Annual Report on Form 10-K for the fiscal year ended February 28, 2018. The amounts disclosed under the Stock Awards column above are based on performance achieved at target levels. The grant date fair value of the NEO's PSUs if earned at maximum levels was $2,499,948, $970,626, $970,626, $870,563 and $870,563 for Messrs. Nash, Reedy, Wood, Hill and Margolin, respectively. |
| |
(c) | Represents the annual incentive bonus earned under our Bonus Plan. |
| |
(d) | Represents the aggregate increase in the actuarial value of accumulated benefits under our frozen Pension Plan and frozen Benefit Restoration Plan accrued during the relevant fiscal year. The “Pension Benefits in Fiscal 2018” table and its accompanying narrative on pages 46 and 47 contain additional details with respect to these amounts. |
| |
(e) | Further details are included in the “All Other Compensation in Fiscal 2018” table below. |
All Other Compensation in Fiscal 2018
|
| | | | | | | | | | | |
Name | Personal Use of Company Plane(a) ($) | | Personal Use of Company Automobile(b) ($) | | Retirement Savings Plan Contribution(c) ($) | | Deferred Compensation Account Contributions(d) ($) | | Other(e) ($) | | Total ($) |
William D. Nash | 68,546 |
| — |
| 16,454 |
| 71,609 |
| 33,459 |
| 190,068 |
Thomas W. Reedy | 25,699 |
| 3,117 |
| 21,810 |
| 53,314 |
| 28,450 |
| 132,390 |
William C. Wood | 51,931 |
| — |
| 21,810 |
| 53,314 |
| 28,798 |
| 155,853 |
Edwin J. Hill | — |
| 8,046 |
| 21,780 |
| 42,612 |
| 26,281 |
| 98,719 |
Eric M. Margolin | — |
| 6,207 |
| 16,373 |
| 29,952 |
| 24,904 |
| 77,436 |
| |
(a) | The compensation associated with the personal use of the Company plane is based on the aggregate incremental cost to CarMax of operating the plane. The cost is calculated based on the average variable costs of operating the plane, which include fuel, maintenance, travel expenses for the flight crews and other miscellaneous expenses. We divided the total annual variable costs by the total number of miles our plane flew in fiscal 2018 to determine an average variable cost per mile. The average variable cost per mile is multiplied by the miles flown for personal use to derive the incremental cost. This methodology excludes fixed costs that do not change based on usage, such as salaries and benefits for the flight crews, monthly service contracts, hangar rental fees, taxes, rent, depreciation and insurance. The costs associated with deadhead flights (i.e., flights that travel to a destination with no passengers as a result of an executive’s personal use) and incremental plane charters (i.e., plane charters, if any, that we pay for because our plane was not available for business use due to an executive’s personal use) are included in the incremental cost calculations for each executive. The personal use of the Company plane is treated as income to the executive. The related income taxes are calculated using Standard Industry Fare Level rates and are paid by the executive. |
| |
(b) | The value of the personal use of a Company automobile is determined based on the annual lease value method and excludes any expenses such as maintenance and insurance. |
| |
(c) | Includes the Company matching portion of each executive’s Retirement Savings Plan (“RSP”) contributions. Also includes a Company-funded contribution to those executives who met certain age and service requirements as of December 31, 2008, the date that our Pension Plan was frozen. These RSP benefits are offered on the same terms to all CarMax associates. |
| |
(d) | Includes the Company matching portion of each executive’s Retirement Restoration Plan (“RRP”) and Executive Deferred Compensation Plan (“EDCP”) contributions. Also includes a Company-funded contribution to those executives who met certain age and service requirements as of December 31, 2008, the date that our Pension Plan was frozen. These RRP benefits are offered on the same terms to all CarMax associates whose salary exceeds the compensation limits imposed by Section 401(a)(17) of the Internal Revenue Code ($275,000 in 2018). Also includes a restorative contribution designed to compensate executives for any loss of Company contributions under the RSP and RRP due to a reduction in the executive’s eligible compensation under the RSP and RRP resulting from deferrals into the Executive Deferred Compensation Plan. |
| |
(e) | Represents the total amount of other benefits provided. None of the benefits individually exceeded the greater of $25,000 or 10% of the total amount of these benefits for the named executive officer. These other benefits include tax and financial planning services, which are described on page 37, and matching charitable gifts made by The CarMax Foundation as part of its matching gifts program (which is available to all CarMax associates). The amounts also include travel and event expenses for a Company-sponsored store and management leadership trip and related tax reimbursements. The related tax reimbursements were for the following amounts: Mr. Nash, $1,527 and Mr. Hill, $1,462. |
Grants of Plan-Based Awards in Fiscal 2018
The following table lists grants of plan-based awards to each of our named executive officers during fiscal 2018.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Estimated Possible Payouts Under Non-Equity Incentive Plan Awards (a) | Estimated Future Payouts Under Equity Incentive Plan Awards (b) | All Other Option Awards: Number of Securities Under-lying Options(c) (#) | Exercise or Base Price of Option Awards(d)($/Sh) | Grant Date Closing Price ($/Sh) | Grant Date Fair Value of Stock and Option Awards(e) ($) |
Name | Approval Date | Grant Date | Threshold ($) | | Target ($) | | Maximum ($) | Threshold (#) | | Target (#) | | Maximum (#) |
William D. Nash |
|
| 335,563 |
|
| 1,342,250 |
|
| 2,684,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 3/24/2017 | 5/1/2017 |
|
|
|
|
| 5,353 |
|
| 21,411 |
|
| 42,822 |
|
|
|
| 1,249,974 |
|
| 3/24/2017 | 5/1/2017 |
|
|
|
|
|
|
|
|
|
| 232,775 |
| 58.38 |
| 58.15 |
| 3,750,005 |
|
Thomas W. Reedy |
|
| 135,516 |
|
| 542,063 |
|
| 1,084,125 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 3/24/2017 | 5/1/2017 |
|
|
|
|
| 2,078 |
|
| 8,313 |
|
| 16,626 |
|
|
|
|
|
| 485,313 |
|
| 3/24/2017 | 5/1/2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 90,374 |
| 58.38 |
| 58.15 |
| 1,455,925 |
|
William C. Wood |
|
| 135,516 |
|
| 542,063 |
|
| 1,084,125 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 3/24/2017 | 5/1/2017 |
|
|
|
|
| 2,078 |
|
| 8,313 |
|
| 16,626 |
|
|
|
|
|
|
| 485,313 |
|
| 3/24/2017 | 5/1/2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 90,374 |
| 58.38 |
| 58.15 |
| 1,455,925 |
|
Edwin J. Hill |
|
| 116,156 |
|
| 464,625 |
|
| 929,250 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 3/24/2017 | 5/1/2017 |
|
|
|
|
|
| | 1,864 |
|
| 7,456 |
|
| 14,912 |
|
|
|
|
|
| 435,281 |
|
| 3/24/2017 | 5/1/2017 |
|
|
|
|
|
|
|
|
|
| 81,063 |
| 58.38 |
| 58.15 |
| 1,305,925 |
|
Eric M Margolin |
|
| 111,317 |
|
| 445,266 |
|
| 890,532 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 3/24/2017 | 5/1/2017 |
|
|
|
|
| 1,864 |
|
| 7,456 |
|
| 14,912 |
|
|
|
|
|
|
| 435,281 |
|
| 3/24/2017 | 5/1/2017 |
|
|
|
|
|
|
|
|
|
| 81,063 |
| 58.38 |
| 58.15 |
| 1,305,925 |
|
| |
(a) | Represents threshold, target and maximum payout levels under our Bonus Plan for fiscal 2018 performance. The actual amount of each named executive officer’s annual incentive bonus in fiscal 2018 is reported under the “Non-Equity Incentive Plan Compensation” column in the “Summary Compensation Table” on page 41. Additional information regarding the design of our Bonus Plan is included on pages 31 and 32. |
| |
(b) | Represents stock-settled performance stock units, which we refer to as “performance stock units” or “PSUs,” granted under our Stock Incentive Plan, PSUs generally vest on the third anniversary of the grant date. Additional information regarding PSUs, including the formula used to convert PSUs to shares of our common stock upon vesting and settlement, is included on pages 34 and 35. |
| |
(c) | Option awards generally vest in 25% increments annually over a four-year period. Additional information regarding stock options is included on page 33. We granted limited stock appreciation rights, or “SARs,” in tandem with each option award. The SARs may be exercised only in the event of a change-in-control. To the extent a SAR is exercised, the related option must be surrendered. Upon the exercise of the SAR and the surrender of the related option, the officer is entitled to receive an amount equal to the difference between the value of our common stock on the date of exercise and the exercise price of the underlying stock option, multiplied by the number of shares of common stock underlying such SAR. |
| |
(d) | All fiscal 2018 stock options were issued with an exercise price equal to the volume-weighted average price of our common stock on the grant date. Additional information regarding our use of the volume-weighted average price is included on page 33. |
| |
(e) | Represents the grant date fair value of the award as determined in accordance with ASC Topic 718. The grant date fair value of each PSU is based on target level achievement of the performance goals set by the Committee. The PSUs granted in May 2017, if earned based on target level achievement of the pre-established performance goals, vest 100% in May 2020. The actual value a named executive officer realizes from the awards of PSUs will be determined based upon actual three-year cumulative adjusted diluted earnings per share performance compared to pre-determined three-year adjusted diluted earnings per share goals. Further information regarding payment on vesting of the PSUs can be found on pages 34 and 35. |
Outstanding Equity Awards at Fiscal 2018 Year End
The following table lists outstanding equity awards previously granted to our named executive officers as of February 28, 2018.
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Option Awards (a) | | Stock Awards (b)(c) |
Name | Grant Date | | Number of Securities Underlying Unexercised Options (#) Exercisable | | Number of Securities Underlying Unexercised Options (#) Unexercisable | | Option Exercise Price ($/Sh) | | Option Expiration Date | | Number of Shares or Units of Stock That Have Not Vested (#) | | Market Value of Shares or Units of Stock That Have Not Vested ($) | | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) | | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($) |
William D. | 4/15/2013 |
| 84,258 |
|
| — |
|
| 42.68 |
|
| 4/15/2020 |
| |
|
| |
|
| |
|
| |
|
Nash | 4/9/2014 |
| 74,144 |
|
| 24,714 |
|
| 44.96 |
|
| 4/9/2021 |
| |
|
| |
|
| |
|
| |
|
| 4/8/2015 |
| 35,321 |
|
| 35,320 |
|
| 73.76 |
|
| 4/8/2022 |
|
|
|
|
|
|
|
|
|
|
|
|
| 4/15/2015 |
| |
|
| |
|
| |
|
| |
|
|
|
|
|
|
| 6,686 |
|
| 413,997 |
|
| 4/12/2016 |
| 39,669 |
|
| 119,005 |
|
| 51.63 |
|
| 4/12/2023 |
|
|
|
|
|
|
|
|
|
|
|
|
| 4/12/2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 14,526 |
|
| 899,450 |
|
| 9/26/2016 |
| 35,162 |
|
| 105,484 |
|
| 53.62 |
|
| 9/26/2023 |
|
|
|
|
|
|
|
|
|
|
|
|
| 5/1/2017 |
| — |
|
| 232,775 |
|
| 58.38 |
|
| 5/1/2024 |
|
|
|
|
|
|
|
|
|
|
|
|
| 5/1/2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 21,411 |
|
| 1,325,769 |
|
Thomas W. | 4/9/2014 |
| 74,144 |
|
| 24,714 |
|
| 44.96 |
|
| 4/9/2021 |
| |
|
| |
|
| |
|
| |
|
Reedy | 4/8/2015 |
| 35,321 |
|
| 35,320 |
|
| 73.76 |
|
| 4/8/2022 |
|
|
|
|
|
|
|
|
|
|
|
|
| 4/15/2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 6,686 |
|
| 413,997 |
|
| 4/12/2016 |
| 25,669 |
|
| 77,005 |
|
| 51.63 |
|
| 4/12/2023 |
|
|
|
|
|
|
|
|
|
|
|
|
| 4/12/2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 9,400 |
|
| 582,048 |
|
| 5/1/2017 |
| — |
|
| 90,374 |
|
| 58.38 |
|
| 5/1/2024 |
|
|
|
|
|
|
|
|
|
|
|
|
| 5/1/2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 8,313 |
|
| 514,741 |
|
William C. | 4/9/2014 |
| — |
|
| 24,714 |
|
| 44.96 |
|
| 4/9/2021 |
| |
|
|
|
|
| |
|
|
|
|
Wood | 4/8/2015 |
| 35,321 |
|
| 35,320 |
|
| 73.76 |
|
| 4/8/2022 |
|
|
|
|
|
|
|
|
|
|
|
|
| 4/15/2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 6,686 |
|
| 413,997 |
|
| 4/12/2016 |
|
|
|
|
|
|
|
|
|
|
|
| 19,369 |
|
| 1,199,328 |
|
|
|
|
|
|
|
| 4/12/2016 |
| — |
|
| 129,897 |
|
| 51.63 |
|
| 4/12/2023 |
|
|
|
|
|
|
|
|
|
|
|
|
| 4/12/2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 9,400 |
|
| 582,048 |
|
| 5/1/2017 |
| — |
|
| 90,374 |
|
| 58.38 |
|
| 5/1/2024 |
|
|
|
|
|
|
|
|
|
|
|
|
| 5/1/2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 8,313 |
|
| 514,741 |
|
Edwin J. | 4/15/2013 |
| 44,815 |
|
| — |
|
| 42.68 |
|
| 4/15/2020 |
| |
|
| |
|
| |
|
| |
|
Hill | 4/9/2014 |
| 61,470 |
|
| 20,489 |
|
| 44.96 |
|
| 4/9/2021 |
| |
|
| |
|
| |
|
| |
|
| 4/8/2015 |
| 26,266 |
|
| 26,266 |
|
| 73.76 |
|
| 4/8/2022 |
|
|
|
|
|
|
|
|
|
|
|
|
| 4/15/2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 4,972 |
|
| 307,866 |
|
| 4/12/2016 |
| 23,024 |
|
| 69,072 |
|
| 51.63 |
|
| 4/12/2023 |
|
|
|
|
|
|
|
|
|
|
|
|
| 4/12/2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 8,431 |
|
| 522,048 |
|
| 5/1/2017 |
| — |
|
| 81,063 |
|
| 58.38 |
|
| 5/1/2024 |
|
|
|
|
|
|
|
|
|
|
|
|
| 5/1/2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 7,456 |
|
| 461,676 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
Eric M | 4/9/2014 |
| 30,824 |
|
| 16,941 |
|
| 44.96 |
|
| 4/9/2021 |
| |
|
| |
|
| |
|
| |
|
Margolin | 4/8/2015 |
| 26,266 |
|
| 26,266 |
|
| 73.76 |
|
| 4/8/2022 |
|
|
|
|
|
|
|
|
|
|
|
|
| 4/15/2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 4,972 |
|
| 307,866 |
|
| 4/12/2016 |
| 19,088 |
|
| 57,264 |
|
| 51.63 |
|
| 4/12/2023 |
|
|
|
|
|
|
|
|
|
|
|
|
| 4/27/2016 |
| 4,900 |
|
| 14,698 |
|
| 55.19 |
|
| 4/27/2023 |
|
|
|
|
|
|
|
|
|
|
|
|
| 4/12/2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 6,990 |
|
| 432,821 |
|
| 5/1/2017 |
| — |
|
| 81,063 |
|
| 58.38 |
|
| 5/1/2024 |
|
|
|
|
|
|
|
|
|
|
|
|
| 5/1/2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 7,456 |
|
| 461,676 |
|
| |
(a) | Option awards generally vest in 25% increments annually over a four-year period. Additional information regarding stock options is included on page 33. We granted limited stock appreciation rights, or “SARs,” in tandem with each option award. Additional information regarding SARs is included on page 35 and under the chart titled “Grants of Plan-Based Awards in Fiscal 2018” on page 43. |
| |
(b) | Stock awards, except as noted for Mr. Wood, are stock-settled performance stock units, which we refer to as “performance stock units” or “PSUs.” If earned, PSUs generally vest on the third anniversary of the grant date, April 15, 2018 for fiscal 2016 awards, April 12, 2019 for fiscal 2017 awards, and May 1, 2020 for fiscal 2018 awards, respectively. To calculate the number of shares awarded at vesting, each PSU is multiplied by a percentage that represents the Company’s success in meeting the performance goals set by the Committee. If the threshold performance goal is met, each PSU is multiplied by 25%. The target multiplier is 100% and the maximum multiplier is 200%. The multiplier is determined using straight-line interpolation for performance that falls between the threshold and the target or between the target and the maximum. If the threshold performance goal is not achieved, no shares will be paid. To calculate the market value of the unvested fiscal 2016, fiscal 2017, and fiscal 2018 PSUs in the table above, we assumed that the multiplier for each award was 100% based on performance to target at February 28, 2018, and the value of each resulting share was equal to the closing price of our stock on February 28, 2018, the last trading day of our fiscal year (which was $61.92). |
| |
(c) | Represents restricted common stock, which we refer to as “restricted stock” or “RSAs.” Mr. Wood’s RSAs, granted as part of a retention award, vest on April 12, 2019, the third anniversary of the grant date. On vesting the transfer restrictions on the shares are removed and they become freely transferable. To calculate the market value of the unvested RSAs in the table above, we assumed the value of each RSA was equal to the closing price of our stock on February 28, 2018, the last trading day of our fiscal year (which was $61.92). |
Option Exercises and Stock Vested in Fiscal 2018
The following table includes information with respect to the options exercised by, and the MSUs vested in, our named executive officers during fiscal 2018.
|
| | | | | | | | | | | |
| | | | | | | |
| Option Awards | | Stock Awards |
Name | Number of Shares Acquired on Exercise(a) (#) | | Value Realized on Exercise(b) ($) | | Number of Shares Acquired on Vesting(c) (#) | | Value Realized on Vesting(d) ($) |
William D. Nash | 117,795 |
|
| 4,950,092 |
|
| 11,007 |
|
| 621,896 |
|
Thomas W. Reedy | 84,258 |
|
| 2,543,390 |
|
| 11,007 |
|
| 621,896 |
|
William C. Wood | 201,701 |
|
| 5,678,004 |
|
| 11,007 |
|
| 621,896 |
|
Edwin J. Hill | 95,497 |
|
| 3,198,754 |
|
| 9,125 |
|
| 515,563 |
|
Eric M. Margolin | 123,254 |
|
| 3,857,753 |
|
| 7,545 |
|
| 426,293 |
|
| |
(a) | Represents the number of shares of common stock underlying stock options exercised during fiscal 2018. |