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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TARGET CORPORATION

 

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Notice of 2018 annual meeting of shareholders

Wednesday, June 13, 2018

9:00 a.m. Mountain Daylight Time

Le Meridien Denver located at 1475 California Street,
Denver, Colorado 80202

To our shareholders,

You are invited to attend Target Corporation’s 2018 annual meeting of shareholders (Annual Meeting) to be held at Le Meridien Denver located at 1475 California Street, Denver, Colorado 80202 on Wednesday, June 13, 2018 at 9:00 a.m. Mountain Daylight Time.

Purpose

Shareholders will vote on the following items of business:

You may vote if you were a shareholder of record at the close of business on April 16, 2018. Whether or not you plan to attend the Annual Meeting, we urge you to read the proxy statement carefully and to vote in accordance with the Board of Directors’ recommendations. You should vote by the deadlines specified in this proxy statement, and may do so by telephone or Internet, or by signing, dating, and returning the enclosed proxy card in the postage-paid envelope provided.

If you plan to attend the Annual Meeting, please follow the instructions provided in Question 12 “How can I attend the Annual Meeting?” on page 71 of the proxy statement.

Following the formal business of the Annual Meeting, our Chairman & Chief Executive Officer will provide prepared remarks, followed by a question and answer session.

Thank you for your continued support.

Sincerely,

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This summary highlights information described in other parts of this proxy statement and does not contain all information you should consider in voting. Please read the entire proxy statement carefully before voting.

The Board of Directors of Target Corporation solicits the enclosed proxy for the 2018 Annual Meeting of Shareholders and for any adjournment thereof.

Target 2018 annual meeting of shareholders

 

 

Items of business

Questions and answers about our Annual Meeting and voting

We encourage you to review the “Questions and answers about our Annual Meeting and voting” beginning on page 69 for answers to common questions on the rules and procedures surrounding the proxy and Annual Meeting process as well as the business to be conducted at our Annual Meeting.

Admission at the Annual Meeting

If you plan to attend the Annual Meeting in person, please see the information in Question 12 “How can I attend the Annual Meeting?” on page 71. We strongly encourage you to pre-register. If you plan to bring a guest or are attending as an authorized representative of a shareholder you must pre-register by June 8, 2018. Any person who does not present identification and establish proof of ownership will not be admitted to the Annual Meeting.

Voting

If you held shares of Target common stock as of the record date (April 16, 2018), you are entitled to vote at the Annual Meeting.

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Advance voting methods and deadlines

 

 

If you received a Notice of Internet Availability of Proxy Materials and would like to vote by mail, you must follow the instructions on the Notice to request a written copy of the proxy materials, which will include a proxy card or voter instruction form.

Any proxy may be revoked at any time prior to its exercise at the Annual Meeting. Please see the information in Question 3 “What is a proxy and what is a proxy statement?” on page 69.

Voting at the Annual Meeting

All registered shareholders may vote in person at the Annual Meeting. Beneficial owners may vote in person at the Annual Meeting if they have a legal proxy. Please see the information in Question 6 “How do I vote?” on page 69. In either case, shareholders wishing to attend the Annual Meeting must follow the procedures in Question 12 “How can I attend the Annual Meeting?” on page 71.

Notice of internet availability of proxy materials

Important Notice Regarding the Availability of Proxy Materials for the Shareholders Meeting to be held on June 13, 2018.
The proxy statement and annual report are available at www.proxyvote.com.

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General information about corporate governance and the Board of Directors

Corporate governance highlights

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Our directors

Board leadership structure

We do not have an express policy on whether the roles of Chair of the Board and Chief Executive Officer (CEO) should be combined or separated. Instead, the Board prefers to maintain the flexibility to determine which leadership structure best serves the interests of Target and our shareholders based on the evolving needs of the company. We currently have a combined Chair/CEO leadership structure. The Board regularly reevaluates our Board leadership structure as part of the Board evaluation process described under “Board evaluations and refreshment” on page 18 and also considers shareholder feedback on the topic. As a result of its most recent evaluation, the Board decided to continue having Mr. Cornell serve as both Chairman and CEO to allow him to coordinate the development, articulation and execution of a unified strategy at the Board and management levels. Where the Chair/CEO roles are combined as they are currently, our Corporate Governance Guidelines require that we have a Lead Independent Director position to complement the Chair’s role, and to serve as the principal liaison between the non-employee directors and the Chair. Mr. Baker currently serves as our Lead Independent Director, providing effective, independent leadership of our Board through his clearly defined and robust set of roles and responsibilities.

Our Corporate Governance Guidelines require that both the Chairman and Lead Independent Director be elected annually by the independent, non-employee directors, which ensures that the leadership structure is reviewed at least annually. The Board is committed to continuing to seek shareholder feedback on its approach as part of its ongoing shareholder outreach efforts, and will continue to reassess its Board leadership structure on a regular basis.

 

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Committees

The Board has the following Committees and Committee composition as of the date of this proxy statement. All members of each Committee are independent directors. Each Committee operates under a written charter, a current copy of which is available on our company website, as described in Question 14 on page 73.

 

 

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Committee composition and leadership

The Board appoints members of its Committees annually, with the Nominating & Governance Committee reviewing and recommending Committee membership, and assignments rotate periodically. The following considerations provide the framework for determining Committee composition and leadership:

In connection with Mr. Rice's departure from the Board in January 2018, Mr. Edwards was added to the Audit & Finance Committee and became its new chair, and Ms. Minnick became the new chair of the Infrastructure & Investment Committee.

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Risk oversight

A summary of the allocation of general risk oversight functions among management, the Board and its Committees is as follows:

 

 

The primary responsibility for the identification, assessment and management of the various risks that we face belongs with management. At the management level, risks are prioritized and assigned to senior leaders based on the risk’s relationship to the leader’s business area and focus. Those senior leaders develop plans to address the risks and measure the progress of risk management efforts. Our Chief Legal & Risk Officer provides centralized oversight of Target’s enterprise risk management program. Our Chairman & CEO and his direct reports meet regularly with the Chief Legal & Risk Officer to identify, assess and manage risks facing the business. In addition, the Chief Legal & Risk Officer and other enterprise risk management team members regularly meet with leaders of business areas to inform, coordinate and manage the enterprise risk management program.

The Risk & Compliance Committee coordinates the oversight of different risks by the Board and each Committee, and is structured to support that coordination by having at least one director from each Committee included in its membership. The Board’s oversight of the risks occurs as an integral and continuous part of the Board’s oversight of our business and seeks to ensure that management has in place processes to deal appropriately with risk. For example, our principal strategic risks are reviewed as part of the Board’s regular discussion and consideration of our strategy, and the alignment of specific initiatives with that strategy. Similarly, at every meeting the Board reviews the principal factors influencing our operating results, including the competitive environment, and discusses with our senior executive officers the major events, activities and challenges affecting the company. The Board’s ongoing oversight of risk also occurs at the Board Committee level on a more focused basis as detailed above. The Chief Legal & Risk Officer annually presents an overview of the enterprise risk management program to the Board’s Risk & Compliance Committee and provides it with regular updates on the program and status of key risks facing the business. In addition, the Risk & Compliance Committee and Audit & Finance Committee annually conduct a joint meeting to review legal and regulatory risk and compliance matters.

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Our capital allocation policy and priorities

Three capital allocation priorities

Development and execution of our capital allocation policy are primarily the responsibility of our management and are overseen by the Board and its Committees. Our management follows a disciplined and balanced approach to capital allocation based on the following priorities, ranked in order of importance:

Dividend and share repurchase philosophy

Our business generates more cash than we currently need to fully invest in the growth and long-term health of our business, so we return excess cash to shareholders through an appropriate balance between dividends and share repurchase. We believe that both dividends and share repurchases serve important purposes. We believe that our dividend should be competitive, reliable and sustainable. We also believe that share repurchase is the most effective way to return any excess cash to shareholders after we have met our other priorities of fully investing in our business and maintaining a competitive dividend, because it allows shareholders to redeploy the cash as they choose, while providing us with appropriate flexibility to respond to changes in our operating performance and investment opportunities. For example, we suspended all share repurchase activity for a period from the middle of 2013 through early 2015 in response to changes in our operating performance, but we continued to invest in our business and grew our annual dividend during that period.

Capital allocation oversight

The Board of Directors and its Committees share responsibility for overseeing capital allocation among our three capital allocation priorities:

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Board’s role in management evaluations and management succession planning

One of the primary responsibilities of the Board is to ensure that Target has a high-performing management team. The Board regularly reviews management development and succession planning to maximize the pool of internal candidates who can assume top management positions without undue interruption. In addition, the Human Resources & Compensation Committee conducts regular reviews of talent development and succession planning with a deeper focus than the full Board review, emphasizing career development of promising management talent.

Corporate responsibility and reputation

Target recognizes that environmental, social and governance issues are of increasing importance to many investors. We have a longstanding dedication to improving the communities where we operate, and since 1946 we have donated 5 percent of our profit to those communities. We know that working together with our team members, guests, suppliers and communities creates better outcomes on issues that matter to us all. Corporate responsibility is an enterprise-wide commitment informed by and integrated into our business strategy.

Our Board of Directors monitors and supports corporate responsibility efforts, and we publish an annual Corporate Responsibility Report, in accordance with the Global Reporting Initiative Guidelines as a framework to report on environmental, social and governance performance issues most important to our business stakeholders.

Our most recent report, published in June 2017, covers a variety of environmental, social and governance issues, including responsible sourcing practices, diversity and inclusion, sustainable products, environmental management and policies, stakeholder engagement, and community investment. Through our annual Corporate Responsibility Reports, we set goals and targets and report our progress. A copy of our most recent Corporate Responsibility Report is available on our company website, as described in Question 14 on page 73.

Board and shareholder meeting attendance

The Board of Directors met seven times during fiscal 2017. All directors attended at least 75% of the aggregate total of meetings of the Board and Board Committees on which the director served during the last fiscal year.

Twelve of our thirteen then-serving directors attended our June 2017 Annual Meeting of Shareholders. The Board has a policy requiring all directors to attend all annual meetings of shareholders, absent extraordinary circumstances. The only director who did not attend the June 2017 Annual Meeting of Shareholders was Anne M. Mulcahy, who retired on June 14, 2017, effective as of the conclusion of the meeting.

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Director independence

The Board of Directors believes that a majority of its members should be independent directors. The Board annually reviews all relationships that directors have with Target to affirmatively determine whether the directors are independent. If a director has a material relationship with Target, that director is not independent. The listing standards of the NYSE detail certain relationships that, if present, preclude a finding of independence.

The Board also specifically considered each director’s length of service on the Board in making its annual independence determination. Specifically, the Board determined that Ms. Austin, Mr. Darden and Ms. Minnick, each of whom are up for re-election and have served on the Board for more than 12 years, continue to demonstrate the independence of judgment expected of independent directors.

The Board affirmatively determined that all non-employee directors are independent. Mr. Cornell is the only employee director and is not independent. The Board specifically considered the following transactions and concluded that none of the transactions impaired any director’s independence. In addition, none of the transactions are related-party transactions because none of the directors have a direct or indirect material interest in the listed transactions.

Policy on transactions with related persons

The Board of Directors has adopted a written policy requiring that any transaction: (a) involving Target; (b) in which one of our directors, nominees for director, executive officers, or greater than five percent shareholders, or their immediate family members, have a direct or indirect material interest; and (c) where the amount involved exceeds $120,000 in any fiscal year, be approved or ratified by a majority of independent directors of the full Board or by a designated Committee of the Board. The Board has designated the Audit & Finance Committee as having responsibility for reviewing and approving all such transactions except those dealing with compensation of executive officers and directors, or their immediate family members, in which case it will be reviewed and approved by the Human Resources & Compensation Committee.

In determining whether to approve or ratify any such transaction, the independent directors or relevant Committee must consider, in addition to other factors deemed appropriate, whether the transaction is on terms no less favorable to Target than those involving unrelated parties. No director may participate in any review, approval or ratification of any transaction if he or she, or his or her immediate family member, has a direct or indirect material interest in the transaction.

We ratified three related party transactions in accordance with this policy during fiscal 2017. Two of the transactions dealt with compensation of immediate family members of one of our former executive officers, Casey Carl. Mr. Carl’s brother joined Target in 2005, has been a team member in merchandising since that time and earned annual compensation of $173,080 in 2017. Mr. Carl’s sister-in-law joined Target in 2009, has been a team member in merchandising since that time and earned annual compensation of $296,863 in 2017. For each of these immediate family members, the compensation is commensurate with the immediate family member’s peers. In addition, the son of Mr. Knauss, a non-employee director, is employed by a company from which we purchase merchandise for resale. Mr. Knauss's son is a sales representative and represents the supplier in its relationship with Target Corporation. Our relationship with this supplier pre-dated Mr. Knauss's son's employment with the supplier. In fiscal 2017, we purchased approximately $60.5 million of merchandise from the supplier, which represented less than 0.1% of our annual revenues. Target's decisions regarding purchases of merchandise from its suppliers are made by team members in the merchandising departments and no member of the Board of Directors has any input or involvement in such decisions. As described above under “Director independence,” the Board affirmatively determined that Mr. Knauss is independent, and the transaction involving Mr. Knauss's son did not affect Mr. Knauss's independence.

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Business ethics and conduct

We are committed to conducting business lawfully and ethically. All of our directors and named executive officers, like all Target team members, are required to act at all times with honesty and integrity. Our Business Conduct Guide covers areas of professional conduct, including conflicts of interest, the protection of corporate opportunities and assets, employment policies, confidentiality, vendor standards and intellectual property, and requires strict adherence to all laws and regulations applicable to our business. Our Business Conduct Guide also describes the means by which any employee can provide an anonymous report of an actual or apparent violation of our Business Conduct Guide.

We disclose any amendments to, or waivers from, any provision of our Business Conduct Guide involving our directors, our principal executive officer, principal financial officer, principal accounting officer, controller or other persons performing similar functions on our website.

Communications with directors and shareholder outreach

Shareholders and other interested parties seeking to communicate with any individual director or group of directors may send correspondence to Target Board of Directors, c/o Corporate Secretary, 1000 Nicollet Mall, TPS-2670, Minneapolis, Minnesota 55403 or email BoardOfDirectors@target.com, which is managed by the Corporate Secretary. The Corporate Secretary, in turn, has been instructed by the Board to forward all communications, except those that are clearly unrelated to Board or shareholder matters, to the relevant Board members.

We regularly engage in outreach efforts with our shareholders, both large and small, relating to our business, compensation practices, and environmental, social and governance issues. We involve one or more independent directors in these conversations, as appropriate. While we benefit from an ongoing dialogue with many of our shareholders, we recognize that we have not communicated directly with all of our shareholders. If you would like to engage with us, please send correspondence to Target Corporation, Attn: Investor Relations, 1000 Nicollet Mall, TPN-0841, Minneapolis, Minnesota 55403 or email investorrelations@target.com.

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Election and nomination process

Our election process is backed by sound corporate governance principles:

The Nominating & Governance Committee is responsible for identifying individuals qualified to become Board members and making recommendations on director nominees to the full Board. The Committee considers the following factors in its efforts to identify potential director candidates:

The Nominating & Governance Committee has retained a third-party search firm to assist in identifying director candidates and will also consider recommendations from shareholders. Any shareholder who wishes the Committee to consider a candidate should submit a written request and related information to our Corporate Secretary no later than December 31 of the calendar year preceding the next annual meeting of shareholders. Shareholders may also nominate director candidates directly if they comply with our bylaws, which are described in more detail in Question 18 “How do I submit a proposal or nominate a director candidate for the 2019 annual meeting of shareholders?” on page 74 of the proxy statement.

Determining board composition

The criteria the Board follows in determining the composition of the Board is simple: directors are to have broad perspective, experience, knowledge and independence of judgment. The Board as a whole should consist predominantly of persons with strong business backgrounds that span multiple industries. The Board does not have a specific policy regarding consideration of gender, ethnic or other diversity criteria in identifying director candidates. However, the Board has had a longstanding commitment to, and practice of, maintaining diverse representation on the Board. At least annually the Board seeks input from each of its members with respect to the current composition of the Board in light of changes in our current and future business strategies, as well as our operating environment, as a means to identify any backgrounds or skill sets that may be helpful in maintaining or improving alignment between Board composition and our business. In addition, we seek feedback from our shareholders regarding the backgrounds and skill sets that they would like to see represented on our Board. This input is then used by our Nominating & Governance Committee in its director search process.

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Board evaluations and refreshment

The Board maintains tenure policies (contained in our Corporate Governance Guidelines) as a means of ensuring that the Board regularly benefits from a balanced mix of perspectives and experiences.

 

Our current Board’s composition represents a balanced approach to director tenure, allowing the Board to benefit from the experience of longer-serving directors combined with fresh perspectives from newer directors:

 

 

 

On March 5, 2018, the Board elected Dmitri L. Stockton to fill a vacancy on the Board. Mr. Stockton was identified as a candidate by an independent director and evaluated by an independent search firm that was retained directly by the Nominating & Governance Committee to assist with identifying, screening and evaluating candidates for the Board. Mr. Stockton brings substantial experience in managing worldwide financial operations, financial oversight, risk management, consumer banking, asset management, employee benefits, governance, regulatory compliance and alignment of financial and strategic initiatives to the Board. You can view biographical information about Mr. Stockton on page 26.

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2018 nominees for director

After considering the recommendations of the Nominating & Governance Committee, the Board has set the number of directors at 12 and nominated all current directors to stand for re-election. The Board believes that each of these nominees is qualified to serve as a director of Target and the specific qualifications of each nominee that were considered by the Board follow each nominee’s biographical description. In addition, the Board believes that the combination of backgrounds, skills and experiences has produced a Board that is well-equipped to exercise oversight responsibilities on behalf of Target’s shareholders and other stakeholders.

 

The following table describes key characteristics of our business and the skills our Board collectively possesses.

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The following table summarizes the skills that each member of our Board possesses that are relevant to Target’s business characteristics:

 

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We believe that all nominees will be able and willing to serve if elected. However, if any nominee should become unable or unwilling to serve for any reason, proxies may be voted for another person nominated as a substitute by the Board, or the Board may reduce the number of directors.

 

 

 

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Stock ownership information

Stock ownership guidelines

Stock ownership that must be disclosed in this proxy statement includes shares directly or indirectly owned and shares issuable or options exercisable that the person has the right to acquire within 60 days. Our stock ownership guidelines vary from the required ownership disclosure in that they do not include any options, but do include share equivalents held under deferred compensation arrangements as well as unvested restricted stock units (RSUs) and performance-based RSUs (PBRSUs) at the minimum share payout. We believe our stock ownership guidelines for our directors and executive officers are aligned with shareholders’ interests because the guidelines reflect equity that has economic exposure to both upside and downside risk.

 

 

All directors and executive officers are expected to achieve the required levels of ownership under our stock ownership guidelines within five years of their election or appointment. If a director or executive officer has not satisfied the ownership guideline amounts within those first five years or goes below the required amounts after that time period, he or she must retain all shares acquired on the vesting of equity awards or the exercise of stock options (in all cases net of exercise costs and taxes) until compliance is achieved. In addition, if an executive officer is below the ownership guideline amounts during the first five years after becoming an executive officer, he or she must retain at least 50% of all shares acquired on the vesting of equity awards or the exercise of stock options (in all cases net of exercise costs and taxes) until compliance is achieved.

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The following table shows the holdings of our current directors and NEOs recognized for purposes of our stock ownership guidelines as of April 9, 2018 and the respective ownership guidelines calculations.

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Beneficial ownership of directors and officers

The following table includes information about the shares of Target common stock (our only outstanding class of equity securities) which are beneficially owned on April 9, 2018 or which the person has the right to acquire within 60 days of April 9, 2018 for each director, named executive officer in the “Summary compensation table” on page 49, and all current Target directors and executive officers as a group.

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Beneficial ownership of Target’s largest shareholders

The following table includes certain information about each person or entity known to us to be the beneficial owner of more than five percent of our common stock:

Section 16(a) beneficial ownership reporting compliance

SEC rules require disclosure of those directors, officers and beneficial owners of more than 10% of our common stock who fail to timely file reports required by Section 16(a) of the Securities Exchange Act of 1934 (the Exchange Act) during the most recent fiscal year. Based solely on review of reports furnished to us and written representations that no other reports were required during the fiscal year ended February 3, 2018, all Section 16(a) filing requirements were met.

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Human Resources & Compensation Committee Report

The Human Resources & Compensation Committee has reviewed and discussed the following Compensation Discussion and Analysis with management. Based on this review and discussion, the Human Resources & Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in our Annual Report on Form 10-K and this proxy statement.

Human Resources & Compensation Committee

Roxanne S. Austin, Chair
Calvin Darden
Melanie L. Healey
Donald R. Knauss

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Compensation Discussion and Analysis

Introduction

This Compensation Discussion and Analysis (CD&A) focuses on how our Named Executive Officers (NEOs) were compensated for fiscal 2017 (January 29, 2017 through February 3, 2018) and how their fiscal 2017 compensation aligns with our pay for performance philosophy.

For fiscal 2017, our NEOs were:

 

Our CD&A is divided into the following sections:

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Executive Summary

To provide context for the compensation decisions made in 2017, it is important to recognize that we, and the retail industry in general, were experiencing deteriorating traffic and sales in 2016, particularly in the fourth quarter. This performance reflected a rapid change in consumer behavior, including soft spending in many of the categories we sell, combined with a rapid shift in consumer preferences toward online retail.

In light of those challenges, several of our competitors were announcing store closures and scaling back their operations to protect profitability. In contrast, in late February 2017 we announced a multi-year plan in which we would aggressively invest in our business in support of our goal to position Target for sustained, profitable market share gains over the long-term. These investments included:

Much of our compensation program consists of long-term incentives that measure our performance relative to our competitors. Given our decision to aggressively invest in our long-term growth during a period of significant industry stress, the independent members of the full Board considered the near-term headwinds that our investments would present when approving our fiscal 2017 short-term incentive goals in March 2017 and the price-vested stock options (Price-Vested Options) in April 2017. See page 44 for more information, respectively.

The pace of our investments either met or exceeded the goals we announced at the beginning of the year. Guests responded faster than expected to our investments, which contributed to financial performance that exceeded expectations.

The independent members of the Human Resources & Compensation Committee considered financial and strategic achievements against business goals and plans, as well as the challenging competitive retail landscape in determining short-term incentive payouts for fiscal 2017. See page 39-40 for more information.

 

Shareholder support for our 2017 advisory vote on executive compensation and shareholder outreach program

At our June 2017 annual meeting of shareholders, shareholders approved our Say on Pay proposal in support of our executive compensation program by 93.9%, consistent with the fiscal 2016 vote of 96.4% and fiscal 2015 vote of 96.6%. We believe open dialogue with our shareholders and incorporation of their feedback into our executive compensation program has been instrumental in obtaining shareholder support for our compensation program’s design and direction.

We regularly engage in outreach efforts with our shareholders relating to a variety of topics and involve one or more independent directors in these conversations as appropriate. We use the information gathered through these outreach efforts to help inform our compensation decisions. We look forward to continued dialogue on compensation matters and other issues relevant to our business.

 

Summary of key compensation decisions for fiscal 2017

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Pay for performance

We have a long-standing belief that our executive compensation should be directly linked to performance and the creation of long-term value for our shareholders. We do that by providing our NEOs a mix of base salary, short-term and long-term incentives with compensation opportunities measured by a variety of time horizons to balance our near-term and long-term strategic goals. The Human Resources & Compensation Committee uses the at-goal amounts of those key elements to determine the annual at-goal total direct compensation (Annual TDC) of our NEOs, which is a useful measure of pay because it reflects the intended aggregate value of those key elements of pay at the time the pay decision is made. The calculation of our Annual TDC is described on page 41.

Our pay for performance philosphy is evidenced by our payouts over the past five years for our STIP and PSU awards, which are shown in the charts below, as a percentage of goal. Our CEO did not receive a STIP payout three out of the last five years. In addition, our NEOs did not receive a PSU payout three out of the last five years. STIP and PSU awards make up more than 60% of Annual TDC for our CEO and more than 55% of Annual TDC for our other NEOs.

 

 

 

As disclosed in prior proxy statements, PSUs spanning the 2012-2014, 2013-2015 and 2014-2016 performance periods and 2014 STIP payouts were forfeited for active executive officers (including current NEOs Mr. Cornell and Mr. Mulligan) when we did not meet the minimum performance condition under 162(m) for fiscal 2014, due to the discontinuation of Canadian operations. If the awards were not forfeited due to the minimum performance condition, the financial results versus our peers would have yielded payouts below goal.

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Performance highlights

The following highlights show our historical performance on key metrics we use in our executive compensation programs over each of the last four years, which includes the base year and the three years of the performance period for our long-term incentive program. Our performance on these metrics drives our compensation outcomes and provides context to our decisions in setting our goal levels under those metrics. These metrics, including the goal levels and actual results for fiscal 2017, are described in more detail in the narratives for each compensation element.

 

 

 

Our performance has allowed us to fully invest in opportunities to profitably grow our business, create sustainable long-term value, maintain our current operations and assets, and return excess capital to shareholders.

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Guiding principles of our compensation program

We believe executive compensation should be directly linked to performance and the creation of long-term value for our shareholders. With that in mind, the three guiding principles of our compensation program are to:

A significant portion of our executive compensation is at risk and therefore may vary from targeted compensation based upon the level of achievement of specified performance objectives and stock price performance.

Target’s executive compensation practices

The following practices and policies ensure alignment of interests between shareholders and executives, and effective ongoing compensation governance.

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Our performance framework for executive compensation

Our compensation programs are structured to align the interests of our executive officers with the interests of our shareholders and support our strategy based on the guiding principles previously discussed. To align executive officer pay outcomes with long-term performance, 100% of our annual LTI grants feature relative performance-based metrics. See the following page for more details on the elements of our compensation program. Given the shift in timing for total compensation decisions, which shifted the timing of our grants, annual LTI awards represent grant date fair value of awards granted in March 2018.

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Elements of annual executive total direct compensation

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Base salary

We provide base salary as a means to deliver a stable amount of cash compensation to our executive officers. In alignment with our pay for performance philosophy, it represents the smallest portion of Annual TDC.

In January 2017, the Human Resources & Compensation Committee approved a fiscal 2017 base salary increase of $50,000 for Ms. Potts in consideration of her performance, as well as market positioning relative to our retail and general industry peers.

Short-term incentives

All NEOs are eligible to earn cash awards under our STIP program, which is designed to motivate and reward executives for performance on key annual measures. The financial component of our STIP program is based on two financial metrics to align our annual incentives with our strategy of driving growth, with an emphasis on profitability: Incentive EBIT (75%) and Total Adjusted Sales (25%). The CEO STIP design is exclusively based on the financial component. See the “Performance highlights” tables and footnotes on page 35 for a description of how Incentive EBIT and Total Adjusted Sales are calculated from our financial statements.

Beginning in fiscal 2017, for our non-CEO NEOs, 67% of their STIP is based on the financial component, which had previously been 80%. The remaining 33% of their STIP is based on a team scorecard, designed to strongly align pay opportunity to Target’s strategic agenda. This change places greater emphasis on the team scorecard during a multi-year investment phase and focuses the team on key strategic priorities critical to reposition us to sustainable long-term top-line growth.

The following table shows financial and scorecard goals expressed as a percentage of salary.

Fiscal 2017 financial STIP performance goals and how we performed in comparison to these goals

Our Incentive EBIT and Total Adjusted Sales goal amounts were approved by the independent members of the full Board at the beginning of the year, taking into account our business strategies and the challenges facing the retail industry. For context, our fiscal 2017 goals were established shortly after our decision to make substantial investments in our long-term growth, which were communicated to our investors in conjunction with the release of our financial guidance for fiscal 2017. These investments included:

At the time the goals were set, these investments were expected to present headwinds to both our Incentive EBIT and Total Adjusted Sales performance in comparison to prior periods. The intent in setting the fiscal 2017 STIP goals was that performance in-line with our strategic plan and external financial guidance would result in payouts around goal. In order to achieve the maximum payout, our performance would have to exceed our strategic plans to a significant degree. Historically, our STIP goals have proven rigorous, with financial component payouts only two of the last five years.

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Our actual Incentive EBIT and Total Adjusted Sales results exceeded our financial plans, despite the expected headwinds presented by the substantial investments in our strategic initiatives. Specifically:

Use of negative discretion

Despite strong financial performance that exceeded the maximum goals of the financial component of the STIP, the Human Resources & Compensation Committee recognized that we are still in the early stages of a multi-year transformative strategy and a maximum payout felt premature.

As such, the Human Resources & Compensation Committee applied negative discretion to reduce the payout, as follows:

Fiscal 2017 team scorecard assessment

The team scorecard portion of the STIP for our non-CEO NEOs in 2017 was focused on the goal to test, build and scale foundational capabilities as a next-generation retailer; grow market share by reinvigorating our assortment; and reimagine and reposition our assets to deliver even greater competitive advantage. The team scorecard provides a general structure for discussing and measuring performance of the management team as a group, excluding our CEO. Throughout the year, our CEO provided the Human Resources & Compensation Committee interim assessments of team scorecard performance.

For fiscal 2017, primary team scorecard progress indicators identified at the beginning of the year included: digital channel sales growth that outpaces the industry, owned brand launches and redesigned store experiences, supply chain optimization, new small format stores, and a significant number of store remodels.

Our management team drove meaningful progress against these key indicators:

Taking into consideration the outcomes described above, the CEO recommended, and the Human Resources & Compensation Committee approved, a team scorecard payout of 54% of base salary, out of a total opportunity of 66% of base salary, for our non-CEO NEOs.

Fiscal 2017 STIP payout

Given actual financial performance and progress made on the primary team scorecard indicators previously mentioned, the total fiscal 2017 STIP payout for our CEO and other NEOs is detailed below as a percentage of goal:

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Long-term incentives

To align our executive officers’ pay outcomes with long-term performance, 100% of our annual LTI grants feature relative performance-based metrics and comprises the majority of each NEO’s total compensation.

Value of LTI awarded at grant and grant timing shift

In determining the amount of individual LTI awards, the Human Resources & Compensation Committee considered each NEO’s individual contributions to business outcomes during the fiscal year, potential future contributions, historical annual grant amounts and retention considerations, as well as market data for comparable executives from our retail and general industry peer groups.

During fiscal 2017, we shifted the timing of total compensation decisions for executive officers, which shifted the timing of our annual equity grants to March of each year, instead of our previous practice of granting equity to executive officers in January, which is the last month of our fiscal year. This grant timing shift was made to align the grant timing of executive officers with the grant timing for all other team members who receive equity grants and to ensure that the full-year financial results for the most recently completed fiscal year may be considered prior to making the grants. Due to this grant timing shift, the equity grant that would have traditionally been made in January 2018 during fiscal 2017 was instead made in March 2018 during fiscal 2018. As a result, the executive officers’ compensation as reported in the “Summary compensation table” for fiscal 2017 was significantly lower than prior years because it did not include any annual equity grants. The only grants included in the “Summary compensation table” for this year were the Price-Vested Options. For more detail, see page 49.

If the executive officers’ annual TDC for fiscal 2017 had included the annual equity grant made in March 2018, it would have been as follows:

The Human Resources & Compensation Committee made no changes to the NEOs’ annual LTI grants versus the prior year.

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PSUs

Our PSUs have a three-year performance period and are settled in stock. The plan payout is intended to reflect the same key metrics we use to manage our business and drive shareholder returns over time. Each metric is compared relative to our retail peer group and is intended to incent management to outperform the peer group over the long term. The three relative metrics used in our PSU plan are:

With these three independent metrics, our PSU program supports the critical drivers of our success: to grow the top-line relative to the retail sector, to grow it profitably, and to ensure prudent deployment of capital to drive the business. The following example illustrates PSU payouts at various levels of performance:

 

 

For more information about our peer groups, see pages 45-46.

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PSU adjustments

The intent of our PSU program is to measure performance relative to our peer group on the previously described metrics. To achieve this measurement objectively, we base the initial rankings on annual reported financial results of each member of the retail peer group and Target (unless determined otherwise at the time of grant). The Human Resources & Compensation Committee has reserved discretion to adjust the reported financial results for Target or any member of the retail peer group if it believes such adjustments necessary to properly gauge Target’s relative performance. Adjustments to Target and peer results, if any, are disclosed in the proxy in the year of payout.

Historically, adjustments to Target’s results have included items that did not reflect our core operations and typically decreased participants’ resulting payouts. Consistent with past practice, the Human Resources & Compensation Committee approved adjustments to the 2015 PSU payout to exclude the following:

Other than as described above, no adjustments were made to our annual reported results or those of our peers in determining the 2015 PSU payout.

2015-2017 PSU payout

In April 2018, the NEOs received payouts with respect to the PSU awards that were granted in January 2015 for the three-year performance period ended February 3, 2018. These awards were paid at 97.7% of the goal number of shares. The following table summarizes the rankings and payout results for awards granted in fiscal 2015. The market share and EPS metrics utilize a base year of fiscal 2014 and a final performance year of fiscal 2017, while for ROIC we use an average of 2015, 2016 and 2017.

 

PBRSUs

Our PBRSUs have a three-year performance period with the number of shares based on relative three-year TSR performance versus our retail peer group. The PBRSU amount will be adjusted up or down by 25 percentage points if Target’s TSR is in the top one-third or bottom one-third for the retail peer group, respectively, over the three-year vesting period. These stock-settled awards cliff vest at the end of the performance period.

2015-2017 PBRSU payout

In March 2018, the NEOs received payouts with respect to the PBRSU awards that were granted in January 2015 for the three-year performance period ended February 3, 2018. With a total shareholder return (TSR) ranking of 11 out of 17 relative to our retail peers, these awards were paid at 100% of the goal number of shares. This is the first PBRSU payout since the introduction of PBRSUs in 2014.

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Price-Vested Options

As disclosed in last year’s proxy statement, in April 2017 the Board approved Price-Vested Options to help maintain continuity of the executive team throughout this investment period, galvanize them around the key initiatives and reward success in this transformational effort. The Price-Vested Options serve as a supplemental compensation element based exclusively on stock price performance, to complement outstanding LTI awards through the investment period announced in February 2017. The Price-Vested Options exercise price is equal to the fair market value on May 22, 2017, the grant date. The key design features of the Price-Vested Options align management’s interests with shareholders:

We proactively disclosed detailed information about these awards in last year’s CD&A; however, the grant date fair values appear in the “Compensation tables” of this proxy statement since they were granted in fiscal 2017. Therefore, the grant date fair values of the Price-Vested Options are included in the “Option awards” column of the “Summary compensation table” on page 49.

Mr. Cornell and each of the other NEOs received Price-Vested Options with grant date fair values of $2 million and $1 million, respectively.

Other benefit elements

We offer other benefit components designed to encourage retention of key talent including:

Greater detail on these components is provided in the footnotes and tables that follow the “Summary compensation table” on page 49.

Income continuance

None of our NEOs has an employment contract, enhanced change-of-control benefits or rights to tax gross-ups. We provide an Income Continuance Policy (ICP) to executive officers who are involuntarily terminated without cause to assist in their occupational transitions. The maximum payment under this policy (paid during regular pay cycles over two years) is two times the sum of base salary and the average of the last three years of short-term incentive and personal performance payments. In addition, any NEO who receives severance payments under our ICP also receives a $30,000 allowance for outplacement services.

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Compensation governance

Process for determining executive compensation (including NEOs)

Human Resources & Compensation Committee

The Human Resources & Compensation Committee is responsible for determining the composition and value of the pay packages for all of our executive officers, including the CEO. The Human Resources & Compensation Committee receives assistance from two sources: (a) an independent compensation consulting firm, Semler Brossy Consulting Group (SBCG); and (b) our internal executive compensation staff, led by our Executive Vice President & Chief Human Resources Officer. All decisions regarding executive compensation are made solely by the Human Resources & Compensation Committee. The Human Resources & Compensation Committee may not delegate its primary responsibility of overseeing executive officer compensation, but it may delegate to management the administrative aspects of our compensation plans that do not involve the setting of compensation levels for executive officers. In addition, the Human Resources & Compensation Committee has established an Equity Subcommittee comprised of Ms. Austin, Mr. Darden, and Ms. Healey for the purposes of granting equity awards to members of the Board of Directors and any officers who are subject to Section 16 of the Exchange Act and to take any action required to be performed by a committee or subcommittee of “non-employee directors” to preserve the exemption available under Rule 16b-3 of the Exchange Act.

Human Resources & Compensation Committee’s independent consultant

SBCG has been retained by and reports directly to the Human Resources & Compensation Committee and does not have any other consulting engagements with management or Target. The Committee assessed SBCG’s independence in light of the SEC and NYSE listing standards and determined that no conflict of interest or independence concerns exist.

With respect to CEO compensation, SBCG provides an independent recommendation to the Human Resources & Compensation Committee, in the form of a range of possible outcomes, for the Human Resources & Compensation Committee’s consideration. In developing its recommendation, SBCG relies on its understanding of Target’s business and compensation programs and SBCG’s independent research and analysis. SBCG does not meet with our CEO with respect to CEO compensation. SBCG also provides an independent assessment of the CEO’s recommendations on NEO compensation to the Human Resources & Compensation Committee.

Compensation of other executive officers and role of management

In developing compensation recommendations for other executive officers, the Executive Vice President & Chief Human Resources Officer provides our CEO with market data on pay levels and compensation design practices provided by management’s external compensation consultants, Willis Towers Watson and Korn Ferry Hay Group, covering our retail and general industry peer group companies. Management’s outside consultants do not have any interaction with either the Human Resources & Compensation Committee or our CEO, but do interact with the Executive Vice President & Chief Human Resources Officer and her staff. In addition to providing market data, management’s external compensation consultants perform other services for Target unrelated to the determination of executive compensation.

Our Executive Vice President & Chief Human Resources Officer and the CEO work together to develop our CEO’s compensation recommendations to the Human Resources & Compensation Committee for other executive officers. The CEO alone is responsible for providing final compensation recommendations for the other executive officers to the Human Resources & Compensation Committee.

Benchmarking using compensation peer groups

Peer group market positioning is another important factor considered in determining each executive officer’s Annual TDC.

The Annual TDC levels and elements described in the preceding pages are evaluated annually for each executive officer relative to our retail and general industry peer group companies. The market comparisons are determined by use of compensation data obtained from publicly available proxy statements analyzed by SBCG and proprietary survey data assembled by Willis Towers Watson and Korn Ferry Hay Group.

Due to a range of factors, including the scope of NEO positions, tenure in role and company-specific concerns, there is an imperfect comparability of NEO positions between companies. As such, market position served as a reference point in the Annual TDC determination process rather than a formula-driven outcome.

The retail peer group was formulated based on an initial screen of companies in the Global Industry Classification Standard retailing index with revenue from core retail operations greater than $15 billion. The retail peer group is also used within our LTI plans. Target’s relative performance compared to this peer group on key metrics determines overall payout for our PSU and PBRSU awards.

General industry companies are also included as a peer group because they represent companies with whom we compete for talent. Like the selected retailers, the general industry companies are large and among the leaders in their industries.

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The composition of the peer groups is reviewed annually to ensure it is appropriate in terms of company size and business focus, and any changes made are reviewed with SBCG and approved by the Human Resources & Compensation Committee. The following changes were made to our peer groups in fiscal 2017. Retail peer group changes were to maintain our established revenue threshold of $15 billion. We replaced the three companies within our general industry peer group to maintain diverse industry representation while capturing new companies that we are more likely to compete with for talent.

 

 

The following table summarizes our scale relative to our retail and general industry peer groups. The financial information reflects fiscal year-end data available as of February 3, 2018:

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Compensation policies and risk

As part of our regular review of our compensation practices, we conduct an analysis of whether our compensation policies and practices for our employees create material risks to the company. Our risk assessment is two pronged. First, we take a “top-down” approach by evaluating whether our compensation programs and policies exacerbate top enterprise-wide risks. Next, we take a “bottom-up” approach to assess the following key compensation risk areas: performance measures, pay mix, goal setting and performance curve, leverage, magnitude of pay, calculation of performance, participant communication, severance and corporate governance.

The results of this analysis, which concluded that our policies and practices do not create risks that are reasonably likely to have a material adverse effect on the company, were reviewed by the Human Resources & Compensation Committee’s independent consultant and discussed with the Human Resources & Compensation Committee. More specifically, this conclusion was based on the following considerations:

Clawback policy

Our clawback policy, which covers all senior executives, was expanded in early 2018 to cover material financial or material reputational harm. Previously, the policy was only triggered if there was intentional misconduct that resulted in a restatement of our consolidated financial statements. The expanded policy allows for recovery of compensation if a senior executive’s intentional misconduct:

The compensation elements that are subject to recovery under this policy include:

All recoveries are determined in the discretion of the Human Resources & Compensation Committee.

Anti-hedging and anti-pledging policy

Executive officers and members of the Board of Directors may not directly or indirectly engage in capital transactions intended to hedge or offset the market value of Target common stock owned by them, nor may they pledge Target common stock owned by them as collateral for any loan. All of our executive officers and members of the Board of Directors are in compliance with this policy.

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Grant timing practices

During fiscal 2017, the Human Resources & Compensation Committee approved a shift in the timing of our annual equity grants for executive officers and the Board of Directors so that those grants occur in March of each year, instead of our previous practice of granting equity in January, which is the last month of our fiscal year. This grant timing shift was made to ensure that the full-year financial results for the most recently completed fiscal year may be considered prior to making the grants and to align the grant timing of executive officers and members of the Board of Directors with the grant timing for all other team members who receive equity grants. In addition to the annual equity grants mentioned above, the following practices have not been formalized in a written policy, but have been regularly followed:

Compensation tax policy

Our short-term and long-term compensation programs paid in fiscal 2017 were intended to qualify as deductible performance-based compensation under Section 162(m) of the Internal Revenue Code (IRC). The performance-based compensation exception under IRC Section 162(m) will apply to a significantly less portion of the compensation paid in fiscal 2018 and later years because of the changes made by the Tax Cuts and Jobs Act of 2017. Our focus on pay for performance goes well beyond the steps we took to comply with IRC Section 162(m), and we will maintain that focus despite our inability to deduct performance-based compensation going forward.

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Compensation tables

Summary compensation table

The following “Summary compensation table” contains values calculated and disclosed according to SEC reporting requirements. Salary, Bonus, and Non-Equity Incentive Plan compensation amounts reflect the compensation earned during each fiscal year. Stock Awards reflect awards with a grant date during each fiscal year.

During fiscal 2017 we shifted the timing of our annual equity grants for executive officers so that those grants occur in March of each year, instead of our previous practice of granting equity to executive officers in January, which is the last month of our fiscal year. This grant timing shift was made to ensure that the full-year financial results for the most recently completed fiscal year may be considered prior to making the grants and to align the grant timing of executive officers and members of our Board of Directors with the grant timing for all other team members who receive annual equity grants. Due to this grant timing shift, the equity grant that would have traditionally been made in January 2018 during fiscal 2017 was instead made in March 2018 during fiscal 2018. As a result, the executive officers’ compensation for fiscal 2017 was significantly lower than prior years because it did not include any annual equity grants, which would have been found in the “Stock awards” column below.

 

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Grants of plan-based awards in fiscal 2017

As described in the CD&A on page 41 and in the introduction to the “Summary compensation table” on page 49, during fiscal 2017 we shifted the timing of our annual equity grants for executive officers so that those grants occur in March of each year, instead of our previous practice of granting equity to executive officers in January, which is the last month of our fiscal year. Due to this grant timing shift, the equity grant that would have traditionally been made in January 2018 during fiscal 2017 was instead made in March 2018 during fiscal 2018. The only plan-based equity awards granted in fiscal 2017 were the Price-Vested Options described on page 44 of the CD&A.